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Old Wine, New Bottles

First to Market? Stellar Web site? Growing customer base? As a recent slugfest between two big retail sites shows, it can take more than that to win e-business.

• By Laura Wonnacott
• 07/10/2001

Doesn't sound like a fair fight, does it? Right out of the gate, eVineyard delivers a powerful left hook that sends wine.com sprawling onto the canvas. Halfway through the second round, it's over in a knockout. In early May, eVineyard won this battle of e-business and acquired wine.com and its 400,000 customers for an undisclosed amount.

Surprised? So were plenty of others, me included.

Obviously, it wasn't eVineyard's brute strength that won. Since I'm both a wine and an e-business connoisseur, I was following this fight closely. The sudden win came as a shock because wine.com had all the obvious business and technology advantages, including first to market, the right name and URL, and a slick Web site (it was both fast and easy to use and had more than four times the customers of eVineyard). Wine.com also had $200 million in investments compared to eVineyard's $21 million, and $28 million in sales last year compared to under $10 million for eVineyard. Those are hefty advantages in any e-business battle.

So given all of these factors, what led to wine.com's demise? It came down to this: eVineyard had a smarter sense of how to do business and a strategy that integrated technology in support of the business model.

Wine.com had the right idea. The company knew e-business wasn't just about conducting transactions over the Internet. It's about redefining age-old business models (selling wine, in this case) to integrate new technologies.

Wine.com rightly saw a ripe market for online wine sales. It was correct in assuming that by offering a larger wine selection than most local merchants, they could build a following of loyal customers.

Wine.com's greatest weakness was its business model—the manner in which the firm delivered goods to customers. The company set up what amounted to a supply chain nightmare. Whenever I ordered wine from the site, wine.com had to first find a winery with the goods, negotiate to have the wine shipped to a wholesaler or broker, then wait for that broker to negotiate with a retailer to ship it to me. It was a complex business model and often made for a bumpy ride in getting wine to my front door.

So how is eVineyard different? Practicing simplicity and elegance, the site is licensed to sell directly and immediately to buyers in 27 states. When I order a case of my favorite cabernet, the bottles travel directly from eVineyard to me. There's no middleman—retailer, wholesaler or broker.

Building the technology behind wine.com's elaborate delivery system was presumably a huge task. The IT leaders at wine.com who oversaw the project were probably the first to recognize the potential failure of such a business model, but may have been ill-equipped to do anything about it. That's because business and technology weren't integrated properly. If they were, that delivery system idea would never have gotten past IT.

In most moderate- to large-sized businesses, a series of transactions leads to revenue. Businesses are located throughout the chain, and when one business in the chain reformulates or optimizes its business strategy through the assistance of technology, others must follow or fall from the chain. This is not just a dotcom phenomenon; this is e-business.

Even if your company isn't a dotcom and you aren't responsible for the division that sells products on the Web, this cautionary tale applies to you as an IT strategist. Redesigning your business model isn't an option these days—it's a necessity. Your role as a traditional technology leader has expanded to e-business leadership. If you want to win this fight, your company's business models and processes must be perfectly aligned with technology. Yesterday's technologists were implementers; today's technologists are leaders at the juncture of business and technology development.

Organizations that continue to separate business and technology will be brought down by integration issues. Simply put, the competition will bury you. Just ask wine.com.