Leaders of a new pack

Boo.com's gone bye-bye. Priceline.com is singing the blues. DoubleClick is no longer clicking with investors. And Amazon's stock price has floated, well, downriver.

Let's face it, the dot-coms have been given more than a fair shot at inventing the formula for e-business success. And, at least so far, many have only succeeded in coming up with foolproof plans for burning up lots of venture capital and shareholder equity. Now, it's Earl Mason's turn. Former chief financial officer at Compaq Computer Corp., Mason last May took over as CEO at Alliant Foodservice Inc., a $6 billion food distribution giant in Deerfield, Ill.

With 100,000 customers, 44 distribution centers and a catalog of 180,000 food products, the 24-year-old Alliant is anything but a who-needs-profits dot-com startup. But, in the 18 months since Mason joined the company, he has transformed Alliant into an e-business leader.

After investing $200 million in new Web-based systems and an overhaul of Alliant's warehouse and supply chain systems and processes, Mason rolled out AlliantLink.com, a private e-marketplace that not only lets all of Alliant's customers - restaurant chains, hospitals and so forth - order food online but also guarantees delivery of what's ordered.

AlliantLink.com has been so successful that 25 percent of Alliant's customers now use it, and Mason expects upward of $1 billion in revenue to come through Alliant Link.com over the next year.

In February, Mason and Alliant Chairman James Rogers restructured the company around AlliantLink.com, renaming the privately owned company Alliant Exchange Inc.

With the dot-coms drooping, brick-and-mortar enterprises such as Alliant are assuming the mantle of e-business leadership. Don't believe it? Take a look at the names on the eWeek FastTrack 500 list, our annual ranking of top e-business innovators.

Many dot-coms - even some at the top of the list - were not among those rushing a year or two ago to lay claim to e-commerce first-mover advantage. Until about a year ago, enterprises such as Staples Inc. (No. 1 on the FastTrack list), Chase Manhattan Corp. (No. 3) and Alliant (No. 31) were widely believed to be trailing their competition in e-business.

In fairly short order, however, they were able to gather internal top management support for major e-business initiatives, put together workable business plans that delivered real value online to customers, suppliers and partners, and invest in new e-commerce technologies.

Now, they're reaping the value in lower operating costs, stronger links with customers and even major new sources of online revenue.

There are a couple of lessons in this for IT and e-business managers everywhere.

First, in the fast-changing e-business environment, there's still plenty of time to build a winning strategy and make the technology investments necessary to move quickly from worst to first. "For a while the story was that if you were not one of the first on the Internet, you were doomed, but now we know that's not true," said Geri Spieler, an analyst in Gartner Group's e-business research and advisory offerings, in San Jose. "You don't necessarily have to be first, but you have to have something that really works. A lot of the dot-coms had no clue about anything but that it was good to have virtual inventory and how to ship things one way. That's not enough."

The second lesson: In the long run, the e-business winners are likely to be established enterprises that find a way to integrate the Internet into existing channels of distribution, not those that rely on the Web alone. In a survey of FastTrack companies, 86.7 percent said they see the Internet as just one channel, not the only channel.

Or, as Alliant's Mason puts it, "It's the interaction of bricks and clicks that make a company and an e-business strategy solid, not just having a fancy front end."

So why are click-and-mortar companies rising to the top of the list of FastTrack e-business innovators? Simply put, they have a few key advantages over the pure dot-coms.

First and perhaps most important, they have strong distribution networks and established relationships with customers, suppliers and partners. And they've been doing business with many of those partners electronically - using technologies such as electronic data interchange - in some cases for years. So they understand how business processes flow between buyers and sellers. And they're able to quickly roll out e-commerce systems that solve real problems and drive real revenue.

Take, for example, Pioneer-Standard Electronics Inc., No. 11 on this year's FastTrack 500. The Cleveland-based distributor of electronic components over the last year has increased from 1,000 to 7,000 the number of extranet connections it has built to connect directly with VAR customers.

