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On Sept. 14, the former Amazon.com president created three new business units -- VerticalNet Markets, VerticalNet Exchanges, and VerticalNet Solutions -- to add discipline to VerticalNet's process for developing new products and services. "We believe that operating as three strategic business units will make us a stronger, more cohesive, and more competitive company in total," Galli says. BID FOR ACCOUNTABILITY. The change is partly cosmetic, but there's substance behind it, too. The divisions reflect businesses VerticalNet had decided to be in before Galli arrived in July -- but he set them up as independent profit-and-loss centers in a bid to instill more accountability. Indeed, Galli's job at VerticalNet is to bring structure and clarity to a company his predecessor as CEO, VerticalNet Chairman Mark Walsh, had already put on a strong growth path. Walsh had vowed VerticalNet would be the first profitable business-to-business Internet company. The most striking element of Galli's plan is setting up a separate software division. The Solutions unit pulls together existing software VerticalNet picked up in its acquisition of Tradeum in March, 2000, such as tools to manage content and online catalogs. The company already uses the software to set up its online marketplaces, but Galli wants to offer the technology to any organization interested in creating its own. The division could help VerticalNet supply software to large purchasing consortiums serving basic industries, most of which buy technology from companies such as Ariba, Oracle, and Commerce One, says Lehman analyst Patrick Walravens. Under the new structure, VerticalNet Markets will execute VerticalNet's original business model: linking buyers and sellers through 57 industry-focused Web sites serving industries from baked goods to solid waste. VerticalNet gets revenue from its markets by selling advertisements, charging merchants to open virtual storefronts on the site so they can generate leads, and letting sponsors post their electronic catalogs. VerticalNet Exchanges will build on VerticalNet's acquisition of NECX Inc., an electronic-components exchange. Galli plans to have five such online markets by the end of next year -- a good idea, since NECX has been the biggest single engine powering VerticalNet's growth. FUTURE SPIN-OFFS? Goldman analyst Jamie Friedman says the new organization could eventually lead to spinning out the separate divisions into distinct companies with their own stocks, though there has been no such indication from the company. "Looking at the exchange business, which has grown more than anyone expected, it could make sense to have a currency -- a stock offering -- for each unit," Friedman says. Clearly, Galli is leaving his mark on VerticalNet. He plans to turn his sales and marketing expertise, culled from a long career at Black & Decker and his shorter stint at Amazon.com, on the Markets division. Applying big-company management methods, he says, will let VerticalNet develop new products that respond directly to carefully researched market needs, while reducing costs and placing new emphasis on customer service. One such initiative, eMarketplace Suite, is a comprehensive set of design tools and transaction modules including auctions, catalogs, exchanges, RFPs/RFQs, and structured negotiations. Galli says VerticalNet will be a more disciplined company -- without slowing its growth. He expects revenue, predicted at $212 million for 2000, to swell, but he won't disclose specific goals. Analysts expect VerticalNet to lose 8 cents a share this year, before eking out a profit of 3 cents per share next year on $374 million in sales. Still, profitability is clearly on Galli's mind. He's very proud that in his tenure at Amazon, he got people to use the word "profit." "Before me, it wasn't a word you ever heard in the hallways," he says, laughing. Because of Walsh, this wasn't the case at VerticalNet. But Galli, with his tuned-up business plan and seemingly boundless energy, intends to prove both Walsh and the analysts right. By Jeanette Brown |
