Valuable acquisitions
reinforce the existing infrastructure
If you are a member of an executive team who paid a premium for a "pure-play"
Internet company prior to March of 2000, you probably are no longer on
the "fast-track." Such acquisitions have proven to be not only bad business
but also career-threatening. This was an unfortunate turn of events for
management and management consulting firms, many whom eagerly counseled
clients to make such acquisitions. But the real issue is that in the heat
of the first Internet build-out, corporations stopped asking the tough
questions and instead employed decision models that favored "projections"
over even the most rudimentary cash flow contribution models. There is
nothing new about this insight since it is has been a central theme of
thousands of Internet business stories over the last 18 months. However,
it is important to realize that it is probably not worth making most types
of Internet company acquisitions over the near-term. There are two reasons
for this view: 1) Most Internet companies were nothing more than loosely
defined methods for reaching customers over a highly impoverished interface
and 2) The tools and techniques used to create first generation Internet
companies lacked all manner of professional and scientific business process.
They were "prototype" companies. Therefore, any real valuations of these
companies must be taken at a huge (staggering) discount. Unfortunately
the capital formation markets did not understand the limitations of such
companies and drove valuations to, well, you know the rest of the story.
Now we have Internet companies run by executives who are still suffering
from "over-evaluation" hangovers and existing corporations with cash and
nothing to buy. This is probably a first for capitalism in the modern
era. So what strategic acquisitions make sense in this highly conflicted
environment?
The only reasonable buy decision can be viewed is acquiring an Internet
company that has effectively (I use this term loosely) built an "Internet-enabled"
front-end to your already existing and highly structured corporate or
industry data set. Merrill Lynch used this strategy when it acquired D.E.
Shaw in February 1999. An investment company with a highly successful
discount brokerage web site, D.E. Shaw provided Merrill Lynch with the
technology, and most importantly, the human capital to build and expand
its web site which is now highly regarded in the financial services industry.
This logical observation, that an Internet company acquisition should
complement the organization's existing structure, accounts for the recent
number of B-to-B Internet companies being acquired by bricks-and-clicks
businesses. In early 2001, for example, Staples Inc. acquired its spin-off
Staples.com, merging it with its Staples Direct unit. With Staples.com
integrated into the Staples Corporation, Staples has avoided a common
e-strategy dilemma, channel conflict. Its catalog and online business
are complementary and do not compete with one another. Rather than luring
customers away from traditional delivery models, the Internet enhances
them, offering customers greater choice.
Even so, the decision to purchase an "Internet-enabled" front-end for
your SKU list must be taken carefully. The reason for caution is that
most Internet companies were staffed by well-meaning but highly inexperienced
and unprofessional programming expertise. This skill-set profile made
it possible to get a system "on the screen" quickly. However, such unstructured
development methods are a virtual nightmare for companies that acquire
such systems. If the lead developers decide to go back to graduate school,
your investment is worthless. All relevant documentation resides with
the programming staff of record; this is not a good thing. It is safe
to say that spending several million dollars a year on management consulting
focused on acquisition profiles in the Internet space is a huge waste
of shareholder equity. But what planning makes sense in this new and confounded
environment?
Tactical decisions are the
field commander's best friends
While it is clear that strategic decisions are probably a waste of time
and money, the reverse is true for tactical planning. Never in the history
of technology has tactical planning been so important. If you want to
get yourself back on the "fast-track," there is no better way than to
put in place a formal, goals-based tactical planning program for your
e-commerce initiative.
In spite of what all the management-consulting firms are saying, no one
really knows, objectively, how to sell YOUR product or service on the
Internet. Yes, there are many well-established principles that aid in
usability and customer acquisition. But spoken by one who knows the rules
and principles, the most striking truth is that none of these concepts
mean anything unless they are specifically applied to your product and
your customers in a psychologically meaningful manner. Currently the only
way to begin the march toward a powerful and cost effective e-commerce
delivery system is by making short-term tactical planning decisions. This
process is most effectively achieved by doing two things: 1) setting up
the best real-time customer feedback system possible and 2) seeking assistance
in interpretation of that customer data by experienced professionals with
a history of creative problem solving in complex customer/sales environments.
Once you have these two factors in place you can then begin to make tactical
(short-term) decisions that focus on refinement of your current e-commerce
initiative. Against the backdrop of objective customer feedback you can
begin to make incremental, meaningful changes in your e-com business plan
and delivery system. In the end, you must win the small battles in order
to win the war.
Email the
editor with questions
and comments.
