Big bucks flow to big fish -- so they say in the capital market.
That certainly appears to be true, as the latest industry statistics
reveal a capital shortage of nearly $20 billion for small start-up
and emerging growth companies. In the high-stakes financial
market, these companies are often overlooked by financiers despite
the promise of spectacular growth rates, which range between
20 to 50 percent. Since the capital needs of small companies
are modest -- usually no more than five million dollars -- large
financial institutions, with huge overheads and fees, find it
unprofitable to manage their initial public offerings (IPOs).
Enter Direct Stock Market (DSM) -- a virtual capital market
for small-cap companies that reduces the cost of accessing capital
from the primary market. A meeting ground for investors and
entrepreneurs, DSM allows companies to make available online
their prospectus, corporate profile, financial statements and
even a virtual road show to a literally limitless audience of
small investors. Says Clay Womack, CEO of DSM, "Investors are
just beginning to realize the potential of emerging growth companies.
Our electronic community will ride herd over this market."
Powered by Lotus Domino, DSM has already cornered 25 percent
of the IPO market for small-cap companies, with as many as 35
IPOs listed at any time. These companies have raised nearly
$45 million through DSM. Immensely popular, the service has
more than 11,000 registered users, with nearly 50 new users
signing up daily. On a typical day, 1,000 users visit the site.
Says Womack, "Lotus Domino gives us the ability to build discussion
groups where investors directly pose questions to the company
management over chat rooms and share knowledge with other investors.
This gives investors the confidence that they're making informed
Fledgling companies save millions
on IPO costs
For the companies, the savings are tremendous. The total cost
of bringing an IPO to market can be slashed from an average
of $300,000 to $500,000 to about $75,000 -- a nearly 85 percent
reduction -- by eliminating the costs tied to printing and mailing
thousands of copies of their prospectus to potential investors.
At DSM, investors can download the prospectus and participate
in virtual road shows that integrate graphical presentations
with realtime streamed video and audio and a chat room. "Rather
than spending as much as $100,000 traveling to dozens of cities
with an entourage in tow, companies can create a virtual road
show that reaches more people, spending just $5,000 for an hour
of broadcasting," claims Womack.
With the promise of such savings, Womack's goal of capturing
60 percent of the market by the end of 1998 seems well within
reach. DSM's revenue has catapulted to nearly a $2.5 million
run rate this fiscal year, up from $85,000 the year before.
Lotus Domino makes Web businesses
DSM has been able to provide this imminently affordable service
in large part due to its low development costs, a saving it
passes on to its customers. "With Lotus Domino we cut development
costs and time-to-market by 70 percent," Womack notes. "That
translates to a nearly 300 percent return on investment. We've
acquired commercial Internet capabilities for less than $100,000
with Domino. It's the kind of technology that represents the
true potential of the Internet."
Companies submit corporate information in electronic files,
which is verified by DSM with securities regulators, loaded
onto a Notes database and published on the Web site using Lotus
Domino. Given the sensitivity of the information published on
the Web site, data security and integrity are of paramount concern
to DSM. "Once an entrepreneur gives us his documents, we have
to ensure that no one can modify them without permission," explains
Womack. "With Lotus Domino we can guarantee that security."
Domino supports industry-standard 128-bit SSL encryption, and
its data integrity features prevent unauthorized modifications
DSM has embraced e-commerce, offering fee-based services that
take advantage of Domino.Merchant, including access to video
content developed with the Los Angeles Venture Association and
magazines such as Forbes and Inc. The company has also teamed
up with an online brokerage firm that will provide a secondary
market trading system for stocks listed on DSM."
Robust platforms for a growing business
Presently, DSM runs Lotus Domino on a Microsoft® Windows NT®
server, but intends to migrate it to an IBM® AS/400® server,
with DB2® Universal DatabaseTM as the data repository, in order
to better support a rapidly growing user base. "Once we reach
the critical mass of about 50,000 registered users, we'll offer
new services, such as data mining, to our corporate customers,"
Womack informs. "Then, we'll need a high-performance relational
database like DB2, and the additional security and performance
reliability that the AS/400 offers." User registration data
captured in DB2 will be mined to extract information, such as
how many users show a propensity to seek pharmaceutical stocks.
