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NetObjects taps small businesses

The Silicon Valley company is on the acquisition trail, attempting to make its mark as a one-stop shop for small businesses' Web needs.

NetObjects is thinking small--as in small businesses.

The four-year-old Silicon Valley company is on the acquisition trail, attempting to make its mark in the crowded Web development market. After chasing both consumers and businesses of all sizes, NetObjects now wants to become a one-stop shop for small businesses' Web needs.

To further its efforts, the Web authoring toolmaker last week spent $15 million to buy Sitematic, a Web site for small businesses that offers easy-to-use software to design Web sites online, Web site hosting, and marketing resources, such as search engine registration. It also lets companies easily put up their goods for sale on auction sites, such as eBay.

The firm not only wants to provide design software, it also wants to offer Web hosting services to get small businesses online and a Web community where they can network and get the advice and resources they need to become e-businesses.

"We want to become a GeoCities for small businesses," said NetObjects' chief executive Samir Arora, referring to the thriving, Yahoo-owned online Web site community for consumers. "Our goal is to help you build a Web site and e-commerce store and be successful."

With the new strategy, NetObjects is hoping to snag a bigger piece of the business-to-business Internet commerce market, which is expected to reach $138 billion this year and grow to $541 billion in the year 2003, according to the Yankee Group.

Yankee Group analyst Mark Thompson said NetObjects' new small business push is a smart move, but the company still will face stiff competition in the Web site design business. With the purchase of Sitematic, the company will now compete not only with software makers, but with Internet service providers, such as MindSpring and Verio, who offer Web hosting and Web design services to businesses, he said.

"The area is so crowded now, and it's bound to get more crowded," said Thompson, who expects more consolidation in the Web design software market. "But the Sitematic acquisition is key. They're managing to stay out in front of this market."

Analysts say NetObjects' many partnerships will help them compete. IBM owns a majority stake in NetObjects and bundles its Fusion Web design software in its e-commerce software products aimed at large businesses. But with the recent acquisition, NetObjects also gains the partnerships Sitematic had fostered to reach small businesses, including carrier US West and office supply store OfficeMax.

"The way they will make this successful is to leverage their partnerships, but at the same time, they will have to spend dollars to promote themselves," said analyst Sean Badding of the Carmel Group.

Arora, the company's CEO, said they plan to do just that. NetObjects has taken advantage of its IBM relationship in the past, he said. "They legitimized us and made us viable. We now have penetrated over 1,000 enterprise accounts in one year, and there's no way we could have done that as a start-up."

NetObjects, which will launch its small-business Web site in early December, hopes to strike new partnerships and possibly make more acquisitions to further improve the company's family of software products.

Despite reporting a third-quarter loss of $4.8 million, or 30 cents per share, on $5.2 million in revenue in June, the company has the money to embark on a hiring, marketing, and buying spree after raising $72 million in its initial public offering in May, Arora said.

In the next two months, Arora plans to integrate NetObjects' and Sitematic's software and services and hire more sales staff and technicians for its professional services organization, which helps businesses design and support their Web sites.

Bundled with content from its Web site, which provides tutorials for small businesses to create Web sites, NetObjects will create a new portal Web site for small businesses similar to the GeoCities community for consumers, he said.

"You look at GeoCities and Zoom and they have this community feel. They really allowed people to interact and build pages," Arora said. "If you're building a realtor's Web site, talking to other others in the same market is important. That concept has not been brought to the business-to-business market."

About 40 percent of NetObjects' business is to large corporations--and the company still will gear products to that market, where it competes with Web content software makers like Vignette, Arora said. For example, the company still will target its NetObjects Authoring Server Suite, which allows teams of developers to collaborate and build Web sites, to large businesses building an internal company Web site.

"We're not overlooking the enterprise market," Arora said. "Most businesses have to have human resources, sales, and marketing connected to a ]corporate] portal. And that's attractive to us."

But for now, the company's main thrust is in the small business market. NetObjects, whose stock has dropped from a high of $13 to about $7, could be successful as long as they do a good job partnering and marketing itself, said Badding, the Carmel analyst. The company's idea for a small-business Web community has a better chance of succeeding if it works with a major portal player like Yahoo, he said.

"They have to become a premiere Web site for small businesses. Whether they can establish that, it's wait and see," Badding said. "But that market hasn't been tapped."