Thanks for Not Coming
As the newly hired director of finance and investor relations for Inforte (www.inforte.com), a technology consulting firm in Chicago, Tami Kamarauskas wanted to bring some innovative thinking to her post. This past spring she got her chance by running the firm’s annual meeting with no worries over coffee, doughnuts, or paper proxies. Instead she made sure her CEO had a Web connection and fax machine available as Inforte went virtual.
“We heard about a new Delaware law that encourages electronic stockholder meetings, and it seemed like it would be effective and help us lower costs,” says Kamarauskas. There’s no doubt about the latter, but some concern about the former.
Inforte used an audio Web conferencing service available from PR Newswire (www.prnewswire.com), which provided a link on its Web site enabling anyone to listen in on the meeting. Before she decided on a virtual meeting, Kamarauskas had allocated $20,000 for the traditional, face-to-face variety, a price that covered meeting space, security, and printing. The virtual version cost $2,000. Inforte’s saving is actually greater since it doesn’t take into account the productivity gains that were realized when employees weren’t needed to staff the meeting.
There were a few drawbacks. For one thing, the company decided not to use online voting because costs would have canceled out much of the $18,000 saving. Instead, stockholders faxed in their votes, which required a manual tally. And one analyst argues that an email Q&A session is a poor substitute for the give-and-take of the real thing. “There’s a legitimate purpose for getting everyone in one room, which is asking questions and having stockholders talk among themselves.
Perhaps some of them even engage in serious debate,” says Robert Sterling, a brokerage analyst with Jupiter Research. “I’m not sure whether, with email, a lot of tough questions get through.” Companies thinking about holding their own virtual stockholder meetings must make sure that such meetings are legal where they’re based. Delaware is the only state that explicitly permits them, although legislation is pending in Massachusetts and other states. Current statutes dealing with annual meetings were written long before virtual meetings were possible. If a state doesn’t expressly bar virtual meetings, a company may be able to make a case for them.
As far as Kamarauskas is concerned, Inforte is sold on the concept. “We think the Web is entirely effective, and there’s no reason to add a physical component to the meeting,” she says. Few people like it when meetings get physical. —Karen J. Bannan
Internet Service Providers
Peering into the Abyss
This summer’s railroad tunnel fire in Baltimore posed much more than a commuting nightmare; it had plenty of Web users choking, too. That’s because WorldCom’s (www.worldcom.com) UUNet Internet service lost a segment of its network, which affected not only its own customer base but also the users of other Internet service providers. Like many other ISPs, UUNet relies on “peering relationships,” or agreements with other ISPs to carry one another’s Internet traffic. Such arrangements save ISPs vast sums of money, but they also pose a risk for customers, and some industry-watchers believe it’s only going to get worse.
Having overinvested and overleveraged to keep up with the explosive growth of the Internet, ISPs are now left with debt and with a customer base that’s growing little, if at all. That financial instability can be as damaging to peering networks as the Baltimore fire. Take PSINet. In June, right after the company announced it had filed for bankruptcy under Chapter 11, Cable & Wireless (www.cw.com) severed its peering connection with PSINet on the grounds that there wasn’t enough reciprocal traffic between the two. Normally, if a peering relationship is lopsided, the party with the additional traffic pays for the carriage of data. Since PSINet had no money to spend, Cable & Wireless pulled the plug.
To avoid being the unwitting victim of a peer dispute or interruption, make sure your ISP has connections to multiple backbones. According to Bill Jones, senior director of public services at Keynote Systems, a company that monitors Internet performance, “When you contract for support of a vital part of your business, you have to make sure there are plans for responding to a critical path failing.” Not surprisingly, he says that “typically, it comes down to how much you’re willing to spend” versus what you’re willing to risk. —KJB
As the Worm Turns
The Code Red virus may have garnered all the headlines this past summer, but companies should also beware of the lower-profile Sircam worm. Designed to attack vulnerabilities in Microsoft Outlook, the worm will choose a file on local hard drives to infect and randomly send it off to unsuspecting recipients. Sircam is insidious — it sends itself out selectively and doesn’t do massive damage — but it can destroy files and slow performance.
