(FORTUNE Magazine) – Former steel marketer Dave Pilkey sits in his living room and looks out the window, over Lake Erie. It's a clear day, and in the distance, five miles to the east, he can make out Cleveland's industrial lakeshore: ore docks, electrical plants, salt mines. Pilkey, 60, has lived in Cleveland all his life. He worked at LTV, the city's largest steel company, for more than 30 years. "You get steel in your blood," he says. "There's just something about it. You can't shake it." He raps his knuckles on a glass coffee table with a metal base. "It's just...it's just fantastic to see a piece of dirt become a table!"

As Dave Pilkey sees it, steel is about rocks mined from the ground, furnaces the size of buildings, sparks, roaring fire, acrid smells, grease on your boots, 20-ton hunks of metal. It's about warehouses and railways, unions and tariffs, families and corporate rituals, deals done over card games and steak dinners. It's about his coffee table, and shiny new refrigerators; cars and the riveted skeletons of skyscrapers.

But something's getting in the way of all that. Though Pilkey retired in 1993 to concentrate on his ministry work (he spends 20 hours a week as a volunteer emergency-room chaplain in a downtown hospital), he's still acting as a steel purchasing agent for a few of his longtime clients, handling their interactions with LTV. He has a small home office, complete with the tools of his trade: a phone, a fax machine, files, and folders.

And he also has a new gadget--a computer. Now that LTV is selling some of its steel on MetalSite, a Web-based marketplace for steel, Pilkey has to log on to the Net every day if he's going to continue his work. He's not exactly thrilled with the situation. Pilkey isn't sure that substituting e-mails and Web forms for face-to-face meetings helps anyone at all. He's also confused by the PC itself. "I don't like it much," he says. "I'm an old-fashioned guy."

The new-fashioned guys have decided that the time has come for steel to get on the Net. They're probably right. Unappreciated on Wall Street, burdened with expensive equipment and inventories, struggling with low margins, and hamstrung by old habits, the $50 billion American steel industry has to cut costs and change the way it gets sales. It has tried before to use technology to do that--most steel producers and processors have inventory and production systems, and many also use EDI (an expensive type of private network) to conduct business electronically. But the Internet holds special promise. It's cheap. Everyone's connected to it. And what's more, with investors pumping cash into business-to-business plays like MetalSite near Pittsburgh and e-Steel in New York City, it looks as if it's really going to happen.

So Pilkey's worried.

The good or bad news--depending on your point of view--is that he's probably got a little time (say, a year or two) before he'll know if his fears are well founded. The Net hasn't transformed steel yet; all you have to do to see that is watch what happens when Pilkey helps a client buy steel on MetalSite. The fledgling process is imperfect, roped off from the bulk of the business. It's hardly changing the world.

But it will, and soon.

A couple of hours east, in an office park outside Pittsburgh, MetalSite CEO Patrick Stewart is rallying his troops. Like Pilkey, 38-year-old Stewart is a lifelong steel guy with hometown roots that run deep. Growing up, he'd watch his dad (and his friends' dads) head off to work at a steel mill a few miles down the road in Weirton, W.Va. Trained as an engineer, Stewart has rotated through practically every job the industry has to offer. In addition to melting ore in a mill, he has developed products, headed operations, and coordinated marketing and sales. He has spent most of his career at Weirton Steel, the $1.1-billion-a-year steel producer in West Virginia that now owns the 90-year-old mill where his father worked.

Stewart's current dot-com gig grew out of his stint at Weirton. Back in 1995 the company's CEO, Richard Riederer, charged Stewart, then CIO, to work with a group of colleagues to figure out how networked computers could increase the company's efficiency. Riederer was playing around with a big idea: He wanted to sell production capacity for all steel companies the same way AMR, which owns American Airlines, once sold passenger capacity for all airlines (through its Sabre System network, which it later spun off). It wasn't that Riederer just wanted to collect fees on all those transactions. He believed that coordinating capacity would let mills plan production to minimize downtime and waste--just as Sabre cuts down on empty seats on planes.

The project--which required near-perfect information flows between steel mills, a famously secretive bunch--was too advanced for its time. But it got Stewart and his techies thinking about selling stuff online. By October 1996, Weirton was moving steel over its Website. Only about 50 buyers chose to purchase that way, but the initiative picked up steam. Within two years it had 200 customers.

