Chemdex

» see chemdex.com as it lived, on the wayback machine

~ the eulogy ~

Start with the two numbers, because the whole story sits between them. In 1998 Chemdex sold twenty-nine thousand dollars of laboratory supplies, which is roughly one well-funded biology lab's quarterly reagent order. On 25 February 2000 the same company was worth about seven billion dollars.

David Perry founded it in September 1997 after Harvard Business School and a stretch at Exxon, and the idea was not stupid. Buying scientific supplies was genuinely awful: thousands of suppliers, paper catalogs the thickness of phone books, purchase orders typed by hand, and a research scientist doing procurement work instead of research. Put all of it in one searchable place that talks to the buyer's own accounting system, then charge a small percentage of everything that flows through. That last clause is where it died.

The IPO on 27 July 1999 raised $112.5 million and closed the first day up sixty percent, valuing a company with almost no revenue at $758 million. Seven months later the stock had gone up nearly tenfold. In February 2000 the company renamed itself Ventro, on the reasoning that a chemicals exchange was a smaller idea than a machine for building exchanges in any industry you liked, and the stock jumped another thirty percent on the announcement of the name.

The American crash of 2000 reached me as a story about foreign stock prices, told in a newspaper. The crash that reached my country arrived a year later and had nothing to do with any of this: in February 2001 Turkey let the lira float and it fell through the floor, and for a while afterward a home internet connection was a line item people actually argued about. Nobody in Ankara lost money on Ventro. Plenty of people lost money that same winter, for reasons no Nasdaq ticker explains.

~ the dossier ~

~ the marketplace ~

The revenue that did exist was concentrated to the point of being a joke. In the first quarter of 1999, Chemdex booked $165,000, and about eighty-two percent of it came from a single customer, Genentech. A marketplace with one real buyer is not a marketplace, it is a purchasing department with a website in front of it, and no amount of listed suppliers changes that.

There was also a structural trap in how the money was counted. Chemdex recorded the full value of goods sold through the site as its own revenue while keeping only a thin transaction fee, so growth looked enormous and margin stayed invisible. Investors in 1999 were buying the top line. When they started asking about the bottom one in the spring of 2000, there was no version of the answer that worked.

~ what the crash proved ~

On 6 December 2000 Ventro announced it was shutting Chemdex and Promedix immediately and repositioning itself as a service provider that would build and run marketplaces for other people. The restructuring covered about 235 jobs across the two marketplaces and the parent, with the layoffs starting at the end of December and finishing by the following March. Perry said publicly that the decisions had been difficult, particularly for the employees who had built the exchanges.

The company kept going in name for another decade, buying NexPrise in August 2001 and taking that name in January 2002, then filing for bankruptcy on 18 January 2011 with its assets sold off that April. The lesson underneath is duller than the stock chart. A percentage of other people's transactions is only a business if the transactions show up, and in business-to-business purchasing they show up when the buyer's own systems and habits change, which takes a decade rather than a funding round. Chemdex was early enough to be right about where lab procurement ended up and too early to be paid for it. Today the domain answers, and the company behind it has nothing to do with the one that was worth seven billion dollars for a few weeks.

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