The worm’s greatest damage might be done on peer-to-peer networks. Because client machines communicate without the intermediation of a central server, Sircam can rapidly hop from machine to machine until the entire network is completely infected. “It’s not that a peer-to- peer network is more vulnerable to a worm or a virus, but they certainly spread a heck of a lot faster,” says Mike Ellsworth, managing principal at Stratvantage (www.stratvantage.com), a business-to-business consulting firm with expertise in peer-to-peer networks.
The lack of central administration can make worms and viruses more difficult to banish from corporate networks because an IT staffer can’t simply hit the “off” button on the file server, stopping file access and transfer until the infection is localized and obliterated. “A number of common virus controls, such as knowing who the sender is or having a reasonable expectation that what you’re downloading is safe, are often absent from a peer-to-peer network,” says Ellsworth. For example, in the absence of file authentication, an employee viewing his or her peer-to-peer interface might see that a colleague has the latest version of a work proposal when it fact it is a virus disguising itself.
A debate rages as to whether antivirus software on desktop machines can thwart Sircam, although vendors claim that a postinfection cure is relatively easy. Nonetheless, a virus doesn’t need to be glamorous to do plenty of damage. This year 94 percent of companies said they had been hit by computer viruses in the past 12 months. —John Berry
Almost Ready for Prime Time?
The notion that your refrigerator could “know” that you’re about to run out of milk and order more via the Internet may have suffered a setback now that there are very few companies that will actually bring you another quart, but don’t count out smart-device technology just yet.
Developers of appliance-to-business (A2B) technology see a ready market among makers of fax machines, copiers, vending machines, and plenty of other devices that today require frequent human contact. Companies such as IBM, Microsoft, and Sun Microsystems have been talking about the technology for several years now, but relative newcomers such as eDevice (www.edevice.com), eMation (www.emation.com), and Questra (www.questra.com) are doing a lot of the heavy lifting to make it happen.
For example, Questra has designed software that network-enables any device with an 8-bit processor, letting it beam plenty of data back to its maker, from alerts on impending malfunctions to customer usage patterns that may help the manufacturer sell additional gear to the client.
The technology doesn’t come cheap: Customers will pay about $300,000 for Questra’s software, as well as a one-time service fee of around $500,000. But Rajeev Raman, Questra’s vice president of product development, says the costs are minimal because A2B technology can improve DSO by 50 to 80 percent. “How quickly you get an invoice out often hinges on how quickly you get a product reading, and A2B shortens that time span considerably,” he says.
Despite vendors’ claims of near-instant ROI, analysts say the technology is still 12 to 18 months away from widespread adoption. — KJB
An advertising blitz has touched off a war over ratings, one that would be almost funny if it weren’t for the tenuous state of Internet advertising.
X10.com, a Seattle-based seller of electronic gear, has gone all out with a new form of Web ad: a “pop-under.” The ad doesn’t appear on top of a Web page; depending on your point of view, it waits patiently or lurks ominously underneath, becoming visible when the Web surfer closes the current window. The company has placed the ad so aggressively that Jupiter Media Metrix ranked X10.com fourth in total site traffic in mid- July, just behind AOL, Microsoft, and Yahoo. Competitor Nielsen//NetRatings counts those ads simply as ads, so X10.com didn’t show up in its top 100.
Jim Nail, senior analyst at Forrester Research, asks the question that has bedeviled philosophers through the ages: “Are those pop-unders a Web site, or are they an ad?”
No comment from Jupiter or Nielsen//NetRatings, but accounting methods may be revised. —JB
Research & Development
The Sun Never Sets on MIT
“Plant a thousand new ideas” is Rudolph Burger’s somewhat unusual advice to European companies in a slowing economy. The chief executive of Media Lab Europe (www.medialabeurope.org) reckons that for about $180,000 — the fee to join the Dublin-based research consortium — they can avoid being caught flat-footed when sales pick up again. “You don’t want to emerge from a recession without a new product to sell,” warns the former Xerox vice president.
