IPO Pipeline: Content + Commerce = How2
cnbc.com
by Hal Plotkin
Silicon Valley Correspondent
Although implementation challenges remain, analysts say they?re impressed with the way
IPO-bound How2.com Inc.?s business model marries content and commerce.
"I?m certainly optimistic about the space they?re in," says David Cooperstein,
research director at Forrester Research, based in Boston. "The beauty of the
Internet is the way you can tie content and commerce together. How2 has a
perfect link between the two."
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That?s high praise considering the source. Cooperstein, one of the
more-seasoned digital-commerce analysts, has been publicly skeptical of
several other online business models, particularly those employed by
companies, such as Mountain View, Calif.-based Epinions.com, that are trying
to use expert or consumer opinions to drive online sales.
"How2 is different," Cooperstein says. "They clearly have a viable business
model."
Dallas-based How2.com was spun off earlier this year from software-maker
Citadel Technology Inc. {CITN}, also based in Dallas. The 180-employee
company is aiming to become a one-stop source for online information,
products, and services. The idea is to turn consumers seeking information into
customers buying solutions to their problems.
"There?s no question there is a
huge demand for this kind of
stuff," says Blaine Mathieu,
senior analyst at Dataquest,
based in San Jose, Calif.
"Surrounding commerce with
content is a booming trend."
Check out How2's Web site
Overall, the U.S. market for
companies selling items over the Internet is expected to grow to more than $42
billion next year from $20.5 billion this year, according to Dataquest.
At present, only a tiny fraction of those sales are taking place through Web
sites, such as How2.com, a market sector some experts call "cooperative
e-commerce." The term describes a business model where one company, in
this case How2.com, provides content and then links the customers it attracts
to allied Web sites where sales orders are processed, usually in exchange for a
commission of some sort.
"Essentially, How2 is building content as a media company," Cooperstein
says.
One of the keys to How2.com?s business model is the fact that, thanks to the
Internet, allied online merchants are always just one mouse click away from the
company?s Web site, which makes it easy for consumers to immediately locate
whatever they might need.
The Internet?s power, however, could also pose problems for How2.com if, for
example, consumers turn to the site to learn how to do something, say interior
decorating, and then decide to look for the products they need on competing
comparative shopping Web sites that can help them find the lowest price.
"I don?t think that?s going to be much of a problem," says Kevin Werbach,
managing editor of Release 1.0, a leading high-tech newsletter based in New
York. Werbach says the example of Amazon.com Inc. {AMZN} demonstrates
that many consumers are more interested in convenience than shopping around
to save amounts that are often quite small.
"You can get a better price on almost everything Amazon sells at the
comparison shopping services," Werbach says. "But as long as the value of
what they offer is close enough to what can be found elsewhere, most
consumers don?t want to go to more trouble."
Werbach says that a substantial amount of commercial transactions come from
consumers who have questions of some sort. That, he says, gives companies
such as How2.com, which focus on answering questions first and selling goods
second, an advantage over more traditional online e-commerce firms that
merely push product.
"I think [How2.com?s] business model has legs," Werbach says.
Although analysts are impressed with How2.com?s approach, they also stress
the challenges that confront the company on its road to profitability. A quick
visit to the How2.com Web site, for example, reveals a noticeable dearth of
products associated with many of the tutorials offered by the company. In some
cases, the only related products available are books that can be purchased
through Amazon.com.
Blaine Mathieu of Dataquest says he isn?t particularly worried about that right
now, noting that the company launched its service just months ago. "The
bottom line is that they have a valuable concept," he says.
Even so, Mathieu expects it will be some time before How2.com is able to
pump a significant amount of sales through the channel it is creating.
"It?s all a matter of execution," Werbach agrees. "But I don?t have any doubt
that this is going to be a big space for e-commerce."
How2.com?s IPO could also be boosted by the ambitious advertising campaign
recently launched by the company. In Silicon Valley, and other regions with
large numbers of Internet users, for example, the company?s ads, which appear
on buses and in other media, are becoming increasingly hard to miss.
"Online experts are popping out of the woodwork," Mathieu says. "But How2
has a good chance of building a strong brand." How2.com?s advertising effort is
being coordinated by Austin, Texas-based GSD&M, a firm that handles
brand-building for major accounts such as MasterCard International, Southwest
Airlines Co., and Wal-Mart Stores Inc..
How2.com posted a loss of $2.15 million on revenue of about $870,000 from its
inception on Jan. 7 through June 30.
The date for the company?s IPO hasn?t yet been set. |