Figuring it was onto something, Weirton--with two new partner producers, Cleveland's LTV and Steel Dynamics in Fort Wayne--spun the project off into a new company, MetalSite, in August 1998. Stewart, who was appointed CEO, began hiring and found his digs near Pittsburgh. He also hustled to line up more steel producers to join the effort. No matter how easy MetalSite was to use, Stewart figured, no one would visit it unless it offered good product selection. And he wanted to get a foothold fast. "This was a land grab," he says. (It was also a strategy that separated him from his competitor e-Steel, which at the time touted itself as the only neutral exchange because it had no steel company investors. It has since gotten some funding from U.S. Steel and two other mills.)

To encourage skittish mills to take an unthreatening plunge, MetalSite initially would sell only steel that was secondary (damaged or incorrectly made, like irregulars on the clothing rack) or excess prime (leftover, like factory overstocks). These are low-margin products that make up only about 10% of steel sales overall and can be difficult for mills to unload. To prevent the mills from being gouged on price, MetalSite would sell most of its products in a sealed-bid auction (this year it even let some auction sellers set minimum bids). "It was a low-risk proposition for the mills," says Stewart.

The strategy worked. When MetalSite sold its first steel online in December 1998, it had one active seller onboard: Weirton. By the end of 1999, 40 sellers were up. Every month MetalSite was posting 150,000 tons of steel for sale.

Which brings us back to that home office in Cleveland.

Dave Pilkey's PC sits wedged next to an electric organ, under a ship's wheel mounted on the wall. "I'm the dumbest person in the world on this," he sighs, "but it's getting more automatic." Pilkey stays in constant contact with the customer-service people at MetalSite, who are in the office 24 hours a day to help new buyers and sellers understand the Web. People at MetalSite taught Pilkey how to navigate his screen and how to print ("They helped me learn how to stop the thing when the ink ran out," he says).

On Feb. 21, Pilkey sits in his office, double-clicks a bit, and makes his way onto MetalSite to find some excess prime for Mid-West Materials, a $50 million service center in Perry, Ohio. Like most service centers, Mid-West is in the business of buying, cutting up, and warehousing steel, which it then sells and transports to manufacturers all over the country. There are something like 5,800 service-center locations in the U.S. Mills like selling to service centers because it cuts down on the number of customers they must contact. Manufacturers like buying from them because they're practically the only outfits equipped to deal with finished steel from mills, which is usually sold in massive coils--long, thin sheets wound in tight spirals--that can weigh as much as 90,000 pounds apiece.

Pilkey has worked with Mid-West for years--first with the company's 81-year-old founder, Joseph Koppelman, and later with his nephew Scott Koppelman and grandson Brian Robbins. Mid-West was one of his first accounts when he launched his business. ("It's a first-class operation," Pilkey says.) Mid-West sells a lot of steel to furniture makers in North Carolina, who need narrow strips of the metal to make supports for chairs and tables, tracks for sliding components, and other structural hardware. Scott Koppelman, who handles purchasing for Mid-West, often asks Pilkey to help him find coils that can be slit (cut lengthwise) to the right width for these clients.

So, on the 21st, Pilkey navigates to a search page that indicates the kinds of steel his customer wants--in this case, 0.069-gauge, hot-rolled excess prime--and pulls up a list of coils, uploaded from LTV's mainframe system, that match the specs. He scans the list, prints the pages, scribbles some notes in the margins, and faxes it to Koppelman. Koppelman takes the list home, finds the coil he likes, marks a bid price next to it, and faxes the whole thing back to Pilkey on the 22nd. (Like Pilkey, Koppelman doesn't like working on "the tube," as he calls his computer monitor.) Fax in hand, Pilkey returns to MetalSite at 10 p.m. to key in Koppelman's bid.

Twelve hours later, on the 23rd, MetalSite closes the auction. An LTV guy (who happens to be a buddy of Pilkey's) signs on to the site and begins "awarding" the bids the mill wants--usually, but not always, those that offer the most money. Mid-West is the high bidder, so the LTV employee clicks on the ACCEPT AWARD button, which automatically sends a message to Pilkey's MetalSite account. Pilkey logs on to the site when he gets back from working at the hospital, at 3:30 P.M. He writes down the award number on his own Pilkey Steel Service form and sends it--you guessed it, by fax--to Koppelman, who responds within hours with another fax: a purchase order that will be processed manually at LTV.

