Richard R. Rowe is proving that narrower may be better when it comes to breaking ground in electronic commerce.
In 1994 he founded RoweCom Inc., a Cambridge, Mass., company that lets corporate and university librarians place orders over the Internet for books, journals, magazines, newspapers, and reports. The goods can be delivered the old-fashioned way-in paper format via mail-or electronically.
Staying in its well-defined niche, RoweCom has attracted 13,000 publishers that offer 43,000 printed products to 200 clients. Automated ordering and renewal cut out the intermediaries who normally charge publishers for collecting, processing, and consolidating orders and payments.
The company expects at least $50 million of sales this year.
Mr. Rowe said he sees only upward potential. Information products "will become increasingly important as knowledge becomes the differentiator between success and failure," he said. "We're all becoming more knowledge- dependent."
"RoweCom is one of the first examples of a true vertical business-to- business electronic commerce service," said Bill Burnham, senior research analyst at Credit Suisse First Boston.
RoweCom is, indeed, an Internet commerce pioneer that set a strategy early and has profited by sticking to it. Because it earns transaction fees, it is not dependent on software licenses or hardware sales. RoweCom also earns a one-time fee of $5,000 to $50,000 for installing the purchasing software at client sites.
"It is a profitable application," said Mr. Burnham.
By contrast, Nets Inc., an e-commerce venture headed by James Manzi, the former chief executive officer of Lotus Development Corp., went bankrupt last year.
"Nets Inc. attempted to provide very broad electronic commerce for a wide range of products and services," said Mr. Rowe. "We're going to focus on knowledge products and services. Intellectual commerce differentiates us from electronic commerce in general. We're into the area we know best, and that's the knowledge business."
Mr. Rowe, 65, brought experience from 14 years as president and chief executive officer of the Faxon Co., the world's largest library subscription agency, which is now owned by Dawson Holdings PLC of the United Kingdom. He has strong ties to the academic world, having earned a doctorate in education and psychology from Columbia University. He taught at Harvard University as an associate dean.
"I am a businessman's educator, if you will, or an educational businessman," he said.
Closeness to publishers is a key to RoweCom's success.
"We make relationships with the publishers," Mr. Rowe said. In the event an order is filled incorrectly, for example, "we go back to the publisher on behalf of the client, ... and we provide management reports to the client so they know what's going on.
"We provide any title, book, or serial publication that a client wants," he said.
Besides on-line convenience, companies gain greater control over their information purchases. Companies can "buy smarter-with fewer redundancies, more focused purchasing, and more resource sharing within the organization."
Mr. Rowe was inspired by Intuit Inc.'s Quicken as the standard for usability. "I wanted it to be simple, point-and-click, and involve a minimum amount of typing to place an order," he said. To begin using the service, clients click a button on their corporate intranet that takes them to a Web site run by RoweCom.
Generally, large corporations can save 4% to 8% of their magazine and periodical spending, said Mr. Rowe.
The privately held RoweCom, with about 100 employees, has three outside investors-Highland Capital Partners Inc., Working Ventures Canadian Funds Inc., and Crystal Internet Venture Fund LP. The three injected $8 million into RoweCom in June after an initial $4 million from Working Ventures in May 1997.
RoweCom sends payment and order information through Bank One Corp., which this year expects "millions of transactions," according to Rod Cosler, senior product manager in the banking company's treasury management services division in Dallas.
RoweCom tapped Bank One in 1995 to help it devise software for transaction processing, which is executed through the automated clearing house.
Initially, Bank One used software from Open Market Inc. of Burlington, Mass., to support RoweCom's transactions. Then "we decided for a variety of reasons, primarily for cost and flexibility, to adapt the software," said Mr. Rowe. With agreement from Open Market, "we created our own version of transaction software, which is proprietary."
Buyers typically open an account with Bank One to "make settlement easy and minimize risk," said Mr. Cosler. "Because of our experience with RoweCom," Bank One is attracting new corporate customers interested in pursuing similar Internet buying applications.
With new clients appearing frequently, the challenges now are to standardize software installation and to increase network capacity.
Mr. Cosler said he would like to see RoweCom diversify its product line in order to overcome the seasonality of its business: 95% of orders are placed in the fourth quarter.
Toward this end, RoweCom has developed two products with Bank One: kStore, a site where employees of large companies can order supplies, and kLibrary, a subscription-ordering service for librarians with more complicated requirements.
RoweCom also wants to enhance its basic client services. It has licensed software from NetPerceptions of Minneapolis to identify buying patterns and make book and subscription recommendations based on compiled buying profiles of individuals.
"Our ultimate goal is to customize to each individual user so they get personal recommendations on what information they should be looking at in order to stay current in their field," said Mr. Rowe.
A division for buyers in financial services, one of five target markets, was created in January. Its 20 accounts include the Federal Reserve Board, First Union Corp., and First Chicago NBD, just acquired by Bank One. Mark Smith, RoweCom's Detroit-based national accounts manager with responsibility for financial services, hopes to sign up 10 to 15 more major financial organizations in the next year.
The formation of such a group has been "an evolution for us," said Mr. Rowe. "We recognized there are various communities that have quite different needs."
Lynne Szabo, information research manager at Hewlett-Packard Co. in Palo Alto, Calif., said she appreciates the savings and efficiency RoweCom's kLibrary affords. Hewlett-Packard has saved $48,000 by using RoweCom instead of another vendor, she said, and she has reduced her staff from three people to one.
RoweCom has not pleased everybody. James Tarbox of Towers Perrin's Atlanta information center switched back to an old vendor, Ebsco Information Services, last November after less than a year with RoweCom.
"We had awfully high hopes for RoweCom," said Mr. Tarbox, director of the information center. "I went out on a limb with my management to get the contract."
He said there were service irregularities that may have resulted from RoweCom's business growing too quickly. Promises were not kept, he said, and "some service issues were never addressed."
RoweCom continues to grow. In mid-September it announced it would link its service to Barnes & Noble's data base of three million books. Barnes & Noble, in turn, would sell RoweCom's subscription services to business clients, who would get an additional 5% discount for using it.
With multicurrency capabilities in place, Mr. Rowe is prepared to expand internationally. He is in talks with Deutsche Bank A.G. and Bertelsmann A.G., the German media conglomerate, about bringing RoweCom's service to Europe next year.
Mr. Rowe is critical of the automated clearing house system, which is hampering his international aspirations. The mainframe-based batch processing system serves U.S. banking companies only.
"What we really need is a 24-by-7 clearance system that is global," Mr. Rowe said. "Technically there's no reason not to; it's an organizational issue. It's a question that sooner or later banks, or whoever replaces banks, will do."
"The thing that will differentiate winners and losers in this game," he said, "is knowledge of the market, responsiveness to the market, ability to individually customize to the demands of each individual user, and to be proactive rather than reactive."
