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The e.biz 25: Staying Power?


In the span of just two years, e-business has morphed from capitalist cure-all to pure catastrophe. The dot-com collapse took down not only the majority of e-tailers but also a wide swath of software and hardware companies that catered to them. The ripples from that disaster had assumed tidal wave proportions by the time they hit the telecom business, where the Internet bubble fueled wild overexpansion.

The changes of fortune took their toll on last year's BusinessWeek e.biz 25 list of the most influential people in the industry. Jeffrey K. Skilling, then-CEO of Enron Corp. won his place on the list by building an online energy trading operation. Now he spends his days pondering his fate in the wake of his company's ignominious demise. Thomas Middelhoff, former CEO of Bertelsmann, has also exited his company. Now the company is retreating from his Web initiatives, including his risky bet on file-sharing pioneer Napster and his pursuit of an online book retailing empire. Stuart Wolff of HomeStore.com is gone, too--forced out after the online realtor made huge earnings restatements that left it with billions in losses.

There are plenty of casualties. But there are also survivors whose strength and vision earn them a spot on the BusinessWeek e.biz 25 list. Barring further accounting surprises, this year's stars should have more staying power--if only because they represent companies that are profitable or have a large cash cushion. More than that, these 25 Web wizards are proving that, with the right strategy, a dash of uniqueness, and excellent execution, an e-biz company can still grow quickly and hope for a sterling future.

Some folks on this year's e.biz 25 are repeat members who marked major milestones in the past year. Jeffrey P. Bezos of Amazon.com Inc. all but buried any doubts about his company's viability. And Margaret C. Whitman solidified auctioneer eBay Inc.'s spot as the most profitable dot-com around.

Others in the class of 2002 represent rising trends. Kim Taek Jin, founder of Korean online-gaming company NCSoft Corp., and Kaz Hirai, president and chief operating officer of Sony Computer Entertainment America, are positioned to cash in on the rapidly growing business of multiplayer video games on the Net. Pierre Danon of BT Retail PLC has the unlikely job of taking a stodgy national phone company and turning it into the first major Internet service provider to build a WiFi high-speed wireless network in Europe.

Then there are the execs in established businesses now facing major hurdles. Both AOL Time Warner Inc.'s (AOL) Don Logan and T-Online International's Thomas Holtrop, the heads of the largest Internet service providers in the U.S. and Europe, respectively, have to figure out how to convert their dial-up subscribers to broadband connections, thereby juicing growth with the lure of features and services that only function well over high-speed links.

Also on our e.biz 25 list are a handful of new e-tailers, such as Patrick M. Byrne of Overstock.com Inc., who's doing just fine in the virtual retail world as his company cashes in on surplus merchandise sold over the Net. Byrne's success points to an online paradox: Even though dozens, if not hundreds, of e-tailers have gone belly-up, the growth rate of online sales continues to outstrip that of the brick-and-mortar world. According to the most recent U.S. Commerce Dept. e-tail statistics, online sales jumped 24%, to $10.2 billion, in this year's second quarter from the same period a year ago. That compares with a 2.5% increase in total retail sales.

Total brick-and-mortar sales obviously still dwarf those made online. Yet the Web's share of overall U.S. retail sales rose from 1% in the second quarter of 2001 to 1.2% in the same period of 2002, a 20% increase. Moreover, some e-tail sectors that had been left for dead are now staging a comeback. Key among them is the home-and-garden market, where Home Depot, Lowe's, and Bed Bath & Beyond are racking up impressive online sales gains. "The surprise has been the resurgence of some of these categories that weren't conducive to online sales originally," says Lisa Strand, research director at Nielsen/Net Ratings. She believes that much of this is just people getting used to shopping for so-called high-touch items on the Web. Cheap-to-free shipping prices, as popularized by Amazon.com, haven't hurt. Nor has the lack of many local sales taxes.

The continued vitality of e-biz also reflects forays into new frontiers over the past year. The increasing adoption of WiFi wireless connectivity has spurred a welter of startups that aim to provide Net access anytime, anywhere. Now, such players as BT retail, Intel, AT&T, and Verizon Communications are exploring that market, having seen sales of wireless routers rise at a double-digit clip over the last year. With peripatetic consumers and road warriors alike clamoring for wireless hookups, these services could prove the home run the big telcos have hungered for.

Online gaming looks set to take off, too, as more of the Web communities that are needed to make it profitable have sprung up. Two of the most powerful makers of game consoles, Sony Corp. and Microsoft Corp. (MSFT), have designed their machines to let their customers meet on the Net for multiplayer contests, for a monthly fee. According to game-research firm DFC Intelligence, 114 million people will be playing games online by 2006. And research consultancy Gartner Inc. predicts that this category will create $2.6 billion in revenues by the same year. That's up from less than $200 million in 2002, as both Sony and Microsoft are just launching their interactive gaming strategies.

In a bigger surprise, paid content has reemerged as a viable business model. RealNetworks Inc., led by repeat e.biz 25 member Robert D. Glaser, now has 750,000 subscribers paying tens of millions of dollars annually to view professional and college sports online--plus music exclusives such as archived footage from concerts at various House of Blues locations around the country. And Yahoo! Inc. is compensating for the Net ad slump by adding more premium, pay-as-you-go services such as mail forwarding and extra-intensive document searches.

The increasing willingness of Netizens to actually fork over some cash could presage a new era of cyber-entertainment. During the first quarter, Web surfers paid $300 million for online content subscriptions, according to the Online Publishers Assn., a nonprofit trade group that includes some major print media. That's up 155% from the same quarter in 2001. Among the top providers of these subscriptions were three of this year's e.biz 25 companies: Match.com, the dating subsidiary of USA Interactive's Ticketmaster-CitySearch; RealNetworks; and Yahoo!

Most promising of all the emerging trends may be what the industry calls "Web services." The concept is to use the Internet to deliver tools such as software or even entire Web sites to consumers and businesses. Apple Computer Inc., for example, has gotten into the act with calendar-synchronization programs called iCal and iSynch that go beyond the simple linking of an electronic planner to a desktop PC. Now you can sync multiple devices--including Apple's iPod MP3 players, personal digital assistants, and laptops--via central servers maintained by Apple. IBM is also pushing hard into Web services. For example, an IBM customer could rent, for a day or two, a special set of Web-based human-resources tools. "We can take what had been a relatively fixed cost for customers and turn it into a more manageable, variable cost," declares e.biz 25 member Dev Mukherjee, who oversees IBM's e-Business on Demand initiative.

To date, consumer acceptance of Web services has been relatively tepid, something that Microsoft's William H. Gates III complained about in a July speech. But Gates and other industry heavyweights remain faithful to the concept. Of course, the events of the last 24 months have been enough to try the faith of the hardiest Netizen. But the Net lives--as does its promise.

Editor's Note: The complete version of the e.biz 25, including profiles of all members on this year's list, will be available on BusinessWeek Online on Oct. 1. By Alex Salkever in New York


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