In the world of e-business, old economy companies still rule the revenue roost. But some new Internet ventures are making inroads.
Old or new, the business-to-business companies that forged their way onto the Interactive 500 all share a few key traits. They all have an intense focus on customer service that has helped them increase online sales. And most have stuck to their core business plans, despite market fluctuations, and are now reaping old economy-style money. Heres a look at some of this years B2B best sellers.
Intel for the second year in a row, the company best known for its semiconductor chips is the undisputed champion of Internet commerce.
For more than two years, Intel has been building one of the worlds largest e-business systems, says Sandra Morris, vice president and director of e-Business at Intel.
"The Internet is pretty much the way we do business, she says.
In its first month of business in July 1998, Intels online business system did $1 billion in revenue. In 1999, it logged about $13 billion in online business. Today, Intels e-business system takes in about $2 billion in orders each month.
Intel launched its e-Business program with connections to 20 customers in 10 countries. Today, virtually all of the companys customers are connected, Morris says.
The system has made Intel more efficient; order errors have dropped 75 percent and Intels customer business analysts now log 40 percent more orders in the same amount of time, the company says.
Intels customers can place and change orders, check pricing and availability, and track deliveries online around the clock. As a result, 18 percent of online orders are placed outside of Intels normal operating hours around the globe, Morris says.
Next year, Intels goal is to become a 100 percent e-corporation by using Internet technology to automate routine internal business processes and getting all of its suppliers online, Morris says, adding that "e-Business is as strategically important to Intel as semiconductor factories.
Federal Express is also often associated with the old economy, and that bothers Laurie A. Tucker, senior vice president of electronic commerce and customer service.
Since 1995, the document and package delivery company has been a pioneer in using the Internet in its business. The company was one of the first to provide information-tracking software to its customers, because chief executive Fred Smith understood that "information about the package would become as important as the package itself.
A year ago, FedEx took a lot of heat for not being as focused on business-to-consumer Internet ventures, but the company is glad it stuck to serving its core business customers in view of the dot-com shakeout, Tucker says. While the company lost more than $200,000 when big customer Toysmart.com went bankrupt earlier this year, that has been its only major hit, she says.
"We were very focused on business-to-business, and as result were not suffering as much as our competition in the dot-com meltdown, Tucker says.
Today, online services handle 800 million of the companys 1.2 billion customer interactions per year. The goal is to bring that number up even higher in the next year.
"Well do it without putting our core business at risk, Tucker says.
Few high-tech companies practice what they preach more heavily than Cisco Systems. Today, more than 80 percent of the Internet equipment companys network traffic is handled by Cisco products, according to Pete Solvik, the companys chief information officer.
"Cisco has set the standard for business transformation by using Internet technology to integrate its core processes and culture, he says.
Its Internet infrastructure enabled Cisco to quadruple in size from 1994 to 1999 and helped the company rack up online sales that put it among the Interactive 500 elite.
But its not just sales that Cisco is looking to improve with its network. The company is improving internal processes with the technology and now says it is realizing operating cost savings in excess of $1.4 billion.
Customer service is just one area that has seen drastic operational improvement. Solvik says 70 percent of support calls are now resolved over the Internet, and customer satisfaction has increased significantly.
Cisco has used its own networking technology to build Internet business solutions that have allowed it to redefine how it shares relevant information with key business customers, suppliers, partners and employees.
"Cisco is one of very few high-technology vendors that uses what its sells in such a strategic way, Solvik says.
Cisco took its first step in leveraging the Internet and networked applications in 1992, when it established an electronic bulletin board for customers. Later, after browser technology was introduced, Cisco allowed registered users to access limited online support via the Web. In 1994, the company unveiled Cisco Connection Online, an interactive Web site providing 24-hour, seven-day-per-week global service in 14 languages. The Internet business solutions Cisco has deployed on Cisco Connection Online have played an instrumental role in the companys success.
