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Mixed news for some E-Business 100 winners

From...

By Jim Battey

(IDG) -- Spring 2000 was a season of sparkling dreams for Internet companies. As the annual InfoWorld E-Business 100 started taking shape, dot-coms were full of hope, flush with cash, and ready to ride the tidal wave of e-business success.

But, oh, how things can change.

In the year since, a wave of reality has come crashing down on the dot-com party. Hundreds of once-promising e-businesses are shuttered, tens of thousands of workers have been cast adrift, and company valuations have sunk to record lows.

The travails of the following five dot-com companies, which placed in the top 10 of the InfoWorld E-Business 100 last October, typify the monumental struggles that many Internet companies have experienced.

One company, Garden.com, closed down its Web site and is a mere shell of its former self. Another, Petopia.com, was taken over by its brick-and-mortar partner, whereas a third, Utility.com, desperately shifted its business model before suspending consumer-related services. Meanwhile, online business-to-business exchanges CheMatch.com and WorldCatch.com continue to swim against the tide of dot-com disasters and are thriving -- at least for the time being.

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Here is a rundown of where those five companies are today, what went wrong, what went right, and what lessons can be learned.

Garden.com: Bowing out gracefully

As e-commerce flameouts go, Garden.com's was a classic. Founded in Austin, Texas, in 1995, the company hoped to make a dent in the $47 billion home gardening market. Although Garden.com's proprietary Trellis supply-chain technology earned praise from vendor partners and customers alike, the Web site was not able to bring in enough business to keep the company afloat.

Jill Frankle, an analyst at Gomez, an Internet measurement firm in Waltham, Mass., says Garden.com faced long odds from the beginning. "Gardening is a tough category. Even as it grows, you still need to have a local component in order to be successful," she says, adding that shifting Garden.com's business strategy didn't help. "They tried to reinvent themselves by turning into a b-to-b site, but it was too little, too late."

When Garden.com decided to close down, the company did so with the full intention of paying off its debts and returning some value to its shareholders.

"Some companies went out of business owing millions and millions of dollars, and that's criminal," says Andy Martin, Garden.com co-founder and CTO. "When we decided to close the company, we wanted to give something back to shareholders and not leave a bad taste with the people who worked with us."

Martin details the technical aspects of what he calls "the long and painful process" of closing down the site in a first-person account entitled "Dot-com shutdown lessons."

Garden.com was able to generate some revenue for its former employees and investors via the liquidation of its assets. In January, longtime seed retailer W. Atlee Burpee of Philadelphia purchased Garden.com's brand assets, including customer lists and the Garden.com URL, for $2.4 million. At the same time, Walmart.com paid $2 million for the site's comprehensive content assets. In the meantime, Garden.com is in negotiations to sell off its technology assets, which include Trellis and Green Cheetah, a development platform for database software.

Despite Garden.com's downfall, Martin remains bullish on the future prospects for online shopping.

"E-commerce is going to be with us forever," he says, noting that companies will have to make do with less. "The new breed has to come out leaner and meaner and focus much more on the bottom line. I'm still a believer in keeping your teams real small."

Frankle thinks that to succeed, retail sites most likely need to be aligned with a brick-and-mortar partner.

"It's been quite difficult for pure-play entities," Frankle says. "If there's a multichannel opportunity, then the outlook is much brighter. It's not just about dollars, but also about helping to promote the business."

Petopia.com: Brick-and-mortar buyout

One pure-play e-commerce company that did have an alliance with a brick-and-mortar partner was Petopia.com. But 2000 was simply not a good year for online pet-supply retailers: The infamous Pets.com sock puppet bit the dust when that company failed, and Petstore.com and PetSmart.com also went belly-up.

In December, just as the holiday shopping season was getting into full swing, Petopia.com announced that it was being acquired by its brick-and-mortar partner, Petco, the nation's second-largest pet supply chain. The union was somewhat of a natural, because San Diego-based Petco already owned 26 percent of Petopia.com, and the two companies had been involved in an online partnership since August 1999.

Despite online retailers' loss of favor, Don Cowan, Petco's director of communications, says that the online arm of his company is not looked upon as a loss leader. "We believe [in the] long term it will be a profitable operation," he explains. "We're very much driven by building models that we think will make money -- the question is when. Certainly in the foreseeable future."

Petopia.com built its back-end financial system to match Petco's, so the integration of the two sites was relatively seamless. "We had the infrastructure in place and didn't have to build something from scratch," Cowan says.

