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".com" columnist Leslie Walker

Welcome to ".com - Live," a real-time, moderated discussion with people who are shaping the business strategies in the era of electronic commerce. My guest this week was Mark Walsh, chief executive of VerticalNet, Inc., the Horsham, Pa.-based company that runs online trade communities for more than 30 different industries.

VerticalNet is at the forefront of the rapid growth of business-to-business electronic commerce, which overshadows the dollar value of consumer ecommerce. While sales to consumers over the Internet totalled about $8 billion last year, sales between businesses exceeded $40 billion. And by 2003, business trading online is expected to exceed $1 trillion.

Mark Walsh

VerticalNet develops and runs content sites with names like WaterOnline.com, MeatandPoultryOnline.com and SolidWaste.com. Each site serves as an information clearinghouse for its industry, providing news, job listings and directories of suppliers and products.

Walsh was online Thursday to answer your questions about how electronic business communities make money, how they are affecting the cost structures of industries, and in what ways they differ from traditional trade associations.

You can check out VerticalNet's site.

Leslie Walker: Hello folks and welcome to Mark Walsh, who is well known to Washington-area folks because he lives here and has spent a decade and a half as a pioneer in interactive services. For several years, he led America Online’s outreach to small businesses. Before his stint at AOL, Walsh ran the online service GEnie.

Walsh became CEO of VerticalNet in 1997 and took the company public in February of this year at $16 a share. Today the company has developed more than 40 distinct trade communities online.

Leslie Walker: Could you take one of your communities---Chemical Online, say, or SolidWaste.com—and deconstruct its economics? Who pays what to whom? And for what?

Mark Walsh: Great way to start...

I will take one community, like chemicalonline.com as an example (we run 43 now).

Each is a separate URL, and a separate P&L (profit and loss center). Each has a separate audience aimed at that specific industrial arena.. and each has three ways we make money: A) selling "storefronts" at 7K$ a year to manufacturers and distributors in the chemical processing industry, B) Selling sponsorships and super-targeted advertising to the audiences we generate, and C) margins made on transactions that occur on our site.

Pittsburgh, PA: Who do you consider your competition and how are you different?

Mark Walsh: Our competition centers around three "bins" (tho I am not sure we have any "direct" competition today). first are trade publishing companies that run websites for their magazines. We are talking to a number of them about partnerships, since in many cases they are a bit hamstrung by traditional media economics from reaching out to the web as a platform for the advertisers in a real robust fashion. Second, "onesey or twosey" versions of us (we have a large portfolio) that focus on one area, and 3) large software companies that want to get deeper into a "community relationship with their customers..

Annapolis MD: How do you go about attracting an audience to these communities? How big does that audience need to be before VerticalNet makes money?

Mark Walsh: we do four major marketing efforts to get audiences 1) Direct mail and traditional trade magazine advertising... expensive or "old world" as it may sound.. we spend a lot of time and money reaching out to industry execs and buyers and suppliers through very basic and traditional methods
2) Trade shows.. we go to over 60 trade shows a year with a booth and all the trappings.

3) Portals: we have deep, rich keyword buying relationships or pure channel relationships with all the major portals.. go to the home page of AltaVista nd click on the link on the bottom left for Industrial Communities... that takes you to all 43 of ours
4) Partnership marketing.. through deals with content aggregators (Powerize) or software companies (Visio) or auction companies or distributors (To be announced) we are reaching out to more and more members (globally) of the audience base for each of our communities

Bethesda, MD: Who owns the communities you run? Does VerticalNet own them all? What's the relationship between all the trading partners

Mark Walsh: we Own all 43. we have bought 6 of them

Baltimore MD: What's the single most important driver of success in online business communities? Is it the nature of information you offer? The content deals in each category, because content is what draws people in?

Mark Walsh: Content Validates. We hire an editor in chief for each of our verticals. That editor comes from the industry and was a real "rock star" with the leading trade pub or trade group. He or she sets the editorial tone for the site.

Community engages: people in tight industrial markets really have a lot of common issues, much like people in consumer based communities have common interests and issues.. same behavior. Our chats and forums and job postings and resume banks perform the same service

Context Locks in: there is a real "THERE" there when you go to one of our cites. Total focus.

