(FORTUNE Magazine) – PETCO www.petco.com Partner with an e-biz or become one? This supplier decided to pair up.

In making a deal with Net startup Petopia in July, Brian Devine, CEO of Petco, the nation's No. 2 retailer of pet supplies, did what most brick-and-mortar retailers find difficult. He gave up control. Petco bought just 20% of the Website and then let Petopia's young Netheads run its e-business.

Devine's insight: Forming a partnership made much better sense for Petco than fighting on its own. Half-a-dozen well-funded Websites are aiming at the pet market. Building a Petco site from scratch might have taken months, if not years, and cost close to $100 million. And Devine knew that no matter what he did, Internet retailing would take a bite out of Petco's $1-billion-a-year business. So he made the deal. "We wanted our partner to have the freedom they need to compete in the Net space," says Devine. "You have to be willing to be cannibalized."

Petopia customers can now order more than 5,000 items online, which can be delivered by mail or picked up at one of Petco's 490 stores. So the Web business and the real world blend nicely. Pet supplies is still a competitive market, but Devine says online sales are already beating expectations. --Melanie Warner

SOUTHWEST AIRLINES www.southwest.com The airline's site is so easy to use that Web travelers don't just research flights--they buy.

Southwest Airlines in Dallas has long trumped cross-town rival American by offering cheaper fares and winning customer loyalty at a time when most airlines can't get a break from air rage. In the Internet travel race, however, most observers think Southwest has lost the battle to American's Sabre subsidiary, owner of Travelocity and Preview Travel.

Yet while American has been getting the hype, Southwest may actually have made the more successful move to the Net. According to Nielsen/NetRatings' August survey, 13.8% of people who visited Southwest's site left with a ticket in hand. The company's "look-to-book" ratio is twice that of Travelocity and higher than that of any traditional retailer on the Web. Southwest, it seems, has found a way to turn eyeballs into buyers.

The key is a design that's as simple to use as a Southwest meal is to eat (open peanuts, sip Coke, repeat). Instead of the infinity of choices that dot.coms assume customers want, Southwest delivers a page where a transaction takes just ten quick clicks to complete. Up pops a fare, plus options to help you get a better flight or better price. Arranging a ticket is so simple that it seems like real customer service. Coming from an airline, that's a rare treat. --Daniel Roth

LANDS' END www.landsend.com For clothes online, don't look to the Valley. Try Wisconsin.

Lands' End sells more clothing online than any other company. More than clothier-to-the-portals Bluefly.com, more than Amazon.com, more than Gap. From its Dodgeville, Wis., headquarters, Lands' End and its warehouse of "breezy mesh knits" and "figure enhancer" swimsuits ("Says 'gorgeous,' not 'girdle'") aim not at hipsters building the Net but at regular folks shopping on it. This year the company should sell $136 million of clothing on its Website--about 10% of total revenue and double last year's take. How? By treating the Net as simply the digital version of a well-thumbed catalog.

"This isn't rocket science. We're not suddenly selling clothes to people with purple hair," says the vice president of e-commerce, Bill Bass. "Because we've been a direct merchant for 36 years, the customer service, the fulfillment operation--all of that was in place. It was very easy to add a front-end Website."

The Website that Lands' End has added is anything but stodgy; the company has bought liberally from what the purple-haired of the world have created. A 3-D model builder lets women see what a given swimsuit might do for their figures. Shoppers can click a button onscreen to connect by phone or computer to a live customer-service rep. (For more on online shopping, see "The Web Is No Shopper's Paradise.") The 35- to 45-year-olds who visit Lands' End's site don't care that the technology is cool, says Bass. They just care that it works and that they get the customer service they're accustomed to. "Lands' End isn't about having funky design," he says. "It's about having classic clothing that has been updated." --D.R.

BERTELSMANN www.bertelsmann.com This may be the most Net-savvy media giant in the world. It even owns a slice of AOL.

