For the past few years, traditional industry leaders have been trashed by little start-ups headed by lightning-quick wunderkinds. Corporations saddled down with bureaucracy can't keep pace with today's market, and the freewheeling New Economy players snickered as their market valuations soared.
But as those corporate giants waited for the go-ahead from their boards before stepping into the new age of business, the market became dramatically more profit-focused, and many of those whiz kids were handed their pink slips. Now, as the e-business upstarts burn themselves out, the dinosaurs of industry are making their moves. And from watching the mistakes of their younger counterparts, they learned that what they already knew still applies: slow and steady wins the race.
"We went through a learning experience last year, as did everyone," said Snehal Desai, director of e-business at Midland, Mich.-based The Dow Chemical Co. "People are back to thinking about these as longer-term hard work and not just fast return."
Call it the second coming of the Internet explosion. Or better yet, the revenge of the big boys.
Despite the declining market for technology start-ups, large corporations such as Dow, J.P. Morgan Chase & Co. and Merrill Lynch & Co. are jumping into the e-commerce fray by incubating companies from within. For many of them, it's a way to spark innovation from inside their walls, as well as gain a new means of income.
But e-commerce initiatives also bring with them new challenges for Old Economy players, such as fairly compensating and motivating employees of spin-off companies and keeping pace in the Internet economy.
"I think the corporations have now become engaged," Desai said. "I'm kind of bullish going forward."
Eileen Marckioni, fund manager at New York-based Merrill Lynch's Internal Venture Capital Fund, which was created in December to fund e-commerce start-ups based on ideas from employees, is just as enthusiastic. Merrill Lynch, she points out, has a US$2 billion annual IT budget, US$1.5 trillion in client assets and millions of households for market research.
"We have a lot of muscle we can put behind new companies," Marckioni said. "And a huge advantage is you already have this first large corporate client that can give the new company a huge jump."
For the most part, corporations don't seem to be focusing much on the burn-out rate among technology start-ups, because their own ventures aren't primarily profit-focused.
For instance, Dow created its start-up, iVenturi, to fill a need within the company. The firm couldn't find a suitable hosting system to manage the workflow of its new business development projects, so it teamed with Campsix in San Francisco and Andersen Consulting (since renamed Accenture) in Chicago to create a company, with Dow as its first customer.