VerticalNet Shows Business
Acumen
(12/23/98; 2:38 p.m. ET)
By Tom Taulli, TechWeb
One up-and-coming company has the right name for an
IPO: VerticalNet, a leader in what are known as
"vertical trade communities."
VerticalNet builds websites for specific industries. The
offering's underwriters include Lehman Brothers,
Hambrecht & Quist, and Volpe BrownWhelan & Co.
The proposed symbol is VERT.
All VerticalNet sites have an online buyer's guide and
search engine, which allows for searching for specific
products based on name and supplier. VerticalNet
creates a marketplace, or storefront, for advertisers,
and includes news and product analysis created by an
in-house editorial team.
In addition, VerticalNet sites have communities where
visitors can engage in real-time discussions with other
industry professionals, freeware, demo software, access
to industry guides and virtual trade shows, a career
center with resume's and job listings, and finally,
requests for proposals.
Traditionally, access to all this information required
subscriptions to trade publications and trips to trade
shows. But those have drawbacks. For example, trade
magazines can be out of date by the time they're
published, and traveling to trade shows can be
expensive. They're also infrequent.
But with VerticalNet, you get the resources you need at
the click of the mouse.
In all, there are 29 vertical-trade communities.
Examples include: chemicalonline.com,
computeroem.com, testandmeasurement.com,
medicaldesignonline.com, publicworks.com,
poweronline.com, wateronline.com,
packagingnetwork.com, and pharmaceuticalonline.com.
They may not be the most exciting places to visit on the
Web, but they could become very important to
commerce.
VerticalNet's sites have yet to see significant traffic. For
example, wateronline.com had 83,006 unique visitors in
October and 237 advertisers. Then again, the traffic
they do get is highly targeted, something advertisers
like.
So far, VerticalNet's business model is based on
advertising revenue. Advertisers include industry giants
such as FMC, Hewlett-Packard, Motorola, U.S. Filter,
and Schlumberger. The company says it plans to
broaden its revenue sources to include education
services, e-commerce, online industrial auctions, and
sponsored newsletters and discussion forums.
The virtual business-to-business market is huge and
growing fast. According to Cambridge, Mass.-based
Forrester Research, business-to-business advertising is
expected to grow from $290 million in 1998 to $2.6
billion in 2002. Forrester also projects
business-to-business e-commerce will grow from $17
billion in 1998 to $327 billion in 2002. As for online
business auctions, revenue is expected to grow from
$8.7 billion in 1998 to $52.6 billion in 2002.
Building an extensive
network of sites is very
expensive -- especially
for a private company.
VerticalNet has pursued
an aggressive strategy of
strategic alliances with
Excite, Junglee, and
Onsale.com. VerticalNet
has also made its share
of acquisitions. In
September, the company
purchased RF
GlobalNet, which
operates rfglobalnet.com.
The site focuses on the radio frequency and wireless
communications industry.
For the first nine months of 1998, VerticalNet reported
losses of $8.3 million. The accumulated deficit stands at
$14 million.
Let's take a closer look at the financial results for the
first six months of this year, compared with the first six
months of 1997:
Revenue increased from $551,000 in 1997 to $1.9
million in 1998. This was primarily the result of the
increase of the number of vertical communities from 16
to 29.
Editorial and operation expenses, which include website
equipment, depreciation, salaries/benefits, and Internet
connection charges, increased from $674,000 in 1997
to $2.1 million in 1998.
Product-development expenses, for salaries/benefits for
technical personnel and consulting fees, increased from
$451,000 in 1997 to $798,000 in 1998.
Sales and marketing expenses, including
salaries/benefits for sales and marketing personnel, as
well as advertising, public relations, and trade-show
costs, rose from $1.3 million in 1997 to $4.4 million in
1998. With the IPO money, expect the company to
spend much more money on sales and marketing.
General and administrative expenses, which cover
executive compensation, finance, human resources, and
professional fees, jumped from $891,000 in 1997 to
$2.9 million in 1998.
VerticalNet has a first-rate management team. Mark
Walsh, the president and CEO, was perviously a senior
vice president at America Online. He founded AOL
Enterprise, the business-to-business division of AOL.
Michael Hagan, VerticalNet's senior vice of mergers
and acquisitions and product development, was
previously a vice president at Merrill Lynch Asset
Management. And Michael McNulty, a senior vice
president, has extensive experience in the
trade-publishing industry.
There is no other company that offers such a wide
variety of virtual online trade-resource sites. Yet there is
definitely a demand for such information and there is, of
course, demand for Internet companies looking to go
public. VerticalNet should do well in 1999.
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