VerticalNet "not affected" by Metropolis exit

Johannesburg, 22 Sept 2000

VerticalNet International says the move by its local partner, Metropolis Transactive Holdings, to ditch its business-to-business (B2B) e-commerce model will not negatively affect its revenue.

The lost income "is totally immaterial," says David Kostman, VerticalNet international president. He says the once-off licensing fee of $1 million (then R4 million) for the VerticalNet platform that Metropolis used in its operations, was paid.

If you look at the size of the market and the maturity of B2B, Europe is a bigger market and very different.
David Kostman, international president, VerticalNet

VerticalNet is to take control of the local portals, including techafrica.com and commsafrica.com, in lieu of outstanding payments, but Kostman says those fees were incidental.

Metropolis announced this week that it would abandon its B2B strategy, having found the local market too small to sustain it. It will instead focus exclusively on iafrica.com, the group`s consumer portal.

In Europe as in SA?

Kostman, who oversees VerticalNet`s international operations in a position created in July, does not believe the same is true of Europe, where the company launched early this year.

"If you look at the size of the market and the maturity of B2B, Europe is a bigger market and very different."

We will decide in the next couple of weeks or months on how to operate the South African sites and from where.
David Kostman, international president, VerticalNet

VerticalNet Europe also follows a different structural approach.

"In Europe, what we actually did was a joint venture with BT [British Telecoms] and the Internet Capital Group, where all the parties put in a hundred million dollars. This is our operation."

The South African arrangement, which was VerticalNet`s first venture outside US borders, had little VerticalNet involvement.

"The nature of the deal was to license some of our technology to a third-party, which was Metropolis, to operate by themselves," says Kostman. "At that stage, we were a very young company, just after our IPO [initial public offering] and it was a good approach to the market."

"The strategy today is to do it much more directly."

Client fates

At the completion of Metropolis` exit, VerticalNet will own the eight local vertical communities, the names and the buyers` guides that go with them, and will host clients that have "storefront" clients. Kostman says the storefronts will probably be hosted on existing American portals, but that contractual issues are Metropolis` domain.

"We are committed to hosting the customers as long as their contracts last and hopefully retain them."

Aside from exposing local clients to the American market, listings on the US sites will also promote those services to the SA business market, something which VerticalNet may still take advantage of.

"We will decide in the next couple of weeks or months on how to operate the South African sites and from where," says Kostman. He doesn`t exclude the possibility of European participation that could develop into a local presence.

He does not discount the local market as easily as Metropolis, saying VerticalNet has some tricks up its sleeve.

"We have the business that Metropolis has, the vertical communities, but there are also two more legs to the business - a solutions division and VerticalNet Exchanges - which we didn`t have at the time [of the deal]. The nature of the business is very different."

So can money be made in the South African B2B market? "We think we would be able to operate in SA," says Kostman.