2HRS2GO: Beyond's IRS deal more than sales growth

3 min read

For online software retailers, the Era Of Big Government has only begun.

Beyond.com (Nasdaq: BYND) -- ZDNet's exclusive software retailer, in case anyone cares -- is getting $120 million of your tax dollars to keep the U.S. Internal Revenue Service up to date with the latest offerings from everyone's favorite Redmond, Wash.-based monopoly (Talk about robbing one hand to pay the other: the IRS sales probably generate enough to cover Microsoft's legal costs in the antitrust case).

Considering that all retailers generally rise and fall with consumer buying cycles, the IRS contract gives Beyond.com something of an edge.

"It provides a degree of visibility and stability in revenues that most Internet companies don't have," notes Michael Kim, senior analyst with Wedbush Morgan.

Is Beyond.com moving beyond its competitors?

But the real gem in this tiara is the digital one. By itself, $120 million over 5+ years is a decent addition to the top line, but not a great one. But because the products all arrive via ESD -- Electronic Software Delivery -- it should help Beyond.com counter a problem faced by all e-tailers: falling margins.

Price wars spawned by Internet commerce have battered the gross margins of online retailers in every niche. But as Michael Dell likes to remind everyone, you can counter that through superior inventory management. And it doesn't get more superior than having to maintain no inventory at all. No more storage for CD-ROMs, no more boxes, no more shipping warehouses.

That's a ways off, of course. But Beyond.com seems to have a head start, since the IRS is merely the latest of the company's government customers, a group that includes the Defense Logistics Agency, National Imagery and Mapping Agency and the U.S. Patent and Trademark Office.

Beyond.com still gets the overwhelming majority of its business from Bob and Barb Consumer, and judging by the television ads with the naked guy, the company will keep compete for their business. But Beyond also looks to have a growing future with Big Clients, which gives it another edge over its peers.

"Today's announcement highlights the fact that Beyond.com's competitors don't have a lot of presence in the government sector, or the enterprise sector," Kim says.

Whether its Egghead.com (Nasdaq: EGGS), Cyberian Outpost (Nasdaq: COOL) or Beyond, online software retailers all have ugly financials. Even with $120 million from the Taxman, Beyond will bleed red for the foreseeable future, albeit not as much.

But investors live in a relative world. And at the moment, Beyond looks like the brightest spot in its e-tailing niche.

Other issues:

  • Circuit City Group
  • (NYSE: CC) Online isn't necessarily where it's at. This electronics retailing giant saw a 19 percent jump in sales for the quarter just ended, and expects earnings to easily top analyst consensus. The Circuit City chain alone saw a 63 percent jump in profit. Which just underscores the point that as long as you're selling real, tangible products, Virtual retailers often offer buyers little advantage over physical retailers, except for people who enjoy paying shipping and handling charges.

  • F5 Networks
  • (Nasdaq: FFIV) Anyone want to take bets on how long it is before Cisco, Lucent, Alcatel or 3Com buys these guys out?

  • CMP Media Inc.
  • (Nasdaq: CMPX) A moment of silence for Ziff Davis' long-time competitor, which no longer exists as an independent entity, as of today. Another Disclosure: I used to work there. And for the most part, I enjoyed it.

    After declining for days, the overall technology market looked to end on a positive note. With two hours left in regular trading, the Nasdaq Composite Index was up 40.83 to 2444.15, the S&P 500 had gained 12.24 to 1311.78, and the Dow Jones Industrial Average had risen 24.70 to 10688.39. 22GO>