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an evening with the stars of e-commerce

part 1:Gary Arlen: numbers that mean something

Thank you, Penny. Also, thank you, Mario Morino, for bringing us all together tonight. I don't know how many of you saw the New York Times story ("Creating a Silicon Valley Around Washington, DC" 5/31/98) about Mario Morino and the work of The Netpreneur Program in Monday's New York Times, but I recommend it to you highly. This certainly is the right time and the right place for us to explore the critical issue of e-commerce. The Washington area certainly has the talent and the resources necessary for the creation of successful e-commerce ventures, albeit not always on the glamorous front end, as we may hear as the evening goes on.

One critical factor is, how do you define e-commerce? I'm giving advance warning, not only to the panelists, but to anyone else trying to help us understand e-commerce, that it's not just about electronic catalogue shopping. It is much more. In assembling a few thoughts to get this started, I looked into some of the research we have been tracking about what e-commerce may mean. Certainly, we have all seen the poster children of the electronic commerce business—Amazon.com, PC Flowers, CD Now and the other consumer retail organizations which have created interesting businesses already. We have heard the stories about Dell Computers selling $3 million a day via its Web site, and how Cisco says it will make about a quarter of its sales through the Web during the coming year. Certainly the intranets and extranets that are being developed expedite not only sales but customer service and many of the other pieces that are part of the e-commerce picture.

Now, as a researcher, I always like to look for the numbers that mean something. When I see numbers predicting how big this is going to be, and I see figures ranging from $6 billion to $300 billion in sales, I say, "Well, that's a little bit too much of a differential for me to handle. But, the fact is, no one says it's going to be a zero billion dollar business. We just don't know the scale quite yet, but we are starting to get some hints. We know that about a third of the people who use the Web right now are conducting some kind of purchases. Perhaps two-thirds of Web users today are looking for information that leads to a sale through some other physical medium or other way of shopping. We find anecdotal evidence, such as Land's End saying that a quarter of its online customers hadn't seen a Land's End catalogue before. Finding and reaching out to new customers, these are parts of the equation.

We also find that e-commerce allows companies to manage inventory better, to develop new ways of fulfilling customer relations and to find new avenues and new lines of business. That's one of the most challenging and interesting parts of this. We are here tonight to take a look at the issues, how e-commerce works and, especially, how it works here in the Washington area.

There are many emerging opportunities in this business. I talked to a someone last night at the the Washington New Media Society Cyber Salon about e-commerce in the world of government which is moving quite quickly. There are opportunities in built-to-order products and services, transaction processing and fulfillment, and, certainly, in the intangibles that have been so much a part of the early stages of e-commerce, including travel arrangements, financial services and a range of other new-to-the-Web facilities.

For our session tonight, we are not going to focus on the front end particularly. Our speakers bring a great deal of expertise from the back room, from the back-end processing, the infrastructure and payments, including the new and emerging world of electronic bill presentment. We will have some discussion about customer service, an incredibly important part of this business. There are loyalty programs and other marketing, advertising and merchandising features that are part of this. We'll take a look at what this means to the Washington area. The expertise in financial and processing services around here, the skills and creative factors that relate to the business development of this industry, and, of course, expand the idea pool that is part of the Potomac KnowledgeWay environment.

Our panel tonight represents a variety of backgrounds. As you can see, in their bios, several have focused, then refocused and redeveloped their companies to reflect the changes in the e-commerce marketplace in the last few years—even decades in some cases. Tonight's speakers are all veteran entrepreneurs, both of the Net and in other milieus as well. You'll also, I'm sure, identify some internecine relationships here, between TNS and VeriFone and Intelidata, which show the way companies move with each other and spawn additional opportunities.

