No one wants to be just a number – until theres a ranking, then everyone wants to be No. 1. Corporate America is no different. This year, some of nations largest and most admired companies lined up to be numbered among the Interactive 500, Interactive Weeks annual ranking of the New Economys biggest and best.
Information technology giants Intel, IBM and Cisco Systems again topped the list. Intel, No. 1 for the second straight year, is now doing the majority of its business – almost $24 billion in sales – over the Net. Other high-tech titans, including Hewlett-Packard, National Semiconductor and Oracle, entered the upper tier of the Interactive 500. But while the builders and architects of the online economys infrastructure took many of the top spots on the list – which is based on the amount of revenue a company generates from its Web operations – many stalwarts of the Old Economy made impressive debuts.
The addition to the Interactive 500 of brick-and-mortar powerhouses Federated Department Stores, General Electric, Southwest Airlines, Staples and others underscores the market dynamics changing the face of e-commerce. No longer are dot-coms with big plans – and even bigger losses – driving the market. Now its the more traditional firms – the established retailers, manufacturers and services companies – fueling the engines of the Internet business machine.
This year, of the top 100 companies in the ranking, fewer than 30 had online origins. And of the top 25, only three companies started out on the Web. Those 22 brick-and-clicks are among the most successful companies on the Web, with some downloading sales in excess of $1 billion.
All told, this years Interactive 500 pulled in a jaw-dropping $183.56 billion in online revenue – $100 billion more than last year – giving testament to the solidity of the Internet as a business platform.
Even so, as dot-coms continue to fall like autumn leaves, theres a sense that the e-conomy is in a backslide. A report issued Oct. 30 by International Data Corp. states that despite expected e-tail spending this quarter of more than $12 billion, online retailers will struggle for profits. According to the research company, unprofitable e-tailers will lose $700 million for the three-month period, while money-making firms will turn a combined profit of a modest $500 million.
A continued shakeout in the sector is expected, which likely will lead to more headlines about eek-commerce, dot-bombs and dot-gones.
But e-tailers are only one segment of a much larger online marketplace. The overall Internet-based economy will continue to skyrocket, with Forrester Research predicting that worldwide Net commerce – both business-to-business (B2B) and business-to-consumer – will hit $6.8 trillion in 2004. The U.S. will continue to lead the global e-commerce market with online sales in 2004 of $3.2 trillion, according to Forrester.
David Cooperstein, in fact, says he and other analysts at Forrester believed this would be the year traditional firms found success on the Web. The brick-and-mortars, he says, “will come to dominate the Web.”
Indeed, the Internet revolution will continue with the old guard as its flag bearer.
While Internet-only brokerages continue to rack up impressive gains, Charles Schwab & Co. is the dominant brokerage site on the Interactive 500. Likewise, online travel is among the few profitable sectors on the Web, and Delta Air Lines delta.com is the top travel destination on the list. Office Depot is the top office supplies site; 1-800-Flowers is the leading floral site; Dow Jones & Co. is the top media site; and Eastman Chemical is the top chemical company. In addition, a number of big retailers, such as Wal-Mart Stores and Kmart, are still in the early stages of their online invasions. While they were not yet willing to break out their online sales figures for the Interactive 500, analysts see both quickly becoming hugely successful sites.
And the presence of traditional companies – with their established brands, marketing savvy, proven business plans and, oh yeah, profits – on the list will surely trend upward.
Perhaps no company epitomizes the Old Economy-to-New Economy transformation better than GE, which is easily among the most successful and admired companies in the world.
GE is doing an estimated $7.5 billion in online sales. And its wide-ranging Internet initiatives include everything from the NBC Internet media site and AllBusiness.com small-business information portal to the separate GE automotive, plastics and specialty chemicals sites.
The companys e-business strategy is threefold: ensure that every GE business has a Web site offering the highest-quality service, sales and support online; migrate internal procurement and supplier resources to the Web to take advantage of increased productivity and cost savings; and participate in ongoing development of new technologies and services that will contribute to online sales growth.
At GE, says Manuel Terranova, the companys e-business strategy manager, “e-business is becoming an everyday occurrence throughout the company.”
