(FORTUNE Magazine) – "Got to find a reason things went wrong / Got to find a reason why the money's all gone" --Sublime, "What I Got"

I continue to be amazed at the large number of technology companies focused on electronic commerce. Hundreds have built software and hardware targeted specifically at enabling the future of E-business. The products include everything from Web product catalogs to encryption tools to digital certificates that verify the authenticity of documents. Meanwhile, one company after another joins this or that industry consortium, which is always announcing the global technical standard for online transactions that will get E-commerce rolling. If only SET or OBI or OPS or OTP (every standard has a three-letter acronym) were available, then we really would be surfing for dollars. Quite frankly, many of these standards are either efforts by companies to lock up key technologies, or efforts by mainstream financial institutions to make sure they are not rendered obsolete.

These acronym bearers are indulging in an interesting form of hypocrisy. On the one hand, they cite Dell and Cisco, which sell billions of dollars of products online, as evidence that serious business can be done over the Web. On the other hand, they insist that serious business can't be done without standards. Then how is it that Dell and Cisco are selling billions of dollars of products without turning to these marvelous technological tools? Perhaps the technologies help the technologists more than businesses or consumers.

While I'll grant that some of these standards may eventually help grease the skids for E-commerce, what I am trying to point out is that technology is not the key to creating great Internet commerce. Instead, the companies that will do well--the ones that will garner most of the transaction fees--are the ones that will take the time to understand the context of the industry in which they operate. Rather than aggregate technology, they must aggregate context.

It's not surprising that tech guys have had a hard time collecting tolls on the information highway. Let's say you build a Web-mall to help companies sell online. Let's say you charge for this service by asking for a percentage of sales. What type of companies will you attract? Confident companies would never use your service, because they anticipate large numbers of users and consider your fees egregious. On the other hand, timid companies that are unsure of their success will be attracted to your low up-front costs. Good luck with this strategy.

The home-run opportunities belong to companies with people who deeply understand how a particular industry works; who understand how the Internet as a channel can serve that industry. These companies will build Websites that aggregate buyers and sellers to help facilitate both the decision-making process and the subsequent delivery of products or services. Kevin Jones of InteractiveWeek calls these butterfly businesses, because if you draw a picture of a service that aggregates buyers and sellers, it involves two triangles pointing inward at the single Web source.

I prefer to call these sites vortex businesses, since their success involves aggregating not just the two butterfly wings of buyers and sellers, but also technology, content, and commerce. This is not easy to pull off. Over the past year, my partners and I at Hummer Winblad have received several business plans from companies that want to build Websites aggregating buyers and sellers in one industry; once they have mastered the technology, they say, they'll bring the same model into another industry. This proposition is doomed from the outset. It assumes, incorrectly, that the most difficult challenge is assembling good technology. The hard part isn't assembling technology; the hard part is aggregating context.

There are four keys to giving a site the context needed to create an industry-transforming vortex. First, you need industry-specific content that is competitive with the leading trade magazines. The goal is not to attract advertisers as much as to attract eyeballs, i.e., buyers, who will in turn attract suppliers. In theory, trade magazines are in a great position to become vortex businesses. But few publishers have the vision necessary to quickly exploit this opportunity.

The second key element in giving a site great context is understanding the features and specifications a customer would typically evaluate to make a purchase decision. The intricacies of such decisions vary enormously from industry to industry. Product catalogs, for example, need to be set up in a way that is intuitive to people in a given industry, and search routines need to be set up to follow the thinking of a typical industry decision-maker. This is one reason that it will be very difficult for any company to build vortex sites in multiple industries.

The third piece of necessary context is a complete understanding of the way products or services are moved in each industry. How are products ordered? How are they delivered? What can be changed? What can't? Since different industries have different models of distribution, vortex businesses need to figure out how they can fit into, and perhaps improve, the existing logistical structure. In some industries, vortex companies may simply facilitate the matching of buyers and sellers, and take a commission for arranging the sale. In others, meanwhile, vortex companies will take physical ownership of the product and distribute it. So existing distributors have a great opportunity to move into E-commerce--provided they're able to deal with the necessary cultural change.

The last piece of the puzzle is to take the information generated at the Website and make it available in various forms to the industry community. Vortex companies will be able to watch and learn as customers pick through features and specifications. They will also be able to set up chat rooms, bulletin boards, and surveys where buyers can reveal information pertinent to suppliers. These data will be more valuable than any marketing data ever collected, and it will be up to the vortex company to figure out how to use this information without alienating or angering its customers.

Which industries are ripe for a vortex business? First, you need a large market with significant fragmentation, i.e., many independent buyers and sellers. Next, industries whose products come in complex configurations will value a more uniform way to search for product and service information. Likewise, industries with complicated or expensive distribution processes will find value in a single, automated site that concentrates information. Last, acquiring the data needed to build the content on the site must not be overly difficult.

There are a few examples in the current world from which to learn. While not profitable, consumer-focused companies such as Amazon.com, CD-Now, Auto-by-tel, and CarPoint appear to be on a sustainable track. But even these businesses differ in their approaches. Amazon.com takes physical ownership of the product, for example, while most music sites do not.

While consumer opportunities are somewhat interesting, business-to-business ones are the most promising. In almost every nook and cranny, there lies a chance to become the New Age facilitator for an industry, and I believe that the vortex model will be the premier way to extract rent on the Internet. So far, success stories are few, while trials are abundant. Pick your favorite industrial product, and you may find an attempt at a vortex. I have even seen a business plan for copypaper.com. For an interesting example of a traditional company trying to put this model into effect online, check out Aspect Development (www. aspectdv.com). Aspect publishes a widely used catalog of electronic parts. Now it is making the transition to the Web, and the company's site holds great promise.

Vortex businesses are likely to have one very powerful edge over traditional distribution and manufacturing operations: They will get increasing returns, rather than diminishing marginal returns. As a site becomes successful, the chances of its becoming ever more successful increase. The more buyers are attracted, the more sellers will be drawn in, and the more products that are available, the more customers will be drawn in. That, in turn, makes content aggregation easier--vendors must bring you their content, rather than your having to go gather it. Everything gets drawn to the center of the vortex. The implication is clear: Great vortex businesses will tend toward natural monopolies, and there will be no such thing as second place.

J. WILLIAM GURLEY is a partner with Hummer Winblad, a venture capital firm. Neither he nor his firm has financial interests in the companies mentioned. To receive an expanded version of Above the Crowd, visit www.news.com; to subscribe to the E-mail distribution list, send E-mail to listserv@dispatch.cnet.com with the following in the message body: subscribe atc-dispatch. If you have feedback, please send it to atc@humwin.com