(FORTUNE Magazine) – Last May, Bank One sponsored an "Immersion Day" in New York City to introduce the press to its new online spinoff--an Internet bank called WingspanBank.com. Even though the shindig was sponsored by a brick-and-mortar giant, it had all the trappings of a typical Internet launch. There were freebies, food, and a demo of the site; Jim Stewart, Wingspan's CEO, presented a set of TV commercials. A group of test users (the "iBoard of directors") waited in the next room to chat with journalists.

But there was something missing: confidence. Stewart and his colleagues--all former Bank One marketers--didn't display any bravado at all. Internet CEOs love to say their products will change the world; Stewart didn't seem to be sure that Wingspan would change anything. After the presentations, he grinned shyly and asked the audience, "So, what do you think?" People stared blankly and smiled. Later, Stewart and the other executives hung back along the fringes of the crowd. "They look like they really want to go home," a writer remarked. "Well, yeah," laughed Wingspan's publicist. "They think you guys are going to rip them to shreds!"

Now, six months later, Stewart and his crew sing a different tune. WingspanBank.com launched successfully on June 24. It's taking in deposits, issuing loans. The bank's TV ads are in heavy rotation in markets rich with Net users. "Appearing tentative on Immersion Day was part of our act," Stewart jokes. "Things have turned out very well."

WingspanBank.com isn't the only brick-and-mortar-backed Internet play showing off these days; all of a sudden, traditional outfits from GM and CBS to Office Depot and W.W. Grainger want you to know that they, too, in Internet parlance, get it. Even companies sometimes called dinosaurs, like the two profiled in this story, Sears and Whirlpool. Once upon a time, FORTUNE 500 companies like these might have gotten onto the Net by bringing their techies and marketers into a room for a while and then slapping up some "brochureware": a Website with basic company information, logos, and (if it was really sophisticated) links to up-to-date stock information. If CEOs were really committed, they'd send out a press release after hiring a chief of e-commerce--and then, more often than not, leave the man languishing in his office, isolated because his role was so ill-defined.

These days, that just won't do. Even though it's still unclear what really works, brick-and-mortar guys are trying all kinds of ambitious ventures. Some companies have put marketers or corporate strategists in charge; others still trust in IT. Some have Internet departments; others, e-commerce committees with members from a range of operational departments. Some offer equity to their e-employees, even though colleagues at the brick-and-mortar business don't get stock options. A lot of outfits spin off their Internet businesses into new ventures. Some are willing to cannibalize existing business, while others steer clear of such conflicts. This isn't just evidence of cluelessness (although there's plenty of that). It's also a sign of healthy experimentation. Absent a rule book for e-business, companies are taking steps to uncover the strategies that will work for them.

This is the story of two companies trying to figure it out. Whirlpool and Sears have taken very different approaches to the business of going online. Sears is keeping its efforts close to home, bringing in a crowd of strategically focused e-executives to create what is in essence a new division. Whirlpool has a great Internet idea, and to get the most out of it the company has created a startup called brandwise and set it free in Manhattan's Silicon Alley, far from corporate headquarters in Benton Harbor, Mich. Whether either effort will succeed remains to be seen. But executives at both outfits think they have the potential to make a splash.

Taking the first step is not always easy. Sears CEO Arthur C. Martinez is a latecomer to the revolution, someone who was not inclined, initially, to give the Net a go. "I was a serious skeptic for a long time," he says. "I saw this as the domain of fanatics." Sears is not, shall we say, a hotbed of new ideas. Founded in 1886 as a catalog-sales company, it had revenues of $41 billion in 1998, mostly coming from the company's 2,950 stores. The company has made its money by selling clothes, tools, appliances. Stuff. Year after year after year.

But Sears is in some trouble these days. Martinez is credited with rescuing the company from the brink of bankruptcy in 1992, but the revival was short-lived. Stagnant sales and declining profit margins have led to the departure of several key executives in the past year. Sears has been losing some market share to competitors like Home Depot, Lowe's, and Circuit City. Discounters like Old Navy, Target, and even Wal-Mart have chipped away at Sears' apparel business by targeting a younger, hipper crowd. Says Richard Church, an analyst for Salomon Smith Barney, "It's been a middle-market squeeze for Sears--from department stores on one side and value-oriented business on the other." The company hasn't helped itself by missing some big trends, like targeting young teenagers.

The Internet is a much bigger trend. As Martinez tries to turn things around for the second time in his seven years at Sears, he knows that the company can't afford to miss this one.

