Monday, January 11, 2010

There once was a B2B company that was enthusiastic about the web . . .

OK, I'm sure your company is enthusiastic about the web. But an awful lot of B2B web sites look like they have been put online simply to distribute media kits, or to show how serious they are about the Internet. But ask any advertising rep what it is like today to sell a print magazine with no web site, or a very anemic looking web site and you'll know how important a good web site is to B2B print.

It's good to remember that as March approaches because we will be at the ten year anniversary of the beginning of the Internet boom meltdown. Between 2000 and 2002 the NASDAQ fell 77.6%, and one stock "darling", whose valuation was once $12 billion during the crazy days of the boom, began their fall. That company, founded in 1995 with the launch of WaterOnline.com, forced the hands of a lot of reluctant trade publishers.

Of course, the company in question was VerticalNet, maybe the most infamous company in Internet (and B2B media) history. But I would argue that VN is still worth remembering today.

In 1997 Red Herring had the news:

Onetime dot-com darling Verticalnet, whose valuation soared to $12 billion during the 2000 tech bubble, has agreed to be acquired by a subsidiary of an Italian cement company for $15.2 million, the company said Friday.
News of the agreement triggered a sell-off of Verticalnet shares, driving down the price $2.62, or 47 percent, to $2.99, still higher than the sale price of $2.56 per common share.
By 2007, it seems, VerticalNet had become more the answer to a trivia question and less a real B2B company.



Born as a collection of business verticals that grabbed great URLs like Nurses.com, BeverageOnline and ChemicalOnline, VerticalNet loudly proclaimed that print was dead. The company's dynamic CEO, Mark Walsh, said he knew the answer to Internet success:
"The business-to-business marketplace is as much about building a strong community and information sharing as buying and selling products."
He was right. The key to the Internet has always been community.

One of the first major online successes was, of course, AOL. With its creation of a town square-like portal where people could gather to discuss restaurants, politics or the weather, AOL was the ultimate in community building -- and none of it was actually on the Internet, but was instead in a closed environment accessible only if you got one of those CDs in the mail (and you used to get lots of them).  But AOL brought to the market one of the first successful e-mail clients (You've Got Mail!), and later, working with Netscape, helped migrate people onto the actual web (and eventually it led to AOL's decline as a dominate player).

AOL's search engine, Webcrawler, was one of the first many people used. I used it, for instance, to try and convince the owner of the small B2B firm I worked for that the Internet was a serious medium: "look, there are over 10,000 references to "construction" on the Internet"; the next week I would say "look, there are over 100,000 references to "construction" on the Internet".

Then came VerticalNet.

The company from its inception began launching web sites and stealing editors and sales people from B2B magazines. In 1995, according to an SEC filing, VerticalNet's editorial budget was $24,000, by 1998 it had grown to $2.1 million. Revenue had grown from $16,000 to $1.86 million -- and therein was the problem, expenses grew at the same pace as revenue, and always at a far higher level. Even back in 1998 it was apparent that something was wrong as the filing showed a loss of over $8 million.
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Early VerticalNet site from 1996 - click to enlarge.


But as things got even worse (revenues continued to explode, as did losses), the company went public in time to see its shares skyrocket in value -- at one point the stock was over $140 a share and its valuation reached the stratosphere. At the what must have been the pinnacle, Joe Galli was enticed to leave start-up Amazon.com (I wonder how that company turned out?) for VerticalNet.

In 2000 Business Week passed judgment on the company:
All the cool kids on the Internet used to dis Mark L. Walsh. Silicon Valley smart guys ridiculed Walsh's VerticalNet Inc. as a collection of 56 boring online trade magazines . . . Now naysayers are eating dust.
Traditional publishers knew it was all a hoax -- who was really reading those web sites anyway? -- but they gave their editors and sales people raises to keep them on board as stories started to be whispered about editors leaving print to become millionaires online (some actually did, but most eventually received stock that proved worthless).

By the end of 2000 it was clear that it was over as the company proclaimed it was going to become a software company -- using its receipts from the public offering to buy other companies.  Joe Galli bailed out after only five months to run Newell-Rubbermaid.  What was next, despite an investment by Microsoft, was the inevitable decline, recriminations and eventual sale of the assets. VerticalNet, in a way, still exists as VertMarkets complete with "68 vertical marketplaces" according to its web site.



Why did VerticalNet fail?

Mark Walsh's quote above contains the answer. A VerticalNet site was simply a place where press releases went to die. Their initial strategy of selling "store fronts" to customers who didn't have their own web sites yet seemed to make sense: the concept was easy to sell for their reps who often came from the print side of B2B, and customers could easily understand the product. But the sites did not build community in any real sense. (And a storefront should lead to actual sales, right?)  A VN site did not have customer feedback through comments or blogs (blogs didn't really start to catch on until after VN had peaked) and none contained forums, maybe the easiest way build a community.

So if it was such a disaster why the nostalgic look back?

Because I vividly remember a few things that make me smile . .  for instance, trade shows. In 1998 and 1999 VerticalNet sales reps merrily pranced around trade show floors, well dressed, enthusiastic, and with lots of freebies to give out. They appeared to represent a well-funded company and were committed to representing their online products. To my reps, who I feared would get lured away, VerticalNet represented a real career choice -- they didn't feel locked into their positions, they could always find another home, assuming VM came calling.

And that enthusiasm was good for all of us: without a third party out there like VerticalNet preaching the future of the web how were we, print publishers, going to convince our clients to start taking our own web sites seriously?  Further, just how are the salaries of B2B editors doing these days, huh?

Some times, when business is bad, it is good to remember what it felt like in the days of the Internet boom. Trade magazines were filled with lots of advertising -- very little of it discounted. Everybody was going perfect bound because their printers could no long saddle stitch their thick books.

And I remember being enthusiastic about the future of B2B media. So now when I think about where B2B is going now -- mobile media, tablet and readers and the like -- I'm still enthusiastic but I think we may need another VerticalNet, if only to blindly push the envelope once again.

Addendum: So where is Mark Walsh, former CEO of VerticalNet, now? According to the NY Times blog Bit it is said that "his current venture, Genius Rocket, runs an online marketplace where people compete to get paid for their work."

Something definitely doesn't sound right about that, does it?

1 Comment:

Anonymous said...

I was a proud employee of VERT, I left Nursing to become rich but found out thats not so eazy. We had games in the place but we are felt part of something ground breaking. We enjoyed work for once, we worked hard and played hard. We had the gov. of PA tell us we were going to be the next MSFT, but did upper mgmt. feed us a line or were they just to wrapped up in thier own found, new wealth. All I can say is I was there, through the celebrations and survived 11 layoffs only to be gone the next round. A few weeks later I was rehired to work on the software side only to be layed off agaij...at least I got two severance packages. I miss those days and what do we have in life but these any m an y other chapters. I still remember saying, dam, only up 10 poonts today. Smile Verties we had lightning in a bottle. Mark K.