VerticalNet

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

~ the obituary ~

nobody used verticalnet. that is not an insult, it is a description of the business model. this was never a consumer product and it never wanted to be one, which is why a company that briefly carried a market capitalization larger than most airlines has left almost no trace in anyone's memory of the web.

michael mcnulty and michael hagan started it in 1995 in horsham, pennsylvania, with a single site called WaterOnline. the idea was a trade magazine translated into a website: a supplier directory and a message board for people who worked in municipal water treatment. it worked well enough that they built the same thing again for another industry, then another. by the end they were running 43 of these vertical portals, covering things like adhesives, solid waste, food processing and pulp and paper.

the ipo came in february 1999. the shares closed the first day up about 180 percent and the company was worth 1.6 billion dollars by the evening. that was the smaller number. on 10 march 2000, which happens to be the day the nasdaq composite hit its all-time high before the fall, verticalnet's market capitalization reached 10.89 billion dollars. by 4 may of the same year it was 3.89 billion. the descent from there took eight more years and had no dramatic moments in it.

~ the case file ~

~ how it landed ~

the theory was called the b2b exchange and in 1999 it was the most respectable story on the market. consumer dot-coms were selling dog food at a loss and everyone could see the problem. business-to-business commerce was a vastly larger number, it was unglamorous, and it was obviously inefficient. put a neutral marketplace between industrial buyers and industrial sellers, take a small percentage of an enormous flow, and the arithmetic looked unarguable.

what the arithmetic left out is that an industrial buyer is not looking for a marketplace. a plant manager buying valves has a supplier they have used for eleven years, a negotiated price, credit terms and a person who answers the phone at nine at night when something fails. a website offering a wider selection is solving a problem that buyer does not have. verticalnet's traffic was real and its transaction volume never was, because the portals were useful as reading material and useless as a place to actually buy.

so the revenue came from advertising and from listing fees paid by suppliers, which made verticalnet a publisher wearing an exchange's valuation. the market did not notice the difference until it noticed nothing else.

~ the long tail ~

after 2001 the company sold the portals off and rebuilt itself as a vendor of procurement and supply-management software, which is a smaller and more honest business. the headquarters moved to malvern. by 2006 there were 88 employees. that is the whole arc in one number: a company once valued near eleven billion dollars, running with fewer people than a mid-sized school.

bravosolution, the sourcing-software arm of an italian group, agreed to buy it in october 2007 and closed the deal on 25 january 2008 for about 15.2 million dollars. verticalnet became BravoSolution US and the name stopped being used. the round trip is 10.89 billion to 15.2 million, a loss of 99.9 percent, which is very close to what cmgi's shareholders got and is not a coincidence. both were priced on the same sentence and the sentence turned out to be about the wrong decade.

the odd part is that verticalnet was not wrong about the destination. procurement did move online. it moved into the software the company was selling at the end, sold to one enterprise at a time for boring per-seat fees, rather than into a neutral public exchange skimming a percentage. being early is a way of being wrong that looks identical to being wrong until long after the money is gone.

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