So if you walk to the end of a long corridor in a new building at Sears' sprawling, gleaming campus in Hoffman Estates, Ill., you'll find a small Internet division. Some 50 people are setting up shop there. Cubicles are going up, and boxes lie everywhere. In an open area near the hallway there's some mismatched furniture, pilfered from the Sears Tower in Chicago. The fridge is stacked with cans of Pepsi One and Mountain Dew. "It's what you'd see in any e-commerce business," says Alice Peterson, who's heading the Internet group. "It's a good thing those couches are there. We had two nights last week when some guys didn't make it home."

According to Peterson, the group is out to make Sears the "definitive online source for the home." The company plans to start by selling appliances, parts, and tools on its site. The appliance area, in fact, has been up and running since May, and Peterson says sales are ahead of forecasts. A new and improved tool marketplace called the Tool Territory is set to launch in time for the holiday season, in conjunction with the debut of Tool Territory departments in some Sears stores.

Eventually, Sears.com will also sell lawn and garden accessories, home furnishings, and more, and let customers arrange for repair service. About 85% of the company's online budget (which Martinez hints may be as much as $100 million a year) is supporting these areas, which have been relatively stable businesses for Sears. "We chose to go where our strengths are," says Rich Srednicki, president of home services. Sears' apparel business, on the other hand, has had plenty of ups and downs, so the company has no plans to sell clothes online anytime soon.

There's nothing all that revolutionary about this. But for a sometimes hidebound company where some managers measure success by the size of an office, Sears.com represents a radical departure. Peterson, who used to be treasurer of Sears, now works out of a standard-issue cube. ("It's painful," she sighs.) She and Martinez say they aren't even going to think about profitability until 2001. That, too, is not standard thinking at Sears.

Sears.com people who joined from within Sears seem to thrive on being out of the corporate clutch. Andy Wetmore, who heads Tool Territory online, is an avid Net surfer who actually quit Sears in 1998 to start an Internet cafe in Batavia, Ill. He returned when friends told him about the new division and says it's like working for a different company. "The thing I like is the freedom," he says. "This is the most non-Sears in Sears I've ever seen. Sears is all about meetings and status reports. This is a refreshing change."

That freshness makes it possible for Sears to woo new-economy people from the outside, like project manager Jim Tuchler, who used to be an e-consultant in Chicago, and vice president of relationship marketing Joe Charno, who co-founded Internet startup Surplus Direct, which was purchased by Egghead.com. "In Sears," says Tuchler, "I saw a company with a great deal of potential that had some catching up to do, and had said as much. It was a great opportunity." Charno says, "I view Sears as a startup with all this behind it," as he leans back in a conference room chair toward a window opening onto the gigantic campus. "I'm in a position now where I don't want to take huge risks," he adds, explaining that he has a 7-month-old baby.

Tuchler and Charno would like to bring in more of their Web-headed friends. But don't Net types find a place like Sears kind of uncool? "My wife thinks I'm cool," jokes Tuchler, clutching his sip-top cup of Starbucks coffee. "Seriously, telling people you work at Sears doesn't elicit oohs and ahhs. But online gets you somewhere."

Nevertheless, blending old business and e-business--"clicks-and-mortar" as some call it--is for the most part a difficult, awkward process. The disparity between e-commerce and Sears commerce necessitates careful consideration of detail after detail. Take tracking customer data. By having an online site, Sears can get much more info about its customers than when they just walk into a store, buy something, and leave. But applying that info to the business means running new kinds of software, which often do not integrate easily into a company's legacy systems. "Taking the processes we have now in the physical world doesn't tell me how to go online," admits Peterson.

In e-commerce, you get the right software or you get out of the business. Sears recently tossed an IBM package in favor of BroadVision software that was designed specifically for e-commerce. The transition will take months, given that the new software will work best only when integrated with Sears' in-store systems. There's also the fact that while Sears has competed for years with the likes of Home Depot and Wal-Mart, it has very little idea of what those competitors will be like online; they, too, are fixing up their online businesses.

Finally, Sears must address the spinoff issue. Many businesses spin off their Net operations into separate companies: Bank One with Wingspan; Honeywell, which is spinning off myplant.com; and European cosmetics retailer Sephora, to name just a few. An obvious reason this helps is that it lets the new company attract e-types with stock options. "It's really the only way to go if you want to aggressively build an Internet business," says Tuck Rickards, the lead Internet headhunter at placement firm Russell Reynolds in Boston. "Often big companies can't attract the right kinds of people. But with spinoffs, everything changes."

