NetObjects: Quietly Building Its Small Business Portal

On Monday, Lycos announced its ambitious shopping destination site, called
simply enough, LYCOShop. The site provides full-service hosting for online
merchants — such as The Sharper Image, Neiman Marcus and more than 1,000
other merchants — to sell their wares to the massive Lycos user base.

This, of course, comes on the heels of Amazon.com’s similar endeavor,
ZShops. Why is this such a big deal? Because it is a win-win. Consumers
get choice and merchants get an easy way to market their products.

But there is one company doing something similar that has not garnered
the hype or surge in valuation:
NetObjects
(NETO)
.

The company’s roots are in the development of software tools. The most
popular has been Fusion, which allows for the creation of Web sites.
However, it is a competitive market, involving such players as Microsoft
and Allaire, yet NetObjects has been able to create a loyal customer base
of over 500,000 — many of which are small businesses. And they definitely
want value-added services.

According to International Data Corporation, there were 44.7 million small
businesses and home offices in the US in 1998. This is expected to swell
to 57.6 million by 2002.

Over the past few months, NetObjects has been piecing together a strategy
to capture its share of the small business market:

  1. Sitematic: NetObjects purchased this company, which allows for the
    Web-based creation of e-commerce catalogs and stores. Other services, as
    well: domain name registration and Web marketing. Sitematic has
    partnerships with OfficeMax, US West and Sir Speedy.

  2. Hosting: NetObjects signed a co-marketing agreement with Concentric
    Network to provide free Web site hosting services.

  3. Portal: NetObjects will launch its destination site for the small
    business market on December 6, 1999. It will become a one-stop source for
    small businesses, including the tools from Sitematic, hosting services and
    tutorial information (this will come from an existing site of NetObjects
    called eFuse.com).

But NetObjects has other opportunities besides small business.
In fact, IBM promotes NetObjects products to its massive channels (IBM is a
major investor in NetObjects). Taking advantage of this, NetObjects
released a new product called the Authoring Server Suite 2000, which allows
for collaborative intranet site building. The software provides a variety
of key features, such as cross-site linking, automated task scheduling and
instant messaging.

Of course, the market for the product is huge. According to International
Data Corporation, one out of every four dollars spent on corporate Web
initiatives was spent on intranets in 1998.

NetObjects had its IPO in the middle of the year, but has struggled since
then. The stock now trades at about $6 per share. But the company has $70
million in the bank, is showing a run-rate for revenues of $20 million per
year and has effectively controlled its burn rate. At its current price,
the stock looks very attractive.


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