Thus, a bio-engineering firm could target these investors with
DSM is working closely with IBM and a Lotus Business Partner,
Creative Engines, to further develop the Web site. "IBM and
Lotus understand the need of businesses to operate in a collaborative
environment," Womack notes. "As long as IBM and Lotus continue
to support the development of e-business technologies -- providing
solutions for both small and large companies -- Internet-based
commerce will flourish."
White Paper courtesy of IBM, Inc.
When the Internet first exploded, early adopters quickly established
online stores, anxious to plant a flag in this emerging sales
channel. Now, backed by the new capabilities of IBM's advanced
technologies, Recreational Equipment Inc. (REI), headquartered
in Seattle, WA, enters a new phase of e-business leadership
with a rebuilt REI Online site and an innovative new site, REI
As the nation's largest consumer cooperative, REI is offering
products and services tailored to the different segments and
interests of its audience. REI Online provides more than 10,000
items to help consumers get the gear they need for outdoor recreation.
The site -- named by Fortune magazine as one of the top 25 corporate
sites -- also offers the opportunity to learn basic outdoor
skills, interact with experts and even download customized topographic
maps for hiking. And REI members can use the site to check their
patronage refunds, update their mailing addresses and get exclusive
"members-only" updates. The site even offers access to REI Adventures,
an adventure travel company.
REI launched its original online store in September 1996 using
commerce server technology from a well-known vendor. REI soon
discovered that the software wasn't powerful or flexible enough
to support their needs -- or their customers. So REI director
of online sales Matt Hyde and REI's technology department found
themselves rewriting and modifying the software to the point
where REI was using a lot of homegrown code.
"As our online business grew, we found our selves spending
more and more time upgrading our capabilities and developing
software to meet our technology needs, instead of focusing on
what we do best-selling outdoor gear and clothing," says Hyde.
"It was clear we needed an Internet merchant software package
that was easy to integrate with our existing legacy systems,
was scalable, offered regular upgrades and provided great customer
Finding the best bargain online
REI's first priority was to launch a second site to attract
bargain hunters -- REI Outlet. This site offers bargains unavailable
at any of the 51 REI stores in 21 states, through mail order
or through the full-price, premium online store. By carrying
manufacturer overstocks, seconds and product close-outs, REI
Outlet can offer limited quantities at rock-bottom prices.
Hyde adds, "REI Outlet has been so successful that our greatest
challenge has been getting enough inventory to meet demand."
The two REI sites are linked, and many visitors go from one
site to the other. But having two sites, each with a different
focus, allows REI to segment its audience better, tailor messages
more effectively and provide an additional service to customers
without diluting its premium image. It also allows REI to provide
personalized service, including customized e-mail for special
areas of interest or one-time bargains.
"The Internet offers a very compelling platform that provides
distinct advantages to customers compared to retail and catalog
alternatives," says Hyde. "Our next-generation online store
leverages what we learned from our early experiences to deliver
a compelling shopping experience that will boost sales growth
in the U.S. and abroad."
Expanding its reach to the Web
The success of REI Online led the company to extend its Internet
strategy to its retail stores by putting Internet-enabled kiosks
in smaller stores. Now retail shoppers have the opportunity
to immediately purchase any REI item, whether it is carried
in-store or not. The kiosks use network computing devices with
the ability to access REI sites, which is enhanced by in-store
servers. This kiosk-based strategy was so successful that REI
has since extended it to all stores.
REI also uses the Internet to bolster its already flourishing
international mail order sales with product descriptions available
in Japanese, French, Spanish and German. Although the percentage
of international business from the Web site is increasing at
about the same rate as orders from the U.S., the amount of traffic
from Japan was much higher than from other countries. Because
REI was able to capture this information along with product
preferences and other customer-related information, it determined
that expanding into the Japanese market made good business sense.
As a result, REI is placing its first physical international
store in Tokyo, now scheduled for opening in early 2000.