The coil then sits around in LTV's Cleveland mill for about a month--perhaps because of shipping holdups, perhaps because of paperwork delays; no one's sure. It shows up in Perry, at long last, in late March.

If at first glance you're wondering what any of this really accomplishes, you're not alone. "Buying over MetalSite is not that much different from buying over a fax machine," sniffs Bill Douglass, general manager at Lexington Steel Corp., a privately held service center near Chicago. Douglass has a point. Sure, MetalSite has received its fee--somewhere between 1% and 2% of the sale; and LTV has sold a leftover coil at a great price, and in a relatively efficient way. But Pilkey's agitation aside, his job hasn't changed very much. A couple of years ago he would have received a product list by fax. Now he gets the list online and prints it out. That's hardly revolutionary. Koppelman's role seems entirely unchanged. And even though information is flying fast, the damn coil still sits on the factory floor for a month. So much for reducing those inventories.

Look, the interesting thing about MetalSite is what it could be in the future," says Neil Novich, who is CEO of the country's largest service center, Ryerson Tull, and a MetalSite board member. Here's what he means. First, if MetalSite gets traction, it's bound to change the way steel companies sell their wares. Steel sales have long been relationship-based, for better or for worse, completed during golf games or over stiff drinks in wood-paneled rooms. "I've had a lot of sales and marketing people involved in developing the site," says Weirton's Riederer, "and they have trouble getting over the hurdle. They need to see everything. They need to go to dinners, play golf. But we're creating a need for a different type of salesperson."

The idea is that commodity-level stuff--the secondary market is a perfect example--will move to the Internet. Companies like Weirton will be able to take the big bucks they once spent on schmoozers and use them to hire salespeople with expertise in engineering and design, the types of salespeople who can help move high-margin, carefully engineered products, like the metal that goes into car hoods and airplanes. "The winner is not going to be the guy who's the best backslapper, the guy who unloads the most money on the golf course," Riederer explains. The winner will be the salesperson who spends his time getting involved in product design or solving a production problem for his client.

Likewise, there could be a huge shift among buyers. One outgrowth of the old, relationship-based sales system is that small customers don't have access to deals. It simply isn't feasible for a mill salesperson to cultivate close ties with more than a few--usually large and well-connected--companies.

The Internet could shift the balance of power, opening things up for the little guys. "This has really leveled the playing field," says Steven Gottlieb, CFO ("and janitor," he jokes) of Ratner Steel Supply, a $14 million service center in Minneapolis. "I'm a small player. I never had the opportunity to bid on product like this. I used to have to make 20 phone calls to get one coil of steel." Gottlieb, who could never get noticed at LTV before MetalSite came along, bought $1 million from the Cleveland company in 1999. "The old relationships don't mean as much anymore," he says. "All you need now is credit approval." Gottlieb is also using the Web marketplaces to build a new customer base for Ratner. In the months of February and March he hooked up with more than 50 new customers, 90% of whom he had never heard of before.

Even bigger players who've thrived under the old system are changing with the times, rejiggering their operations and inviting in a new guard to squeeze the most out of e-commerce. The Big Three automakers, who buy about 20% of the steel sold in the U.S., have set up their own purchasing exchange, which could very well affect the way steel mills move metal out to Detroit. On a smaller scale, Mid-West Materials, Dave Pilkey's customer, has spent close to $2 million over the past three years getting its inventory systems and Net operations up to speed. "My grandfather wanted cranes, and I wanted computers," says the company's new 31-year-old CEO, Brian Robbins, who left a job in corporate law in New York City to join the family business in 1996. Robbins already has at least one client who insists that Mid-West link to his site, and Mid-West plans to begin selling its own products online--over MetalSite, over e-Steel, and over its own Website--in the spring.

The Holy Grail remains inventory control. "That's where the pot of gold is," says Andrew Sharkey, CEO of the American Iron and Steel Institute, an industry organization in Washington, D.C. MetalSite is designed to sell not only finished product but also mill capacity. In other words, a customer like Ryerson Tull, forecasting that it will need one million tons of a certain grade of steel over a six-month period, will someday use MetalSite to schedule the actual production of that steel. Knowing exactly what products they need to deliver could help mills (and service centers) avoid stockpiling extra steel to cover unexpected demand. It could also help producers limit the amount of raw materials they keep around--iron, coke, additive chemicals, scrap--to just what they need to get the job done at any given time.

