BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE
BUSINESS WEEK E.BIZ -- PERSONALITIES Joe Galli's Blueprint for B2B Well-Being VerticalNet's CEO talks about the cyber exchange's plans for long-term survival, and its moves in global sales, offline marketing, and e-commerce Joseph Galli Jr. is chief executive officer of VerticalNet Inc., an operator of 57 online business communities. Galli, who made his name as a marketing whiz at toolmaker Black & Decker in the 1990s, took the helm in July after serving as president of Amazon.com for 13 months (BW Online, e.biz, Sept. 20, 2000, "Can Joe Galli Lift VerticalNet to New Heights?"). He sat down with Philadelphia bureau chief Amy Barrett to discuss his plans for making VerticalNet an Internet survivor. Q: VerticalNet has 57 online business communities that focus on industries from fiber optics to water treatment. I understand you have just completed a ranking of those 57 communities to determine which are the winners and which are the laggards. A: We completed that, and we are in the process of developing an action plan. We continue to come up with marketing ideas to jump-start the pace at which users frequent and sign up with the sites. And we are hard at work on globalizing this business. We are asking, "How do we sign up users in Brazil and Latin America and Asia?" We already have a lot of traffic, but without a real sales effort. We are going to jump-start that. Q: What sort of marketing strategies are you experimenting with to attract more users? A: The company's marketing has been almost all billboard, Internet-based marketing, not offline marketing. Now we are going to college campuses, for example, to talk to chemical-engineering students, make a demonstration, and say here is VerticalNet's chemical site. We have just begun that process. The reaction is fabulous. We are looking for the marketing steps that drive the right users and buyers to these verticals. If it works, we'll scale it like crazy. Q: You derive a very small piece of your revenue right now from actual online transactions. Will that grow? A: The company started where sellers had an online storefront that presented information to generate sales leads. It was like an online virtual trade show. So a user could browse and find something, send an e-mail to a manufacturer, and they would transact offline. Our next step in evolving the model is to commerce-enable these storefronts. So to enable you to sell a pump, for example, to this customer who visits the storefront, we charge you for the storefront and also make money on the transaction fee. Q: How quickly will that online transaction revenue grow? A: These companies have to get their own digital capabilities in place. They have to digitize their catalog and be ready to do e-commerce. We help them become e-commerce-enabled. Then it is a matter of attracting the buyer. That is going to be evolutionary. Today people are using the Internet routinely for information. But in B2B, they are in the nascent phase for doing transactions online. Engineers are almost always going to pick up the phone and ask a few questions [about a product]. When the Internet functionality goes to the next level, these transactions will increasingly occur via e-mail and on the Internet. Q: Many people expect a shakeout among all the Internet business communities. How will that impact VerticalNet? A: There are so many companies that have been formed in a different capital environment. I don't think the IPOs [of some of those companies] will have the same potential they did. And I don't think you will have as many independent, publicly traded companies. VerticalNet has already bought 20 companies. We could be a very significant consolidator. Q: But your stock is down quite a bit. Will you have the currency to do those deals? A: We still have a very viable currency and a nice market capitalization. Our multiple has held up a lot better than most publicly traded B2B companies. And private companies are facing a very different prospect today. Your chances of going public today with a more narrow [business plan] are more challenging. That gives us a real opportunity. Q: You are pushing into the business of providing software to big companies or online exchanges that want to do e-commerce. Is this a response to the fact that a number of big, Old Economy companies are creating online marketplaces and, in some ways, threatening your 57 online communities? A: I think some online exchanges will be successfully operated by the big guys. But large companies that form an exchange -- it is difficult to operate a smooth exchange where you have different competitors who have to come together. We think this software business has tremendous growth potential. [Our move here] is not prompted by a concern about the big companies as much as focusing on what will generate the most value. Q: Analysts say you will have a tough time competing against much bigger software players like Ariba and Commerce One. Do you need to strike some sort of alliance or partnership to get to the size where you can compete with them successfully in software? A: We are very open-minded about partnerships. We wouldn't rule anything out. But if we have a great product, it will prevail. We are in discussions with other companies about alliances to go to market. We just hired an outstanding vice-president of sales for the software business. And we are building a sales force in the U.S. Q: You also operate an exchange for electronic components. Most of that business, though, isn't done on the Internet yet. What are your plans for that business? A: We are moving that from offline to online. It is a 20-year-old business. We bought three leading electronics exchanges, and we put them together. We are migrating it online with our software. That takes a lot of cost out. And we think we'll attract more buyers and sellers. Q: Given how far your stock, along with other Internet companies, has fallen, how is morale at the company? A: When the stock price is volatile, it has an effect. But the people in this company are focused on building a long-term enterprise. However, we do need to make sure our people have an incentive to win. So we are looking at our compensation. We won't reprice options. We don't believe in that. But what we continue to do is to make sure we are competitively compensating our people. I am talking to the board, asking what is the right way to compensate our employees. Q: You have a reputation for knowing how to motivate people. Is that critical here? A: One of the things we are trying to do is energize the company. You either leave people feeling more energized or less energized. There is nothing in between. We are trying to unleash the talent and energy of this company by creating an environment where people are fired up about what they are doing. To build a company like this can be a grueling marathon. It is very tough to band this technology together and pull this vision off. The vision is so big, it can be daunting. I am saying we have all this talent and potential, let's rally together and get this place as fired up and energized as we can. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					e.biz Contents for Dec. 11, 2000 issue RELATED ITEMS He Pours Gas on the Fire RESUME: Joseph Galli Jr. ONLINE ORIGINAL: Joe Galli's Blueprint for B2B Well-Being INTERACT E-Mail to Business Week Online

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