"One of the most encouraging pieces of our online story, and
we're tracking this very care fully, is that we're reaching
new audiences - more than just in the U.S.," says Hyde. "Now,
outdoor people from all over the globe can access our Web site
to learn about REI, examine our products and place orders. That's
why the business has really picked up. And we're not constrained
by paper and postage."
Hunting for the right solution
REI's multipronged Internet strategy depends on a technological
backbone that provides both advanced e-business capabilities
and strong links to legacy systems. REI evaluated other commerce
servers and quickly realized that there was only one solution,
and one vendor, that provided the functionality and flexibility
it needed -- Net.Commerce from IBM.
Systems integration services from IBM Global Services assisted
REI in putting together a solution using IBM Net.Commerce PRO
and DB2 Universal Database™ (UDB). Its solution is built upon
REI's original investment in IBM eNetwork Firewall, with IBM
RS/6000 servers. IBM Net.Commerce PRO provides the rich functionality
that REI needs to continue its rapid growth, supporting advanced
catalogs, tailored product searches, and soon, virtual sales
assistance. "We thought we had made a good decision to go with
Net.Commerce," notes Hyde, "but we didn't realize what a great
decision that it really was until we started to develop the
According to Hyde, Net.Commerce is providing a powerful and
flexible development platform for REI's e-business initiatives.
The scalability of Net.Commerce, DB2 and the RS/6000 servers
allow REI to accommodate rocketing growth while its flexibility
enables REI to respond to changing customer and corporate requirements.
The benefits are more than strategic, however. Maintenance requirements
have been slashed 90 percent from about 40 hours per week to
about four since, in Hyde's words, "We're not fighting daily
But even the most advanced Web server is only half the e-business
equation. Just as important are solid links to existing legacy
systems and databases, including order processing, financial
and logistics. The five IBM RS/6000 servers and IBM Net.Commerce
facilitate these linkages between the Web and back-office systems,
enabling orders from the Web to be processed as seamlessly as
those from retail or mail-order operations.
Net.Commerce comes bundled with DB2 database for additional
business value and assured integration. Because Net.Commerce
builds dynamic Web pages from a database, it was critical that
the database support advanced searching capability. "DB2's enhanced
search capability is one of the cornerstones of the new site,"
says Hyde. Its advanced search feature allows customers to find
products faster. Hyde states, "Customer feedback from the REI
Outlet site was so positive that we moved up the relaunch of
REI Online on Net.Commerce in order to provide comparable functionality
on that site as well."
Measuring success Hyde credits the company's multichannel approach
to serving customers as one of the key reasons for REI's success.
"We've recognized that we can't choose how our customers want
to shop, but we can make it easier for them to access us and
provide the same high-quality shopping experience however they
interact with REI. For REI Online, this meant utilizing cross-divisional
resources rather than following the trend of creating a stand-alone
team to support e-commerce initiatives. We've found this approach
has encouraged each retail group to play upon its strengths
and become better. It's also created invaluable company wide
support and 'ownership' for REI Online's success and, best of
all, enhanced customer service."
In two years, REI Online has grown more than 350 percent from
a strategic twinkle in top management's eyes to the sales equivalent
of one of REI's top 5 retail storefronts. Plus, online orders
are about double the size of the average retail purchase, while
the costs of processing a transaction are much lower and there's
no square footage to lease. BizRate, an online rating service,
places REI Online among its top Web sites for customer service
as well as customer loyalty. And continuing the tradition of
success, REI Outlet is far exceeding expectations since it went
online in late summer 1998.
Aiming for the future
REI is continuing to add features that enhance personalization.
As part of its second-generation Internet strategy, REI is enhancing
the "virtual service" capabilities of both its premium and its
outlet site. With the upcoming implementation of Net.Commerce's
Product Advisor, REI Online will provide even more flexibility
for its customers to shop the way that makes sense for the individual,
not a predetermined store layout. A virtual sales assistant
will help those unfamiliar with the product space to find the
right products easily, while product comparison pages will be
built on the fly to assist customers in the selection process.
