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Tech Industry

Here come the dinosaurs

Brick-and-mortar stores aren't dead. Although it is still fashionable to knock them and their largely unsuccessful attempts to conquer the Web, they are staging a comeback--but this time in conjunction with Internet start-ups.

Surprise, surprise. Brick-and-mortar stores aren't dead. Although it is still fashionable to knock them and their largely unsuccessful attempts to conquer the Web, they are staging a comeback--but this time in conjunction with Internet start-ups.

The latest Net partnerships are similar to primaries in the political arena, where candidates compete aggressively for nomination until a candidate is anointed and then turn around and choose competitors as their running mates. In the Net's case, start-ups and brick-and-mortar competitors in Internet vertical categories that have traditionally competed aggressively for market leadership are now partnering to go after the online opportunity.

These partnerships bring together the best that all parties have to offer, creating a stronger offering than is possible for them to do alone. The recent partnership between Drugstore.com and GNC and Rite Aid is just one example of the new dynamic we will see more of on the Web. Internet companies provide the speed, customer interface, technology, and Web knowledge, and traditional companies contribute fulfillment and a trusted brand.

This new arrangement should work quite well, particularly in the e-commerce arena, in categories where immediate gratification is important, or where the parties benefit from each other's relationships. Drugstore.com customers will be able to apply their health insurance toward prescriptions online as a result of Rite Aid's relationship with PCS, one of the leading pharmacy benefit managers. In addition, customers will be able to order products through the Web site and pick them up the same day from a local Rite Aid or GNC store.

Distribution, we believe, will become a key focus of start-up companies, who every day leave millions of dollars on the table because they cannot offer same-day delivery or pick-up.

Slowly but surely, a growing number of traditional companies are recognizing that they cannot do it themselves online, at least not at the speed required on the Internet. This is particularly true in categories where there are one or more aggressive, well-funded Internet competitors.

For example, in the pet category, Petsmart, the largest U.S. retailer of pet supplies, partnered with venture-backed Petjungle to form a new company called Petsmart.com that will provide information and products through its Web site. Likewise, 6 of the 18 largest traditional sports retailers, including Sports Authority, Athletes Foot, and Sport Chalet, have partnered with Global Sports to extend their brands and compete more effectively online.

Value America, a retailer of branded business and consumer products, provides the technology infrastructure, merchandising, and customer support that enables nearly 2,000 brands, including Compaq, Amana, IBM, Apple, and Whirlpool to sell their products directly to consumers.

It is becoming quite clear that there is a place for brick-and-mortar companies online. In many categories, that place is as a partner to an Internet start-up. Although these partnerships are not new to the Web, the most recent wave of deals reflects a far greater commitment and better-delineated roles for each party.

Although still a young medium, the Web is maturing, and the reality is that a combination of offline and online assets and capabilities is critical. Depending on your perspective, either there will ultimately be no Internet companies, or all companies will be branded with a ".com."