You don't change the industry business model to conform to the Net; you adapt the Internet model to accommodate the industry's traditional way of doing business.

That's the goal--and challenge--of eSkye.com Inc., a new online liquor Web site that is taking a unique approach in an unusual industry. Rather than attempt to change the rules, as many other E-businesses have done, eSkye.com is trying to modernize an industry that's forced to live under decades-old rules imposed by federal and state governments.

The eSkye system is designed to let retailers--bars, restaurants, and liquor stores--place orders for spirits online around the clock. Attempting to use the system shows just how unusual the industry is--you need a state liquor license to sign on to the Web site. By using eSkye, retailers should be able to take care of their liquor needs quickly rather than spending hours talking to and placing orders with salespeople from several distributors. ESkye then transmits the orders directly to the appropriate distributor, which, in some cases, are organizations run by state governments.

ESkye is taking a state-by-state approach because of the different laws regulating liquor distribution. It has recently finished several weeks of tests and plans to debut in Michigan, Indiana, and Illinois this month. New Hampshire is next on its list. The Indianapolis company also plans to launch pilot programs this month in 16 more states and the District of Columbia. These pilot programs will let eSkye service up to 43% of the $110 billion U.S. beverage alcohol market.

ESkye.com has signed agreements with about 35 of the nation's 4,500 liquor distributors, including seven of the top 10 and about 300 retailers. "We've purposely been going slowly," says J. Smoke Wallin, eSkye.com's founder and CEO, whose family has been a liquor distributor for decades. "We want to make sure we get it right."

Although eSkye's efforts to move purchasing online may seem routine to many industries that are creating Internet marketplaces and exchanges on a daily basis, it's a major change for the liquor industry, which is divided into beer, wine, and distilled spirits segments, with a patchwork of distributors and laws. While most E-commerce Web sites attempt to eliminate the middleman, the liquor industry can't do that.

Ever since the repeal of Prohibition in 1933, federal and state government agencies have passed laws and set up a system that requires liquor manufacturers to sell to distributors, which maintain rigidly controlled geographical territories. Distributors can sell only to retailers such as bars, restaurants, and liquor stores, which in turn sell to individual consumers. In some states, government-run stores are the only places that can legally sell a bottle of scotch or gin--there are no privately owned liquor stores. This three-tier system was designed to keep organized crime out of the liquor business and collect taxes. While the system has accomplished those two goals, it also has stifled an industry by imposing and keeping intact a distribution chain that relies on middlemen.

Salespeople from distributorships visit retailers and take orders using paper and pencil. The orders are submitted to the home office using a hand-held electronic device that is customized for a distributor's products. It is used to record orders and transmit that information over phone lines to suppliers. According to industry estimates, these administrative tasks can eat up 40% to 60% of a salesperson's time because of the large number of products. There are more than 15,000 products in the beer, wine, and spirits industry when different sizes of the same product are taken into account.

This manual approach forces a restaurant's beverage manager, for example, to talk to a dozen or more sales reps each week, each representing a different distributor of a specific brand of liquor that the restaurant wants to carry. As a result, the restaurateur spends a lot of time placing orders, and very little learning about new products or special promotional offers.

"Our question was: How could we get closer to the customer," says Wallin. "And how could we do it in a neutral way so we didn't promote one brand or distributor over another?"

So Wallin created eSkye.com, which he named after his son, Skye. And he decided that the key to success was to get distributors on board. Although several of them jumped at the chance, many saw it as a threat to the way they had been doing business since the 1930s.

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