To start things off, it's my honor to introduce Bill Melton, who is the president and chief executive officer of CyberCash, a company which has changed directions a couple times in its brief life, but always for the better. Most importantly, CyberCash is Bill's fourth entrepreneurial venture into e-commerce in the 20 years since he has been doing entrepreneurial work for companies around the application of computer and telecommunications technology. He was a founder of VeriFone in the 1980s, which did transaction automation, and in the 1990s was a funding founder of Transaction Network Systems (TNS) which we will hear more about later. More recently, he has been on the board of America Online, and Bill, or I should say CyberCash, recently acquired a company called IC Verify, a maker of software for the processing of payments, again reflecting the convergence and melding of all these businesses.

next: part 3: Bill Melton: one big incentive program >




an evening with the stars of e-commerce

part 5: John Backus: the fastest way to a $10 million company

Thanks, Bill. I tried to get into the meeting down the hall, the Stars of the NASDAQ Stock Market, but they wouldn't let me in for some reason. Maybe next year we'll be able to make it into that meeting. I have been with InteliData since we got it started back in 1990, and it's been a roller coaster ride in a lot of ways. I'm not the great storyteller like a lot of these others are, so, instead, I'll go through a half dozen or so lessons that I've learned in the hopes that you can repeat some of them, but more importantly, not repeat some of them that I had to learn the hard way.

The first one is, it's okay to change your vision. What do I mean by that? A lot of entrepreneurs start a company with a great idea, but a lot of times—in fact, most of the time—the idea has to change because the market changes. If you stay dogmatic about the idea that you start with, while sometimes that's great, you miss the fact that the market is changing. You can really be in for a big surprise. We made that mistake early on at U.S. Order. We started out with the concept of a home transaction terminal that would offer grocery shopping on a smart telephone. Now, somehow that concept transmogrified into banking on the Web. We were a little late to embrace the Web because we were pretty set in our ways and dogmatic about the smart phone being the next wave of the future. As Gary is often fond of saying about smart phones and interactive telephones, "It may be the wave of the future, and it is, but it always will be." We stayed with that product a little bit too long.

The second lesson I'd like to talk about is focus, and I can't underscore the importance of focus enough. We tried to do too much early on. We had a hardware product and platform, and we had a software product and platform. Instead of looking at them as one product, we thought we had two separate businesses. When Jack McDonnell joined our board recently, he looked at the company and said, "This is the smallest conglomerate that I have ever seen." Well, we have taken Jack's advice and we are starting to deconglomerate. Someone once told me, that the fastest way to become a $10 million is to start out with a $20 million company." We are on the way to becoming, hopefully, a very successful $10 million company in the electronic commerce space.

The third lesson applies to the stock market. It also applies to companies and everything within a company: invest in your winners and kill off your losers. Every company is going to take some risks, which means you are going to have some winning products and you are going to have some losing products. You are going to have some winning business ideas and business units, and you are going to have some losers. What you have to do is take quick action to get rid of the dogs so you can keep the winners out there. One mistake that I have seen made before, that I have made before personally and that I hope you don't make, is taking your best people and trying to turn around the worst business. Big mistake. Take your best people and put them on the best business, because if you take your best people and put them on your worst business, what does that mean? It means you have people, who aren't your best people, working on your best products. That's a problem. The corollary to that is, as Warren Buffet once said, "Oftentimes, if you take a good manager and put him in a bad business, more often than not, you end up with a bad manager instead of a good business."

The fourth point is to stand by strong partners when you're small. Every one of us wants to start a company some day. It's an exciting experience and it's a lot of fun, but one of the biggest problems you have is getting visibility. How do you get credibility? It's important to look like you are a lot bigger than you are, and on the Web it's easy to do that, but when you start selling business-to-business, it's a little bit harder. Businesses expect a certain level of scale or credibility or profitability or something like that. It's very important to find a good partner. We are actually trying to thread the needle right now by working with Microsoft in the NT area and IBM in the mainframe area. So far, we have been successful and, if we keep it quiet and don't talk about it at events like this, I think we'll continue to be successful for some time to come. The corollary to that rule is, don't let weak partners tarnish you. Once you start becoming successful, you'll also find there are some partners who may not be the best ones down the road. Just like some of your best products, you might have to cut bait here as well.

