Internet Commerce

The Internet eliminates geography, but for companies seeking new customers on-line, the secret is still location, location, location

When Nancy Croke goes shopping, she's as likely to use a mouse as a telephone.

If Croke were buying CDs or some flowers, her Internet leanings would matter--a little--to the Web retailers vying for her $25. But Croke, purchasing manager for Comdisco Inc., a $4-billion technology-services company in Rosemont, Ill., spends several million dollars each year on office equipment, general supplies, and other materials. That makes her sourcing habits terribly interesting to companies that do big business--even if it's in small drabs--with corporate customers.

Suppliers that dismiss Croke's electronic sourcing as anomalous--hey, Comdisco is a technology company, right?--might find Joe Yacura's example more persuasive. Yacura is senior vice-president for global procurement at American Express Co. in New York City. His office conducts 25 to 50 Internet searches for new suppliers a month, and he reckons that in the next year and a half the financial-services giant will be placing 10% to 20% of its purchase orders over the Web. "The Internet allows us to compile a list of potentially eligible companies within a few minutes," Yacura says. Compare that with the days or weeks his staff normally spends poring over trade publications and print catalogs.

Corporate-procurement organizations are discovering the Internet in a big way, using it to do comparative shopping, find local suppliers, and locate unusual products and services. As of November 1997, 93% of purchasing managers had Internet access and another 5% planned to get it soon, according to a survey by the National Association of Purchasing Management, in Tempe, Ariz. And those browsers aren't just idling on desktops: 34% of respondents reported using the Web for their jobs 5 to 10 times a week, and 19% said they accessed it more than 20 times a week.

Some of those folks are using the Net for the kind of rich, thick transactional activities--such as electronic data interchange and purchasing from customized catalogs--that characterize commerce between established business partners. But many more consider it a research tool, a convenient information source when they're considering switching suppliers or procuring a product for the first time.

It's also a great way to compare prices: Croke, for example, who expects to do about 50% of her purchasing over the Internet by the year 2000, says she finds "the best discounts" on the Web.

For every Nancy Croke or Joe Yacura out there seeking a new vendor, there are hundreds of suppliers with their hands in the air hoping to be called on. Their challenge isn't so much getting on the Web as it is placing themselves in the line of sight of hungry buyers. In yet another cyberspace-spawned irony, success in the medium that eliminates geography is increasingly coming down to location, location, location.

So how do companies with nonintuitive domain names find new corporate customers on the Web? Listing yourself with the search engines is necessary but not sufficient. Sites such as HotBot, Excite, and Lycos allow users to enter keywords and retrieve a list of sites where those words appear, but the results are so broad that any one company has as much chance of being found as a needle in a pile of needles. A search for "oil filters" on Infoseek, for example, turned up 5,804 sites.

Then there are the Internet yellow pages such as BigBook and BigYellow. Those function much like their print counterparts: users enter a product category and a city or state and get back a list of more-or-less relevant companies. But those sites, too, tend to degenerate into crowd scenes. "Most business-to-business marketers won't get a whole lot of new business this way," says Alex Hiam, a marketing consultant based in Amherst, Mass., and the author of Marketing for Dummies (IDG Books, 1997). "I'm listed in Internet yellow pages and several other directories, and about once a year I get a serious inquiry from them."

A better strategy for being found is to follow the rule that governs real-world commerce: Go where your potential customers are.

Of course, you can't peek at buyers' bookmarks to see which sites they frequent, but you can consult industry associations and check out Web sites that advertise in trade journals. The most valuable insights may come from your existing customers, who can tell you how they use the Internet and where they find sourcing information. "If I am a small company selling business to business on the Internet, I need to seriously target," says Jim Sterne, president of Target Marketing, an Internet-marketing consulting firm in Santa Barbara, Calif. "My customers can tell me how to do that."

One thing customers are likely to tell you is that they're consulting on-line versions of the same references they've trusted for years. The 100-year-old Thomas Register of American Manufacturers, for example, would be considered the Bible of many procurement managers--if the Bible ran to 23 volumes. Now Thomas Register is available on the Web in all its 155,000-vendor glory. If you're a manufacturer and you haven't already listed yourself with Thomas Register, then the Web site--where users can do refined searches by product type or brand name in more than 60,000 categories--offers additional incentive to do so.

