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THE CUTTING EDGE

From Zero to $1 Million a Day at Tiny E-Commerce Firm

September 14, 1998|P.J. HUFFSTUTTER | TIMES STAFF WRITER

With more than 400,000 retailers flocking to the Internet, the marketing hyperbole flies fast and loose. The largest flower shop. The cheapest music store. The best selection of sporting goods.

BuyComp, tucked away in the suburban hills of Aliso Viejo, joined the crowd last November with similar heady claims: an online comparison-shopping service with the "lowest prices on Earth."

It's a bold claim, and one difficult for a fledgling and privately held company to prove. But BuyComp insists it can indeed provide shoppers with the lowest prices, thanks to its e-commerce technology and some key agreements with product distributors and hardware manufacturers.

So far its sales figures back up its boasts as a rising flood of online consumers flock to the company's Web site (http://www.buycomp.com). BuyComp says it's on a pace to hit $130 million in revenue this year, which would catapult it past the record set by Compaq Corp. in 1983 for the largest first-year revenue generated by an American business.

In less than a year, BuyComp has gone from zero sales to nearly $1 million a day. Officials at Santa Ana-based Ingram Micro Inc., the world's largest distributor of technology products and BuyComp's key distributor, confirm the numbers, and note that the online store is on target to average $2 million in daily sales by the end of the year.

That means that tiny BuyComp, already blasting past its better-known competitors, would quickly be closing on Dell Computer Corp., the leading business-to-consumer online retailer, which pulls in more than $4 million in sales a day.

"BuyComp is a secret shared by online consumers," said Scott Russell, a general partner at Softbank Corp., the Japanese technology giant known for making key investments in promising Internet firms. Softbank, which owns stakes in Yahoo and E-Trade Group, recently spent $20 million to pick up a 10.5% chunk of BuyComp.

One question hanging over the company: the corporate past of founder Scott Blum, which includes a now-settled class-action lawsuit and federal regulatory inquiry into Irvine-based Pinnacle Micro Inc.

"I've made a lot of mistakes, but I've learned from them," Blum said. "I'm an idea man. I'm not the one who should be running a multibillion-dollar company."

Buzz Growing for E-Commerce

As corporations and consumers become more comfortable with Internet security issues, e-commerce has emerged as the business world's hottest buzzword. Researchers at International Data Corp. recently projected that online spending will reach $32.4 billion this year, more than triple the $12.4 billion in 1997.

And technology products--from software and hardware to digital cameras and PDAs--are the most common goods found inside Internet shopping carts.

"When it comes to general consumers, people do not care who they're buying their PC from online," said Nicole Vanderbilt, a senior industry analyst with Jupiter Communications. "Right now, the thing that matters to the average consumer is finding out who is offering the lowest prices."

In 1996, Blum spotted an opportunity to tap into this desire for savings. The 34-year-old executive recruited two programmers--Robb Brock, who handled the e-commerce back end, and Web designer Kevin Richards--convincing them to spend a year developing an e-commerce engine to handle online transactions and an artificial intelligence program to track product prices. The venture was boot-strapped with $1 million of Blum's own savings, he said.

While Brock and Brent worked on the technology, Blum aggressively pitched his idea to product distributor Ingram Micro. What BuyComp wanted was simple: to use Ingram's vast warehouse of products as the invisible backbone of its Web site. Blum's strategy was to win the business of customers who use electronic comparison-shopping services.

At its most basic level, BuyComp is a retailer that never touches the goods it sells. In its spartan real-world facility, several rows of operators handle phone orders and customer complaints.

Online consumers find the site either through word of mouth; through shopping "bots," or computer programs that canvass the Internet for the best prices; or through the company's strategically positioned ads at Web portals such as Yahoo and Shopper.com.

BuyComp's Web site offers more than 30,000 products for sale or lease, with a catalog ranging from new hardware, software, memory cards and a slew of related items. Once an order comes in, BuyComp automatically transfers the bid to Ingram Micro, which then packages and ships the order to the customer.

By working almost exclusively with Ingram Micro, BuyComp says, it can get its products at a lower price. "Sometimes we're only a nickel cheaper," Blum said. "But a nickel saved can mean a sale for us and not for our competitors."

Such price cuts mean BuyComp's profit margin remains a slim 0% to 2%. BuyComp officials won't say whether the company is profitable.

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