The MetalSite guys think that could free up a lot of cash for companies. "One weekend I took home annual reports of all the companies we work with," Riederer remembers. "I asked, 'What's the annual inventory turn for everyone along the process?' Turns out it's about 1.2 times. I thought, 'That's terrible!' If we could even double those turns, it would be immense." Riederer, whose own company turns over its inventory just 1.5 to 2.5 times annually, thinks this can begin happening within a year if people get their acts together. He believes he can pull off the old Sabre System trick--coordinating all the mills' capacity through a single system--within three years or so.

MetalSite is already beginning to expand its offerings to touch larger and larger pieces of the production process. It dipped a pinkie toe in the water last summer when it began helping its member mills sell slab--large, semifinished bars that are later rolled into coil. A customer buying slab on MetalSite isn't really getting a slab; he's getting a coil. What's different is that he gets to decide how long, thick, and wide he wants his coil to be; the mill rolls it to order. Dave Pilkey likes buying slab. "Slabs are better because you can make them whatever you want," he says. (They've become 50% of his business in merely six months.) By the end of 2000, MetalSite hopes to go further and begin letting buyers purchase the little bits of mill capacity sandwiched between big jobs, which will still be coordinated offline. Purchasing capacity will let a client choose not only width and thickness but also the chemical makeup of the steel he'll get.

In general, more players from all along the process are plugging into the system; service centers like Mid-West Materials are putting their wares online. The raw-materials guys are also linking up (MetalSite's newest offering: scrap metal), and logistics providers like trucking companies should be linking up soon. That is great news: The more people who join in, the more likely that everyone eventually will be able to control inventories more accurately.

Some still don't like what they see.

Pilkey, for one, frets about losing customer relationships. It's not just that he misses the bridge games or traveling the conference circuit with his wife, Barbara (although he does). He misses the contact. "I used to go sit down with customers face-to-face, just like you came here to interview me," he says. "I'd get to know their facilities, what they needed to buy. If everything's on the Internet now, you won't have that so much. Getting to know who people are, you separate the wheat from the chaff." There are some things, he argues, that you can't learn about a person online.

Others complain that MetalSite favors sellers over buyers. Even though the site's launch strategy--to build transaction volume by courting industry support--is a sound one, and even though Stewart is making it easier for buyers to negotiate directly with sellers and is introducing request-for-quote calls that let buyers gun for a low price, the fact remains that most auction sellers on MetalSite are still able to set minimum prices and can refuse to award a coil for any reason--without explanation.

Robert McCarthy is CEO of Jefferson Metals, a service center in Blue Island, Ill., south of Chicago. He tells the story of a coil he wanted to buy from Weirton. The first time he saw it on MetalSite, he bid for it, and lost. He figured someone else must have offered a higher price. But then McCarthy saw that the coil was still on site the next week. He bid again, raising his offer 25 cents per hundred pounds. He lost again. The routine went on for six weeks before he called someone and finally got the steel.

"This blind bid stuff is bullshit, and you can print that!" says McCarthy, who worked as a cop in Chicago before he got into steel. "We don't know how the game is played. All of us weenies get to bid on this stuff until we're blue in the face. They don't tell you that you lost the coil because you didn't bid enough. They just say, 'Go f--- yourself.' And how does it really help them? That steel was expensive inventory sitting around at their mill." McCarthy says he prefers doing business on e-Steel. "It's clean," he says. Indeed, e-Steel, which operates as a negotiation platform for buyers and sellers, has long criticized Stewart & Co. of not being neutral. "We're not a foil for anyone, an agent for anyone. We don't think you can be neutral if you're majority-owned by a group of steel mills from Pittsburgh," says CEO Michael Levin.

Some people suggest that the steel companies that have invested in MetalSite--Weirton, LTV, Bethlehem Steel, Steel Dynamics, and Ryerson Tull--are motivated only by greed and the promise of quick stock market moola. Weirton has already had its first windfall. Initially the majority stockholder in MetalSite, the struggling mill (whose annual revenues have been flat for years) sold much of the new company to Internet Capital Group (ICG), the Philadelphia B2B holding company, in December. ICG forked over a staggering $180 million for the shares. Weirton's market capitalization on the day of the sale was only $300 million.

