Riding the Dot-Com Fallout

Net Perceptions Inc.s new president and CEO, Don Peterson, will be expected to re-energize the company that practically invented Web personalization with his entrepreneurial spirit.

Peterson, who succeeded co-founder Steven Snyder last week, comes to a very different company than the one started in 1996 by Snyder and his University of Minnesota colleagues, who patented the collaborative filtering method of Web personalization. The Net Perceptions of today pins its survival not on the Web but on offline personalization used at call centers and on direct mail pieces.

About a year ago, 75 percent to 80 percent of the Edina, Minn., companys business was coming from dot-coms, but now that ratio has flipped in favor of multichannel retailers, company officials said.

“Theyve done a good job transitioning from their first customer base, which was mainly pure-play dot-coms, to multichannel retailers,” Peterson said. “I saw an opportunity to build a great business at Net Perceptions. They have real technology, real users and bring real value to customers.”

Web personalization is not expected to be a large part of that business. Multichannel retailers arent coming to Net Perceptions for Web personalization. Instead, theyre looking for software that helps call center agents upsell and cross-sell customers to new products or that helps retailers pick the right products to put in catalogs and advertising circulars.

The two products in Net Perceptions Retail Revelations suite that do those functions, Net Perceptions for Call Centers and Advertising Advisor, are the companys hottest products right now, officials said. The company is expected to announce this month a new business analysis tool for retailers called Retail Analyst.

Net Perceptions executives and marketing collateral barely mention the word “personalization” anymore, instead spreading the gospel of “demand generation.”

Peterson has founded two companies—Shamrock Computer Resources, an IT services and e-commerce application development company, and ITRadar, an Internet marketplace for the IT services industry.

He, too, has ideas on where to take Net Perceptions.

“Were in the early stages of exploring the adaptation of our technology in B2B [business-to-business] environments, especially at companies with distributors in the value chain,” Peterson said.

Snyder will remain chairman of Net Perceptions board.

Catalog retailer Brylane Inc. represents the new breed of Net Perceptions customer. While the company does plan to deploy Net Perceptions technology on its Web sites, its first implementation of Net Perceptions was at the call center for its Romans brand.

Phone representatives offer customers placing orders other products that the Net Perceptions software says theyd be likely to buy.

“What it showed us is that we could increase our average transaction value by using their technology,” said Russell Stravitz, chairman and CEO of Brylane, in New York. Stravitz did not comment on what kind of increases Brylane saw from deploying Net Perceptions technology. But he was pleased enough that Brylane will roll out Retail Revelations at all its call centers and Web sites.

“Weve seen a bump up in the average [order] ticket,” he said.

So with retailers squeezed by tight margins and in need of a way to get customers to buy more with each purchase, Net Perceptions should be in for a windfall, right? Not exactly. The company lost $11.9 million on just $3.2 million in revenues in the first quarter. Its losses reached $108.8 million including restructuring charges, goodwill and amortization. It laid off nearly half its employees in March. Company executives concede that the software can be a tough sell to retailers.

“A year ago, it was very easy to sell to the dot-coms,” said Chris Moran, vice president of marketing at Net Perceptions. “With a multichannel retailer the sale is more complex, and the sales cycles are longer.”