Commerce Wins: being able to source a vendor and get a transaction done is a another huge way to get and keep audiences.

we think we do all four

San Francisco CA: What's the biggest challenge or obstacle that electronic trade communities face? Also, what kind of things have surprised you about the way these communities evolve?

Mark Walsh: No surprise.. they act exactly like CONSUMERS!!! there is no difference between the behavior of an "enthusiast" or focused consumer on the web... and a B2B )business to business) user. Same dynamics. I have been to "both movies" as they say. Biggest challenge is the stunning lack of consistency amongst members of a tight business community as to how they describe their products and services. B2B buying and sourcing is so much more complicated than consumer buying.. in large part because of the enormous lack of standardization amongst similar products.

Rockville, Maryland: Non-profit trade associations and professional societies are the traditional clearinghouses for industry and professional information. Do you see VerticalNet as a company filling a need that these organizations are not effectively responding to.

Mark Walsh: Yes. They have lots of information, no doubt. but they tend not to be able to really make "marketplaces", nor do they provide a lot of services that are "web-centric". They are often wrestling with how to provide services on the web to their members and not threaten or kill their traditional revenue streams

we make markets and have no legacy behavior issues

Pittsburgh, PA: I'm an investor in Vertical Net and I would like to know how your company differs from a company by the name of FreeMarkets?

Mark Walsh: Is this Glenn Mekem?
LOL
Free Markets specifically focuses on creating real time auctions or "RFP" (request for proposal) environments for specific companies sourcing a "fungible" (comparable) good from several pre-qualified suppliers. Their software platform does the live anonymous bidding.

I like the company, but feel they will have significant competition soon. We have RFP/RFQ areas on most of our verticals too, as well as auctions, vendor catalogs and buyers guides, job listings, case studies, industry news alerts and information, educational courses, some virtual trade shows.. Many many more reasons to come to the community. I like Freemarkets and hope to do some business with them

Alexandria, VA: What do you offer that existing trade associations with web sites don't? Why should people come to your site?

Mark Walsh: I could go on for a long time... but.. trade associations list only their members, and only what their members want you to see or hear. They don't compare members to each other (too confrontational) nor do they source LEADS from buyers to multiple or individual members (too biased). They don;t provide negative stories about members (lose membership revenue) and many other differences. These statements DO NOT imply that they don't serve the industry well.. many are magnificent.. but there are limitations that we are able to be far more agressive on.

I mean no disrespect whatsoever to Trade groups.. but the web is a whole new ball game that shatters a lot of traditional models

Leslie Walker:
VerticalNet generated nearly $4 million in revenue last year. Can you tell us how you see your different revenue streams evolving over time—which will grow the most, and why?

Mark Walsh: today about 50% is through storefront fees, 45% through buttons banners and super focussed sponsorships, and 5% through margins on transactions. we expect margin revenue to grow fast, and become a bigger piece of the pie, and our overall revenue run rate to increase significantly.

Leslie Walker: You mention the "onesey" or "twosey" versions of you as competition. I assume you mean Chemdex and sites like that. How much of an advantage do you get from being an aggregator of verticals? Is there a consumer site--a big portal like Yahoo--that is analagous to your approach?

Mark Walsh: Portfolio approaches always beat solo brands. I know of no media, transaction, retailing, or service business where a portfolio of brands and audiences has not triumphed over a series of stand alone companies chasing one specific market.

We have enormous economies of scale across our 43 verticals with technology, software, customer service, sales, marketing and other costs being spread across multiple P&L's... further, we have the ability to test a wide variety of ecommerce, advertising, membership and premium content strategies and tactics in one or two verticals, then roll them out across a group of verts with "betting the farm" on one model.

I like Chemdex and wish them well, but we like being a portfolio a LOT

Leslie Walker: Experts predict a consolidation and shakeout for business portals over the next few years. How do you see the business portal landscape shaping up, say, in four or five years?

