ShopNow.com buys into balance

THE SEATTLE-BASED online company is fashioning a mix of consumer and business services that founder Dwayne Walker believes will be the next big trend in Web commerce. But so far, Wall Street has a wait-and-see attitude.

In the brief popular history of commerce on the Internet, consumer retailing has received most of the attention, followed closely by sites that sell to businesses. The next chapter might be a hybrid that offers services targeted to both businesses and consumers.

Dwayne Walker calls it "e-business enablement" and hopes the company he heads, ShopNow.com, is ahead of the next trend in Web commerce.

"We're not trying to be a business-to-consumer e-commerce, nor business-to-business e-commerce. The main thing that we provide is e-commerce infrastructure," said Walker, a former Microsoft senior manager who invested in and then bought a company called TechWave. He renamed it ShopNow.com to reflect its transformation from a computer consulting company to a Web company.

ShopNow.com provides a range of services for merchants and consumers, including hosting Web sites, online marketing and a virtual mall with online shops. It's a mixture of consumer and business commerce.

But Walker still must overcome some investor skepticism that ShopNow.com has a winning formula.

Since going public in September, ShopNow.com has been on an uneven course on the Nasdaq, especially compared with other high-tech companies. After opening at $12, the stock lost more than a dollar in its first day of trading, it doubled to a high of $25.125 in December and it's trading today around $17.

"It definitely is not a clear play in one category - you can't just list it as business-to-business because of the consumer side," said Brian Bolan, an Internet analyst with Madison Securities in Chicago. "The original look gave it more of a consumer feel, and people just wrote this off as a site where there are links to retail sites."

Initial impressions can be deceiving. ShopNow.com's home page offers two routes: e-shopping or e-business. The shopping part looks very standard - lots of merchandise categories.

It's the business side that begins to reveal the depth of ShopNow.com and the services the company offers to get business customers on the Internet and help them market their sites once there.

Walker is still putting in place the pieces he believes are needed to offer a complete package to business customers.

Acquisitions broaden services

Following its Sept. 29 initial public offering, which raised about $87 million, Shopnow.com has been buying up an assortment of Web-based companies, including:

-- WebCentric, a Wichita, Kan., competitor, in a stock deal valued at $50 million. WebCentric, which operated bottomdollar.com, had a searching technology that lets consumers compare online retailers' prices, services and shipping charges. The technology is being incorporated into ShopNow.com.

-- Speedyclick.com, a Web site aimed at women, in a stock and cash deal worth $50 million.

-- Ubarter.com, a Seattle-based operation, in a $45 million stock deal last month. Ubarter.com, which recorded a loss of $798,000 on sales of $504,500 in the fiscal year ended last March, aids the online bartering of goods and services.

Other acquisitions included Cortix and CardSecure.

With the acquisitions, ShopNow.com's payroll has reached 450, up from just five people when Walker became an investor in TechWave.

With stock-option wealth from both Microsoft and a career at onetime software powerhouse Ashton-Tate in California, Walker did careful research before plunging into the company he recast as ShopNow.com.

"I have always believed that small to medium businesses power the economy, but they have always been restricted by geography," he said. "The Internet is a way for small to medium business to reach a larger market."

That massive middle-of-America enterprise forms the backbone of the 40,000 businesses ShopNow.com provides access to. It also accounts for about 80 percent of the company's revenue.

Walker said the site generates 75,000 sales leads for business customers every day. Media Matrix ranked ShopNow.com as the 17th busiest Web site during the recent holiday period, ahead of sites operated by computer maker Dell and Ticketmaster.

Yet for all that traffic, the stock has hardly performed like the high fliers in technology.

Walker called it "weird" that Wall Street first backed consumer-oriented Web companies, then those selling to businesses. "But what they forgot was the people in the middle, the infrastructure companies. We are tremendously undervalued," he said.

Because of the IPO in September and the required "quiet period" when companies have to restrict their public messages, the full story of ShopNow.com never really got out to investors, Walker said.

Financial picture to get clearer

He said the first quarter of 2000 will provide a truer picture of the company's performance. It will beat analysts' expectations of sales of $10.5 million for the fourth quarter of 1999 when those results are issued in a couple of weeks, he said.

Some analysts, including Madison Securities' Bolan, agree with Walker. They say a fairer price for the stock is around $32.

However, ShopNow.com competitors - CyberSource of San Jose, Pasadena-based GoTo.com, and Digital River of Eden Prairie, Minn. - have all enjoyed more successful public offerings and larger market capitalization.

For example, CyberSource stock opened June 23 at $11, raising $50.6 million, and returned for a follow-up offering that raised $224.2 million. The share price peaked at $70.50 and currently trades around $45. CyberSource's market capitalization is $989.62 million, compared with ShopNow.com's $590.4 million.

"Those companies have been public a lot longer than we have and have higher valuations," Walker said. "We encourage our shareholders to look at our company with a long-term determination based on the company strategy.

"We're in a space that is growing 200 to 400 percent, depending on whose numbers you are looking at," he added. "We have more demand than we can service."

Gordon Black's phone message number is 206-464-8557. His e-mail address is: gblack@seattletimes.co.