2HRS2GO: Yahoo! book deal sends different signals for each side

COMMENTARY -- Tuesday ramblings:

Broadbase Software (Nasdaq: BBSW) shed more than 7 percent so far today following its decision to buy a private company called Servicesoft, but that's not bad considering the deal that gives 36.5 percent of BBSW to Servicesoft's stakeholders. All in all, Wall Street seems pleased with the purchase, which seems to make sense; the products sound like a worthy addition to the Broadbase software suite, assuming the integration finishes on schedule, and Servicesoft has a fairly robust client list.

Texas Instruments (NYSE: TXN) confirmed previous warnings from phone makers: there won't be as many wireless handsets shippped as previously expected. But TI also predicted a 60 percent increase in DSP shipments and continued strength in its overall semiconductor business.

Shares of Barnesandnoble.com (Nasdaq: BNBN) received a lift from the company's new deal with Yahoo! (Nasdaq: YHOO), and understandably so, since Yahoo! has the ability to deliver skyrocketing traffic rates; for instance, most of you reading this opinion column probably saw it on Yahoo! Finance, as opposed to ZDII's home page or other ZDNet sites.

But the fact that Barnesandnoble.com even got the chance to get premium positioning says more about Yahoo! than anything else, because that spot wouldn't have been open if Amazon.com (Nasdaq: AMZN) really wanted to renew its agreement with the largest Web portal. Unfortunately for Yahoo!, Amazon.com didn't think it was worth it.

Amazon.com has enough brand cachet that it probably doesn't need Yahoo!'s help, but that leads to another question: does Yahoo! deliver advertising value for premium brands and well-known websites? Or is it only worthwhile for smaller players?

Granted, money is money. As long as Yahoo! gets desirable advertising rates, it will be happy regardless of who is paying for the space. Unfortunately, it becomes more and more difficult to maintain those rates if your value diminishes as a client increases in size.

On the topic of B2C businesses, you probably never thought about buying stock in an Atlanta-based company called Innotrac (Nasdaq: INOC). If you did think about buying INOC shares, you probably wish you hadn't, because the stock has been on a gradual slide for more than a year now; it currently trades between $5 and $6, or less than a third of its 52-week high.

How bad is it? Just 15 percent of the company's float is owned by institutional shareholders that figure was 70 percent a year ago, according to Scott Dorfman, president, chairman, CEO and the company's largest shareholder.

The slide is largely Innotrac's own fault. After 14 years of private operation as a warehousing and distribution specialist for telecom companies and other firms, the company went public in 1998. It touted itself as an e-commerce enabler and something of a technology services play, because much of its business involves installing and connecting computer systems for sales fulfillment. You might call it buzzword riding, Dorfman calls it pursuing the largest business opportunity.

Either way, Innotrac rode that wave to some decent gains in the first half of 1999, but the company missed estimates for a pair of quarters. Then the investment bank that led Innotrac's IPO and spearheaded what little coverage existed was acquired and the analyst team was wiped out. "I called the analyst and asked him what it meant, and he said 'It means you're screwed,' " Dorfman recalls.

Then the market tanked this year, especially for companies related to online consumer businesses. Innotrac technically isn't a B2C company -- its paying customers are other companies -- but considering Innotrac's entire business involves shipping to consumers, it's close enough.

So Innotrac stock continued its slow tumble even as the company gradually got its financial house in order. In recent months, Innotrac has shifted to a fee-for-service model that took a lot of inventory off the books, hired a new CFO and most important, beaten estimates in recently. Dorfman fully expects to top the current First Call forecast of a penny per share for the September quarter as well as the consensus prediction for December.

Most important, e-commerce has gone from being a buzzword pipedream to actually generating a decent amount of Innotrac's business. The company, whose customers are brand manufacturers as opposed to retailers, built the Web retail operations of Coca-Cola (NYSE: COK) among others. "New Economy" business -- that includes things like shipping DSL and cable modems for the telecom firms that still provide the bulk of Innotrac's business -- now comprises roughly 40 percent of Innotrac's overall revenue, Dorfman says. That also includes a joint venture called Return.com, formed with Mailboxes Etc., to handle returns from online shopping.

Innotrac believes things will only get better as the dot-com shakeout continues, because the company's target clients are clicks-to-bricks types. Innotrac also happens to have a profitable history -- the company has never ended a year without net income, although the two analysts on First Call think that will change in 2000. Dorfman says it won't. We'll see.

Regardless, Innotrac seems to be the kind of company that should be positioned to do well in the long run of online shopping.

On the other hand, it's a rather mature outlook we're looking at. Innotrac may paint itself as a technology firm, but it certainly doesn't expect tech-type growth rates: Dorfman estimates long-term growth at 18 to 22 percent per year. Nice and steady, but hardly the kind of performance Internet investors hope for.

But that might be as good as it gets in the future. 22GO>