The extranets have helped Pioneer-Standard attract new VARs because, said CIO Jim Sage, they give customers exactly what they want: access to Pioneer-Standard's huge parts catalog, online ordering history and order status checking.

Now, Pioneer-Standard is ready to take the next step. The company is building a new online price-quoting tool that will allow customers to analyze and make buying decisions based on the total purchase cost of parts from the company and its direct competitors.

Similarly, Gates Rubber Co., of Denver (FastTrack No. 30), is rapidly refining its B2B site to give business customers of its rubber belts and hoses exactly what they want. Like many FastTrack companies, Gates started out providing basic B2B functions, including product catalogs and procurement.

Now, said Bob Jack, director of e-business, Gates is planning an online feature that will help customers attempting to engineer new products. An automotive customer, for example, will enter details of a new car cooling system, and the site will recommend the best Gates product for the job or even design changes. Gates is also adding online training to the site, said Jack.

Established click-and-mortar companies on the FastTrack list have another advantage over most dot-coms: They've got the experience and the resources to deploy the new technologies needed to execute e-business strategies. And many of them are redirecting large portions of their IT spending to e-commerce.

In a survey of FastTrack companies, 29.6 percent said they plan to spend as much as 40 percent of their IT budgets on e-commerce next year. That's up from 23.2 percent that said they're doing so this year.

Alliant is certainly making the investment. To deploy AlliantLink.com in a way that will be most useful to customers, the company first had to install a new supply chain management/ demand planning application. That was necessary to allow Alliant to guarantee delivery of food products the instant they're ordered online. Alliant installed the supply chain applications from i2 Technologies Inc.

The experience advantage of established click-and-mortar companies is not only evident in their ability to rapidly adopt key new e-business technologies. It can be seen also in their decisions to wait if a technology is not yet ready for prime time. A year ago, for example, Pioneer-Standard's Sage was actively planning to deploy VOIP (voice-over IP) technology to enhance his site's customer support capabilities. As the company began to evaluate VOIP products and services, however, it decided to delay deployment. The problem: managing VOIP network bandwidth demand and its effect on other network traffic.

"We decided we were trying to force VOIP before the voice infrastructure was ready," said Sage. "We believe that in another 12 months we will be able to leverage voice over IP while allocating network capacity where it is required dynamically."

While established enterprises have some significant advantages executing on e-business, they also face challenges.

Some challenges they face in common with dot-coms. Finding people with the right technical and business skills to deploy and run e-business systems, for example, continues to be a struggle. In a survey, 86 percent of FastTrack companies said finding people with the right skills is a challenge, and 63 percent said it's more difficult this year than last.

At the same time, click-and-mortar companies face some unique integration problems. Unlike dot-coms, most are saddled with financial, ERP (enterprise resource planning) and business intelligence systems that were never built for a completely online, wired world. Fifty-two percent of FastTrack companies said integrating legacy systems with e-commerce systems has turned out to be a major challenge.

The answer for many FastTrack innovators has been to replace legacy applications with new enterprise systems. Pioneer-Standard, for example, is installing new financial systems and a new manufacturing execution system that will allow the company to get closer to building servers and other products to customer specifications as they're ordered online.

Similarly, to deploy a new business-to-business online catalog and ordering system for customers of its belts and other rubber-based products, Gates first had to deploy Oracle Corp.'s e-commerce applications integrated with Oracle's ERP suite.

With strong established relationships with customers and partners, click-and-mortars also feel a heavier burden to protect customer information by maintaining a secure environment.

In fact, 40.5 percent of FastTrack companies said managing security and privacy in e-business is either challenging or extremely challenging.

Still, FastTrack companies are meeting the challenge. And the resulting business benefit often goes well beyond streamlining business processes and cutting costs. Many are seeing increased customer satisfaction, the ability to attract new customers more easily and the opportunity to develop new sources of revenue.

FastTrack companies, in fact, say improved customer service and increased revenue are the primary goals of their B2B e-commerce