Martinez demurs. "This spinoff-with-a-separate-equity-deal thing is the fad du jour," he says. "I don't believe that the only way you can get people is with special equity at Internet multiples." But he won't totally discount the idea. Martinez says Sears.com could become what he calls an internal carve-out. "You'll have separate compensation and separate equity," he says. "Maybe it will be some kind of phantom equity mirroring the marketplace. I'm noodling the idea around."

While he noodles, another old-line Midwestern company is spinning away: Whirlpool, the $10.3-billion-a-year appliance manufacturer. To get to its headquarters in Benton Harbor, Mich., you drive 2 1/2 hours from O'Hare Airport, passing corny billboards ("I've got gas!" a propane dealer cheerily grins on one) and hundreds of 18-wheelers lugging cargo like Wonder Bread. Benton Harbor is a sleepy Lake Michigan town; Whirlpool, which employs 59,000 people worldwide, is by far the biggest thing around.

Whirlpool makes washers, dryers, refrigerators, microwaves, small appliances, and more; its brands include Whirlpool, Roper, and KitchenAid. It sells in 170 countries. Like Sears, it traffics in tangible things. Unlike Sears, it only rarely sells directly to consumers. Whirlpool's customers are distributors and retailers--outfits like Lowe's, Home Depot, and, yes, Sears.

Most big businesses, in fact, are like Whirlpool, less interested in selling to consumers online than in using the Web to better serve and interact with suppliers and big customers, which are mostly other businesses. In Whirlpool's case, a business-to-business Web focus would seem to help the company avoid the nettlesome issue (faced by everyone from Compaq to GM) of undermining its dealer network. "Our infrastructure is designed around trade partners," says Greg Rodgers, a former marketer who now heads e-services. "We know how important our channel partners are, and we work to bring them to the Web."

Rodgers has 12 people working on this in a set of cubicles buried deep in the Benton Harbor headquarters. They're supposed to help Whirlpool managers figure out how to exploit the Internet. "Internet strategy is really business strategy," Rodgers says. "People who are focused on Internet strategy for its own sake are that way because they don't have business strategy."

Rodgers' approach is clear in most of Whirlpool's Web moves. Over the past four years, the company has set up 3,300 customized Web pages for its dealers. Retailers use the pages to advertise their businesses and communicate securely with Whirlpool headquarters. This past January, Rodgers' group took things a step further and set up WhirlpoolWebWorld.com: By logging on, external dealers can check order status, and Whirlpool employees will soon be able to do stuff like check their 401(k) balances. Rodgers says the site will have more than 100,000 users; it will go global on Nov. 15.

Rodgers is the e-guy of Whirlpool's e-commerce task force, six senior executives from all over the company who meet regularly to explore e-business opportunities. The execs do a lot of benchmarking, visiting both Silicon Valley dot.coms and other big companies. They meet at least monthly to talk over what they've learned, and report to CEO David Whitwam and his likely successor, President Jeff Fettig. The ideas that come out of the discussions do not always complement Whirlpool's larger goals. But Whirlpool has a way to deal with that. "If it's core, we bring it in," Rodgers says. "If it's not core, we spin it out."

The company's first such spinout is something called brandwise--a partnership with the Boston Consulting Group and Hearst that has been spun way, way out. Brandwise has set up its offices on Madison Avenue in New York City, near the district known as Silicon Alley. The space is loftlike, stuffed with cubicles and busily working big-city twentysomethings. It's a long way from Benton Harbor.

Here's the idea: Brandwise.com will serve initially as a portal for consumers shopping for appliances, a place that will provide objective product information to folks who want to buy washing machines, clothes dryers, refrigerators, microwave ovens--you name it. (Eventually brandwise will also cover consumer electronics, gardening equipment, and more.) A brandwise visitor interested in buying a washer, for example, might start by answering a few questions about himself and what he's looking for: How often do you do laundry? Front or top loading? Black, tan, or white? Any particular brand? Then brandwise will look through its extensive product database and tell him about models and prices that fit his criteria. It will even let customers buy the machines from retailers that will either fulfill orders directly from the brandwise site or will take orders over the phone or in stores.

Brandwise (which is only 37% owned by Whirlpool) is not some kind of sham front for Whirlpool's own machines. Kathy Misunas heads up a staff that has been aggregating product specs from all the major manufacturers, and their partners at the Good Housekeeping Institute have been helping them interpret test data from independent laboratories (evaluating quietness, energy efficiency, and so on) to help consumers find the best products.

So by backing brandwise, Whirlpool, which is the leading seller of appliances in the U.S., is creating a way for a customer to go online and possibly to find that a competitor's product is considered superior. "Obviously, there are people in the product departments at Whirlpool holding their breath," Misunas says. "It's a gutsy move." Asked why on earth he's doing this, Whirlpool CEO Whitwam, back in Benton Harbor, just laughs. "Obviously, if we did not feel we were advantaged, we wouldn't have!" he says.