Riederer is gleefully using the cash to help pay off $305 million in debt and for some new capital investments. The icing on the cake: In the winter, investors betting on a MetalSite IPO drove Weirton's stock price up 260%, to $11 a share. The stock has since settled back down to $6 or so. Nevertheless, Merrill Lynch and J.P. Morgan initiated coverage of Weirton in March with buy ratings, with Morgan saying that its stock might go as high as $14.50 in a year. Investors may have to wait awhile for a payoff. In March, MetalSite picked investment bankers for a possible IPO. But in the tumultuous markets of April, the company pulled back from any immediate plans to go public.

MetalSite's backers swear they're not motivated by the equity--"That's not why we got into this," says LTV (stock price in April: $3.63) e-commerce chief Fran Mangano--but a lot of the little guys aren't buying it. "Weirton is happy as hell with that deal. It's all anyone talks about," says Lexington Steel's Douglass. "It is all about the talk, the Wall Street thing. ICG valued MetalSite at $600 million. That's twice what you could buy LTV for."

Stock market gambits aside, some wonder if the mills are really in tune with the fundamentals of this e-commerce revolution thing. They're obviously coming out ahead on MetalSite, for the time being, by getting good prices on what have traditionally been unwanted products. (The prices LTV got for excess prime went up 17% last year, vs. an average industry increase of 11%.) But what will happen when it's not just 10% of the market up for grabs, when the buyers--the savvy buyers--really do rule, and begin calling some of the shots? Sure, things will be more efficient. But the mills may also lose some control of the situation.

Many don't expect them to deal with it well. "The mills don't think the Net is going to change things for them much," says Donald F. Barnett, an independent consultant in Great Falls, Va. "They see themselves providing the same services, Internet or no Internet." Echoes a Pittsburgh-based industry consultant: "They're arrogant. They don't focus on customers. They don't even really bother focusing on inventory turns."

And then there's the amusing fact that a lot of people don't really know what to make of MetalSite. Stewart--who says he hired 10% to 15% of his staff from the metals industry, 50% from technology or manufacturing, and "hybrids" for the rest--knows his crew is hard to peg. "We don't want a tech culture. We don't want a metal culture," he says. "This is something all new. We've got to start from scratch."

So steel guys like Pilkey think of the MetalSite crew as computer people, not metal men; dot-commers like e-Steel's Levin (who's backed by Kleiner Perkins and has offices just north of Silicon Alley) think they're hopelessly square and will never, to borrow an overused phrase, get it. "Look, I've got guys working for me with more piercings than I have body parts," he observes. "MetalSite...well, those guys are in Pittsburgh!" A neatly trimmed mustache seems to be the biggest fashion statement going in the MetalSite world--Stewart, Riederer, and board member Novich have one, as do a lot of the MetalSite worker bees. In places like Silicon Alley and San Francisco's Multimedia Gulch, mustaches, at best, are a nod to '70s camp.

But that's the silly stuff. Encouraged by all he has seen, Stewart is not about to give up on the grand vision--the value-added sales forces, the new breed of buyers, the lowered inventories and smooth supply chains. People in the trenches--at places like LTV, Ratner Steel Supply, and Mid-West Materials--are hopped up. "I love MetalSite!" gushes Steven Gottlieb. "It's made my job so much easier!" Even Lexington Steel's Bill Douglass thinks the Web is great for steel. "I'm optimistic and excited about what the Net can do. It will be a tremendous asset for customer service and for cutting out inefficiency. I just don't like this version."

Dave Pilkey stays philosophical about it all.

He has already lost three customers to MetalSite--companies that figured out they could key their own bids into a Website, thank you very much. And even though Pilkey's most loyal and sympathetic customers, outfits like Mid-West Materials, say they value his inside knowledge of LTV, the fact is that they don't really need him anymore--at least from a technology point of view. Scott Koppelman might hate "the tube," but he has at least one person on staff who doesn't, and she buys steel on MetalSite all the time (unless, of course, it comes from LTV--that's Pilkey's turf).

Does Pilkey worry that his clients will bolt? "It's a concern," he admits. "But you build a relationship. I got these customers into LTV before MetalSite existed. They're loyal to me. It all goes back to relationships and trust--to integrity. They could say goodbye, but they haven't. If they do, then they do." He pauses for a moment. "That's life too."