But GE is certainly not the only company moving large chunks of its business online. Fifty-seven percent of 331 executives surveyed recently by KPMG say e-business is transforming their company and its role within its industry, affecting processes from procurement to delivery.
Even some of the early brick-and-click companies, such as Barnes & Noble, refuse to sit still. The company is launching an effort to more tightly integrate its virtual and physical storefronts. Barnes & Noble says it will install Internet kiosks in its retail superstores and offer discounts designed to promote cross-channel shopping. And, with IDC predicting that the most successful online retailers this holiday season will be those that allow shoppers to return merchandise at a physical location, Barnes & Noble is playing it smart. The company will allow shoppers to return Web purchases at its stores.
Boom Or Bust
Boom Or Bust
While the Interactive 500, as a group, made impressive gains, there are still plenty of business challenges to confront.
E-tailers will have to get through whats looking like a softer-than-expected holiday shopping season. And theyll probably only get this quarter and next to prove they have taken care of past delivery and logistical glitches.
B2B companies still need to determine which businesses can and cant be run successfully on the Web. And, with a looming e-marketplace shakeout, theyll need to pick future online trading partners with great care.
And all of the Interactive 500 wannabes will need to improve transaction processing, customer retention and site reliability to ensure continued success. Theyll need to overcome a tight market for skilled e-business labor. Theyll also need involved and dedicated leaders; the recent KPMG survey found that at 40 percent of the companies it polled, senior managements current involvement in Internet planning was “probably inadequate.”
How well online companies stand up to these challenges will determine the outcome of next years Interactive 500.
How We Rank Em
How We Rank Em
Money matters. Interactive Weeks second annual Interactive 500 ranks companies by the amount of revenue they generate from Web operations.
We based our listing on online sales over the four quarters ended June 30. If a company did not close a fiscal quarter on June 30, we looked at the four fiscal quarters that closed closest to that date. Our listing includes public and private companies in business at the end of June.
We followed the broad guidelines issued by the Department of Commerce: “E-commerce sales are sales of goods and services over the Internet, an extranet, Electronic Data Interchange or other online system. Payment may or may not be made online.” Associate Professor Erik Brynjolfsson, co-director of the Center for e-Business at the Massachusetts Institute of Technology, was instrumental this year and last in helping define what should and shouldnt be counted as online revenue.
This years list was compiled, starting in July, with a survey conducted by Advantage Business Research. The pollster sent out online-sales questionnaires to more than 40,000 e-commerce executives, interactive managers, chief executive officers and chief information officers. We also were assisted by Victor Petri, a partner at PricewaterhouseCoopers who leads the firms Internet sector. A PWC team plowed through corporate filings and helped us dissect general financial releases to retrieve online sales figures.
While the survey and our research efforts turned up most of the numbers needed for the ranking, many companies do not break out online sales figures from overall revenue. And a handful of companies said they couldnt, or wouldnt, assist our research effort. If a company did share some numbers with us – such as the percentage of overall sales it took in from its e-commerce operations for a given period – we were able to calculate an online revenue estimate. In no case did we make an estimate without having at least two data points.
Some major e-commerce companies – such as Wal-Mart – are absent from both last years and this years ranking because they declined to participate in our data gathering efforts and there just wasnt enough information for us to make an estimate. In addition, other companies, such as L.L. Bean and J. Crew, were on last years list, but do not appear on this years Interactive 500 for the same reason.
As was the case last year, there may be a handful of companies that had the Web revenue to make it onto this years list, but either missed our deadline or – in what would most certainly be a rare occurrence – our group simply failed to identify them as an e-commerce leader. Companies that come forth with online revenue figures that would have been significant enough to make this years cut will be added to the Interactive 500 listing on our Web site.
In the end, we compiled online revenue information on nearly 1,500 companies. The top 500 became this years Interactive 500, the most complete listing of the Webs biggest revenue generators.
Weve started our plans for next years listing. Companies interested in being contacted for 2001s Interactive 500 can register at http://advantageresearch.com/interactive500year2001.