FACE TO FACE - NET LUMINARY

Samir Arora, chairman, chief executive and founder of NetObjects, is aiming to surf the worldwide wave of e-commerce adoption, with a little help from capitalism and the free market economy.

Two anarchists are jumping up and down on the roof of the stationary aiming to surf the worldwide wave of e-commerce adoption, with a little help from capitalism and the free market economy. police van. And the crowd - made up of a disparate cross-section of London's rent-a-mob fraternity - are enjoying the show. At least that is the case until the driver, obviously unimpressed by such lawlessness, decides to bring their act to a premature end by reversing into a couple of the less-agile members of the audience.

It's Friday afternoon and there's a full-scale riot in progress: time to exit stage, right away.

'It's a protest against capitalism,' the doorman informs me as I arrive at the hotel for my meeting with a man many of the demonstrators wouldn't mind having a word with. Samir Arora, chairman, chief executive and founder of NetObjects, is at the helm of a company valued at more than $200 million.

It is a company born from the bleeding edge of the information age and to which a growing number of multi-national organisations are turning to help feed their information-hungry capitalist empires.

In 1996, NetObjects' net revenue totalled $0. In 1997, it was $7.2 million.

Last year, net revenue rose to more than $15 million. Capitalism and the free market economy it seems can make you very rich - very quickly.

Today, however, Arora and his shareholders aren't quite as rich as they were when NetObjects unveiled an initial public offering (IPO) of 6,000,000 shares of its common stock at a price of $12 per share back in May. Now the shares are trading on Nasdaq at a fraction over $8 - but hey, who's worrying?

'The past six weeks have been the worst for internet stocks if you look broadly at the market category. On 7 June alone, there was a drop of between 10 and 40 per cent in a large number of internet stocks - a massive internet correction,' smiles Arora.

'It's about perspective. If we had dropped from $12 as much as most of the other Net stocks have since we went public, then we would really be in trouble. Our stock is lower than the offer and that's not good - but in contrast with the market gains and losses, it has been a very stable stock.'

Arora claims that most firms subsequent to when NetObjects was floated have been postponed or cancelled. But he does admit he has mixed reactions as to the timing of the offering. 'I wish we went out at a better market time because we've obviously been hit by the week we chose to go public.

But we have capital in the bank today. We've a strong history of revenue growth and the amount of burn-rate money required to expand means we don't have to issue a secondary offering for working capital. A lot of internet companies are often financed at a burn-rate whereby they need another secondary share offering to break even - NetObjects does not,' Arora reiterates.

'Many people in the internet industry view an IPO as an ending or an exit and I think that's a big mistake. An IPO is an event in a company's history. It's an important event, but it's not an exit - it's a beginning.'

And Arora has every right to feel confident. NetObjects is ranked by Softletter at number 60 in the global software market and the company hit the top 10 in terms of revenue growth for the period 1997-98. Its share price may have fluctuated since the float, but shareholders have the added comfort that the vendor is majority owned by IBM. The world's largest computer manufacturer has invested more than $150 million in NetObjects since it was founded.

'Having IBM as a majority investor not only gives us incredible stability but also viability, especially in the European market,' says Arora. 'People trust that we are a serious player.'

NetObjects' growth has been phenomenal, as the numbers suggest. But, as many startups have found to their cost, keeping that momentum going is an altogether different proposition. With the world's stock markets falling in and out of favour with businesses built around the Web, those companies that have little or no substance behind the hype will sooner or later be found out.

Arora says: 'If I can borrow a phrase from Andy Grove (chairman of Intel) - only the paranoid survive. I'm a big believer in that. Every day I get up, I still think I'm the chief executive of a startup. I go through all the issues and evolution changes. The reason I do that is because the playing field is changing dramatically and continuously. The best companies are the nimblest ones.

