July 24, 2000

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Redefining Business:
Dot-Com Bargain Hunting

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The deal also brought in executive talent: Andrew Schwab, Starport.com's co-founder, president, and CEO, stayed on as Space.com's VP of E-commerce. Last, it brought in marketing tools. Beyond Starport.com's base of readers and buyers, Cannold notes, the site has relationships with several astronauts and an established URL.

Space.com executives have been on the hunt for acquisitions since the company was founded 13 months ago. Last November, the company acquired Explorezone.com, another space news site. In May, it bought Sienna Software Inc. of Toronto, which makes astronomy reference software, to give it a toehold beyond the browser on the desktop computer.

And always there's the search for talent. Among Space .com's successes was luring Don Brown away from Qradio, the online radio site which he co-founded and for which he formed partnerships with Quincy Jones Productions, XM Satellite Radio, RealNetworks, and Amazon.com.

Cannold needs this talent and infrastructure to support the company's strategy: to develop products beyond the Web that tie into and support Space.com's content. In addition to the E-commerce efforts, this strategy has grown to include a print magazine, Space.com Illustrated, and possible broadcast and Web tie-ins through NBC, which holds a minority stake in the venture.

Space.com's acquisition strategy starts with a Web-centric view of its business, different from brick-and-mortar companies that view the Web as an alternative channel to support offline business, Cannold says. "This is not about synergy in the sense that other businesses talk about it," he says. Acquisitions--and Cannold promises more--are made with an eye toward growing the site as the core business, then extending its reach and influence through other channels.

HEALTHY ADDITIONS
For Omni Nutraceuticals' Irwin, an acquisition can come down to fairly simple math: the purchase price divided by the number of customers the company adds. "It can cost us $75 to $100 to acquire one customer," says Irwin. A good acquisition can drive this cost down to as little as $10, he says.

Omni Nutraceuticals sells 16,000 health-related products globally through HealthZone.com, HealthShop.com, SmartBasics.com, VitaminDiscount.com, and Alt-Health .com. The competition is intense among online drugstores, which include Drugstore.com and PlanetRx.com.

Irwin has led the company on an aggressive acquisition path this spring, inking agreements to buy VitaminDiscount.com and Alt-Health in April, HealthShop .com in May, and E-nutrition in June.

Omni is losing money--$3.2 million in the second quarter of this year--but last year it went public on the Nasdaq Stock Exchange before the markets cooled on business-to-consumer stock offerings. In April it got another boost of $2.1 million through a private placement.

Omni has been buying from some heavy-hitter investors. E-nutrition, the purchase of which has not been finalized, had raised $20 million from Brentwood Venture Capital, Idealab Capital Partners, and Entertainment Media Ventures in December 1999. That money was invested in E-commerce infrastructure, branding, and customer acquisition, Irwin says, all of which now come to Omni Nutraceuticals ready-made.

One of Irwin's biggest deals was buying HealthShop.com in May, a San Francisco site that had attracted $30 million from investors, including pharmaceuticals giant Warner-Lamber Co. Irwin estimated at the time that the technology it acquired through HealthShop.com would save the company 18 months of development and millions of dollars in programming.

Still, it's the fuzzy elements of customer mindshare and brand awareness that matter most. "The main things are the intangibles," Irwin says.

Omni has cut staff with its acquisitions, and that kind of consolidation creates opportunities even for companies that aren't buying--it frees up potential employees. In its inaugural survey of the Internet sector, outplacement firm Challenger, Gray & Christmas found that 59 companies eliminated 5,398 jobs in the first half of the year. More than 30% of those companies went out of business.

Susan Bishop, president of the New York executive recruiting firm Bishop Partners, counsels that many technology professionals will be looking for the security of a large, well-funded company. "There were some who made a little money, but there were also some who took a pay cut," Bishop says of those who have been through startups. "They will be looking for a much lower risk factor."

NEW PLAN, NEW PURCHASE
For Onloan.com, of Fort Lauderdale, Fla., the shakeup in the dot-com market didn't create the opportunity for a major acquisition, but it did create the need for one. In early July, Onloan.com bought Decade Systems of Jacksonville, Fla., to give it the critical technology and staff that would let Onloan.com change its business model.

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Illustration by Randy Hess

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