He's supposed to say that. What's really going on is that Whirlpool is willing to accept a degree of vulnerability to get something it can obtain more precisely online than anywhere else--access to valuable data about its business that will help it make products even closer to what customers want. Besides the information customers provide by answering a few initial questions, brandwise will also learn about buying patterns by tracking traffic. Explains John Alexander, the Whirlpool executive who has worked most closely on the project: "We as a company would rather compete on the basis of offering the best product. The only way we'll find that out is by listening to what the consumer wants and following him through the decision-making process."

Sounds great, except that brandwise sells those data not just to Whirlpool (which will have to pay for the info) but also to other manufacturers. Brandwise expects to have other revenue sources: from retailers, who'll pay a flat fee or a fee every time the site directs a sale their way; from advertising sales and site sponsorships; and from commissions on sales of accessories, warranties, and service contracts. But listening to Misunas, you get the sense that the data are the key. "It's amazing that an industry as big as this one doesn't have central data," she says. "In some cases, manufacturers don't even have their own data. They're very intrigued by the prospect of getting it." So brandwise has a chance to become a big business that will reward Whirlpool's 37% stake. But for Whirlpool to have launched a site that offers so much to its rivals is a bold step; it's the very essence of a risky, potentially cannibalizing Internet strategy.

The project is also a breeding ground for Whirlpool's next generation of leaders. Alexander, the Whirlpool executive who led brandwise in its first months, is a 35-year-old vice president, one of the youngest at the company. He went from that job to one where he manages 1,100 people as head of Whirlpool's customer service (including call centers and field-service fleets), consumer information, and industrial design.

It used to be that tech-related projects were a corporate backwater at FORTUNE 500 companies. Not so anymore, says Alexander: "I'm developing skills to bring about change." He credits the startup with cluing him in to the rigors of working in Internet time: With the help of consultants from the Boston Consulting Group, he got brandwise on its feet in less than a year. Brandwise gave Alexander an introduction to the new economy that he might not have gotten in Benton Harbor or on an earlier assignment in Brazil; during his year at brandwise, he visited some 20 or 30 dot.coms and a bunch of tech companies to learn about their business practices and ideas for innovation.

"If you start from the point of view that the Internet is an enabler," explains CEO Whitwam, "then all leadership has to be attuned to it. What the Internet does for young, high-potential people is give them a way to learn about business today. It's an enrichment to their general management skills." This kind of endorsement may be one reason that the Alexanders of the FORTUNE 500 world may not flee to the stock options and entrepreneurialism of Silicon Valley e-business startups. "There are people making a lot more money in the startups, but it's not all about money," says Alexander. Indeed. Sometimes it's about sticking with a workplace that suits your personality. Sometimes it's about living in a quiet spot like Benton Harbor and raising your kids in peace. And sometimes--just sometimes--it's about power. Alexander is positioned very nicely to move up at Whirlpool. Daniel Hamburger, president of Grainger Internet Commerce, the brick-and-mortar-backed Internet play of the $4.3-billion-a-year industrial and office-supply giant, expresses it more bluntly: "Sure, I had opportunities to run a startup," he says. "But money isn't the big motivator for me. What I'm really motivated by is the opportunity to run a huge friggin' business!"

You see, for folks like Martinez, Peterson, Whitwam, Rodgers, and Alexander, the Internet puts everything up for grabs. No truism holds--startups aren't necessarily cooler than old companies. Cannibalization is terrifying but not necessarily bad. Career tracks change. Strategy, finance, human resources--everything needs rethinking.

Even competition--that's changed too. For decades Whirlpool has been one of Sears' trusted suppliers. The Benton Harbor company first began building washing machines for Sears in 1916; today Sears is its biggest customer, buying some $2 billion of Whirlpool and Kenmore appliances from the manufacturer each year. Whirlpool itself is not planning to compete head-on with Sears by selling directly to customers (remember that stuff about the value of the channel?). But its offspring, brandwise.com, clearly offers an outlet for customers who might otherwise go directly to Sears.com.

So what's a traditional CEO to do? Get over it! Arthur Martinez has decided that Sears will sign on--and fork over--to be a brandwise retailer. "It's another way to compete," he says. "To not be on brandwise would deny us a chance to reach customers. We went through tortured conversations about it. Would this hurt the appliance portion of Sears.com? But I think the artificial walls, over time, will come down."

Spoken like a believer.

REPORTER ASSOCIATE Christine Chen