VideoBack in the spring of 2000, back at the height of the E-commerce boom, executives at the Potomac Electric Power Co., or Pepco (www.pepco.com) were looking for a way to coin it off the digital craze. At the time, share prices of Internet businesses were going through the roof, and analysts were projecting huge profits for old-line businesses that rolled out new economy enterprises. Managers at Pepco, which is based in the Washington, DC, area, had already decided to deploy a new, Web-enabled procurement system. It looked to be a surefire money-saver. The question was: Would other corporates be interested in buying their office supplies from the utility, too?
After lengthy deliberation, managers at the power generator decided to make a revenue generator out of the planned purchasing system, eventually christening the new business PepMarket. "We were looking to leverage our investment and create an additional source of revenue," recalls Andrew W. Williams, the company's senior vice president and CFO. Initially, Pepco managers predicted the new venture would throw off $50 million in annual sales within five years.
It barely took five weeks for Pepco management to realize its numbers were off. According to Williams, business at PepMarket was downright anemic. "We got roughly 5 percent of the buyers we thought we'd get, and less than 20 percent of the product suppliers," he concedes. In the fourth quarter alone, the exchange lost $1.4 million. Says Williams: "People just weren't willing to put the nickel in the slot and pull the handle when the time came."
Pepco's managers didn't have that problem. Seven months and $11 million into the rollout, the utility's executive team closed the electronic trading exchange. "If it's not going to fly," notes Williams, "you've got to be ready to shoot it down quick."
Apparently so. Over the past year, scores of retailers, manufacturers, and service companies have unveiled E-commerce businesses. All too often, the curtain's come right back down again.
Dell Computer, for one, shuttered DellMarketplace just four months after the small-business procurement site went live. Energy giant Chevron capped Silicon Valley Oil, its fledgling online marketplace for fuels, in less than a year. And management at Wells Fargo recently hung a "temporarily out of service" sign on the virtual doors of the bank's procurement exchange for small businesses. "Just because these companies did something cost-efficient in- house," says Laurie Orlov, ebusiness research director at consultancy Forrester Research, "they think that automatically makes them an expert at selling it to others. Millions of dollars later, they find out it doesn't."
This is not to say that every old-line business is destined for heartbreak in cyberspace. Fact is, some earthbound corporations have managed to establish thriving operations in the virtual universe. Corporate stalwarts like The Washington Post Co. and United Parcel Service Inc. have devised appealing — and lucrative — Internet business models. Others, like Eastman Chemical Co., are still in the early days of moving from commerce to E-commerce. But Eastman Chemical's Internet venture — called ShipChem — holds real promise.
So why are these companies succeeding when so many others have failed? For starters, managers at these old- line businesses have avoided pie-in-the-sky expectations about Net ventures. Specifically, they have not presumed that whizbang technology would automatically attract an audience. Jack Prouty, national partner in charge of business integration at KPMG LLP, believes Pepco and Dell may have thrown in the towel too soon. "You can't expect customers and revenues in just a few months," he says. "You've got to focus on nurturing and preserving the value of these assets, as opposed to seeking quick profits."
Conversely, senior executives at the Post and UPS have shown real patience with their E-commerce ventures. At Eastman, top management has not wavered in its backing of ShipChem — this, despite an ugly shakeout in the online exchange sector. "It's not easy getting companies to switch from comfortable, established buying patterns into new patterns," notes George Reilly, a research director at technology consulting firm Gartner.
Mostly, however, the management teams at these three clicks-and-mortar innovators have not assumed that customers would blindly follow them into cyberspace. Instead, they've followed the money trail. "These companies are extending their core competencies and brands," asserts Orlov. "They're creating corollary services and products their customers actually need."
In the process, managers at the Post, UPS, and Eastman have performed a minor miracle. They've imbued their old- line businesses with new economy cachet, transformed their corporate images, and uncovered additional — and substantial — sources of revenue.
The Paper Chase
The Washington Post Co. (www.washpostco.com) first ventured into the virtual universe way back in the early '90s. In fact, company management announced the formation of a subsidiary to develop Web businesses in 1993 — almost prehistory for E-commerce. Not surprisingly, the Post's early stabs at developing Web businesses mostly involved posting the newspaper's content online.
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