Asian companies will very likely receive a similar entreaty after confirmation in June that the region will get its own Media Lab in the Indian city of Mumbai. Media Lab Asia (www.medialabasia.org) and one- year-old Media Lab Europe mark the first efforts by the Massachusetts Institute of Technology to replicate its successful Media Lab overseas. While the research agenda and entry fee will change to suit local needs, the basic pitch will not.
Think “mutual fund for blue-sky R&D” and you get the idea. An extra $180,000 in a corporate research budget might pay for two researchers and some equipment. But pool those funds with the $180,000 from 199 other sponsors, says Burger, and suddenly you have $36 million “applied to some of the best minds in the world.” Not coincidentally, that’s roughly the number of sponsors the original Media Lab has attracted in the two decades since it was launched.
There’s no telling what the labs might produce. “We hire individuals with visions — mad ideas, if you will,” says Burger, “and set them free to try and realize those visions in a physical form.” Burger’s favorite mad-idea-turned-commercial-product is a musical chair that plays notes in response to subtle movements of the hands and arms. Engineers at Japanese electronics firm NEC used the underlying technology to develop sensors that prevent air bags from inflating dangerously on children.
“The way to nurture ideas into valuable intellectual property is to open them up to criticism and other disciplines at the earliest opportunity,” says Burger. “I don’t think there is any company in the world smart enough, or rich enough, to hire enough people to do it all.” —Anthony Sibillin
If They Only Had a SportBrain
Few people would want to walk a mile in SportBrain’s shoes. The maker of a Web-enabled pedometer that not only clocks a wearer’s mileage but also allows her or him to compete against others and track results on the Internet has finally gone belly-up, but not without a fight. And those doing most of the fighting were the company’s 36,000 enthusiastic customers, several of whom still hope to buy the company. Bob Martin, SportBrain’s vice president of engineering, had been posting blow-by-blow descriptions of the company’s efforts to stave off bankruptcy on its site, inspiring a groundswell of customer support. “I bought my SportBrain on March 24th and since then I have walked over 1.1 million steps and changed my life. This little device basically got me off my lazy butt,” said one user.
When a user-sponsored purchase began to look less and less likely, the SportBrainiacs, as they called themselves, begged SportBrain’s management to let them pay a monthly fee. The company’s only source of revenue had been the $99 it charged for the device itself; it had never implemented a fee for its interactive Web services. But the offer from the SportBrainiacs came too late in the game. SportBrain’s financial problems didn’t differ from those of many other dotcoms, but its customer loyalty certainly did. At the end, SportBrain users were logging onto the site more than four times a day on average, according to Martin, and new orders from current members’ friends and families continued to roll in. But that support still didn’t provide adequate cash flow — a lesson for those who would not only talk the talk but walk the walk. —KJB
Another Round, Please
Based on data from Venture Economics, the high-tech venture capital industry has just weathered the first 12-month loss in its history. But don’t expect sober reassessments and anxious hand-wringing; the outlook, VCs say, is bright. Whether that’s accurate or merely a reflex remains to be seen. But even as they insist everything is fine, many VCs are adopting new strategies.
Since a quick sale or a boffo IPO seems out of the question, expansion-stage funding has become a bigger part of many VCs’ portfolios. Says Adam Reinebach, vice president of Venture Economics: “In 1999 and 2000 VCs backed a company, gave it a couple of rounds, and took it public within a year. That kind of pace was really unheard of prior to the Internet boom.” Now companies are receiving five or more rounds as VCs wait out a lackluster market.
Meanwhile VCs aren’t very likely to enjoy big cash infusions from pension funds. Reinebach says many pensions have percentage caps limiting investment in private equity arrangements, measured not in the dollar amount invested but in the value of the investments at any given time. Thanks to the drop in the stock market, on a proportional basis many plans have maxed out the percentage of the portfolio they can place with VCs. That’s ironic given that VCs are still providing better returns than the public equity market, but rules are rules.
Got a hot idea? Good luck. Most dotcom funding is now directed toward companies already in VCs’ portfolios. —JB