whitepapers

Direct Stock Market

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 investment decisions."

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 viable

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 of data.

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 personalized messages.

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.

REI

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 Outlet.

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 support."

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 site."

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 technology battles."

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.

Rediff.com

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 Ajit Balakrishnan.

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 long-term solution."

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," Balakrishnan notes.

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.