RealTime IT News

Knowledge Can Be A Nice Niche

Strip away all the rhetoric, and there really are only two viable market strategies for Internet-based companies: 1) target a mass audience, a la the portal players and online retailers, or 2) establish yourself as a leader in a lucrative niche.

RoweCom, which went public Tuesday under the Nasdaq symbol "ROWE," has opted for the latter, focusing its efforts on providing Web-based electronic commerce services to organizations in "knowledge-intense" industries such as financial and professional services, high tech and health care, as well as academic and non-profit institutions such as libraries.

Based in Cambridge, Mass., the five-year-old company appears to be well-positioned in its chosen market, sporting the largest catalog of such knowledge resources on the Internet, a roster of big-name customers and a strategic alliance with a bookstore giant that could innoculate it against incursions by more well-known players.

RoweCom's 3.1 million shares were expected to price between $12 and $14 each, for a offering amount of $40.3 million, but was upped this morning to $16.

Don't be surprised, however, if like so many other recent Internet IPOs, RoweCom's stock ends the day well above that price, for the company is a market leader in one of the Internet's most promising sectors -- business-to-business electronic commerce.

The need to know

The company's flagship Knowledge Store (kStore) online service allows customers to purchase and manage the acquisition of magazines, newspapers, periodicals and other printed sources of information and analysis. Among RoweCom's high-profile customers are Arthur Andersen, BASF, Blue Cross/Blue Shield, Ernst & Young, Hewlett-Packard, Johns Hopkins University and the Lawrence Livermore National Laboratory.

RoweCom's service performs the neat trick of decentralizing purchasing decision-making while increasing central management and control. kStore enables individual employees, using browser software and their organization's intranets, to order from a selection of more than 5 million books -- thanks to a recent partnership arrangement with barnesandnoble.com -- and 43,000 subscription titles.

Yet kStore also gives managers the ability to manage customer account information, analyze buying patterns and avoid duplicate ordering. So employees are empowered, but there are controls.

RoweCom's revenue growth has been solid, going from $3.1 million in 1996 to $12.9 million in 1997 to $19.1 million last year. The biggest area of growth has been sales to corporate clients, which increased from $7.2 million in '97 to last year's $12.6 million.

Losses also have been increasing. RoweCom's net losses have risen from $1.45 million in 1997 to $7.6 million, with an accumulated total of $13.9 million through '98. Not overwhelmingly bad numbers, but a trend that needs to be reversed.

Fortunately for RoweCom, the company appears to have some running room, for a number of surveys and reports predict organizational spending on knowledge resources will skyrocket in the next few years. Veronis, Suhler and Associates estimates spending on knowledge services -- professional and business periodicals, market research, financial news and other information -- will grow from about $38 billion in 1997 to $51 billion by the year 2001.

Of course, projections like that draw a crowd, and RoweCom faces existing and potential competition from a number of fronts. The biggest threat could come from large news organizations such as Dow Jones, Lexis-Nexis and Reuters, which could augment current product offerings to include the types of periodicals and books available through RoweCom.

High-profile online book retailers such as Amazon.com and Borders.com also could try to penetrate the business-to-business market. But the five-year deal struck last August with barnesandnoble.com to cross-market their respective catalogs to business customers should go a long way toward helping RoweCom beat back those challenges.

On balance, RoweCom has much going for it. The company seems to have nailed down its electronic commerce model, boasts the largest catalog of knowledge offerings on the Internet, and is working in a high-growth market. All of which should make RoweCom attractive to investors.