At REI Outlet, shoppers can register with Bargain Sleuth, an
e-mail service that alerts them when a particular discounted
product becomes available. And soon, shoppers will be able to
balance price and availability in REI Outlet's new "Progressive
Markdown" area, where prices on selected items will be routinely
reduced until they sell out.
When REI established its first site, the Internet was a wild
frontier populated by surfers and techno-enthusiasts. Now, it's
an important sales channel for retailers, enhancing other marketing
efforts and extending a global sales reach. With the help of
IBM, REI has advanced into this next generation of e-business
with sites that offer personalized shopping services and a solid
infrastructure for continuing growth.
"The IBM solution has taken our e-business to a vastly different
level, allowing us to spend more time growing our business and
uncovering better deals for our customers," concludes Hyde.
"But it's only a beginning. e-business represents the foundation
of our future business growth, and we know IBM will always be
there to provide the platform and services required to serve
our customers even more effectively."
White Paper courtesy of IBM, Inc.
On August 15, 1998, one Indian Internet company created a milestone.
Rediff.com launched the first Web store to accept online payments
using rupee-based credit cards issued by Indian financial institutions.
Electronic commerce had finally arrived in India. Two years
earlier, when the Internet was still in its infancy in the country,
Rediff.com was among the first to offer online news, information
and entertainment services. Since then, the company has grown
at an extraordinary pace.
Every month 1.2 million visitors beat a path to www.rediff.com,
which is powered by a range of IBM e-business technologies,
including IBM Net.Commerce, IBM DB2 Universal Database and IBM
HTTP Server. Interestingly, more than 65 percent of the 70 million
monthly hits to the Web site are from Internet users in the
United States. "For Indians and India enthusiasts worldwide,
Rediff.com showcases the best India has to offer in literature,
music, entertainment and tourism," claims Chief Executive Officer
There is substance in that claim. In the first six months,
revenue from online trade climbed to 40 percent of total revenue,
with the rest generated through banner ads, even though anxiety
about Internet security has contained the look-to-buy ratio
between five to ten percent. "Over the next two years, we expect
online trade to account for 80 percent of our revenues," says
a confident Balakrishnan. A confidence well-founded, he says,
because of the great care the company has taken in ensuring
online security. "We could not risk any security problems,"
says Balakrishnan. "A security breach in our system could have
set back e-commerce in this country a few years -- and that
is no exaggeration. It's the reason we selected the IBM e-business
solution." IBM HTTP Server supports industry-standard Secure
Sockets Layer (SSL) encryption, helping maintain the security
of information transmitted over the Web. Customers are obviously
convinced. Of the approximately two million credit card holders
in India, 30,000 are already customers of Rediff.com, an impressive
adoption rate by Indian standards.
The Web store isn't designed just for the Internet savvy user,
but also first-time "mom and pop users whose kids probably know
more about computers than they do," says Balakrishnan. For example,
the store offers live customer service -- just click on the
icon and a chat window opens, allowing customers to ask questions
and receive instant responses from service representatives.
The result is quality customer service at a low cost. Balakrishnan
explains, "In a country where the concept of online ordering
is new, this makes a big difference. We have personnel responding
to customer queries around the clock. This is much cheaper than
setting up a call center help line." Indeed, the impact of this
personalized service on the bottom line was evident immediately.
"Online orders grew almost 50 percent as soon as we launched
live customer service," says Balakrishnan.
The one-stop online shop
So, what are the crowds flocking to at Rediff.com? The most
frequented destination is the music store, which carries 45,000
music titles from nearly 100 categories of Indian music-classical,
pop, folk songs, devotional songs, music for festivals and more,
in 14 Indian languages -- as well as 27 categories of international
music. Shoppers can listen to 50-second snippets of a music
score before they place an order. The Rediff.com book shop catalogs
125,000 book titles, and the gift shop displays more than five
goodies visitors can buy and have delivered to friends and relatives
around the world. Orders are shipped within seven days worldwide
by Federal Express.
