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
The Sites
