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Hatching E-commerce Ventures.

As traditional insurers try to transform themselves into e-businesses, some are spawning separate e-commerce ventures.

With many insurers and other corporations pondering how to rapidly start and successfully launch new e-commerce ventures, the dot-com incubator approach is gaining momentum.

Dot-coms are e-commerce ventures that are independent or part of a larger organization. Some companies choose to go another route--to transform the entire organizations into e-business companies. Each represents significant opportunities for insurers, and each presents major challenges.

In general, insurers have begun a metamorphosis into e-commerce businesses. But they are largely in the early stages of development.

For those insurers that take the other path--to create dot-com companies within their large, bureaucratic organizations--there are significant barriers to overcome. These include:

* managing the cultural differences between operating a traditional insurer and a new e-business organization;

* assigning scarce, top-level talent and resources to a fledgling business;

* gaining timely access to senior decision makers for a small-revenue entity;

* getting into the market fast--within three to four months--to establish a "first mover" advantage;

* attracting and rewarding the experienced talent necessary to drive e-businesses;

* absorbing the expenses and losses associated with launching new e-businesses for the first three to five years; and

* realizing the potential of shareholder value generation from e-commerce initial public offerings or spinoffs.

The Incubator Approach

To create and launch dot-coms, companies need environments that provide the necessary infrastructure and support. Various forms of these "incubators" have been used by many entities over the years to help create new businesses. Newer incubators are dedicated to building e-commerce ventures with their specific needs for technology speed and expertise.

Incubators might be found either inside or outside of the larger organizations. Outside companies--or external incubators--often offer the following types of support services for fledgling e-commerce entities:

* expandable, low-cost space;

* technical support, including telephone, high-speed Internet lines, Website design and Internet-technology architecture;

* business service support, such as payroll processing, travel and administration;

* easy access to other new ventures to share common experiences;

* sources of venture funding;

* access to e-commerce expertise in specific areas, such as funding, financial, marketing, operations and organization; and

* introductions to potential alliance or merger partners.

External incubators often charge for basic services, but increasingly they receive a portion of their remuneration through equity positions in the new e-commerce entities. There are a number of incubator models--including publicly traded venture-capital entities such as CMGI (which operates like a value-added holding company) and the Internet Capital Group--which have established a significant number of new dot-com entities and have generated substantial shareholder value through their efforts. Venture-capital firms also are providing incubator-type services for early-stage ventures and are trying to partner with major corporations to pursue e-commerce plays, but the culture clash appears to be a major obstacle to these efforts.

E-consulting firms also are moving into the incubator space by providing funding and services to e-commerce entities in exchange for ownership positions. E-business hotbeds, such as Silicon Valley in California, have several local external incubators that provide services for ventures in those areas.

Innovative financial institutions, including GE Capital Services, are establishing internal incubators. An internal dot-com incubator generally provides an operating environment as a separate part of the corporation to foster multiple ventures. It provides the following support services:

* a dedicated team of internal talent and resources with alternative compensation arrangements that can include an ownership or position;

* an accelerated funding and decision-making process through a steering or leadership team;

* alternative approaches to rapidly plan and build businesses;

* different work environment or location that usually has casual dress and supports long working hours/days; and

* an opportunity for an initial public offering or to spin off the new dot-com businesses to better realize their shareholder value.

Valuable Perspectives

Whether an insurer should build an incubator internally or work with firms that provide them depends on its situation. But an experienced e-business incubator firm will provide valuable perspectives on what has and has not worked.

The potential benefits for insurers using an incubator approach are significant. They include:

* providing focus through an appropriate organizational and physical environment for successfully building new e-commerce ventures;

* developing a portfolio of insurance and e-commerce entities that can provide services and leverage each other's capabilities while lowering the risk of pursuing a single venture;

* using an insurer's venture-capital funding capability to provide a high-risk, high-return return/risk fund within the overall investment portfolio while gaining valuable market insights into new e-commerce technologies and insurance business approaches;

* entering additional financial-service arenas through e-business approaches in light of federal financial-services deregulation;

* attracting and retaining innovative insurance talent that broadens the organization's talent and experience base for future endeavors; and

* increasing substantial shareholder value.

While risks are involved with launching new e-ventures, the benefits and payoff can be substantial.

An incubator--internal or external--provides a way to spread the risk among a number of dot-com bets.

Steven Landberg is a principal with Nextera Interactive, an e-business and e-commerce consulting firm. He is based in New York.
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Author:Landberg, Steven
Publication:Best's Review
Geographic Code:1USA
Date:Jun 1, 2000
Words:824
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