BUSINESSWEEK ONLINE : MARCH 22, 1999 ISSUE
BUSINESS WEEK E.BIZ

Throw Out Your Old Business Model
Online businesses are whole different animals. It pays to be adaptable

In February, a cool Web startup called AllApartments changed its name. While it was at it, the company rehauled its business model. What started out two years ago as a simple online listing of apartment rentals available in the U.S. suddenly was something far more provocative. The new business, called SpringStreet, still sells ads on its site, where it lists some 7 million apartments. But now the startup wants to make money in completely new, weird, and unexpected ways.

These days, the San Francisco-based company throws in quotes and deals on furniture, moving-truck rentals, and loan possibilities--all for free and often at a discount. SpringStreet makes money by collecting transaction and commission fees from about 35 partners, including Visa and Ryder Moving Services (R). Every time a consumer requests a car insurance quote or applies for a loan, SpringStreet gets a fee that starts at $4. ''We want to provide people with free services and save them money,'' says Sophia Kabler, SpringStreet's vice-president for marketing. ''The good part is, we make money off of all that.'' And how. SpringStreet expects the new fees to account for nearly 50% of revenues this year.

Like SpringStreet, online businesses old and new are re-creating themselves, jolting their rivals, and sending their investors scurrying for their calculators. Let's face it, a lot of the ideas will be duds. But amid the dozens of wacky proposals, propositions, business makeovers, and other E-business madness, ideas are taking shape that will define commerce for decades to come.

RADICAL. Today there are a bewildering number of signposts, each pointing to a different business model or revenue opportunity: ads, subscriptions, transaction fees, direct sales to consumers or businesses, and commissions for matching buyers to sellers. To make the most of any of these, you must pinpoint your core strength, then turn on the creative juices to come up with new revenue streams. Take San Francisco-based Web-design shop Organic Online Inc. Increasingly, it is paid in stock and transaction fees from the E-commerce sites it helps set up, including electronics merchant E/Town. This year, Organic expects 25% to 35% of its revenue to come from such deals. That way, Organic sticks to its knitting while cashing in on its clients' success.

The Net provides just such opportunities for companies to rejigger their business models. Last fall, CNET Inc. (CNET) began to use its four-year-old tech news and reviews sites to make money in a slew of ways besides ad revenue. Its Computers.com service, for one, provides information on 120,000 products from 86 merchants, charging those vendors a flat fee for each customer it sends them. CNET says it generates 90,000 leads a day, with 8% to 10% of those turning into purchases. CNET drummed up $80 million in purchases for its vendor partners last quarter. Last month it snapped up AuctionGate, an auction site for computer products that lets CNET make money by charging a listing fee.

BizTone.com is testing a far more radical approach. While the three-year-old Malaysian company sells its enterprise software the traditional way, through licenses and installment fees, in January it began offering an alternative. Now, corporate customers can pay from 1 cents to 10 cents per electronic transaction a company conducts using BizTone.com's software. ''In the new world, no one will have to pay to license the software itself, just to transact,'' says Miko Matsumura, BizTone.com's vice-president for strategy. He predicts fees from ''software as services'' will one day account for most of the company's revenues.

Figuring out a company's chief strength may be the most wrenching part of dreaming up such novel approaches. Established players, such as Intuit Inc. (INTU), have gone through high-level soul searching. ''We had to think long and hard about what we did best as a company,'' says Intuit CEO Bill Harris. That led Intuit in the past two years to add alternatives to straight-out licenses of shrink-wrapped software--such as subscription, usage, ad, and transaction fees. Although Intuit doesn't break down revenues, it says the Quicken.com site already has signed up $60 million in ads for this year and next, while the online mortgage center on its Web site last year closed $600 million in loans for partners. Those include First Union Corp. (FTU) and Chase Manhattan Corp. (CMB), which pay Intuit fixed fees.

By offering new services, companies not only expand sales but also instill customer loyalty. That's what Aon Corp. (AOC), a Chicago insurance-services company that raked in $6.5 billion in sales last year, is doing. In addition to its traditional business, Aon offers a Web-based service that pulls together a database--of, say, the latest changes in government regulations--that's matched with information on each of its client's operations. The clients can then access the database to better analyze and manage insurance costs.

Some 300 companies use the service, which starts at $10,000 a year, and the number of clients is expected to double by yearend. AonLine has helped bring in new clients representing up to $25 million in business, and it gives the parent company a better understanding of its existing clients. ''This is a service that enhances our new business,'' says Mia Shernoff, AonLine's managing director. ''But over time it will be an important part of our revenue.''

AT A LOSS. To be sure, some of the new schemes are far from proven. Three-year-old Buy.com, for instance, sells products from computers to books at impossibly low prices to attract an audience. The company raked in $125 million in revenues in its first year of operations in 1998, and it expects to do as much as $100 million in sales this quarter. Still, it remains unprofitable and is betting it can earn most of its net on ads.

Crazy or insanely smart? Only time will tell. But one thing is certain, these wild and varying approaches will rewrite the old business rules. Says John Hummer, co-founding partner of Hummer Winblad Venture Partners in San Francisco: ''Whether Buy.com is successful is beside the point. They don't have to be successful to have a huge impact on all of business.'' So toss out that dusty old business plan, think weird, and try the unexpected.

BY HEATHER GREEN
Contributing: Linda Himelstein

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