It's a kind of immortality: Get Random House to publish your book, and the odds are that your words will never go out of print. That's because Bertelsmann AG, the $16-billion-a-year global media giant that owns the publisher, has begun storing new books, as well as much of Random's 20,000-volume backlist, as digital files. They can be printed on demand or downloaded to electronic books, if those futuristic devices ever catch on. By digitizing its content, including artwork and marketing material, Random House aims to market authors' work online in perpetuity--notably via barnesandnoble.com, of which Bertelsmann owns 40%.

Bertelsmann also owns printers, warehouses, and the biggest book-club group in the U.S. and Europe, so it can make money all along the publishing chain. "Our strategy is to integrate the Internet into all of our core businesses," says CEO Thomas Middelhoff. Germany-based Bertelsmann, which also has major holdings in music, magazines, and TV, had $815 million in Net revenues last year, more than Yahoo. Most of the money comes from bn.com and AOL Europe--Middelhoff bought a stake in AOL years ago. Deals like that are one reason observers think 46-year-old Middelhoff, who ran Bertelsmann's multimedia business before becoming CEO last year, is the most Internet-savvy media mogul. --Marc Gunther

W.W. GRAINGER www.grainger.com From a seven-pound catalog to a lean, mean Website.

W.W. Grainger is the sort of company that the Internet was supposed to destroy. Either Grainger's vendors--manufacturers of stuff like power tools, electric motors, and light bulbs--would use the Net to sell directly to customers, bypassing the $5-billion-a-year distributor, or the 72-year-old company, which for decades has held a cozy lead in sales of machine maintenance and repair supplies, would prove too slow and lazy to compete at Net speed. But Grainger has thrived on the Web. Grainger.com should do some $140 million of business this year--way more than any of its competitors or suppliers.

Most of Grainger's customers have yet to switch to its Website--but those using grainger.com appear to love it. Their orders on average are twice as large as ones sent in via the old-fashioned pipeline of phone and fax. According to Grainger, its Web customers are spending 20% more annually than they did before. Here's why. To find what they needed, Grainger's customers used to have just one option--page through a gigantic, red, 4,000-page, seven-pound catalog listing 70,000 products. On the Website, customers can search through even more products (220,000) in a fraction of the time, get up-to-date prices (discounted for certain customers), and know immediately whether the items are in stock.

Grainger is still printing its catalog-cum-doorstop, but the big book's days may be numbered. "It's hard to imagine a world where more than 50% of our orders aren't flowing through the digital space," says Don Bielinsky, W.W. Grainger group president. "The Internet is clearly the best vehicle for our customers." --M.W.

CHARLES SCHWAB www.schwab.com This broker rules the e-biz roost.

With 67% of its customers' trades going over the Web, Schwab is the e-broker supreme. It boasts $263 billion in online customer assets, vs. $28 billion for rival E-Trade. It outshines other Internet powers too. Schwab.com brings an estimated $4.7 million a day in revenue, vs. $3.8 million for Amazon. Schwab's 6 million page views a day is dwarfed by Yahoo's 385 million--but when was the last time you spent an hour on Yahoo?

True, Schwab's stock is down 50% from its April high, like many Net stocks. But schwab.com now provides a place not just to trade stocks but also to write checks, buy insurance, and pay bills electronically. Says Credit Suisse First Boston analyst James Marks: "The potential exists for Schwab to go to the public and say, 'Why do you need a bank?' " --Erick Schonfeld

TICKETMASTER www.ticketmaster.com Eddie Vedder be damned. Ticketmaster's a power online too.

Ticketmaster didn't have to move to the Web. Unlike, say, Toys "R" Us, Ticketmaster not only dwarfs its rivals but also has a near monopoly. Its 3,750 clients sign exclusive distribution deals, and Ticketmaster tacks a stiff fee onto each of the 75 million tickets it sells each year. The Net startups nipping at Ticketmaster can't even break skin. In its IPO filing, rival Tickets.com concedes that it often sends customers to Ticketmaster's site, where the giant "receives all revenue...." Some competition.