As of April, the Thomas Register site had 780,500 registered users performing nearly 70,000 searches daily and generating 1,000 E-mail requests for information, according to Julianne Garry, Thomas Publishing's director of Internet marketing. A basic listing--company name, address, and a brief description of services--is free to any U.S. or Canadian manufacturer. If you want to show more than just the tip of your iceberg, you can pay for advertising, which takes a variety of forms in the print, CD -ROM, and on-line versions. For example, $3,000 will buy links to 15 pages of your stand-alone Web site (if you have one) or an 8-page catalog on the Thomas Register server if you don't. Also included: assistance with site design and an E-mail address.

Company owners who understand the "why" of going on the Web but are fuzzy about the "how" may find that Thomas Register eases their on-line debuts. Wanner Engineering Inc., a $15-million manufacturer of high-pressure diaphragm pumps in Minneapolis, "had requests from some of our largest customers, like General Motors, who wanted to access information over the Net," says president Payton Hage. Hage figured that what was good for GM would be good for other buyers as well, but he worried about the new medium's stability. "I was dragging my feet," he says.

A visit from a Thomas Register sales-person quickened his step. Wanner now pays $50,000 a year to advertise in Thomas's print, CD-ROM, and Internet versions. That price bought him help creating a stand-alone Web site and 20 links from Thomas's site to his own. Now that his company is on-line, Hage estimates that it gets 50 to 60 inquiries each month through Thomas Register--15% more than he got by advertising in the print vehicle alone. "We have a fairly high-priced product, so we don't have to sell too many to get the investment back," he says.

Winning new customers is great, of course, but so is having existing customers spend more money with you. That happened to the Plastics Technology Group, a $16-million manufacturer of flexible plastic tubing that is a division of NewAge Industries, in Willow Grove, Pa. It paid Thomas Register $7,000 for links to its site under 100 different categories. "A lot of customers who have been buying one product look at our Web site and realize we sell other things," says marketing director Donald G. Warner. Although 275 people--many of them referred by Thomas Register--view the site each week, it's unclear how much of that traffic has resulted in new business. "This is going to be a three-year market-loss leader," Warner says. "Nonetheless, the link from Thomas's is consistently in the top 6 out of about 40 different places where people find us."

Although thomas register on the Internet may be more targeted than search engines and directories are, its brush--which glides over everything from nails to airplane parts--is still pretty broad. But many vertical industries have their own narrower virtual marketplaces. Some of the best known have been set up by traditional distributors that are using the Internet to help manage their customer and supplier relationships.

In 1994 Marshall Industries, a $1.6-billion distributor of electronic components based in El Monte, Calif., launched a Web site that sells things like semiconductors and flat-panel displays to original equipment manufacturers. Today the company does several hundred million dollars' worth of business over the Web--where it brings together 500 parts suppliers and 65,000 corporate customers.

Those customers can search a database of 500,000 parts by number, manufacturer, or product description. Unlike the Thomas Register site, Marshall consummates the deal, handling payment and order tracking, thus freeing suppliers from the onus of becoming electronic-commerce experts. Suppliers can have Marshall host their sites or simply set up a link to them. Any company using Marshall as a distributor gets a free listing.

On a more modest scale is Safety Online. The four-year-old company--a subsidiary of Coastal Training Technologies of Virginia Beach, Va.--attracts about 1,500 safety officers, facilities managers, and engineers to its Web site each day. And the site is reaching out to the hundreds of thousands of others in the industry by advertising in trade publications, through direct mail, and at trade shows.

Not all visitors to Safety Online are on purchasing missions--some are there to read articles and consult the latest updates to government regulations. Many certainly come to search the site's 14-category product database, in which vendors can secure a spot for less than $200 a month. But for suppliers, the best way to attract attention is to treat Safety Online as a trade magazine and go for the splashier advertising. The splashiest--costing $9,000 a year--includes a presence on Safety Online's home page (sponsor names are flashed in regular rotation) and up to 50 pages of content running on its server. Only 20 such premium spots are available, and as of July, 15 were occupied.

