Big Goals, Big Questions at Business.com’s Birth
Speaking to 200 public relations executives recently, Dow Jones News Service reporter Tony Palazzo told how he was tired of hearing company after company claim that it was about to “revolutionize” the Internet.
Palazzo then said that he was quitting to join a “dot-com,” one that would “revolutionize” the Internet. That revolution is scheduled to start today when Palazzo’s new employer, Web portal Business.com, launches its site.
Santa Monica-based Business.com is the brainchild of former Walt Disney Co. Internet czar Jake Winebaum. It is one of a number of companies spun out of the ECompanies incubator founded by Winebaum and partner Sky Dayton, the co-founder of Internet service provider EarthLink.
Business.com caught attention in November when it paid $7.5 million for the rights to the catchy domain name.
Business.com aims to become a must-use Web portal by providing an electronic compendium of trade journal information. By using Business.com as a search tool, users can find Web sites that are sorted by industry or by profession and then contact consultants, parts vendors and other suppliers.
The free site also will provide profiles of industries and companies, and it plans to offer e-mail and several types of buying services. Winebaum expects about 70% of Business.com’s revenue to come from advertising, with the rest generated by various types of transaction fees.
But while there’s little doubt Business.com sports one of the best names on the Net, analysts wonder whether its plan to become profitable by relying primarily on advertising has become outdated. Many other e-commerce companies have used the same business model, only to burn through millions of dollars without profit.
“Rates are coming down for Web advertising, and people are responding less to Web ads,” said Dan O’Brien of Forrester Research in Cambridge, Mass. “Advertising has become a tough model to make work. Everybody wants to be the next Yahoo, but that may be yesterday’s success.”
Indeed, even at birth Business.com faces no shortage of competition. Its direct competitors include Yahoo Inc., based in Santa Clara, Calif., the most popular general-interest portal on the Web. Yahoo’s search engine can turn up detailed business-to-business listings from aerospace firms to religious supplies.
Another rival is VerticalNet Inc., of Horsham, Pa., which has 56 trade journal-style portals, from Bakery Online to E-Dental.com. VerticalNet also has news, e-mail and purchasing services--many of the services that Business.com plans to offer.
VerticalNet’s business model, however, differs greatly from Business.com’s, said Mark Walsh, chief executive of VerticalNet. Only 30% of VerticalNet’s revenue is from advertising. Most of its revenue comes from commissions and transaction fees from business conducted on its sites.
Excluding a one-time gain, VerticalNet lost $12.2 million for the quarter ended March 31, on revenue of $27.5 million. The company, which went public in February 1999, has a market value of about $3.4 billion.
“Everybody thought B2B is where the action is, but it turns out to be just as difficult as the consumer side of this business,” said Alan Alper, analyst with Gomez Advisors, a Lincoln, Mass., e-commerce market research firm.
Indeed, every trade association Web site could be considered as a Business.com competitor, as well as business-oriented commercial sites. Already, there are 700 B2B sites on the Web, according to Morgan Stanley Dean Witter, and it estimates 1,300 more sites will open this year.
Ultimately, to make money Business.com must become one of the 25 most popular sites on the Web, said Jim McGovern, Business.com’s president. He expects to accomplish that in about three years.
What sets Business.com apart from previous portals, according to Winebaum, is its method of categorizing the vast information on the Net. Almost half of the 7-month-old company’s 110 employees are librarians, journalists and analysts who examine thousands of Internet sites and links for business content and then sort them into logical categories for business Web surfers.
One executive Winebaum brought in to help shape the company is Peter Gumbel, the former Wall Street Journal Los Angeles bureau chief, who heads Business.com’s research and cataloging operations.
Their goal is to create a catalog system that will take a visitor to critical information with the least amount of extraneous hits. Additionally, they have created profiles of industries that include statistical information such as market share by the major players as well as reports on trends within the industry.
Other employees talk about how with veterans Winebaum and Dayton at the helm, Business.com is a “second-generation” Internet company, one that can avoid the pitfalls of less-savvy companies.
Such lofty claims, especially from a company that has yet to show its product, have drawn criticism from the Southern California tech community. “There is an incipient arrogance [in incubators] that you can create a new platform and a new tool that everyone will follow,” said Rohit Shukla, chief executive of the Los Angeles Regional Technology Alliance.
Still, while Business.com’s strategy may be difficult to execute, there is great potential if it actually works well, said Melissa Shore, senior analyst with Jupiter Communications in New York. “Reaching the business audience online today is not a game that anyone has won yet,” Shore said. “If Business.com could really attract specific niches of business users, it could gain significant revenue.”
Advertisers want to tap the same type of audience they would reach through marketing in a trade journal or at a trade show, Shore said.
Winebaum said business-to-business advertising already is “conservatively” an $880-million market on the Web, which he expects to hit $8.7 billion in 2004, based on Forrester Research estimates. And he hopes Business.com will pull advertising and marketing dollars from trade journals, trade shows and direct-mail campaigns. He also believes Business.com can attract as many as 100,000 advertisers, many by buying ads directly on interactive pages on the site.
A preview of Business.com’s site resembles a home page not unlike Yahoo. At the top is a listing of “Departments,” including headings for finance, legal and human resources, with each subcategory offering more detailed listings.
The second half of the page lists 57 industries and 25,000 subcategories. The chemical industry, for example, has a heading for polymers, which then shows listings for polymer distributors, trade associations and equipment suppliers. A manufacturer could find a link to ARON Polymer Pigments, a distributor in India of dye and fluorescent pigments for plastic coloring, paper coatings, inks and textiles.
McGovern, former chief technology officer for Ticketmaster Online-Citysearch, likes to show visitors how easily Business.com can find baking equipment vendors compared with Yahoo, or Bakery Online, the site operated by VerticalNet.
While the Business.com preselected search works neatly, it’s far from foolproof. Even with Winebaum at the mouse, Yahoo found listings for tropical fish importers faster. And a search for environmental regulations for bakeries on Business.com found nothing. But the same search on Yahoo found that commercial bakeries can emit ethanol pollution as a byproduct of yeast metabolism, and one site gave details about regulations and permits for Ohio.
VerticalNet’s Bakery Online didn’t have information about the sources of pollution from bakeries or regulations, but it did list several consultants who dealt with the issue in a variety of states.
Not all of Business.com will be online starting today. The initial directory and search engine will come up first, Winebaum said.
By the middle of the month, the site will have news, primarily articles licensed from other news organizations. In a month, Business.com expects to add its industry profiles and profiles of 10,000 public companies. Additional features, including several types of buying services and tools, will follow.
Though VerticalNet will bring in more than $100 million in revenue this year, and Business.com is just beginning, some analysts doubt that any of these B2B research portals will pan out.
“The misconception with all these sites is that once they find somebody they want to do business with [the customer] will go back to the portal or site each time, instead of dealing directly and avoiding access or transaction fees,” said Anthony Tarantino of AnswerThink Consulting Group.
