Small Business
Kmart's e-commerce deals
February 14, 2000: 7:35 a.m. ET

Giant retailer sets alliances with Internet start-ups to move quickly on the Web
By Staff Writer Steve Bills
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NEW YORK (CNNfn) - When Kmart Corp. set out last fall to reinvent itself as an Internet merchant, the huge discount retailer chose to ally itself not with other industry leaders, but instead with a group of e-commerce start-ups -- small companies that are quick, nimble, and in some cases very, very young.
    Indeed, MimEcom, the company perhaps most critical to the ultimate success of the revamped Kmart site -- the one responsible for making sure that stays up, responsive and secure -- is just five months old., the company providing free Internet access via CD-ROMs being given away in Kmart (KM: Research, Estimates) stores, essentially launched its nationwide service with as its debut sponsor.
    StockPower is a relative graybeard among this group, with a corporate existence that dates all the way back to 1997. StockPower is an affinity marketing firm that hopes to encourage loyalty among Kmart shoppers by allowing them to buy the company's stock directly and commission-free over the BlueLight site.
    Even BlueLight itself, a joint venture formed in 1999 between Kmart and the Japanese Internet investment company Softbank, went live only in mid-December. (Martha Stewart Living Omnimedia (MSO: Research, Estimates), whose founder sells her housewares through Kmart stores, also has an investment in BlueLight.)
Running with the gazelles

    How did Kmart, a retailing giant that saw its core market usurped in the past generation by the more aggressive Wal-Mart (WMT: Research, Estimates), manage to position its Web site among the gazelles of the Internet?
    Certainly it helped to structure the e-commerce site as a separate company. The new venture also distanced itself physically from its progenitor, setting up shop not in Kmart's hometown of Troy, Mich., but in San Francisco, on the front lines of the Internet revolution. And the partners brought in a management team whose background was in online entrepreneurship, rather than conventional brick-and-mortar retailing.
    Then the new organization went out in search of business partners that were "very aggressive and fast-moving," in the words of BlueLight spokesman Dave Karraker. "We need companies that can turn on a dime and are not weighed down by a lot of bureaucracy and by preconceived notions of what the Internet should be," he said.
    This is becoming the favored approach in the fractured world of the Web. Rather than trying to develop a site in-house or turn to a single vendor to provide a comprehensive plan, 73 percent of respondents in a survey said they would prefer to work with multiple vendors, according to Jupiter Communications.
    "We have lots of companies telling us they want best of breed solutions," said Preston Dodd of Jupiter. "The reality is that it's impossible for a company to acquire all the skill sets that are necessary."
Common themes among the players

    In talks with a number of the participants, several common themes recurred:
    It helps who you know. "That is probably the No. 1 way we're finding these companies," said Karraker of BlueLight.
    Some of the contacts come from previous ventures -- for example, the established J. Crew e-commerce site shows up on the resumes of several of the participants in the BlueLight build-out.
    graphicNot that the previous relationships mean a slam-dunk for a contract for the new project. For instance, Spinway, the fledgling free-access provider, had landed venture financing in October from Softbank, which was impressed with the start-up's technology to push advertising to Web surfers.
    "Softbank was really one of the orchestrators in putting this thing together," said Danny Robinson, co-founder and chief executive of Spinway. Even so, Spinway had to go through another round of due diligence with BlueLight before winning its support.
    The BlueLight venture also brought Spinway together with Yahoo! (YHOO: Research, Estimates), the Web portal that is providing content, chat, e-mail and search capabilities to users of the BlueLight-branded access service.
    Now, "we're being packaged up with other Yahoo! deals," Robinson said. "We round out their service."
    You must be master of your domain. StockPower provides a single, specific service to BlueLight -- the ability to purchase Kmart stock over the Internet, with no broker commissions and no physical bank draft to be written.
    The company has been promoting its service for only six or seven months, said Stephen Klein, senior vice president of the San Francisco-based loyalty marketing firm. For most of the previous two years of its existence, it was building the software to provide secure transactions and was undergoing the scrutiny of the Securities and Exchange Commission -- which ultimately approved the firm's plans to offer direct stock purchase over the Internet and to promote the availability of the service.
    "Clearly, there is a tremendous amount of security involved," Klein noted.
    A similar story applies to MimEcom, the infrastructure provider, according to
    said Michael Carrier, chief executive and president of the San Francisco firm. "They come graphicto us and they say, 'I've got all these other problems on the table,' from site design to customer service to order fulfillment. "The last thing on the list is, 'I need an infrastructure architect,'" Carrier said. "They have a wide variety of challenges on all fronts. This is a no-brainer."
    MimEcom's expertise is in providing the technology to keep an e-commerce site running, responsive and secure, scaling up as traffic grows, a task that is "mission critical but not strategic," as Carrier said. "If we do our job well, you don't notice it."
    Speed does matter. It goes without saying that everybody in this space is operating on Internet time. "You need to run as hard and as fast as you can," said Klein of StockPower, a sentiment that was echoed by others.
    But in just one indication of how far operational demands can get ahead of other issues, consider the legal relationship between BlueLight and MimEcom. Three months after the official launch of the site, "the big global contract is still under negotiation," Carrier said with a shrug.
Major elements not yet in place

    Despite all this high-speed activity, major elements of the BlueLight site are not in place yet. When the site launched in mid-December, its main lure was Spinway's free access service, "a Christmas present for our shoppers," Karraker said.
    Today, the e-commerce area remains quite limited -- a collection of "blue light specials," not the comprehensive shopping service that Karraker promises the site will develop as the year progresses. "It's going to be Amazon plus much, much more," he said. "Some things we haven't even explored yet."
    Meanwhile, the firm continues to explore additional features to the site, he added: "We're talking to people every day."
    Yet the opportunity of this high-speed, open-ended environment also demonstrates the risk to companies that seek to build complex Internet sites by way of ad-hoc alliances, observed Dodd of Jupiter Communications.
    "If you lose that vendor, not only do you lose that relationship, but you also lose all the knowledge that has been developed. You have to be aware what it means to be too dependent on an external resource," he said. "It's up to the company to protect itself." Back to top


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