Fifth, cash is king. Watch it personally. I don't care what your job is in the company—if you're running the company or if you're interested in working for the company—understand the cash position and watch it. For the three or four years before we went public, I spent probably one day a week either raising money, talking to investors, or talking about where the money was going to come from and where it was going. It takes a lot of time, and I have a mantra that I developed—actually the mantra kind of developed in college around the subject of beer, but we'll ignore that for a moment. The appropriate mantra to remember with respect to cash is, "More is better, too much is just enough." You can never have too much cash in your company.

Finally, most importantly, and on a serious note, if you are going to start a company, get a great group of advisors or a great board of directors. It is very important. Whatever you think you are going to go through, you are going to find problems that you couldn't even dream you might encounter. You might think you are the only one out there facing them, but you're not. A lot of people have been down that path before and, if you have the right board of advisors or board of directors, they are going to help point out the pitfalls that you might otherwise fall into. When you look for a good board member or advisor, look for someone, first of all, who is going to commit the time to understand your business. Don't get a figurehead. Get someone who's going to spend the time to understand your business, because your business will have problems that are unique to your business and not someone else's. Also, look for someone who is going to offer to help, either with your investors or with fundraising, with working with customers or getting customers, or with getting suppliers. We're blessed in our company, and I'm blessed personally, to have, in addition to Bill Gorog who has been my mentor for the last eight years, three wonderful advisors at our board level: Pat Graham, one of the original founders of Bain & Company, who spent 30 years advising Fortune 500 companies; Bill Seidman, former head of the FDIC and another classic entrepreneur who almost single-handedly martialed the nearly trillion-dollar S&L bailout in the Reagan-Bush years; and Jack McDonnell, who will be coming up to speak later. If he decides to throw bricks at us for not making money, we'll just question his professional advice and guidance as a board member. I'm preempting something I have a feeling is going to come up later.

With that, I would like to turn this over to Mark Walsh. I met Mark at a bar once in San Diego. It was at a conference, but I think we actually met at a bar. Mark is VerticalNet's president and CEO. Before that, he was a senior VP and corporate officer at America Online. He worked at CUC, GEnie and Home Box Office. He is a classic entrepreneur who has done a lot of exciting things.

 

next: part 6: Mark Walsh: hard, expensive, proprietary and scary >




an evening with the stars of e-commerce

part 6: Mark Walsh: hard, expensive, proprietary and scary

Thank you. It's kind of surreal being at this table. I'm not sure if I stumbled into a family reunion or I'm on The Truman Show, which is this Internet worldwide broadcast, and for those of you watching us on the Net, it's a lot more fun here than it is where you are watching it.

My company is named VerticalNet. We run 16 sites on the Net. I'll read the 16 names rapidly and I think you'll get the idea. The sites are named Water Online, Pollution Online, Public Works.com, Power Online, Solid Waste.com, Food Online, Chemical Online, Pharmaceutical Online, Hydrocarbon Online, Pulp And Paper.com, Photonics Online, Test and Measurement.com, Medical Design, Computer OEM Online, Wireless Design, Fiber-optics Online and Property and Casualty.com. Each of them has vendor listings and search engines for vendors, news and editorial content, chats, forums, job listings, auctions and e-commerce.

However, I come to you tonight to tell you that e-commerce is a bust. It's a fallacy. Why? Because we keep focusing on markets where any rational disintermediation would win, like flowers, airlines, stocks, books and cars.

In all the places we say we have declared victory, the customer is always ticked off and the seller is always confusing the buyer. Of course e-commerce will win then, because disintermediation is a natural imperative, as opposed to a lot of places we expect e-commerce to win where disintermediation might never occur. E-commerce today will continue to be a bust as long as it is technology-driven. E-commerce in 1998 is just like X.25 online services in 1988. They are hard, expensive, proprietary and scary.