'Momentum is easier to maintain when you have it in the first place. Our brand is extremely well established. When we enter a different market, it is getting easier to establish ourselves - people already know the brand. That momentum comes from customer loyalty. We are a Silicon Valley firm, but we don't have the arrogance of a lot of the companies there. I've been in the Valley a long time and I understand the meaning of that word. If you're down-to-earth and focused on the customer, then everything else falls into place.'

Much of that expansion is based upon strategic alliances with a number of top-tier vendors. IBM and Lotus are two obvious examples, but Microsoft and Novell - to name just two - are also part of the NetObjects family.

Sun Microsystems is the latest firm to be welcomed into the fold. An agreement signed in early June will bring NetObjects' intranet building package for enterprises - Authoring Server Suite - to Sun's Solaris operating environment.

'If you're in the Sun channel as a Var or a distributor, you should be trying to get in touch with NetObjects right now,' Arora claims. 'We can help you move from Solaris only going to corporate internets, to Solaris also going to corporate intranets. There's so much Solaris used in Europe that it makes sense to engage with the Sun channel now and pre-teach them before the product comes out.'

NetObjects' solution provider (NSP) programme is seen as central to educating the channel and getting more partners on board, Arora claims.

'The programme is designed to engage partners at every level of focus - from Vars, consultants, trainers, Web designers and Web developers. It is designed to create a framework around NetObjects that adds value to the relationships these people already have. The channel is used to being squeezed. It's important to help partners in the transition that they are going through to find more value-added things for them to do.'

A particular focus at the moment is on recruiting enterprise Web-focused partners, he adds. That focus is playing an increasing role in NetObjects' revenue mix and is seen as pivotal to the firm's fortunes over the next few years.

'There's a sequence of adoption happening,' Arora explains. 'First you had a lot of corporate internet sites built because they were outsourced to design companies - and that's still the case in many European countries.

The next wave was, and is, the small businesses building internet sites themselves or with local consultants. That really is where our Fusion branded products have been very strong. I would say 80 per cent of our business last year came from the SME sector and 20 per cent from enterprise.

'But now there is a third way - the corporate adoption of the Web for intranets and extranets, known as the enterprise information portal. Every company with a .com address will soon have a site to where they can direct employees. That's where a lot of our business is coming from today. We've gone from an 80:20 SMB to corporate split two years ago, to a 60:40 split. By the end of the year, it will be 50:50 if not 40:60.'

So where exactly does Arora see the reseller channel fitting into this brave new world?

'The real change from a social point of view is disintermediation - in any business value chain, the relationship between entities is becoming closer. Not only does this apply to an enterprise and its customer, but also from a dealer to its customer. There's a lot of myth and fear out there, especially about e-commerce, all the way from users not trusting it for security reasons, to what it will do to the channel and distributor/vendor relationships in particular.'

Security has been a significant barrier to e-commerce in the past, but those barriers, he believes, are coming down - at least in the US.

'At the customer level, the issue of trust was very low a few years back. I think sometime last year the trust issue went away and I would say that for most consumers in the US the Web has become a trusted e-commerce medium. And I see that occurring in Europe in different countries, culturally and infrastructure wise, at different times.

'If you look at it from the dealers' point of view, they will be able to manage some of their relationships with their customers better,' says Arora. 'That does not mean dealers will have less to do, it means they have to redefine and reinvent what they do based on a changing medium of selling emerging.'

People who want to engage in e-commerce with non-computer related products will push many retailers into adoption, Arora believes. Online catalogues are a case in point.

'Just think of the number of times you say to yourself, if they were online I would order from them - that would make my life more easier,' he argues.

'When those stores do come online people don't think of e-commerce anymore - they will think of something they're used to buying from a trusted vendor.

'It's about dealing with trusted vendors you already know through another medium. It's the brand that attracts and is able to transcend barriers,' says Arora.

'The Web doesn't replace catalogues - it adds to them. In the US, we've gone through a cycle where catalogues were not important at all, to everything being online, to a bit of both. You have to achieve a balance between both mediums of selling. For example, it took some time for catalogues and physical store fronts to find that balance.'

