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VerticalNet Headed Down
By Marcella Bernhard


Lucky for VerticalNet that it has a sugar daddy with deep pockets. Thanks to a $40 million infusion from Microsoft , the online business-to-business marketplace has the funds to fuel its most recent makeover as an e-business software maker.
But, though VerticalNet is celebrating, the deal is actually a way for Microsoft to get out of an earlier agreement that promised VerticalNet $161 million over three years to build "storefronts" for e-commerce. After handing over just $42 million of that money, Microsoft squirmed out of the remaining $119 million when VerticalNet agreed to its $40 million offer.

Payments from Microsoft contributed mightily to the $145.1 million VerticalNet had on hand as of Dec. 31. But with its new deal, announced April 26, Microsoft may have given VerticalNet just enough rope to hang itself. The Horsham, Pa.-based company is in for a bruising fight as it tries to take on software big shots like Commerce One and Ariba .

"This company has the chips stacked against it. Software is an extremely competitive sector," says Derek Brown, an analyst with W.R. Hambrecht in San Francisco.

And VerticalNet is limping already: The company has undergone at least four different incarnations since starting out as a content company in 1995. This year the company lost crackerjack Chief Executive Joe Galli after just five months; its shares have since plunged to under $2. Thanks to a weak advertising market, VerticalNet`s losses jumped to $28.2 million in the quarter ended March 31, from $13.6 million in the same period last year. Finally, the company just cut 25% of its staff in an effort to rein in costs.

With little experience dabbling in the area already, VerticalNet now wants to make software its core business. Its products, which will include software programs to track product information and customers, will be released by the third quarter of this year.

VerticalNet is fighting for a tighter relationship with the businesses that use its 59 online marketplaces, including Dairy Network.com and Pulp and Paper Online , to buy and sell goods. Forget its thankless role as matchmaker for buyers and sellers, now VerticalNet wants to be "life support" to the companies it serves, says VerticalNet CEO and founder Mike Hagan.

Microsoft`s sees VerticalNet as a way to finally break into the small business market, which has remained beyond the software giant`s enormous grasp. Still, most analysts wonder why Microsoft is keeping VerticalNet afloat.

"It seems like Microsoft is paying $40 million for VerticalNet`s research and development," Brown says.

He and others wonder why software powerhouse Microsoft doesn`t instead spend the $40 million developing its own products. You`d think Microsoft has already suffered enough, considering it shelled out $100 million for a 2% stake in VerticalNet in April 2000--right before shares of VerticalNet took their sharpest plunge.

Microsoft, however, argues that it`s smart strategy to use third-party developers to tailor its software to narrower uses. Besides, VerticalNet has built a great business-to-business platform and has impressive assets, including 24,000 companies that use its online marketplaces to buy and sell goods, Microsoft representatives say.

"We need VerticalNet to take our platform software and make it right for all kinds of marketplaces. They even have a marketplace for solid waste, SolidWaste.com. That`s just not something Microsoft would do," says Nigel Burton, general manager of business development for Microsoft`s bCentral division.

Under the previous agreement, Microsoft paid VerticalNet $2,100 for each e-commerce storefront VerticalNet set up. Unsurprisingly, VerticalNet threw together 20,000 storefronts for the hefty price of $42 million. Obviously, Microsoft wasn`t getting a lot for its money, and it`s pretty clear why it renegotiated the deal. But transform VerticalNet into a leading e-business software company? Not even Microsoft money can do that.

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aus der Diskussion: Verticalnet,keiner spricht mehr darüber??was ist los???
Autor (Datum des Eintrages): erfg  (02.05.01 21:37:56)
Beitrag: 9 von 12 (ID:3436395)
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