IBM's Heroes and Zeros

In the fall of 1998, IBM began a mainstream advertising campaign for its e-business services in which it profiled dozens of customers for television, radio and Internet spots. People soon knew exactly which online companies were under Big Blue's wings, whether the companies were leveraging IBM's hardware, software, Global Services or all three. By 1999, it seemed the red "e" was everywhere.

IBM wanted the brightest and best e-businesses on the Web for its case study advertising campaign.

"The point was to show there were real customers out there doing e-business," says IBM spokesman John Bukovinski. "We selected a variety of customers to show the reach of e-business." IBM included global corporations, such as Delta Airlines and DuPont, and popular brand names, including PetsMart, as well as emerging dot coms, such as Buy.com and other aspiring Web companies. That was then.

Much has changed in more than three years. The promotions and advertisements were running at the height of the dot-com craze when everyone thought they could sell anything over the Web and make a profit. Bukovinski even said, "it's virtually never the case that an IBM e-business goes out of business."

Bukovinski was wrong. VARBusiness examined seven e-businesses picked by IBM to embody the company's powerful services and solutions for the digital economy. The group reflects the wide variety of customers within IBM's e-business program: global corporations, Internet giants, brick-and-mortar companies, small and midsize businesses, and B2B sites. Where are they now? The results may surprise you.

Chemdex

It's easy to see why IBM, which provided software and integration, chose Chemdex in 1999 for a customer case study on services for the e-marketplace. Founded in 1997 by David Perry, Chemdex became the B2B e-marketplace before it was hot. The company achieved early success as an online exchange for the life sciences industry and later spawned other e-marketplaces as well as a parent company, Ventro, headed by Perry.

But last December, the parent company decided to cannibalize two of its e-marketplaces, Chemdex included (at press time, scheduled to shut down March 31), and shift its focus to building and hosting customer e-marketplaces instead of running its own. As a private e-marketplace, Chemdex couldn't attract enough business in an emerging market to support itself.

"We made an enormous investment in infrastructure, and we weren't going to get that back with Chemdex, because getting to critical mass was too far off," says Tom Hammer, Ventro vice president of marketplace development. "We didn't shut Chemdex down because it wasn't a good marketplace. It was about liquidity."

It's possible the e-marketplace pioneer was a victim of simply being ahead of its time. In addition, it's an understandable error for IBM to roll out Chemdex as an e-business poster boy, considering the B2B buzz more than a year ago. Ventro continues to work closely with IBM, in fact. But Big Blue should have looked more closely at the numbers before stamping Chemdex with an "e."

Grade: e-

eSeeds.com

The polar opposite of most ailing major e-tailers, the "International Source of Gardens Seeds" started as a hobby for Mala Gunadasa-Rohling, president and CEO of the company. ESeeds started in 1995 after Gunadasa-Rohling began creating gardening-information Web sites for local clubs and aficionados in her hometown of Vancouver, British Columbia. With the help of her Web-savvy husband, Gerry Rohling, eSeeds' vice president, she launched a small e-commerce site to sell seeds, plants and gardening tools. Soon after, Gunadasa-Rohling employed IBM to help develop the e-tailing site with the Net.Commerce suite and Netfinity Server.

IBM's "e-sprout," as the company advertised it, saw a 500 percent increase in monthly sales after becoming an official

e-business, according to both companies. Technology aside, the most valuable part of IBM's involvement may have been the case study promotions themselves, which gave the small, private company worldwide exposure and sales.

The business is running catalogs with more than 10,000 items and also supports a sister site, Hedgerows Garden Tapestry, a gardening information center. Gunadasa-Rohling says the operation is in the process of opening an office in the United Kingdom and is looking to expand in the United States and Australia. In this case, IBM gambled on a small e-business that turned into a magic beanstalk.

Grade: e

eToys

The fall of this brand-name, e-commerce site, once considered a titan among e-tailers, displays one of IBM's biggest failures in the e-business ad campaign. Not long after eToys launched in 1997, IBM installed an "e-business data center" with Intel-based NUMA-Q servers that could handle thousands of transactions a day for millions of users. The system also provided customized systems for order fulfillment, disaster recovery and customer data warehousing. The e-tailer shot to the top of the charts as the largest online seller of toys and children's products.

But barring a major miracle, eToys will shut down this week after growing too fast and burning too much money before turning a profit. "eToys does not believe additional capital will be available" to sustain operations, the company announced on Feb. 5. eToys fired its remaining 293 employees in early February after sending out 700 pink slips the previous month following a fatally slow holiday online shopping season.

The downfall of eToys can't be pinned on IBM and its technology, however. Then again, IBM can't exactly boast eToys as an e-business success story. A word to Big Blue executives: Take the case study off your Web site.

Grade: e-

Duckhead.com

A brick-and-mortar clothing retailer based in Winder, Ga., Duck Head has been around since 1865. The company has run into some financial troubles recently with a chronically low stock price (around $2.75 in early February, according to the American Stock Exchange) and slumping sales. There was also a recent management shake-up after the board of directors launched a plan to increase shareholder value. Will that include a push for more online business for the 26-store khaki chain? Possibly.

