InformationWeek: The Business Value of Technology

So why is Wal-Mart Stores Inc., the world's largest retailer with 1999 revenue of $165 billion and some $1.4 billion in loose cash in its pocket, auditioning for that role? Call it "Revenge of the Giants."

Industry titans are tired of being cast as oafs who get outwitted and outhustled for the Internet golden goose. Why should the dot-coms be allowed to destroy their value chains? Why should they let so many startups claim Internet territory in their space?

Established brands have dabbled with E-business models. Today, they're getting serious and increasingly turning to the same set of business-development tools that help startups. In some cases, the empire is striking back by partnering with Web-savvy venture capitalists who know how to hire Internet talent and build businesses fast. In other cases, the giants are creating their own investment funds to tap entrepreneurial energy.

Strategies and structures vary from company to company, but the goal remains the same. If some outsider is hell-bent on destroying and re-creating a value chain, the giants want to do it themselves. They want to convert their intellectual property, market and customer knowledge, brand names, and buying power into precious tools rather than view them as excess baggage.

That's the approach being taken by Wal-Mart. Company executives admit they need help building an Internet business. They've turned to Accel Partners, a Silicon Valley venture-capital firm, to help them create Wal-Mart.com as an independent company based in San Francisco, some 2,000 miles away from Wal-Mart's Bentonville, Ark., headquarters. The strategy: Create a company that can make independent pricing, merchandising, and compensation decisions. Wal-Mart brings its name, customer knowledge, and operating skill; Accel adds experience recruiting top-tier Internet talent and know-how building companies nimble enough to compete online.

"This isn't about the capital," says Accel managing partner Jim Breyer. "If we're not turbo-charging these efforts, the chance of success is very small."

It's no longer a world of startups vs. InformationWeek 500 companies--the lines today are blurred. InformationWeek 500 companies now need to act like startups. Many high-profile technology companies such as Cisco Systems and Intel have long been venture investors. The most recent wave of investment, however, has created venture capitalists out of companies in other industrial sectors. Corporate investment in venture-funded companies more than tripled last year, reaching $2.2 billion, according to the research firm VentureOne.

"I don't think we could build everything we need to move at Net speed right now," says John Duncan, general manager of Internet commerce at First Data Corp., the largest processor of electronic Visa and MasterCard payments. In the past year, the Atlanta company has directly invested $50 million in payment-technology Internet companies, often alongside venture-capital firms such as Oak Investment Partners and Softbank Ventures.

One consulting firm, Bain & Co. of Boston, has even spun out a separate company called eVolution that will focus exclusively on helping larger enterprises create new companies that take advantage of Internet technologies. Bain & Co. is partnering with Silicon Valley venture capitalist Kleiner Perkins Caufield & Byers and the private equity firm Texas Pacific Group.

According to David Sanderson, the head of eVolution's U.S. arm and the former chief of Bain's E-commerce practice, established global companies are finally poised to challenge dot-coms. "Many corporations found themselves reacting to threats, but they haven't really seized the opportunity," Sanderson says. "Now they feel it's time to take the offensive, rather than sit back on their heels."

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