Partnering the way to the web
Vertical Networks is a quintessential new-economy company, built on an elaborate web of strategic partnerships.
It's not much of a stretch to describe Vertical Networks as a new-economy company that builds new-economy companies. So why can't you buy its products off the Web?
"When will demand be sufficient to justify the return on investment?" asks John C. Zimmerman, Vertical's vice president of finance and operations, volleying the question right back. He's not referring just to financial ROI. He includes strategic ROIâ€"time and resources. "We have to ask if there's any business reason to sell this product on the Web."
The answer is yes, although it's not quite as simple as selling one-off items like books and CDs online. The product in question is Vertical's InstantOffice, an integrated communications platform that single-handedly manages ICP, PBX, voice mail, LAN and WAN routing, and all the other communications that keep small businesses humming. The Internet is a huge part of the buying process, but value-added resellers or Vertical's direct sales force still make the initial sales calls.
At first blush, this approach seems ironic. Vertical Networks is a quintessential new-economy company, built on an elaborate web of strategic partnerships: NCR manages installation and support at the front end. Flextronics International handles manufacturing and distribution. Marketing is run by AT&T, Bell Canada, Telecom Italia, and ITT (Japan), among other companies. Vertical even outsourced the company's own IT shopâ€"to Corio.
Corio will also provide Vertical's e-commerce solution. You can chalk it up partly to lucky timing. "In 1998 not too many companies offered IT support," Zimmerman says. The ASP was one of the first to recognize that it had to do more than rent applications to its customers. "Corio integrated applications across our entire value chainâ€"from our suppliers to our customers."
This certainly put Corio in a good position to offer Vertical Networks an e-commerce solution. But costs and quality cinched the deal. "To acquire an e-commerce system ourselves would have cost between $1 million and $2 million," Zimmerman says. "Implementation would have run between $500,000 and $1 million. And ongoing support would add another $100,000 to $500,000 a year." The company estimates that by going out-of-house, it saved some 60 percent to 70 percent of that total bill.
With Corio, "we spend less than $50,000 a month," Zimmerman says. "And that includes all of our IT."
Those are very round numbers, of course. "A company our size couldn't afford and wouldn't have access to a best-of-breed e-commerce solution," he says. As senior management saw it, an off-the-shelf suite of applications provided a smarter path to the Web.
It's also a faster path. At the heart of Vertical's decision to partner with Corio, Zimmerman explains, "We had to ask how fast can they move and what level of support can they offer."
To that end, it is pursuing a three-tiered strategy, modeledâ€"unashamedlyâ€" on Dell Computer. "We want the Web to provide a better understanding of our product," Zimmerman says. "Then it should allow customers to configure and buy it. And finally, it should offer better service and support."
How much of the company's sales will ultimately truck through cyberspace? "Our goal is 100 percent," Zimmerman says, though he waves away the invitation to make forecasts. "It's a gut feel. Small companies don't have the detailed analysis of revenues for the Web that big corporations have."
Specific predictions aside, Vertical expects to grab a sizable share of the estimated $5 billion industry.
