April 19, 1999 7:35 PM PDT

E-commerce comes home

A new generation of e-commerce start-ups is moving beyond commodity retail goods to capitalize on the home market.

Emblematic of the trend is Sears' new PartsDirect site, which contains a catalog of 4.2 million parts for appliances and other home products that were previously available only through a toll-free number. Sears has also said it plans to make appliances available on its Web site by mid-year.

"We would expect to see a lot of activity in the home and shelter category," said Ken Cassar, e-commerce analyst at Jupiter Communications. Out in front are sites like Cooking.com and Garden.com.

Many commodity products such as books, music, videos, and software have already been targeted by successful e-commerce companies, including Amazon.com, CDnow, and Reel.com. Now venture capitalists are looking for less exploited markets--and so is Amazon, which recently invested in Pets.com. The goods and services market for pets alone was worth $23 billion last year, according to the Pet Industry Joint Advisory Council.

The home category will boom online, says Forrester Research. The market research firm expects online sales of appliances and household goods to grow from $100 million last year to $437 million this year, and $5.7 billion by 2003, when it will account for about 7 percent of consumer purchases online.

Home repair is seeing plenty of online activity, said Neil Weintraut, general partner 21st Century Internet Venture Partners. Home Depot is ramping up for an online launch in the second half of this year, and start-ups including ToolSource.com, which calls itself "the best place to shop, talk, and swap tools."

Beyond the do-it-yourself category, there's the realty business, a category that International Data Corporation analyst Barry Parr thinks has lagged expectations.

"Maybe it's hampered by the iron grip of the MLS (multiple listing service)," said Parr, referring to the home listing service controlled by local realtors.

But Realtor.com, which lets would-be home buyers and sellers find listings, real estate agencies, and information about specific neighborhoods, has been developed in cooperation with the National Association of Realtors. It's also funded by top-tier VC Kleiner Perkins Caufield & Byers.

To fill up that home, Benchmark Capital, Softbank Technology Ventures, and Sandler Capital Management have funded Art.com, which bills itself as "the Web's largest collection of framed and unframed art."

Since people cannot live by art alone, Hummer Winblad Ventures and Kleiner Perkins have funded HomeGrocer.com, an online grocery store that competes with Peapod and others.

But analyst Parr doubts the new generation of e-commerce start-ups will shake up industry dynamics in the way Amazon did. Sears, Home Depot, and others have made more aggressive Internet plans than Amazon's rivals in the book business did--at least in the beginning.

In many home improvement niches served by mail-order businesses, the Internet doesn't represent a great change. "Look at Garden.com--how different is it from traditional seed catalogs?" he asked. "There are some differences, but it's a business that has been pretty well served by a group of direct merchants."

Online retailers won't sneak up on established players the way Amazon did on major book retailers, VC Weintraut suggested. "The entrenched players saw what it's like to be Amazoned in the first wave," he said. "In the second wave, they're taking action."

For the second generation of e-commerce start-ups, growth won't be as fast as it was for books, music, and videos, predicted Julie Wainwright, chief executive of Pets.com and former CEO of Reel.com.

"The dynamics have changed. There are probably six or seven companies [in the pet market] getting financed by VCs, and the seed rounds are much, much bigger than the usual seed round," she added. "The rules have changed. The e-commerce opportunities are about branding and getting big quickly, and you need strategic people who can move you forward quickly."

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