A fundamental principle that has guided Ciscos corporate transformation to a fully global networked business, Solvik says, is the idea that information technology can re-engineer relationships within the extended enterprise and should be viewed as more than a cost center. Indeed, information technology ideally should be customer-focused and a part of a companys overall business strategy, he says.
As a Canadian company, nortel networks as never gotten as much attention as its main competitors in the U.S. - Lucent Technologies and Cisco Systems - in the battle to wire the world for the broadband era. That suits Nortel just fine, says Don Smith, president of optical Internet at Nortel. Working outside the limelight, Nortel has been able to create faster fiber-optic networks than its competitors.
The 105-year-old company has seen its stock slide in recent weeks on fears of a slowdown in the demand for optical networking technology, but Smith believes the market is still in its infancy.
Nortel makes fiber-optic networks it thinks will one day replace all the costly copper wire networks in place today.
RHK, a telecom research firm in San Francisco, estimates the world market for optical equipment will nearly triple from $31 billion in 1999 to $90 billion by 2003. According to Redwood City, Calif.-based research firm DellOro Group, Nortel today controls 43 percent of the global market for optical equipment, compared to Lucents 15 percent share.
Nortel expects its optical revenues to surge this year by 100 percent to $10 billion, Smith says.
Nortel was able to gain that foothold in the market by concentrating on creating super-fast, high-capacity, fiber-optic networks. While most telecom carriers in the mid-1990s were asking fiber-optic suppliers for equipment that could carry 2.5 billion bits of data per second on a single strand of fiber, Nortel developed a system that could carry 10 billion bits per second.
Now Nortel is testing its 40-gigabit systems and is working on an 80-Gb system that will enable customers to access the Internet at lightning-fast speeds.
Most people think of doubleclick as an online advertising company. But 75 percent of the companys gross profit comes from selling technology and data, says Kevin Ryan, chief executive of DoubleClick.
The company has witnessed tremendous growth during the last five years, with its revenues doubling every year, Ryan says.
Still, the companys stock has taken a major hit in recent weeks because of company warnings that fourth-quarter Internet ad sales wont be as "frenzied as last year, and will decrease in the first quarter of next year in the annual post-holiday slowdown.
Like many Internet businesses, DoubleClick has seen its stock plummet this year to a 52-week low of $11, down 90 percent, before rebounding to the high teens.
"Were still seeing huge growth rates, Ryan says. "But the growth rates have to slow down at some point. I still feel extremely bullish about Internet business.
The slowdown is occurring because dot-com companies are spending less on television and radio and are also cutting back on Internet spending, Ryan says.
This overall slowdown will lead to a consolidation in the industry over the next few months, Ryan says. In October, DoubleClick snatched up NetCreations for $191 million in stock to gain access to the e-mail marketing services 15-million client addresses. The acquisition is expected to close in the fourth quarter.
"A lot of consolidation will occur in the next six months, Ryan says. "But the companies that are making money dont have as much pressure as those that arent.
Dell Computer brings in 50 percent of its revenue online, Michael Dell said at the companys DirectConnect customers conference in Austin earlier this year.
Since the launch of Dells Web site in 1994, the company has grown to $50 million per day in Internet sales and has become the largest online commercial seller of computer systems. Dell is considered a world leader in Internet commerce.
The companys corporate customers include most of the Fortune 500 list of the largest American companies.
In October, the company launched its Dell Marketplace, which allows suppliers to get online easily. When asked if Dell would remake itself into a services company instead of a hardware company, Dell said the company would provide services where it made sense.
"We do not intend to be all things to all people all the time, Dell said.
In a state of transition during the past year as it spun off its popular Palm business, 3Com has also exited the analog modem and network router markets.
In the wake of reorganization, 3Com is focused primarily on broadband products and wireless devices for consumers and small businesses, and infrastructure equipment for companies that provide telecommunications and Internet services.
It has also been aggressively pursuing online e-commerce, says William Coker, the companys B2B global business development manager. More than 2,000 customers are using 3Coms e-commerce products today, including Ingram Micro, Tech Data, All-Tel and Sprint, he says.
3Com expects to move more into B2B Internet marketplaces over the next year with its catalog of product offerings.
