Stakes Are High for Wal-Mart.com

You've got to wonder about

Wal-Mart's

(WMT) - Get Report

plan to create a separate dot-com company with Palo Alto's

Accel Partners

.

After all, haven't we seen this movie before? Think back to last year's dot-com debacle, the short-lived pairing of

Toys R Us

(TOY)

and

Benchmark Capital

to fund, staff and establish a freestanding toysrus.com. The Toys R Us-Benchmark match came unglued for lots of old-world reasons: the wrong CEO, a bricks-and-mortar management team that was afraid of Internet-style investments, and a premature press release (hoopla before strategy).

But that snafu also dealt a rare black eye to Silicon Valley. No longer was the mixture of a good brand, Silicon Valley VC know-how and money a sure thing. And now comes Wal-Mart, which has thrown its lot with Silicon Valley. Once again, the coupling of mainstream corporate America with California's tech stars will be tested.

James Breyer, managing partner of Accel, is the man on the spot in this deal. As one of only three board members of

Wal-Mart.com

, Breyer will be the sole tech guy watching the shop. The other two board members are Wal-Mart Chairman Rob Walton and CEO Lee Scott.

Bidding to avoid the mistakes of competitors and also to establish a benchmark (no pun intended) for how this sort of thing should be done, Breyer says front-end planning is the key. He says Wal-Mart.com's first lesson was to work out all internal details before announcing its deal. These included the board structure, corporate governance, legal and financial issues, and the independence of the company, which will be majority owned by Wal-Mart.

Wal-Mart fumbled its Web strategy for more than a year by throwing up a Web site that did little to generate sales. It should come as no surprise, then, that the new entity will take its time. Breyer says he's still searching for a CEO, someone with retailing and Internet experience. New sites and in-store kiosks for ordering online will appear gradually, not in one splashy launch. But he says the partners already have worked out minute details, including how physical stores will get a cut from purchases made from on-site kiosks, and who will bear the expense of in-store returns of online purchases.

"There's a lot of incentive for the stores to do the right thing for the customer," says Breyer, whose other high-profile board seat is at Accel investment

RealNetworks

(RNWK) - Get Report

. Ditto for Wal-Mart employees, who Breyer says will benefit because of the parent's stake in the dot-com. Wal-Mart.com, he says, will go public "as soon as it's ready."

Breyer says Accel has been inundated with offers from media, retailing and industrial companies to do deals since its Jan. 6 announcement with Wal-Mart. In 1999 about two dozen bricks-and-mortar companies trooped through Accel's offices to pitch dot-com setups. "In many cases there was at least one significant flaw in the proposal, and so we passed on the deals."

Accel isn't the only California venture firm catering to established businesses. Benchmark has invested in

Nordstrom.com

. And

Softbank

is joining with

Yahoo!

(YHOO)

to invest in a new venture with

Kmart

(KM)

. The question is whether the best place for dot-com expertise is on or near Sand Hill Road.

Reading Breyer's body language, I'm guessing Wal-Mart.com will unfold in methodical fashion. It was easy a year ago to criticize old-world companies that didn't "get it." Wal-Mart seemed to wear its Internet ignorance as a badge of honor, but now has gotten religion by joining up with Accel. I think big, patient money will win out. But if these guys haven't thought things through as well as they say they have, their failure would be a helluva lot bigger than

Toyrus.com Story 2

.

They Come, They Go

It just doesn't seem worth a headline these days when a prominent research analyst flies the coop for the world of making investments rather than analyzing them. All the same, two top-flight guys and good friends to this column -- Brian Oakes of

Lehman Brothers

and Christopher DePuy of

Morgan Stanley Dean Witter

(MWD)

-- have bolted their lofty positions. Investors can learn a bit about which way the wind is blowing by watching their moves.

Oakes ends a six-year run as a securities analyst, first with

J.P. Morgan Securities

and then with Lehman, covering the media business. He went out on a limb in 1994 by straying from newspaper companies to cover one new-media company in the little known Internet sector,

America Online

(AOL)

. He has recommended that his clients own AOL pretty much ever since.

Oakes has become chief investment officer for the recently formed Internet investment group of

Cendant

(CD)

, the franchiser of well-known brands including

Century 21

real estate brokerages,

Avis

rental cars and

Days Inn

hotels. Cendant perhaps is better known for the spate of shareholder suits against it alleging accounting fraud than it is for its nearly nonexistent Internet strategy. Oakes aims to change that.

"Over the last two-and-a-half years, when the company should have been developing an Internet strategy, it was busy fighting lawsuits," says Oakes, 37, an electrical engineer by training who once ran technology operations for J.P. Morgan's asset-management unit.

Cendant isn't totally absent from the Internet game. Its San Francisco-based

Move.com

relocation business launched its service Jan. 27, and Cendant plans to issue a tracking stock to mirror Move.com's performance. And its

Wizcom

reservations system seems like a perfect enterprise to convert into a hot Web business.

Oakes isn't the only person looking at Cendant. Media mogul John Malone personally has invested, as has the

AT&T

(T) - Get Report

unit he heads,

Liberty Media

, which recently bought 18 million shares and warrants on 29 million more (at 23) for a total of $400 million. With Cendant's shares languishing at 18 11/16, roughly between its 52-week high and low, Oakes' bet clearly is that there are undervalued assets within Cendant, an assumption with which Malone seems to agree.

Meanwhile, 32-year-old DePuy has left Morgan Stanley to join

Bowman Capital Management's

private-equity group in San Mateo, Calif. Bowman Capital is best known for its aggressive investments in public stocks by its namesake founder, ex-Fidelity portfolio manager

Larry Bowman

. The firm more recently has begun investing in private companies, between the time venture capitalists and public investors place their bets. (Bowman made such a "mezzanine" investment in

TheStreet.com

(TSCM)

.)

DePuy participated in something of an historic event in the Internet industry. With star analyst

Mary Meeker

, he co-authored the 1995 study "The Internet Report," a comprehensive and groundbreaking white paper that explained the business potential of the Internet. The report became a bound book in 1996, and DePuy eventually became Morgan's lead analyst on networking equipment companies like

Cisco

(CSCO) - Get Report

and

3Com

(COMS)

.

DePuy is a civil engineer by training and worked for an environmental engineering company before joining Morgan five years ago. He becomes Bowman's third partner in private-equity investments, a team supported by 20 analysts. His reason for making the shift is typical of analysts who've had enough of the bruising schedule Wall Street demands. "Those with wedding rings and children are short-timers," says DePuy, a father of two.

And finally, only Cisco...

OK, so shares of San Jose, Calif.-based networking-equipment giant Cisco are up 8% since the company released earnings after markets closed on Tuesday.

"We-Always-Beat-Estimates-By-A-Penny" Cisco prides itself for its quick turnaround in reporting results to Wall Street on the Tuesday the week after its quarter closes. In fact, Cisco is looking so far ahead that Chief Financial Officer Larry Carter told analysts when the company will report earnings for its first fiscal quarter in

2001

. Because the normal reporting date, Nov. 7, happens to be Election Day, Cisco will report instead on Monday, Nov. 6.

Mark your calendars.

Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.