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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | OCTOBER 3, 2000 TECHNOLOGY Can Onvia Avoid Becoming a B2B Bomb? With Wall Street itching to see profits, the small-biz online exchange is laying off workers and revamping its loss-leader strategy
The online business-to-business marketplace slashed its staff by 17% on Sept. 28, laying off 85 people. Onvia called those jobs "redundant," and cited "today's competitive environment." Another factor: Wall Street's increasingly dim view of B2B exchanges, which have seen a string of similar cuts in recent weeks. Under pressure to show profits sooner rather than later, Onvia has moved up its break-even target date to late 2002 from 2004. But can the company, which is burning cash at an estimated $30 million to $35 million per quarter, hit that milestone in time? With $180 million in the bank, Onvia's immediate prospects aren't in doubt. "It's not about downsizing because the company's in trouble," says Gretchen Sorensen, an Onvia spokeswoman. "It's about wanting to operate as efficiently as possible and getting to profitability." But in the longer term, the company and other dot-com startups have found that luring customers to a digital storefront -- and keeping them -- is tougher than it looks. STRATEGIC LOSSES. Onvia's strategy has hinged on selling office supplies and equipment at a loss -- and then persuading bargain-hunters to sign on for more lucrative business services such as Web design and hosting, or helping to match small companies so they can buy and sell each other's services without being limited by geography. Such e-commerce essentials are crucial to Onvia because they offer high profit margins and the prospect of forging long-term relationships with customers. Small businesses "can buy things from anywhere," says Kneko Burney, an analyst with Cahner's In-Stat Group. "What they're looking for is a partner." But the would-be partners are proving to be reluctant customers. As a result, Onvia lost $60.8 million in the first six months of 2000 on revenues of $50.8 million -- much to the disappointment of Wall Street. "Nobody's happy with a company that's selling product below-margin," say Alan Weichselbaum of Gerard Klauer Mattison. How unhappy? Onvia's stock sells for about $4.50 a share, down from a high of $78 and an IPO price of $21. Acknowledging such concerns, Onvia insists that it's changing its ways. Sorensen promises that the company is raising prices on office supplies. By early next year, she promises, "We won't be selling them at a loss." That's encouraging, but it pits Onvia head-to-head against brick-and-mortar offsprings like Staples.com. The latter is spending tens of millions of dollars to offer many of the same e-commerce services, while using its enormous buying power to offer rock-bottom prices on office supplies -- and posting gross margins of nearly 25% to boot. MAKING IT WORK. So will Onvia succeed or join the growing roster of B2B bombs? There's little doubt that the nation's 23 million small companies are increasingly doing business over the Web -- and searching for help with back-end tasks. But whether they'll embrace Onvia's "one-stop shopping center" approach isn't yet clear. "Conceptually, it's a great idea," says Weichselbaum. "The real question is in the execution." To its credit, Onvia has taken concrete steps to expand its portfolio of services. Over the summer, it acquired two companies, Zanova Inc. and Globe-1 Inc., that specialize in building Web sites and helping small businesses market their goods to government agencies. It has also signed distribution agreements with big names like AOL, Netscape, and Visa. But time and investors' patience are finite. "If, in the next six months, they're still scattered and unfocused and relying on the discounting type of practices," says Burney, "I think you're going to see them suffer." She and others will be scanning Onvia's third-quarter earnings report, due Oct. 24, for signs that the company is, finally, becoming a full-service small business center. Among the key indicators: repeat customers, gross margins on product sales, the volume of buyers and sellers connected through Onvia's exchange, and the percentage of customers ordering both goods and Web-based services. For Onvia, the fourth quarter is seen as the ultimate test. "That's when they're going to have to prove that everything they've said is really coming true," says Weichselbaum. Onvia may have all the pieces. But can it assemble this B2B puzzle fast enough?  By Julie Fields in New York  | | |
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