Similar to other brick-and-click operations, Cowan views Petco's Web site as an opportunity to extend the company's brand, offer customers additional choices, and drive foot traffic to the chain's 530 outlets nationwide. "We have people who visit the Web site to get the look and feel of a large item such as a birdhouse or an aquarium before they come into the store to make the purchase," he says. "The Web site and physical store support each other."

Cowan also sees a bright future for online retail. "Despite the fact that demand has not reached a level that many projected it would, we continue to believe that there are going to be a number of convenience-minded customers who will shop on the Web," he adds. "We want to be a part of this business for competitive reasons."

Utility.com: Victim of circumstance

When profiled in the InfoWorld 100 last October, Utility.com was in the midst of transforming its business plan. Instead of trying to fulfill its original vision of becoming the world's first Internet-based utility, the company was shifting to an ASP (application service provider) model, where the focus was on supplying utilities with enabling software and services.

In a world where dot-coms are finding it increasingly difficult to secure venture capital funding, Utility.com raised $22 million in November, much of it coming from Gaz de France, a leading European gas company. But the cash infusion, along with initial funding from Idealab and others, wasn't enough to keep the company's consumer services going or allow Utility.com to compete as an ASP.

John Egan, director of strategic and marketing issues at E Source, an energy consultant in Boulder, Colo., says Utility.com got hit with a double whammy.

"First, dot-coms turned into dot-bombs, and second, regulators didn't make it easy," Egan says. "In theory, there was no reason Utility.com could not have been wildly successful, but states adopted rules that protect the incumbent utilities which means new companies have no room in which to operate."

Utility.com's retreat from the electricity business was prompted, in part, by the alarming increase in wholesale energy costs in California. In January, the Emeryville, Calif.-based startup was forced to take on the unpleasant task of informing its 40,000 electricity customers that the company would no longer be serving them.

Then, in February, Utility.com suspended operation of all consumer-related ventures, including Internet access and long-distance phone services. At the same time, many of the company's principals resigned, including CEO and co-founder Chris King, who left the company to work for an energy-related nonprofit institute.

Utility.com officials either offered a "no comment" or were unavailable to discuss the company's current predicament. But a message on the company's Web site states, "Although we really enjoyed serving you, we are unable to continue providing our product offerings."

CheMatch.com: Finding a niche

The fate of b-to-b e-marketplace CheMatch-.com has not been as dire. Since appearing in the InfoWorld 100, the Houston-based startup withdrew its IPO and laid off a few employees, but other signs point to a promising future.

CheMatch.com announced a record number of transactions at its commodity chemicals online exchange in each of the last seven quarters and has entered into a wide range of partnerships and acquisitions; most notably, the company forged a futures trading alliance with the Chicago Mercantile Exchange.

CheMatch Chairman and CEO Carl McCutcheon points out one of the key reasons his company has succeeded where others have failed: "The others are b-to-c [business-to-consumer], and we are focused on b-to-b. It's hard to make money selling dog food."

McCutcheon says the nature of doing business as an independent online exchange has helped CheMatch.

"Drawing new customers online is more efficient than getting on the phone and calling 735 companies," McCutcheon says. "We've been very careful to guard our [marketplace] neutrality and the identity of the people who trade on our system."

To survive the rough waters of e-business, McCutcheon offers several tips: "The key things to strive for are domain expertise, global reach, the ability to move quickly, and customer focus. You have to know how to add value for your customers.

"We meet with partners periodically to ask, 'How can we bring value to the chemical industry?' We look for things that bring us additional liquidity and are synergistic," McCutcheon adds, pointing to the recent acquisition of The Energy Group as an example.

WorldCatch: Staying alive in rough seas

Many online b-to-b exchanges are having a rough go, and it is especially difficult for companies operating in markets that don't traditionally rely on technology to do business, such as the seafood industry. Yet despite being forced to lay off 18 of its 50 employees last December, Seattle-based WorldCatch.com is hanging in there and seeking ways to diversify its revenue streams.

Tom Poole, WorldCatch's vice president of business development, echoes the same sentiments he expressed when profiled in last year's InfoWorld 100: "Old habits die hard. People in this industry have been doing business the same way for a long time and have been very efficient. We have to strike a balance between our tech-savvy customers and our nontech-savvy customers by offering more business options such as phone and fax."

Instead of developing new site features and services in-house, WorldCatch is striking a series of new partnerships. In fact, the company recently acquired American Gem Seafoods, a brick-and-mortar seafood marketer with annual sales of $100 million -- although WorldCatch says it is still fully committed to the online marketplace.

"Some of the bullets the dot-coms have been getting, we've been able to dodge very effectively," Poole says. "Companies with a real business model and short-term profits have a chance at succeeding, and we feel as though we're in that game."

For WorldCatch and the other struggling dot-coms, only time will tell.