Friday January 7, 8:36 pm Eastern Time
Wal-Mart.com aims to raise "smart
money"
By Dick Satran
SAN FRANCISCO, Jan 7 (Reuters) - For Wal-Mart Stores Inc.
(NYSE:WMT - news), the move of its Internet operations from
Bentonville, Ark. to Palo Alto, Calif. isn't so much about following the
money as it is about following the ''smart money.''
The world's largest retailer Wal-Mart said Thursday it plans to start a
new Internet venture with Accel Partners, one of Silicon Valley's
premier venture capital companies, whose backers include Microsoft
Corp. (NasdaqNM:MSFT - news), Compaq Computer Corp.
(NYSE:CPQ - news) and Intel Corp. (NasdaqNM:INTC - news).
The $1 trillion equity boom in the past two years in the Internet space is inspiring mainstream
companies to look more seriously at starting ''dot-coms'' units and possible spinoffs.
But Wal-Mart, with $150 billion in annual sales and a market capitalization of $300 billion, isn't digging
for a few spare dollars in the Internet gold rush. It already has the financial wherewithal to raise billions
in the capital markets, if it wants.
Instead, it's looking for the talent and ideas to compete in the dot-com world, and facing down efficient
upstarts like Amazon.com Inc. (NasdaqNM:AMZN - news), analysts said.
''Everyone is trying to get smart, Amazon is breathing down their necks,'' said John Robb of Gomez
Advisors, a Concord, Mass.-based e-commerce consulting firm. ''Amazon wants to become the online
Wal-Mart.''
At a recent e-commerce symposium, Oracle Corp.'s (NasdaqNM:ORCL - news) outspoken chairman
Larry Ellison, commenting on the ability of Amazon to track inventory and sales trends on a real-time
basis, warned traditional companies: ''They'll eat your lunch.''
By aligning with Accel, the Arkansas-based retailer isn't just going for the money, it's striking back from
the center of the dot-com world by building a new company that can compete on the same terms as the
upstarts.
Nearly every major company has launched some kind of an Internet initiative. The largest book retailer,
Barnes & Noble Inc. (NYSE:BKS - news), feeling the heat of Amazon, was one of the first, launching its
barnesandnoble.com Inc. (NasdaqNM:BNBN - news), subsidiary as a separate company. Publisher
Knight Ridder Inc. (NYSE:KRI - news), also trying to get closer to ground zero of the dot-com world,
moved its headquarters from Miami to San Jose, Calif. last year.
But Wal-Mart's move goes a step beyond. Lining up a top venture capital firm as an equity partner
brings connections and talent, as well as access to funding. A respected venture capital firm like Accel
nurtures its investments along, and lines up the individuals needed to make them a success, said
Gomez's Robb.
''There are cheaper ways for Wal-Mart to go about it if they just want to raise money. But it would be
offline money -- and that would be dumb money,'' said Robb. ''But Accel will connect them to other
Internet ventures that want to shoot for the sky. They can find the talent that will let them do that.''
Accel already has invested in some of the most important Internet companies, from UUNet, now owned
by MCI WorldCom (NasdaqNM:WCOM - news), which now is literally the backbone of the network as
the largest traffic carrier, to Internet audio giant Real Networks Inc. (NasdaqNM:RNWK - news), whose
technology is used for most streaming video and audio content. Its also backed two of the past year's
hottest initial offerings, Foundry Networks Inc. (NasdaqNM:FDRY - news) and Redback Networks Inc.
(NasdaqNM:RBAK - news).
Wal-Mart's Les Copeland said that the partnership gives Wal-Mart ''access to an outstanding talent
base as well as emerging technology, which will help our Internet agility going forward.''
''Our mission is first to build the world-class management team that this opportunity warrants,'' said
Accel managing partner James Breyer in an interview. "In addition, we like to play extremely active roles
in helping to define strategy, marketing, technology and business development initiatives.
Breyer said there are ''significant advantages'' for Wal-Mart to be in Silicon Valley, both in adopting the
best technology available and linking with others strong Internet players.
Breyer noted that Wal-Mart was a pioneer in offering equity to employees to boost productivity. The new
start-up will be used as a way to offer equity to employees who participate.
Wal-Mart, like others, has grappled with the issue of how to attract, and keep the best talent in the
Internet era. Indeed, it's seen an exodus of its own young executives going to enemy at Amazon -- so
many, in fact, that Wal-Mart filed a lawsuit against Amazon, which later was settled.
Even Microsoft, a global technology leader that built its talent pool by rewarding employees with stock
options, has fretted over the issue, and a long list of young executives have left for start-ups.
Wal-Mart ranks near Microsoft as one of the most successful companies going public the past two
decades. Because it's been so successful, Wal-Mart's dot-com move is likely to inspire others to follow
the ''smart money.''
''In our opinion,'' said Merrill Lynch in a report, ''the spin-out is a smart move for Wal-Mart and is one of
many traditional retailer spin-outs that will occur in 2000.''
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