There's something for everyone at this Web store. Tourists
can make hotel reservations in 60 Indian cities using Rediff.com's
online reservation services. Students visiting the site's education
service can get valuable information about schools and programs.
A movie ticketing service allows visitors to buy tickets and
even select seats for theaters in Mumbai. Just the other day,
a chat session with Indian cricket star, Sachin Tendulkar, attracted
8,000 participants, mainly from California, Balakrishnan enthuses.
"We arranged for him to autograph copies of a new book, The
Making of a Cricketer, and while he chatted online, we sold
700 copies in one night.
Delivering all these features and services would require considerable
time and development effort, right? Not really. "Net.Commerce
is a flexible tool. Every store is different in the way it treats
its customers, and Net.Commerce accommodates that very well,"
says Balakrishnan. "The Net.Data macros made it possible for
us to customize the Web site relatively easily and quickly."
Net.Commerce delivers everything needed to run the store, including
a shopping cart, online catalog and special offers.
Technology that grows with the business
This is only the beginning. Recently, the Internet service
provider (ISP) business in India was opened to private business.
With more private participation, 1.5 million people are expected
to come online by March 2000. "If there are one million Indians
online by the end of 1999, our aim is to attract at least 30
to 40 percent of them to make purchases worth at least 50 rupees
from our online store, at least once," says Balakrishnan. That
would add up to more than U.S.$400,000! Ambitious? Maybe, "but
not improbable," quips Balakrishnan.
With such expectations of growth, selecting DB2 Universal Database
as the data repository for the Web site was an easy choice,
according to Balakrishnan. "We expect traffic on our Web site
to more than double to three million visitors a month by the
end of the year, yielding a 100 percent growth in revenue from
online sales," he says. "The scalability that DB2 Universal
Database ensures is very important." The gigabyte database stores
product catalogs, customer profiles, inventory and order status.
Currently, the Web site resides on an IBM Netfinity server.
Eventually, Balakrishnan anticipates that they will need to
migrate to an RS/6000® server or any other UNIX®-based platform.
"Because DB2 and Net.Commerce support multiple platforms, we'll
be able to protect our development effort," says Balakrishnan.
Initially, Rediff.com had considered Microsoft® Site Server
commerce software. "But," says Balakrishnan, "when it came to
upward scalability, DB2 and Net.Commerce made the most appealing
Promoting business relationships
Behind the scenes, it took considerable business acumen to
convince other businesses -- publishers, music companies, hotels
and retailers -- to participate in Rediff.com's Internet venture.
"Though online sales represent a small fraction of their total
sales, we convinced our partners that being the first to market
would be key in the long run," explains Balakrishnan. On the
Internet at least, familiarity breeds trust.
Rediff.com's high-tech operation is beginning to influence
its partners as well. At present, Rediff.com manually updates
its online store inventory, keying in information received in
hardcopy from suppliers into its DB2 database. "In time, we
hope to install DB2 at the suppliers' sites so that we can use
its replication features to automatically synchronize inventory,"
The sky is the limit
Are the returns from this venture commensurate with the investment?
"Very much so," says Balakrishnan. "We'll recover what we've
invested so far over the next two years." And there's more to
come. In the next phase of its business development, Rediff.com
will open a fulfillment center in New Jersey, USA. "This will
further reduce overseas shipment costs," Balakrishnan explains.
In April this year, San Jose, California will be the first
of nine U.S. cities to have an events calendar aimed at the
local Indian community. This service will subsequently be extended
to Brussels, London, Singapore and Tokyo. Simultaneously, product
prices will be listed in local currencies as well. "With Net.Commerce,
we have the development tools to extend our Web services in
innovative ways," says Balakrishnan.
The success of Rediff.com's online venture is generating interest
in the Indian business community. Recently, Balakrishnan delivered
a presentation at the National Association of Software Companies
(NASCOM). "Everyone wants to know how we did it. I tell them
that the technology was one part of it. The other was the commitment
of the IBM experts here. We were among the first five installations
of IBM e-business technology in Asia, and truly, the IBM team
was even more determined than we were that everything work perfectly."
White Paper courtesy of IBM, Inc.