"The obstacles were looking at right now have to do with behavior and culture, Coker says.
Other companies have higher hurdles to face. PSINet has been on a $4.1 billion buying binge in an effort to make itself a one-stop shop for customers looking to do business online, says Robert Leahy, senior vice president of corporate marketing.
Yet the companys losses mount. It reported a whopping $1.4 billion loss on revenue of $352 million in the third quarter.
During the past two and a half years, PSINet has acquired 76 companies. It spent more than $1 billion for IXC Communications, Metromedia Fiber Network and Viatel. Today, the company controls more than 1 million miles of fiber-optic cable.
PSINet has spent another $800 million on nine Web hosting centers, and by the end of the year, it will have added four more, Leahy says.
One of the most significant acquisitions earlier this year was the purchase of Metamor Worldwide, a systems integrator based in Houston. The deal added to PSINets Internet business applications while doubling its size. Earlier this month, the company said it would slow its spending and divest part of Metamor.
PSINet has more than 102,000 customers, including government agencies, educational institutions and information services companies, and provides wholesale dial-up access to 600 Internet service providers.
Unlike most of its rivals, which have been bought up by major telecom carriers, PSINet has remained independent.
"We can never say were not available, Leahy says. "We tend to say were not for sale, and thats true.
Looking into the future, PSINets biggest focus is on profitability. "In todays market, no one is interested in revenue growth, Leahy says. "They only want profits.
Big Blues Big Plan
Big Blues Big Plan
Big Blue plans an even bigger push on the Web.
IBMs online operations already handle most of the companys product offerings, including Aptiva consumer PCs, some ThinkPad notebook computers, printers, monitors, servers, storage devices, workstations and other products such as software for building electronic commerce sites on the Web.
IBM is second only to Intel on the Interactive 500 and is currently doing some $17 billion worth of business over the Web.
But the company doesnt just want to sell its own products online; it wants to help others realize the success its had online.
IBM in March formed a strategic alliance with business-to-business firms Ariba and i2 Technologies to provide a wide range of services to companies trying to take their business online. Ariba and i2 provide specialized software to set up online exchanges that many hope will drastically decrease the cost of doing business. IBM also took undisclosed stakes in both companies.
Rather than spend money to become an exchange facilitator, IBM chose to partner with companies that specialize in creating exchanges, says Ed Kilroy, the general manager of electronic commerce for IBMs software solutions business.
Its a lucrative market to tap into. Research companies have estimated the B2B market will reach between $2.7 trillion and $7.3 trillion by 2004, up from about $131 billion in 1999.
IBMs alliance with Ariba and i2 allows the companies to quickly establish marketplaces and manage their supply chain from the time the order is placed to its fulfillment. The companies also provide payment and auction services.
IBM is also making a bigger play for the small-business customer. The company offers a wide range of e-commerce technologies aimed at small businesses from Web authoring and graphic design software to services, Kilroy says. IBMs strategy is to offer entrepreneurs and small businesses everything they need to quickly create a presence on the Internet and engage in e-commerce.
And IBM could use a boost. The company has noticed a slowdown this year in overall business. For the nine months ended Sept. 30, IBMs total revenue fell 1 percent to $62.78 billion. The companys net income applicable to common stock decreased 4 percent to $5.41 billion. Revenue reflected reduced hardware and enterprise investment revenue, and net income reflected reduced gross margins and higher expenses.
But IBMs increasing push into electronic business looks promising for the companys future growth. Hardware and software are big sellers over the Web. And, today, hardware represents 42 percent of IBMs overall sales, while software comprises nearly 15 percent.
Top B2B Sites
Top B2B Sites
|Rank||Company||Online Revenue (000)|
|9||United Parcel Service||$5,354,000|
|31||Qwest CommUNICATIONS Intl*||$250,000|
|39||The Standard Register Company||$150,000|
|44||Alliance Data Systems||$100,000|
All financial figures are for the four fiscal quarters ended on or close to June 30, 2000.
* Interactive Week estimate