They will never win until we acknowledge one truth about the e-commerce industry, specifically the business-to-business sector of it. Consumers and business users of online services are exactly the same people. They behave the same way. They demand the same value. They insist upon the same ubiquity, utility and meaning for the service. That is because online services are the only technology that have come from our house to our desk. All other business technologies have had the exact reverse direction. We first used a PC in our company. We first had conferencing and transfer buttons on phones at our desk. We first started using FedEx at our corporation. We first used a cell phone or a pager when our company bought it for us. We first used Document Management in the Wang department in 1982 in our steno pool. But each of those products, now, we use as consumers universally and without any thought.

But interactive services—as a way to communicate, to buy things, to join together in cyberspace as a work unit—happened in our den and now we are bringing them to our desk. Because of that amazing reversal, the consumer is actually the person we should be looking toward to drive business-to-business e-commerce.

My example is that EDI and e-commerce will work in the business environment when the CEO sits home one night, and he or she uses it to pay the mortgage, the kid's tuition, the house painter or the credit card bill. They will go to work the next day and say, "Why can't I do this at work?" Those are four different payment channels, four different types of commerce, four different types of money, and all easily done.

I, as a consumer, figure out it should happen, and that it should happen at my business. What we see in the e-business, or e-commerce side for business-to-business, is a cycle of life in cyberspace where content attracts eyeballs, context secures eyeballs—people like me in an industry that I care about. Commerce engages those visitors to try something.

But what wins? Community. Community wins in the business-to-business sector just like it won in the consumer sector. A place in cyberspace that makes you a better business person is a place you will go and a place where you will buy things. The Internet and e-commerce are not about Beany Babies, books and flowers. The Internet and e-commerce are not about EDI standards and video conferencing. What it is about is accelerating and facilitating leads that connect buyers and sellers.

Let me read to you some leads that came through some of our sites in the last 30 days. These are pieces of email from visitors around the globe to individual vendors on our sites. This one, from Lexington, Massachusettes, "I need a price quote on an exhaust jacket assembly to be used in the filling operations of 180 to 320-gallon tote bins with hydrazine. The assembly must cover the bung opening and surround the filling lance completely. It should have a collapsible accordion outer sleeve."

This from France to Chemical Online, "We're looking for a solids level probe capable of localizing the top of a solids accumulation in a liquid-filled vessel, range zero to six feet approximate. Must be able to operate under at least 100 bar and if possible up to 690 bar. Electrical output must be 4-20 mHz, or common industrial communication protocol."

This from Water Online from Canada, "I have a textile dying wastewater treatment recycling project in China. The wastewater has the following specs: COD 650 mg per liter, etc. The new expansion would be 100,000 cubic ml a day. If your company can treat this type of water, would you please send me your technical info with price tags on 20,000 to 100,000 ml a day. I look forward to receiving your early reply. Truly, JCU, China."

This is e-commerce. It is not about disintermediation, it is about reintermediation because, in most business-to-business environments, the middleman adds value. Unlike flowers, unlike stocks, unlike airline seats, unlike books, unlike records, the middleman adds value in the real world outside of these doors. I would suggest that when we study e-commerce, we keep reminding ourselves, it isn't going to happen until we make it easy for all of us to use.

With that, I will introduce the next guest. I have not met Jack before tonight, but I enjoyed sitting next to him because I think he is a core technology guy for what this is all about. He had significant stints at the Electronic Industries Association (EIA), and, as an old X.25 guy like me, spent some time at Tymnet. Those were the days, huh? Selling that 900 baud and 300 baud stuff? He spends a lot of time with the Electronic Funds Transfer Association (EFTA), and you've heard his connections to the rest of the panel. With that, it's my pleasure to introduce Jack McDonnell.

next: part 7: Jack McDonnell: you have to be a little crazy >

Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, Netpreneur.org or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.  


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