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Net incubators emerge to aid e-commerce growth

Electronics giant Panasonic will hatch a new business incubator Thursday, the latest in a line of companies created to help foster the growth of Internet and e-commerce start-ups.

    Electronics giant Panasonic will hatch a new business incubator Thursday, the latest in a line of companies created to help foster the growth of Internet and e-commerce start-ups.

    The boom in e-commerce--and the demand for its stocks--has led to a rush to get in on the base floor of e-commerce opportunities. Panasonic's entry into the incubator industry follows the debut of eHatchery in August and eCompanies in June. The new companies join old hats such as Idealab--which fostered eToys--and WebMagic, which launched Pets.com.

    Ullas Naik, a research analyst at First Albany, said the incubator idea is a great way to get a company up and running--and to cash in on the Internet explosion.

    "The Internet space is ripe for these," Naik said. "If you have a solid incubator, you can take an idea to IPO at an accelerated pace."

    Incubators typically provide young companies with office space and business services such as long-distance lines and management expertise. In exchange, they often receive an equity stake in the start-ups. Additionally, incubators can serve as a place for entrepreneurs to test out new businesses.

    Located in Silicon Valley, Panasonic's Internet Incubator currently houses four firms and plans to work with up to 15 at any one time. Unlike other firms, Panasonic does not ask for an equity stake in exchange for its services. Instead, the company asks that it receive the opportunity to buy into the start-ups during later rounds of venture funding.

    What Panasonic does get out of the relationship is a relatively inexpensive way of outsourcing its research and development, said Jim Robbins, who will take over as executive director of the unit later this week. Also, through the start-ups it houses, Panasonic will have the opportunity to keep up with the latest Internet technology and e-commerce trends.

    "We really try to set this up so that it's a win-win situation," Robbins said.

    Robbins said Panasonic plans to focus its efforts on companies that will help it develop its own Internet strategy and help create demand for its electronics equipment. Although the incubator does not have any strict rules on the types of companies it will work with, Robbins said that at least half of them will probably be e-commerce-related. Those companies could range from companies that sell back-end systems to companies that sell equipment online, Robbins said.

    "The possibilities are pretty broad," Robbins said. "It's desirable to have a reasonable diversity."

    Naik points out that the latest incubators are so new that it's hard to tell what their effect will be. Idealab has already helped such companies as Tickets.com and Petsmart.com get their Web stores up and running.

    Mike Guttentag, senior vice president of strategy at eCompanies, said the company is focusing on "second-generation" e-commerce firms. Such upstarts provide more than just a Web store by offering community areas as well.

    Guttentag points to eParties, the sole firm in partnership with eCompanies at this time, as the type of e-commerce venture eCompanies is targeting. Scheduled to launch by the end of the year, eParties will offer content to help users plan a party, as well as the supplies to throw one.

    "We want to build a large, long-term viable franchise that leverages off things that you can do better on the Net," Guttentag said.

    Jeff Levy, chief executive and founder of eHatchery, said the Atlanta-based incubator is broadly looking at e-commerce companies--from companies that sell goods to those that collect and sell information. The incubator currently is working with two firms and eventually plans to work with 8 to 12 at any one time.

    Despite the entry of other incubators into the space, Levy said he didn't see a lot of competition among them. There are far more young start-ups than there are spots for them within incubators, Levy pointed out, meaning that each incubator has a good chance to work with its choice of companies.

    "There's such an incongruity between supply and demand that it's hard to think about competition," Levy said.

    News.com's Greg Sandoval contributed to this report.