Mark Walsh: like the customer landscape on the net.. audiences will remain striated and segmented, but large "platforms" will agglomerate the overall services and enjoy the cost savings. We expect similar things to happen in B2B. We have already bought Six Verticals and rolled them into our model. You can expect more.

Our platform is robust and global, so we think there are significant opportunities for more M&A work by us.. here and abroad. remember, 40% of our traffic today is NON-US.. so there is a lot of global B2B stuff yet to happen

Austin, Tx.: Are there any sleeper business-to-business trends you consider important but aren't widely known?

Mark Walsh: Outsourcing...an overused term, but instead of paying SAP or BAAN or PeopleSoft a lot of money for a full ERP deployment, you can buy what you need (kind like ADP did with payroll)

Also, i mentioned it before, but global. We just did a deal to launch "mirrored" verticals in South Africa with a large media partner there.. that stuff will happen in all 1, 2dn, and 3rd world economies. Use of the net will beat US consumer adoption in other nations B2B environments.

Rockville, Maryland: How does VerticalNet plan to sustain a competitive advantage, when companies like Enterprise Objects -local- are offering affordable systems to enable associations to create and manage these virtual trade communities for themselves?

Mark Walsh: A) I challenge your assumption that trade associations will have the flexibility in their service-model to truly serve the BUYERS in a industrial community and not just their members.

B) I don't know the company you reference, but we have met with many great tools and software companies that can enable anyone to get on the net.. what matters is the audience and the representation to the buyer of multiple sellers who can solve their need. Thats what we do. We have bought a software company (ISADRA.com) and invested in one (TradeX) and licensed tool sets from three others (webmethods, Opensite and Aenied) for full flexible deployment by companies or trade associations.

Leslie Walker: VerticalNet announced last month is is partnering with the State of Maryland to launch a site at Maryland B2B.com. When will it start and what will it offer? Are you doing that with a lot of governments?

Mark Walsh: We have a couple of other states in the hopper, tho it might take some time.

MarylandB2B.com will launch in the fall if not before. The site is aimed at developing a place on the net where tech companies from outside of maryland can find out what a great place it is to locate, how tech friendly it is and can be, what companies are there now to service there tech or infrastructure needs, and develop business deals and relationships BETWEEN current Maryland based companies.

Amongst other things...
;-)

Washington DC: How many employees does VerticalNet have, and how are they allocated between individual communities vs. your company wide work force?

Mark Walsh: 330 employees.... each vertical has an editor in chief, a sales manager, an industry manager.... etc. we have "common" or shared people in tech, marketing, Cust. serv. bus. dev., admin, hr, etc,. across the company

Boston MA: Which of your trading communities gets the most traffic, and which is most successful?

Mark Walsh: age matters.. the older communities (launched more than a year ago) often get the most traffic.... we get tens of thousands (or more) visits per month per site.

Seattle WA: What's the most fun part of your job?

Mark Walsh: doing interviews with Leslie
;-)

Seriously, i love interactive services.. I got in this biz in 1986!!!!!!! EONS AGO!!! Continually energized and pumped up about the work. BUT.. I believe I have picked a winner..and VerticalNet is it. The B2B market will DWARF the consumer markets impact on the net... a decade from now I will look back and say "what was all the hubbub about buying records and books online... B2B is the place 2B!!!

Philadelphia, PA: What opportunities exist for ancillary service providers -e.g., advisors, etc.- to develop strategic relationships with your company to present communities with targeted content and-or services?

Mark Walsh: Jeez.. the short answer is that there is an Enormous amount of strategic deals we have to do. We are talking to content providers, software and service providers, business service companies (shipping, office supplies, banking, software), global media companies... etc. there is so much to do... as far as the term "advisors" I don't know what you mean. We don't employ many outside consultants, if that is what you mean.

Rockville, Maryland: We have the largest number of trade associations in the world right here in the Washington DC area. Should associations feel threatened by your company's entrance into a world non-profits have traditionally served? Are they doing an inadequate job serving their communities on-line?

Mark Walsh: NO NO NO NO NO NO. We are not a threat. We have done five cool Trade association deals where we share traffic, we promote their rich content (even SELL it online) promote their show, give them storefronts to promote their services (lobbying, standards, etc.)

