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Galli's vertical leap
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July 28, 2000: 1:15 p.m. ET
Ex-Amazon COO discusses move to VerticalNet, switch to B2B sector
By Staff Writer Michele Masterson
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NEW YORK (CNNfn) - Joseph Galli has had a heck of a week. The chief operating officer and president of Amazon.com for the past 13 months left his post at the most famous name in e-tailing, jumping ship to take the helm at VerticalNet, a move that surprised Wall Street and sent Amazon's shares spiraling.
Galli, 42, is a 19-year veteran of Black & Decker, and was hired last year by Amazon for his old economy marketing and business skills, which many said the new economy company was lacking.
Galli's Internet adventure
Galli himself admits his plunge into dot.com land was not a scenario he envisioned. Even before he left Black & Decker, he hesitated to take the Amazon job and was contemplating an offer to head up Pepsico's Frito-Lay division.
"Never in my wildest dreams or fantasies did I think I would be running an Internet company," Galli said. "I was as traditional as it got."
"I loved the manufacturing business and the move to Amazon was an adventure, but once I went to Amazon, I realized that I like changing the world. There's no going back for me," Galli said.
 Galli is a big Internet booster and firmly believes that technology will alter the course of how business gets done.
"The reason why I went to Amazon is that I wanted to throw myself in the middle of this, because I think that the Internet will transform businesses all over the world," Galli said.
"The last 13 months have been an incredible education for me and I feel very fortunate that I learned the things I learned from the guy I think is the best Internet leader that I've met," Galli said.
The shift from B2C to B2B
That said, what spurred Galli to make the move from one of the earliest and best-known brands in the Web space to a company that is hardly a household name?
Galli said that he wanted to be closer to his family on the East Coast and also felt he was ready to take the reins at an Internet company.
"I was very excited about the prospect of being the CEO of a fast-growing technology company, particularly in the B2B sector," Galli said.
The shift from the Internet business-to-consumer (B2C) space to the business-to-business (B2B) arena was a given, Galli said, because he sees greater depth and opportunity in the sector.
"I think that the opportunity in B2B dwarfs what I saw in B2C," Galli said. "I think B2B is all about tens of thousands of small, medium and large-size businesses transacting among each other. Today there's so much inefficiency in the way things get done and the Internet is such an important transformational technology."
VerticalNet's draw
VerticalNet (VERT: Research, Estimates), an e-commerce concern, runs 57 Web sites targeting various industries that maintain B2B communities or electronic trading sites.
B2B sites such as VerticalNet provide storefronts for various vendors inside a vertical marketplace. Buyers can register and obtain products from suppliers in all kinds of industrial sectors. VerticalNet also provides content including white papers by industry, directories and product information.
The Horsham, Pa.-based company has 1,500 employees and Internet Capital Group (ICGE: Research, Estimates) owns a third of the business. Earlier this week, VerticalNet turned in second quarter results of a loss of 23 cents a share on revenue of $53.6 million, a gain of 1,408 percent over the year-ago quarter. The company beats analysts' EPS expectations by 7 cents.
Galli said that while VerticalNet is offering some similar services as Ariba and Oracle, its business varies in that it's not just another software infrastructure company.
"We have a very different model than Ariba and Oracle. We're supplier-centric, as opposed to being a procurement center," Galli said. "We are enabling people to market and sell their goods through our verticals and we've attracted many different procurement partners because of the rich community of supplier that we have."
Much of the early luster has worn off the B2B hype machine, and as is the case with dot.com companies in general, Galli believes consolidation is the name of the game. In just the last year and a half, VerticalNet has bought 18 companies, with more acquisitions on the way.
"We have a model that's very acquisitive and we are looking at a number of acquisition candidates and we will continue," Galli said. "We're going through an incredible period of consolidation - two years ago, you had this emergence of B2B, Internet companies and there were thousands of them that sprung up literally all over the world.
"Now, what you have is a flight to quality and you have a consolidation phase in this space. It's our plan to be a consolidator and to capitalize on our currency and our brand name," Galli said
Although VerticalNet's site offerings such as solidwaste.com hardly have the cachet of, say, Amazon's latest Harry Potter book, Galli said he was attracted to the company because it represented the best model in the burgeoning B2B economy.
"I think the VerticalNet platform is the best put together and the platform with the most potential in the B2B sector," Galli said. VerticalNet, for me, to be No.1, to lead the company, which I think will be a leader in the $10 trillion B2B arena, is very, very exciting."
"There's also more margin potential in B2B," Galli said. "VerticalNet's gross margins are at 80 percent and that's a lot of fun to work with. I think we can really build a highly profitable company and create great shareholder value."
Speaking of shareholders...
Gallli reportedly has a hunk of Amazon shares that are not quite the draw they were when he first signed on to the e-tailer. Still, he remains philosophical about the pounding Web stocks have recently received and is optimistic about his new employer's stock.
 "My view on VerticalNet's stock is that this is a long-term, enormous opportunity for investors," Galli said. "Internet stocks go up and down. If you isolate any one day or week, you can really deceive yourself into thinking that when it's going up you're really smart or, when it's going down, you're really stupid.
One thing VerticalNet shares with Galli's former employer is the fall in share price. Amazon has been hit with investor dissatisfaction and has seen its stock fall from a 52-week high of 115 a share, which is now trading at 29-3/4, below its previous 52-week low of 32-15/32.
VerticalNet is currently trading at or near 44, with a market capitalization of $3.5 billion. The stock's 52-week high was 148-3/4; its low was 13-3/4.
The companies also share the problem of never turning a profit, although shareholders seem to be patient with VerticalNet. Analysts in particular praise Galli's management performance and believe his move to VerticalNet bodes well for the company.
"We have known Joe Galli for 10 years and view him as a very capable executive who will bring out not only deep domain expertise and supplier relationships, but just about the best sales and marketing experience in America," gushed Credit Suisse First Boston analyst Chris Vroom in a research note. 
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VerticalNet
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