He believes high-quality glossy pictures are still a very important selling mechanism and catalogues that are purely used for fulfilment are the ones going online now. 'The first level of e-commerce begins with the customer going to a site where they already know what they want and all they want is to order the product.'

But many companies are still looking for a return on investment (ROI) before committing funds to get e-commerce initiatives off the ground.

'If you're in a business where you are supplying goods, services and products that are not geographically based in terms of who would like to purchase them, but may be geographically based on the way you sell them, then your ROI has already been proven. You must be on the Web, Arora says.

'The way it works usually is that the leaders of the pack in their businesses get on the Web first without a ROI and prove there is one. The rest follow. But not all businesses get a ROI right away. The second fact regardless of all I've said previously, is that if your competitors have all moved to the Web, you have to because of competitive reasons. Competitive reasons are an indirect ROI.

'It's very interesting to see how that initial trickle soon turns into a herd,' he adds. 'It always used to be that you started your e-business by just publishing content on the Web. That's no longer true. People are putting e-commerce on the Web, they're putting applications on the Web. They can come in at whatever stage they want.' Arora cites Amazon.com - as do most people in the industry - as proof of this point.

'When Amazon.com first came onto the Web it was with a very poor looking site. No content - all you could do was e-commerce. But if you look at it now, it's a rich media site with a community. It has completely changed as a medium. It has proven you don't have to go in sequence.'

But for the channel the main opportunity could be in the education of e-commerce adopters. 'That's where the most money will be made - in the education of business and enterprise users to help them move along to the adoption of Web technology. There's a huge need out there for services, training, support and education.'

But where then does this leave the distributor in this particular equation?

'For consumer products more will be getting online,' Arora says. 'For the very small businesses, that's partly true. Our move to the enterprise is a very good one to protect our distributors and resellers.

'As we move up to the enterprise our dealers have more opportunity to value add. But the general trend is true - when products are on the consumer side they are distributed over the Web. Dell is driving that unbelievably well, but from direct to direct online was only a small change to make.'

What is changing significantly, however, is the nature of the Web-enabled world and the businesses that feed off it. Here, capitalism and the free market is alive and well. And despite the obvious differences with the demonstrators outside the hotel, Arora does have one thing in common with them - a message for the government. Sort out the arguments over encryption standards and do it quickly.

'The worst thing would be to drag it on. Secure transactions are a reality in the US today,' he says. 'Now the only question really is which ones to adopt. Europe had better get onboard. Now.'

EXECUTIVE DECISIONS

Samir Arora

Biography of a founding father

Samir Arora, chairman, chief executive and founder of NetObjects since November 1995, has more than 14 years experience in information design, technology development and marketing, as well as seven years experience as chief executive. Arora invented Solo (structure of linked objects), the software foundation on which NetObjects' products are based.

From 1992 to 1995, Arora was chairman, chief executive and founder of Rae Technology, which pioneered browser-based information navigation applications.

Prior to founding Rae Technology, he worked at Apple, where he held key positions in management, business marketing and application software.

At Apple, Arora worked in emerging technologies for information navigation, media and communications. In 1986, he started working on the concepts of information navigation and browser-based applications, precursors to what are now known as Websites.

Arora holds nine US patents, including eight design patents that were co-invented with Clement Mok, Vic Zauderer, and Susan Kare, and one utility patent that was co-invented with Sal Arora, Raj Lakshminarayan, Greg Brown and Martin Fried-Nielsen.

He attended Insead business school in France, holds a diploma in sales and marketing from the London Business School, and studied electrical and electronic engineering at Bits in India.

Active in music and theatre, Arora has written, directed, produced and participated in more than 30 productions, including Jesus Christ Superstar, Tommy, Kidstuff, Death of an Anarchist, The Day of Atonement, The Wall, The Pinnacle, and The Vulture Stooped Low.

Other personal interests include body therapy, scuba diving, skiing and reading.