Nine thousand dollars was a little rich for the blood of Bill Sims, president of Bill Sims Co., a $3-million maker of software to improve worker safety and customer service. So the Columbia, S.C., company pays $3,000 a year for a place in Safety Online's second tier of advertisers. In turn, Safety Online designed his site, which it also hosts, and provides eight additional hours of programming support. Sims gets to display his company logo within the product category where he's listed, and Safety Online registered his site with major search engines.

For a small company like his, Safety Online "is fairly pricey," says Sims. What he's paying for is visibility. "We could get it hosted a lot cheaper, but we wouldn't get the same exposure to the customers we need," he says. Sims estimates that he gets 300 leads a year from his Web site, most of them originating with Safety Online. That translates into $10 for each lead generated from the Web compared with the $15 he spends on each lead from magazine advertising.

Sims's experience with Safety Online has shown him that, common wisdom notwithstanding, it's sometimes easier to get found in a crowd--as long as it's the right crowd. "The most important advice I can give to another business is to get on the Net in a place where your target prospects are going to be surfing," he says. "Just putting up a site and registering it with the search engines, it's not going to happen."

Karen Southwick is editor of Upside Books, a division of technology publisher Upside Media Inc. of San Mateo, Calif.

The right chemistry
A marketplace for reagents tries a new formula for mixing buyers and sellers

David Perry is giving vortex sites a whirl.

Vortex sites, as defined by J. William Gurley, principal of Hummer Winblad Venture Partners, are digital marketplaces that have no physical antecedents, offer content (like industry news, white papers, and job notices) as well as vendor listings, and make money by paring off slices of transactions rather than by charging customers to shop or to advertise. Such businesses thrive where markets are large and fragmented and distribution is complex and pricey.

That perfectly describes the reagent industry, in the thick of which Perry recently erected his digital bazaar, Chemdex. Reagents are the substances consumed when researchers do experiments. Because reagents are too complex for the average procurement organization to buy, suppliers must appeal directly to end users. "If there are 2,000 researchers in a company, you have to put information into 4,000 hands, as opposed to the one or two people who buy office furniture," says Perry.

Reagents are sold by about 2,000 small--in some cases, very small--companies that find reaching a national market of some 300,000 researchers prohibitively expensive. Keeping catalogs current--about 15% of reagents offered every year are new--is virtually impossible.

A former chemical engineer and biotech-company cofounder, Perry was intimately familiar with the industry's problems. So in 1997, during his last semester at Harvard Business School, he drew up a plan for an electronic marketplace catering to buyers and sellers of reagents. By September of that year he had raised $2 million from a couple of venture-capital firms and from an angel investor.

Perry chose the vortex model after research showed him that charging buyers or suppliers "limits the rate at which they sign up," he explains. "If you do that, it takes you longer to reach critical mass, and you flame out before you've generated anything." Chemdex pockets 10% or so of every transaction occurring beneath its virtual roof. "We take money only when value is given," Perry says.

Suppliers simply sign a contract and then Chemdex posts their product data on a server running PurchaseStream, a requisitioning application from Connect Inc. All vendors on the site are treated as equals--money buys neither love nor logos. But Perry says multiple links and display ads are superfluous in this industry. "These are highly describable, highly differentiated products," he says. "Even if you find five companies providing an HIV antibody, they'll all be different purities, different quantities. Suppliers don't have to do a big marketing job."

Chemdex performs the commerce piece of each transaction; individual suppliers handle fulfillment. A true vortex business, Chemdex is building a library with links to scientific reference works and databases, as well as an exclusive biotechnology news feed.

Chemdex was launched in April with 80 suppliers, and Perry says he expects 200 to 300 by the end of the year. "So far most of the companies selling through us have been very pleased," he says. "They're getting new business, so they don't feel like they're cannibalizing themselves. Everyone would rather have new customers." --Leigh Buchanan

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