Overstock CEO Begs Forgiveness, Then Blames IT For Losses

Overstock.com CEO Patrick Byrne took the unusual step of apologizing profusely Friday after the Internet retailer posted multimillion dollar operating and net income losses in the third quarter.

Then he blamed IT projects.

"I'm sorry and I know I failed in a duty, I failed in a mission or obligation. I lost $14 million of our money, and I'm sorry," Byrne said on a conference call with investors. He began his remorseful plea speaking a Japanese slogan, which he transcribed as expressing: "more than I'm sorry."

Overstock's operating loss was $11.2 million, or 6.6 percent of $169.3 million in revenue, compared with a 2.9 percent loss in the year ago quarter on $103.4 million in revenue. Net income loss for the quarter was $14.2 million, or 75 cents per share, compared with $3 million loss, or 16 percent per share loss in 2004.

"My bad," Byrne wrote in the prepared earnings statement. "I bit off more technology projects than my colleagues could chew. The last bite, an ERP implementation, was one bite too many, and we choked on it."

Byrne blamed the company's results on problems with new computer systems that automate business processes, and delays in implementing new IT projects that were to help improve efficiency or customer service. The projects, which began in the last week in February and rolled out in August, include the installation of Oracle Corp.'s eBusiness Suite, an enterprise resource planning platform running on IBM servers.

Overstock also migrated from an Oracle 9i database to Oracle 10g and shifted its reporting from operational systems to a data warehouse from Teradata, a division of NCR Corp.

"You don't do several major IT projects simultaneously," said AMR analyst Jim Shepherd. "It typically happens because you don't test and phase in the projects and systems slow enough. That is what gets companies into trouble, not the actual software."

Oracle had told Overstock it would take between 12 and 18 months to install its financial package. Overstock didn't listen and did it in five and a half months.

Other IT projects going on at the same time included moving some applications from running on Microsoft Windows to open source operating platforms Red Hat and Linux Novell Suse. There also were inefficiencies in Overstocks internally developed search engine and analytics software known internally as Propeller.

"We really tired to replace too many IT systems at once," Jack Garzella, Overstock's VP of IT for operations told TechWeb. "Projects are under control now and software and platforms are butting the business in a much better place."

Internally built IT systems took the company from $0 to $540 million in revenue annually but began to buckle under the increase in online transaction volume. The migration to new software and platforms happened too quickly and hurt Overstock's ability to post products online, temporarily weakening sales. The IT projects were either late or remain unfinished, as the focus on the IT problems stole valuable resources from other programs.