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Beyond.com CEO resigns as firm shifts focus

The online software retailer is reorganizing to focus on the business-to-business market, and it plans to lay off about 20 percent of its work force.

Online software retailer Beyond.com today said its chief executive officer has resigned amid a reorganization that will also eliminate about 20 percent of its work force.

The company, originally conceived as an Internet software superstore, said it expects to take a one-time restructuring charge of between $2 million and $3 million as it strengthens its position in the growing business-to-business market. Shares of Beyond.com, which have been trading well below their 52-week high of $37, climbed more than 6 percent on the news.

Today's move is only the latest in a string of high-level departures and other disruptive changes at the company. Recently the subject of buyout speculation, Beyond.com has struggled to find its place in a hyper-competitive market and has suffered technical problems that have thwarted its goals along the way.

Analysts noted that Beyond.com's strategy to sell to consumers and small to medium-sized businesses was hampered by low margins and high marketing costs.

"The cost of processing an order for a PC is not that different than the cost of processing an order for a box of disks," said Daniel Ries, an equities analyst at C.E. Unterberg Towbin. "There is very little chance of paying the overhead by selling just software to consumers and smaller businesses."

Mark Rowen, an analyst at Prudential Securities, added: "It points to the difficulty of building a strategy in retailing around just software--no one including Egghead was able to do it in the brick-and-mortar world. It's just not broad enough a category to build a business around."

Online retailers' stocks in general have been hammered recently, as Wall Street has made it clear it wants to see profits. While many e-commerce players generated huge windfalls over the holiday shopping season, investors are still waiting for the gains to turn into profits rather than being plowed back into marketing and technology investments.

Egghead.com and Cyberian Outpost, two online retailers of computer hardware and software, also are down in the dumps, barely above their 52-week lows. Egghead.com is trading around $14 compared to its high of $60, while Cyberian Outpost is bogged down around $8.50, off its high of about $34.

Amazon.com, the leading online retailer, is trading well below its 52-week high of about $113, hovering in the $60 area. Barnesandnoble.com is floating around $14, a 52-week low compared to its high of nearly $27. Toy retailer eToys is also hovering around its low of about $20, far below its high of $86.

Mark Breier, Beyond.com's president and chief executive, will leave the company, as will about 75 full-time employees at all levels. Beyond.com said it plans to transfer a number of employees to its eStore and government divisions.

Just yesterday, Beyond.com stock surged nearly 8 percent to $7.94 after the company announced it will be a reseller of Red Hat Linux software and services to the lucrative U.S. government and business-to-business markets.

It has been common of late for companies to see their stock jump at the mention of any connection to the Linux open source operating system.

"I think it is the right move," Rowen said. "It is the part of their business that is the most defensible over the long term."

Breier said he plans to advise and invest in Internet start-ups, adding that with the shift toward the business-to-business market, the company "now needs a CEO with B2B expertise."

In the interim, chief financial officer Rick Neely will serve as CEO, the company said. Beyond.com said it has retained an executive recruiter to search for a new chief.

"As we discussed in our earnings preannouncement on Jan. 5, Beyond.com is transitioning from a business-to-consumer to a B2B-focused company," Neely said in a statement.

Beyond.com said it will focus its resources and expertise on strengthening its eStore division--which lets companies quickly build a store on the Internet--and on its government division.

The company said its government division, which now has eight contracts, has grown to a $30 million business in 1999, compared with $9.8 million in 1998.

The software seller added that it would de-emphasize both its consumer and corporate divisions.

"(Beyond.com) spent a lot of money on marketing and didn't get the results they were looking for on their consumer business side," Rowen said.

Beyond.com said it was offering severance packages and career counseling for those employees it could not transfer to its business-to-business division.

Still, Unterberg's Ries said it is unclear how successful Beyond.com will be in the business-to-business market--a term he thinks is thrown around too easily.

"It is the companies like Ariba that are creating a marketplace for buyers and sellers to somehow highly automate their processes that hold tremendous promise," Ries said.

The company will further detail its business-to-business plans when it reports its fourth-quarter and 1999 year-end earnings on Jan. 26, after the close of the market.

"It is a very difficult road ahead for (Beyond.com), with limited visibility," Ries said.

CNET, publisher of News.com, holds an equity stake in Beyond.com.

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