So what's surprising is how big a move Ticketmaster has made. After USA Network's Barry Diller acquired the company in 1998, he combined its Website with his CitySearch investment. Suddenly Ticketmaster's 30-person online team found itself sitting in pods instead of offices and getting equity instead of big raises. Ticketmaster Online quickly staked out its own turf. Whereas Ticketmaster targets big stadiums, the Website hits even music venues with fewer than 200 seats. Whereas Ticketmaster waits for buyers to come to it, the Website e-mails buyers the play list from the most recent concert they attended with an offer to sell a concert T-shirt. The My Ticketmaster service e-mails members news of events that might interest them. The site is a great example of what can happen when a big company is willing to set its Webheads free. "When you spin something off," says online chief Charles Conn, "you don't worry about cannibalization. You worry about making a business." --D.R.

FINGERHUT www.fingerhut.com Its old-economy warehouses have Internet Age value.

You'd never know it, but if you have ordered from eToys, Levis.com, or Pier1.com, your shipment may well have come from a Fingerhut warehouse. Famous for catalogs of home furnishings and clothes, the 51-year-old Minnetonka, Minn., company is one of the Net's top distributors, fulfilling orders for sites that would rather use Fingerhut's 4.5 million square feet of warehouses than build their own.

Fingerhut also sells its own goods online. Its growing constellation of sites include Figis.com (food baskets), thehut.com (teen apparel), and AndysGarage.com (discounted goods). It runs macys.com (Macy's parent, Federated Department Stores, bought Fingerhut in February) and "affiliate" Websites in which Fingerhut has large equity stakes, such as Freeshop.com and PCFlowers.com.

The goal is to create an Internet superstore featuring both a vast selection and highly personalized service. The company has data on 31 million customers, which it will use to personalize Web pages and target e-mail. Revenue from the Web accounts for 10% of annual sales, or $150 million--but CEO Will Lansing wants it to be 100%. "Our business is now the Internet. Fast-forward two years, and we'll be one of the big five players doing retailing there," he vows. --M.W.

OFFICE DEPOT www.officedepot.com Service can matter more than price.

The No. 1 Website for office supplies is not some dot.com startup. It's 13-year-old Office Depot. Unlike other brick-and-mortar companies forced into e-commerce to fend off eager startups, the Del Ray Beach, Fla., company was an online pioneer.

Back in 1997, CEO David Fuente realized the Web would one day steal sales from his 813 stores. But he also saw it could streamline his business. So he got busy building customized Websites for corporate customers, then launched OfficeDepot.com for small businesses and consumers in 1998. Now startups like officesupplies.com and atyouroffice.com are trying to catch up with the old guy.

Office Depot's sites actually make money. Sales will total more than $300 million this year, analysts say, of which $30 million will be profit. One key tactic: Office Depot doesn't undercut store prices online. "The advantages of the Website are service and convenience. Our customers aren't shopping for the cheapest price," explains the OfficeDepot.com chief, Keith Butler. Another key to profits: He runs his site on a shoestring--it has spent less than $10 million on marketing. --M.W.

U.S. POSTAL SERVICE www.usps.gov This unlikely e-player is allying with startups.

Okay, programmers, you want stock options? Buy as many U.S. Savings Bonds as your government salary allows! That's about as close as the U.S. Postal Service can get to offering a Silicon Valley work style. Yet this oldest of unwired giants has grabbed a significant chunk of the Net economy. With a series of cool deals, the post office is doing a lot more than just providing Zip+4 numbers at its Website.

Of course, getting people to believe is another story. "People don't understand," laments e-commerce vice president Bob Krause. "They think of us as a government organization. But we're highly sophisticated in our use of advanced technology."

Jeff Green learned that in 1996, when he and two B-school pals approached the post office about hawking digital stamps over the Web. Green wasn't sure how their idea would be taken. But after a single meeting, the partners left with the USPS green light. Their startup, Stamps.com, was set to launch in October as a competitor to the likes of Pitney Bowes.

The post office also aims to be the Web's top shipper. It has a deal with Amazon.com and handles nearly two-thirds of Amazon's shipments. More merchants are signing up. Says Krause, a 27-year postal veteran who now speaks fluent Internet Buzzword: "We are constantly bringing on e-tailers, as well as those who are in click and mortar." --D.R.