Feature

The Tech Report: Silicon Survivors

But all of that could easily change. In the beginning of this year, barnesandnoble.com struck a deal with America Online in which it will pay $40 million to be the exclusive bookseller on AOL, which with its 11 million members delivers the biggest audience in cyberspace. (Just six months earlier, Amazon had agreed to pay $19 million to be the exclusive bookseller on AOL.com, its non-members-only Website.) B&N is also rolling out a major advertising campaign. “You’re going to start to see us everywhere,” says director of public relations Ben Boyd from barnesandnoble.com’s headquarters in the Port Authority building on Ninth Avenue in Chelsea, where more than 250 employees manage the site, organize author chats, and generally plot Amazon’s demise.

Meanwhile, New York-based N2K (www.musicboulevard.com) is in a similar No. 2 position against Philadelphia-based CD Now (CDnow.com) in the burgeoning online-music-sales market, where revenues increased by 140 percent in the past year, from $21.5 million to $52 million. Founded in 1994, N2K went public last year and has just filed for a secondary offering, having spent a good chunk of its first $60 million on marketing. It just paid $18 million to America Online to be the only retailer on AOL’s music channel, and signed exclusive agreements with SonicNet, MTV, and VH1. Despite the high costs, such partnerships seem to be paying off. The company beat analysts’ estimates for fourth-quarter revenues for 1997, the bulk of which came through AOL. When the Titanic soundtrack was promoted on AOL’s welcome screen recently, N2K sold 750 copies in all of twenty minutes.

THE RINGLEADER

Jason McCabe Calacanis never met a sound-bite opportunity he didn’t like, which is why he is the perfect pitchman for an industry that has been able to sustain itself through rough times with a hell of a lot of hype. Aside from being the editor of the Silicon Alley Reporter -- a monthly that started out as a black-and-white trade paper but quickly blossomed into an 80-page, slickly packaged glossy magazine -- Calacanis hosts a weekly Internet radio show; is omnipresent at Alley conferences, parties, and expos; and recently packed 1,000 Alley denizens into his own sold-out two-day conference, Silicon Alley ‘98. It was this “Salley” conference that marked Calacanis’s coming-of-age as an Alley power broker: He snagged sponsorship from Microsoft and Arthur Andersen and lined up panelists from the likes of Compaq, J. Crew, and the William Morris agency.

“He’s ubiquitous in kind of an annoying way,” says one Alley worker, “but he is our loudest cheerleader.”

In 1996, after doing freelance content development for Sony and America Online, Calacanis maxed out his credit card to start up the Reporter, which he would distribute from a cart he pulled around town. Though widely regarded as a booster sheet for the industry (compared with the more strenuous reportage of @NY), the Reporter has become something of a must-read in the Alley -- thanks, in no small part, to the magazine’s party coverage. (The city’s new-media population is still small enough that even the nobodies have a pretty good chance of showing up in SAR.) “To a certain extent, the magazine has created the public perception of Silicon Alley,” says Calacanis. “We’ve made the cyber stars.”

Raise any doubts about the future of New York’s new-media industry, and Calacanis will bat them down in a second, especially when it comes to the issue of revenues (or lack thereof). “People take the success of software companies and technology companies and superimpose those expectations on media companies,” he says. “The Internet has only existed as a commercial medium since 1995, and if anything’s profitable right now, it’s a blessing.” Silicon Alley will fulfill its promise if people just give it time. “You’ve got to show the whole picture: If you judge Silicon Alley on the first three years, it will be a bunch of losers. If you judge it in 30 years, it will be the greatest success story in the history of business.”

And where will Calacanis fit into that history? “Someone once said to me, ‘You’re the mayor of Silicon Alley,’” he says. “And I said, ‘I’m not the mayor; I’m the press secretary. It’s more important than the mayor.’”

THE PRODUCT

Given that the “new” way to make money on the Web is through selling merchandise, it’s time for InterWorld, one of the few real software companies in the city, to cash in.

Retail sales online doubled in the last year, but the real growth is going on behind the screen, as retailers try to rejigger their order-fulfillment and inventory software for the Web. Late last year, InterWorld launched Commerce Exchange 2.0, a $75,000-to-$195,000 all-in-one software package (with ongoing maintenance charges) designed to increase revenue, decrease operating expenditures, and enhance customer service. Brøderbund, J&R Music and Computer World, and Scholastic are among those companies that have signed on to InterWorld’s so-called turnkey solution.

“It’s been tough, because we expected e-commerce to mature early on,” says Michael Donahue, who founded InterWorld in 1994 with two other partners. Micro Warehouse, a computer catalog retailer, was InterWorld’s first big customer in 1995. But perhaps the most significant factor in InterWorld’s favor can be summed up in two words: George Soros. The billionaire financier “has supported us on every round of financing, so he’s basically been our biggest supporter,” says Donahue. “What we were able to do is spend a lot of time in R&D. We took almost two to three years just developing the right architecture. And now we have technology which doesn’t have to be completely re-engineered.”

InterWorld has raised a staggering total of more than $50 million to date, not just from Soros but also from such other investors as GE Capital and Comdisco. With such substantial private investment from heavy-hitting players and the recent turn toward acceptance of e-commerce on the consumer side, Interworld’s upcoming IPO could be the next DoubleClick.