The Annual Interactive 500

The Interactive 500 is more than a list of which companies generated the most hard dollars from their web operations in the past year. Its also Interactive Weeks annual checkup on the state of e-commerce. And this year, surprisingly, the health of the online economy appears to be a lot better than most people think.

Yes, some 330 Internet companies ceased operations in the first half of the year. And some of the dot-goners — such as Quokka Sports and Streamline.com — had prime positions on the two previous Interactive 500 listings. Other former Interactive 500 companies, such as DLJdirect, have been merged out of existence. And whole Internet groupings — such as the independent e-marketplace sector that made such a strong showing on last years Interactive 500 — are being battered.

So wheres the good news? The aggregate revenue of this years Interactive 500 is a downright jaw-dropping $378.38 billion — more than double last years total of $183.56 billion. Many of the dot-coms on the list are profitable, and traditional businesses continue to be a dominating presence on Interactive Weeks annual ranking of e-commerce powerhouses.

Indeed, just about every metric shows e-commerce is growing, becoming more profitable and, for many traditional companies, a sharp competitive edge. Properly mastered, that edge can cut new paths to online opportunity.

This years Interactive 500 special report tells those hard-won e-commerce success stories. From manufacturing to energy to technology to wholesaling and retailing, they show that the companies that have discovered the keys to implementing Internet technologies and strategies are, more often than not, market leaders.

Take, for example, Office Depot, the leading office products company: Its No. 30 on this years list, and is considered by many e-tail experts to be the company to watch in the space. For its most recent quarter, ended Sept. 29, the companys overall sales were relatively flat at $2.8 billion. But its worldwide e-commerce sales grew 60 percent, to $402.0 million, while its profits surged 25 percent, from $50.6 million to $62.5 million.

"We had decided as a company from day one that the Web was going to be totally integrated into our systems and our company. We viewed it as a strategic initiative," says Monica Luechtefeld, Office Depots executive vice president of e-commerce. "We viewed it as a critical business function."

Office Depot isnt the only business using its Internet operations as a protective skin against recessionary pressures. Some of the nations most admired companies — General Electric, IBM, Intel and others — say the Web is critical to their success and that theyll continue to push hard on new Internet initiatives.

Lessons Learned

Most of the top companies on this years Interactive 500 have learned how to integrate their supply chains, back-end databases, customer service operations and procurement systems with their Web operations to get a jump on the competition. They figured out how to get people to visit their Web sites and even buy something once theyre there. These companies also have developed more mature mechanisms for determining whether theyre getting payback from Internet expenditures.

Their efforts are paying off. Two reports last month showed that business-to-business and business-to-consumer e-commerce activity is healthy and strong. Despite the current economic difficulties, GartnerG2, a research arm of Gartner, is predicting happy holidays for e-tailers. The research house estimates that worldwide online holiday shopping sales will hit $25.3 billion — a 39 percent increase over last year. On the B2B side, IDC expects the worldwide value of business goods and services purchased online to skyrocket from $282 billion in 2000 to $4.3 trillion by 2005 — an incredible 73 percent compound annual growth rate.

No wonder corporations are dedicating more of their precious IT dollars to e-business initiatives. In a research note published Sept. 13, John Gantz, IDCs chief research officer, said there was a growing backlog of e-business-related projects, and that Internet-related spending would grow from 15 percent of overall corporate technology spending last year to 37.5 percent in 2005. That compares with overall IT spending, which, depending on the source, is expected to grow a scant 2 percent to 5 percent this year.

"The reality of the situation is that any new technology development is based on Internet technology," says Rick Villars, vice president of e-commerce strategies at IDC.

Still, the dot-com bust made it very clear that Internet spending does not equal Internet success. Whats separates the winners from the losers is how Internet resources are deployed.

A quick study of Interactive 500 leaders finds some common success factors:

A commitment to push the e-envelope, to try new initiatives and to migrate customers onto the Web — a cost-effective selling platform that allows companies to establish strong ties with buyers.

Intel is looking at nothing less than using the Web to connect with every one of its customers. GE has integrated e-commerce into almost everything it does, and is working doggedly to migrate its customers online from other types of transactions.

But perhaps no company epitomizes the strategic use of Internet technologies better than Enron, the No. 1 company on this years Interactive 500.

Yes, holding up Enron as a beacon for others to follow might seem a little strange these days, what with the companys current financial and Securities and Exchange Commission troubles, but one must separate the baby from the bathwater.

Once focused solely on natural gas, Enron now handles more than 5,500 transactions — worth about $2.7 billion — every day, and trades some 30 different commodities. At any given time, the company is selling about 2,000 different products. And with $97.47 billion of its overall $170.91 billion revenue now coming through its online operations, Enron is more of an Internet company than energy service provider.

E-commerce is woven into the very fabric of the corporation — from the supply chain to procurement to business intelligence and analytics.

At Office Depot, for example, the 115-employee online division of the retail giant leverages the marketing, advertising, sales, technical systems and people of its entire 40,000-plus-employee operation.

"Because of this integration philosophy, we view you as a customer. Your customer identification information passes seamlessly, whether youre in the store, on the Web, calling our call center. We dont view you as a separate customer. We dont have different customer databases for the Web, stores and call center," Office Depots Luechtefeld says.

Companies leverage their existing Internet infrastructures for business improvements and expansions.

Global Sports, one of the rising stars of e-commerce, has built and acquired an extremely high level of Internet platform expertise. Beginning with a priority e-tailing platform for sporting goods companies The Athletes Foot and The Sports Authority, Global Sports CEO Michael Rubin just kept on building. In August, the company bought online luxury goods site Ashford.com, in part to move into that end of the business, and in larger part to incorporate Ashfords Internet infrastructure into its service offerings.

"At each step of the way, we built this business with the thought in mind that it had to scale," Rubin says. "Early on, we saw an opportunity to consolidate demand and leverage the name-brand recognition of existing businesses."

Today, Global Sports runs key Web operations for Kmart and other nationally known retailers.

Browsers who come to a Web site are converted into buyers.

This is a strong suit for brick-and-mortar companies, particularly those with catalog operations. According to online retail trade association Shop.org, "an impressive 68 percent of online shoppers who had previously shopped from a retailers catalog looked for or purchased something at that same retailers Web site that they had seen in the catalog."

Many catalog retailers, like Lands End, now get 20 percent of their business — or more — via the Web.

"We know that our traditional customers love to read the catalog over coffee, dog-ear the pages theyre interested in and make the purchase online," says Andrea Stephenson, a Lands End representative.

Lands End converts about 9 percent of its Web sites visitors into buyers, with an average purchase of $96, according to marketing research firm comScore Networks.

"Anything approaching 10 percent is very good," says Gian Fulgoni, comScores chairman.

Successful online companies have the right measures to gauge their e-commerce activities.

The leaders know where Internet dollars are being spent and if theyre being spent wisely. Two years ago, e-commerce enterprises were measuring their success based on visits and click-throughs. Last year, many were struggling for profits to prove their worth. Now, innovators such as IBM and Intel are moving past traditional forms of return on investment and developing new ways to value Internet products and services spending.

These new metrics include the number of store sales that originated with a Web visit, reduced transaction costs, the number of customer support requests handled online, and increases and decreases in overall customer satisfaction.

At Intel, for example, about 30 percent of customer order handling happens successfully off-hours. The companys online operations ensure that those orders are properly handled and processed.

"You cant put a hard dollar on that," says Sandra Morris, Intels vice president of e-business.

Maybe not. But the leaders on this years Interactive 500 list have found that by making the Web critical to their businesses, they can become extremely efficient and stand a good chance of staying healthy even in a weakened economy.