Trade Groups will always exist and the good ones will always thrive... we are a technology enabler for the ones who like us.. and a mis-perceived threat for the ones who don't. The few trade associations who have really gotten paranoid about us, I feel, we most paranoid about the internet in GENERAL threatening them. I told them... "it's not just us.. you should watch out for the waves and waves of "us-es" that will come later...."

Leslie Walker: You make the MarylandB2B site sound like a marketing brochure!! Seems like that's what maryland's economic development dept. already does online. How can VerticalNet make a difference?

Mark Walsh: Brochures are statics and ineffective. If you were looking to build a tech facility in the middle atlantic, would you not want to know who is there now that services your competition or your suppliers, or talk to the ceo of a local company that just moved there, or get a power quote from BG&E on the types of uses you have, or get MD state transit board to give you typical commute patterns LIVE etc, etc, etc.

the net brings business needs and questions to life! Brochures don't cut it anymore

Leslie Walker: Now it makes more Net-sense!

Leslie Walker: Now it makes more Net-sense!

Leslie Walker: Mark, from your vantage point, you've got an unusually good view of how the Internet is transforming traditional businesses of all kinds. Where do you see the biggest impact? Who are the edinosaurs.com of the future?

Mark Walsh: remember.. evolution not revolution. Old business practices will never die.. they will weaken. Golf Games and sales calls and Conventions and advertising and trade magazines and buyers guides and directories.. these business will come under duress, but will always have life and value.

AS WILL DISTRIBUTORS with Value Add in the Value chain. The internet is NOT a death knell for the old way of doing business,... it simply accelerates the Darwinian process of weeding those members of any industrial or B2B market that don't do their job well or efficiently.... just as the net is starting to do in some focused traditional consumer markets (stocks, books, CD's, travel, etc.)

Companies like us are there when the tectonic changes occur, but we are agents and makes of change, not angels of darkness out to shred prior successful models.

in three years, EVERY Single B2B purchase will have some internet component in it. Thats what we believe. It may be data, or community, or catalog, or research, or transaction, something purchase will have some "net" in it.

New York, NY: What's the threshold size of a B2B community to get your attention?

Mark Walsh: 8B$ in domestic transactions over 2K vendors, etc. etc., Lots of metrics that I would rather not share here (nothing personal)

London : Do you think most U.S. businesses fully appreciate how much more global commerce is in the Internet era? Or are American business people still slow to see the sea change occuring?

Mark Walsh: The latter. As I say here.. Verticalnet is putting the "world" back in world wide web. Since 40% of our traffic is non US (from all over, china, HK, RUssia and SSR's, EREC, etc. etc.) we see EVERY DAY how incredibly powerful our model and our communities are in the global markets we address...IT BLOWS OUR MINDS.

DC: What criteria do you use to determine if you will open a community in a certain industry?

Mark Walsh: see prior answer. We have about 20 "metrics" or "dials" we look at and grade. If it scores well we go after it, first researching who is competing on the web today, then either partnering with them or competing, or in six cases, buying them.

New York, NY: Mark - Where do you see VerticalNet five years from now?

Mark Walsh: Although William Shatner says it about priceline... we think this is going to be big... really big.
;-)

we will be very global, and very commerce centric, and probably in many more verticals

takoma park md: how do you define success other than revenues? How many people visit your site and how to you differentiate between those who are repeat visitors and new visitors?

Mark Walsh: Audience is what matters... I wont go into specific Verts, but we like how we attract and retain audiences of Buyers and suppliers

Mark Walsh: I am going to wrap this up. Thanks, Leslie for having me. This was a great forum, and thanks to all the questioners and "readers" for your participation.

Bye.
MLW

Leslie Walker: That’s it for today, folks. Thanks to all who sent in questions, and thanks especially to Mark Walsh for taking time to be with today. We hope he’ll come back early in the new century so we can hold him to his predictions!

Meanwhile, please stop back in two weeks-- on July 29-- when our guest will be Mary Ann Packo, president of Web measurement firm Media Metrix Inc. Until then, cheers!