Duck Head CIO Henry Greene says IBM has been crucial to the company's Web site, which launched in the summer of 1998 with Net.Commerce and other IBM products as the foundation. Duckhead.com was promoted as one of the first IBM e-businesses and quickly garnered more than 500 visitors a week, which soon turned into sales, thanks to the combined marketing effort of the two companies.

"It's been a mutually beneficial relationship," Greene says. "We're selling in all 50 states now, and the Web site continues to grow."

Still, sales have not been explosive. Both IBM and Duck Head anticipated online sales would double every year for five years. Nearly four years after that expectation was announced, Duckhead.com does approximately $200,000 in business a year. The company says online sales will increase this year, but doubling seems farfetched at best. "We're a pretty typical midsize click-and-mortar business," Greene says.

While there may be potential for Duckhead.com to increase its business, the lofty goals for the Web site appear out of reach.

Grade: e (average)

PlanetRx

This online pharmacy is another high-profile disappointment. PlanetRx announced in February that it would close its medicine cabinet for nearly all of its items by March 12 and transfer current customers to former rival Drugstore.com. PlanetRx will remain in business to sell expensive specialized prescriptions for cancer, HIV and transplant patients, company officials say.

The superstore Web site started off hot, which is why it got the trademark seal of approval from IBM. The company opened its virtual doors in 1999, securing $50 million in funding in June, and going public in July. PlanetRx was pulling in more than 250,000 transactions a month after IBM installed its WebSphere Application Server and DB2 Database. Despite its initial success, "the No. 1 online drugstore," as it's referred to in the IBM case study, fell quickly.

A year after going public, PlanetRx relocated its headquarters from San Francisco to Memphis, Tenn., trimmed its workforce to cut operational costs, and was searching for additional financial support from investors. The company was delisted from the Nasdaq market in January after its stock price remained below $1 for more than a month.

The technology and services supplied by IBM were sound, but Big Blue should have looked before it leaped into advertising PlanetRx as an e-business success story. Will a revamped Planet Rx survive after the fall? Maybe, but the bitter pill is that the e-business IBM had advertised is dead.

Grade: e-

The Shirt Tailor

In 1999, solution provider Mainline Global Systems developed its own e-commerce site, The Shirt Tailor (a.k.a. ShirtTailor.com). Mainline president and CEO Rick Kearney launched the small online apparel store that specialized in customized shirts. Since IBM was a Mainline partner, Big Blue was the obvious choice to provide the technology, and soon The Shirt Tailor had its own "e."

"IBM is great because they give us a lot of credibility,"

Kearney says. "We still get e-mails and orders from people all over the world who saw those advertisements."

But the e-tailing site was more of an experiment than an enterprise-level endeavor. The Shirt Tailor's customer numbers are "in the hundreds," Kearney says. "It was never intended to be an e-tailing site that would sell shirts on a massive scale," he says. "We just wanted to prove that you could sell customized shirts over the Web."

Experiment or not, the Web site is still a viable business. In fact, Mainline is creating another version of The Shirt Tailor and developing other e-commerce ventures as well. IBM wanted to show a wide range of sizes and operations in its e-business campaign.The Shirt Tailor certainly takes care of the small-business category.

Grade: e

Unicycle.com

Of all the IBM e-businesses, this one may be the most unique and noteworthy case. John Drummond was a 23-year IBM veteran and avid unicyclist when he decided to start an e-tailing site with his wife, Amy, in the spring of 1998. He turned to his employer for support, which helped build the Web site by providing integration services for automated order processing. It started out as a part-time operation from their Atlanta home, but it grew so quickly that Drummond had to leave IBM to helm the company full time.

"IBM is the difference between our site being down for an entire week and being down for just a few minutes," John Drummond says. "It still amazes me that a huge corporation like IBM would care about us, but it does."

The Drummonds say IBM's advertisements and promotions have given Unicycle.com incredible exposure, which helped the company go from some $1,000 in sales the first month of business to more than $100,000 last December. The Web site itself may not be pretty or flashy, but the Drummonds see it as everything that is great about e-commerce.

"We could never have a unicycle store because there wouldn't be enough demand in one area," Amy Drummond says. "But with the Web, we can sell all over the world."

In the end, the Drummonds' company is the anti-eToys, thriving as a small business that avoided growing pains and big investments. IBM deserves credit for not only keeping ties with a small business that seemingly had everything going against it, but for continuing to promote the e-tailing site as well. Advice to IBM: There's an open space on the case study Web page where eToys used to be.

Grade: e

Results

While Big Blue can't be blamed for all the failures and shortcomings of its e-business customers, it wasn't immune to the mass bandwagon-hopping for dot coms and e-commerce in the late 1990s. Investors, solution providers and Web integrators took their hits in the dot bombing of 2000, and IBM now has, too,at least from a marketing and advertising perspective.

Still, there's no denying the benefit of having a global corporation and brand name throw its support behind aspiring small and midsize e-businesses. Perhaps that's why the smaller companies we examined have survived, and even thrived, while the larger organizations have buckled under their increasing costs and growth. As Bukovinski puts it, "There are a lot of smaller companies lining up to be featured in ads like [the e-business campaign] to get the kind of exposure IBM can provide."

IBM's e-businesses are a mixed bag, but the company certainly pushed the enticing idea of e-business to the mainstream and its customer promotions have encouraged midmarket businesses to go digital.

Now it's time to find a new generation of e-businesses.