Going, Going . . . Gone to Work

Meg Whitman liked the odds of creating an entirely new business by linking up a fragmented group of buyers and sellers on the Internet to create a booming, efficient marketplace. Only this time the company isn’t EBay, the Internet collectibles auction firm that Whitman, as chief executive, has turned into a gold mine, but a Santa Monica start-up firm she’s personally invested in called BizBuyer.com.

BizBuyer.com helps small businesses find everything from long-distance phone service to computer equipment, patent attorneys, temporary staffing and auto leases by putting their needs out to bid on the Internet.

The clients get job bids from up to five firms--sometimes in a couple of hours. If small-business clients like the offer, they are put in touch with a supplier--until then the client stays anonymous--and the two parties close any deal themselves.

BizBuyer.com will charge a listing fee to vendors each time they submit a bid, while the service is free to small-business clients.

BizBuyer.com is the only company Whitman has directly invested in since joining EBay--she’s also a board member--and she thinks BizBuyer is beginning to click into gear. “We’re starting to see a nice acceleration in the growth curve,” Whitman said. “We really started to see it in the last couple of weeks.”

Whitman has become a sudden Internet business icon because of EBay’s success, and analysts say that her involvement in BizBuyer.com is likely to help the fledgling company raise even more venture capital.

BizBuyer, with 55 employees, has been open for business only since May. But the company is now receiving several hundred job bids a day for its small-business clients and expects its bids this month to be eight times what they were in July.

“I don’t think you have to spend a lot of money upfront to get the concept proven,” Whitman said. She expects BizBuyer’s first wave of growth to come as it did at EBay, through what she calls “viral marketing,” buzz speak for word-of-mouth referrals.

One BizBuyer convert is John Roth, a Fargo, N.D., seller of phone systems. Usually his clients are within a 100-mile radius. But he signed up as a BizBuyer vendor and soon a lead popped up on his firm’s computer screen. He bid on the job and made a sale to a West Coast customer. “We took payment through a credit card over the Internet, and it was a done deal,” Roth said. Now he’s bidding on other BizBuyer jobs.

BizBuyer is the brainchild of Bernard Louvat, 35, the company’s chief executive. “Time saving is the overwhelming advantage [here],” he said.

BizBuyer now offers 12 service categories and expects to double that next month. The company has lined up 5,000 vendors to make project bids, and it expects to close deals soon with national vendors such as Sprint Corp. for long-distance service, PSINet Inc. for Internet access and PageMart Wireless Inc. for paging services.

Louvat got the idea while working as a general manager for Ticketmaster Online-CitySearch. He was dazzled by EBay’s success and wanted to create an e-commerce firm that followed EBay’s model of a potentially high profit margin business without having to deal with a vast product inventory.

Indeed, EBay, based in San Jose, is a rare Internet company that is both growing and actually making money. EBay is an online auction house for individuals wanting to buy and sell everything from Beanie Babies to baseball cards and antique cars. The company charges a modest listing fee and collects 1% to 5% of the final sale price, but it doesn’t warehouse any goods. It merely acts as an intermediary between seller and buyer. In its latest six months, EBay turned a $4.6-million profit on $92.3 million in revenue from auction fees, and it had 5.6 million registered users, up from 340,000 in December 1997. And Whitman’s EBay stake is now worth upward of $700 million.

The BizBuyer concept came from Louvat’s own frantic experience of starting a company from scratch. Louvat worked for Walt Disney Co. and set up its Disney Store chain in France, and he set up Office Depot’s European subsidiary as well. He remembers spending 50 hours sorting through various bids for a phone system, as well as negotiating with dozens of other vendors while also trying to hire a staff. He was left “with no time to dedicate to all these purchasing decisions.”

So came his idea for BizBuyer.

Louvat got seed money from his old Disney contacts. His former Disney boss, Marc Lilly--now BizBuyer’s vice chairman--invested $100,000. And Lilly knew Whitman from her stint at Disney in the early ‘90s when she was a marketing executive for consumer products. She was quickly sold on the idea and became a BizBuyer investor.

Louvat raised $1 million in his first round of financing, including personal investments from Paul Pressler, head of Disney’s theme parks, and Tom Unterman, chief financial officer at Times Mirror Co., parent of The Times. In June, BizBuyer raised an additional $5 million from CMGI Inc., the Internet investment concern.

The reason vendors sign up with BizBuyer is simple, Louvat said: His company offers hot sales leads. So far vendors have been able to bid for free on BizBuyer’s jobs, but the company will soon start charging vendors a bid fee. The fee may be $5 to $25 per bid, and BizBuyer also hopes to charge vendors perhaps 5% to 15% of the final sale price.

To show how a small-business client uses BizBuyer, Louvat sits down at a computer. He clicks on BizBuyer’s Web site and picks out long-distance phones as a category; up pops a buying guide that explains basic elements of how long-distance service is priced. It takes about 15 minutes to read, then a client types out an online bid request form.

BizBuyer will then send the bid out to its vendor network. To encourage quick answers, there’s a limit of five bids per job request, and BizBuyer’s computer system tells vendors exactly how many bid spots are still open. As each bid comes in, it is instantly transmitted to a small-business client.

“Right now we’ve created this category. It’s a good idea. It’s not going to go unnoticed,” Louvat said. “We’re going to have head-to-head competition.”

In a sense BizBuyer already has some.

Works.com, a 2-year-old Austin, Texas firm, offers office equipment--from computers to pencils--at wholesale prices with the purchases handled online. Last month Merrill Lynch said it would offer Works.com’s online service to 400,000 of its small-business clients. And this month Wells Fargo struck a deal with RightWorks Corp., based in San Jose, for a similar arrangement for the bank’s business customers.

“BizBuyer is part of the latest wave of online business services . . . but everybody is going after small business in one way or another,” said Vernon Keenan, an Internet analyst for Keenan Vision in San Francisco. Although Wells Fargo and Merrill Lynch’s ventures are not an online auction system per se, Keenan sees this as an evolution stemming from “applying the EBay auction pricing model to the . . . advantages of the buyer.”

BizBuyer may be first to market, Keenan said, but “having a lead is not a guarantee for success in Internet space.”

Indeed, Louvat plans to hit venture capital firms soon for another round of financing and, Keenan said, BizBuyer “needs to spend it. To create an Internet brand costs $50 million.” So BizBuyer will have to buy national advertising on TV, radio and billboards to get its message out, he said.

Louvat, who earned a Harvard MBA, quickly lists what could go wrong at BizBuyer: “The site crashing [because] we get too much traffic. . . . Are vendors going to keep paying? . . . [And] how many competitors?”

But Whitman has pounded into BizBuyer’s management the importance of refining its Web site. So Louvat’s team regularly brings in clients to the office and, from behind a one-way mirror, they watch how clients use, and stumble through, their system. Then BizBuyer tinkers with it to try improving it.

For Whitman this is a critical element. “EBay built a fabulous user experience, and people told each other,” she said.

Despite the many uncertainties, Louvat thinks he can turn BizBuyer into a $200-million-a-year business within five years.