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.

Get the Free Newsletter!

Subscribe to our newsletter.

Subscribe to Daily Tech Insider for top news, trends & analysis

News Around the Web