The Unbearable Lightness of B2B-ing: Dot-Com Crossover Is All the Rage

It isn't just the auto makers, aerospace juggernauts and utility giants that are getting in on the business-to-business craze. Suddenly, a lot of the old dot-coms are there as well.

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Notwithstanding Friday's B2B bloodbath, spurred by a downgrade of the sector's highfliers by Prudential analyst Douglas Crook, the last several months have seen Wall Street's fancy shift dramatically from Internet companies that target consumers to ones that target companies. Following the smell of money, business-to-consumer Web sites big and small have moved to focus on B2B affairs in addition to, or at the expense of, their consumer operations.

Look no further than vitamin and healthy living site MotherNature.com (MTHR). On Wednesday, the company branched away from its consumer roots to sprout a whole new B2B tree by developing a marketplace of natural products for manufacturers and retailers.

With its stock trading at a little more than 3, President and CEO Michael Barach is refreshingly blunt about the company's motivation.

"If we were trading at 35, we wouldn't be doing it," Barach says. "If we were becoming really rich by losing money, and Wall Street rewarded us for that, we'd continue with it -- it's a lot more fun. But that's not what's happening anymore."

The Stampede

Barach isn't alone. Companies from B2C giants like America Online (AOL) and Yahoo! (YHOO) to smaller outfits like Cyberian Outpost (COOL) and Beyond.com (BYND) have recently announced B2B strategies to draw new business and impress investors.

The most unlikely companies are getting into the act: American Greetings (AM) is teaming up with iWon.com to launch a B2B initiative. Shares of Media Arts Group (MDA), which distributes products based on the work of Thomas Kinkade (a.k.a. the Painter of Light), more than doubled when the Web site of Exclaim Technologies, its B2B subsidiary, went "live." (The site itself is barely up and running.)

America's Business is Business-to-Business Nothing succeeds like success, B2C players decide
Company	Recent stock price -- market cap	Action
American Greetings (AM:NYSE)	18 1/8 -- $1.17 billion	Providing electronic greetings to businesses
America Online (AOL:NYSE)	66 -- $151 billion	Partnering with PurchasePro.com
Beyond.com (BYND:Nasdaq)	4 29/32 -- $176 million	Pitching e-commerce management services
Cyberian Outpost (COOL:Nasdaq)	8 11/16 -- $252 million	Expanding into e-business services
MotherNature.com (MTHR:Nasdaq)	3 1/16 -- $46 million	Developing marketplace, selling to HMOs
Media Arts (MDA:NYSE)	7 7/16 -- $97 million	Launching B2B unit
Yahoo! (YHOO:Nasdaq)	171 -- $92 billion	Running small-business portal

"Companies are starting to realize that being a B2C player can't get the valuations [it] once did," says Kama Krishna, an analyst who follows B2B stocks for Sands Brothers Investment Research. "So now they're either migrating toward a B2B model, or trying to put a spin on their press releases that they are also entering the space."

Of course, merely saying you're part of a hot sector doesn't guarantee investors will buy it, or your stock. And many of these companies haven't abandoned serving the consumer. But many have been expanding to take part in the B2B boom.

Expanding the Model

Take Cyberian Outpost, an electronics and computer e-tailer that has refused to drop its B2B focus despite its single-digit stock price. Instead, the company is helping its suppliers "dot-com" themselves, and making them pay for it.

"We're not going to abandon our B2C approach because Wall Street loves that we're going into B2B," says Bob Bowman, chief executive of Cyberian Outpost. "Because who knows what Wall Street will want in three months?

"But we also have companies to which we're offering e-commerce services," Bowman continues.

For many companies, the evolving business model is a natural next step, says Bonnie Tonneson, an analyst with Chase H&Q. "They've spent a lot of money building a brand, and in some of these cases the playing field is so crowded." What's a company to do once it builds an expensive infrastructure and then finds itself with a bunch of competition? Tweak the system slightly and tap business buyers.

But success may be as slippery in B2B as in B2C. MotherNature, for example, is now funneling money from marketing into its new business model. And once it has a foot in both Bs, it faces potential "channel conflict": Will retailers feel comfortable working with MotherNature as well as selling against it?

Caveat Emptor

Sands Brothers' Krishna says investors should evaluate each story individually.

"The Internet right now is a work in progress, so it can be looked at in a lot of different ways," Krishna says. "Transitioning to B2B can be both positive and negative, so it's very ambiguous right now. You have to go on a case-by-case basis."

Take Beyond.com. The software seller hasn't quite abandoned B2C, but it's not going to be spending any more money developing that side of its business any time soon. Instead, it's concentrating on developing Web strategies for other software companies. After all, that's something it learned a little bit about in its own dot-com trials.

"Everyone wants to leverage [his] existing brand, so now we basically service all of our software companies in terms of running their stores for them," says interim CEO Richard Neely. "We have the experience you need to do that."

In the end, ideas like those may be all the motivation B2C companies need to join the B2B parade, if they want to continue "2 B" at all.

"Let's get down to the brass tacks, because I know where you're going here," said Barach of MotherNature.com. "We want to make our shareholders money, and we need to survive to do that. The world has changed, and if you don't recognize that, you're a dead company. We will rage against the dying of the light."

Rage on, you dot-com kids.

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