VerticalNet: B2B First Mover

First mover has been the Holy Grail of Internet investing. How about the
first mover in business-to-business? I would say VerticalNet (VERT)
would fit the description. The company went public in the days when
only a handful of people even heard the acronym B2B.

However, when it arrived on the scene, I thought the structure was
unworkable. While B2C (business-to-consumer) sites can scale horizontally
(as Amazon.com has done by leveraging its base into online drugstores, CDs,
greeting cards and so on), I thought this would not make sense with B2B.
After all, what synergies are there between chemicals and steel and life
sciences and so on? Well, so far VerticalNet has skillfully built a B2B
powerhouse that spans over 50 industries.

In its early stages, VerticalNet was a content play, relying primarily on
advertising revenues. But the company has been shifting towards
transactional revenues. For example, the company recently announced the
VerticalNet E-Commerce Center. This platform gives B2B sellers all the
necessary tools, such as catalogs, career centers and transaction engines
(including auctions).

Actually, by focusing on content and building a user base, the company will
likely have better success with its transactional model. In fact, many
companies see VerticalNet as a very effective way to realize the many
benefits of B2B — quickly. Evidence of this was from an IBM deal. In the
agreement, VerticalNet will promote IBM products on the vertical
communities, whereas IBM will promote e-commerce communities on VerticalNet
(IBM has agreed to purchase 375 storefronts in the next 12 months).

VerticalNet has been growing its revenues nicely. In the latest quarter,
revenues were $5.18 million, a 477 percent increase from the same quarter a
year ago and $3.55 million from the second quarter of 1999. As for
traffic, this grew from 4.25 million in the second quarter to 6.03 million.
International visitors accounted for 40 percent of the traffic.

The company has developed many of the vertical communities internally. But
there have also been smart acquisitions. There was the purchase of LabX,
which specializes in the life sciences industry; CertiSource, a reseller of
certification and training materials; and Isadra, an e-commerce provider.
Then there was the purchase of the NECX Exchange, which is the leading B2B
marketplace for the electronics industry.

VerticalNet recently had another round of financing, raising $141.9
million. The money will help the company further expand its already
burgeoning B2B presence. What’s more, companies will seek out the services
of VerticalNet to get to market quickly in the fast-growing B2B space.
While the stock has had a healthy rise, there is likely to be more success
— as the company benefits from the tidal forces of B2B.