Ventro pulls the plug on Chemdex, Promedix online B2B units
With no clear path to profitability for Chemdex and Promedix, Ventro's directors decided to close down the two operations in the best interests of their stockholders. Layoffs will begin on December 31, 2000; by March 31, 2001, Chemdex and Promedix will be no more. Ventro hopes to save 50% of its operating expenses by trimming the two divisions.
With Chemdex as their flagship, B2B community Chemdex/Ventro at one point enjoyed a market capitalization approaching $10 billion; in late February their stock was trading at $243 per share. Today, Ventro's capitalization is around $92 million—less than 1% of its all-time high—and its stock trades at $2.
What went wrong? Personally, I never liked their name, which implied something to do with the chemical industry. The firm's specialty was, in fact, brokering online sales of supplies and equipment to life science organizations.
On paper, Chemdex looked awfully exciting just a few months ago. It boasted a talented, hard-working staff and Wall St.'s nearly unwavering attention. In fact, at one time many analysts viewed Chemdex as a serious competitor to VerticalNet, although I did not agree with this assessment. Chemdex's abrupt disappearance hardly supports the notion that they were at any point poised to conquer the world of online B2B exchanges.
Among Internet business sites, the three buzzwords have been content, commerce, and community. A strain to alliterate, perhaps, when you realize that "community" depends to some extent on features (content and commerce). Otherwise why would anyone visit the site? Chemdex found it difficult to develop community because it offered no significant information or otherwise usable content. Its site was all business, all the time.
What Chemdex and its investors failed to realize was that the company was jumping headlong into a mature business that already had established supply lines. Biologists and chemists working in the pharmaceutical industry, for example, are already accustomed to getting reagents and supplies in a day or so. Pricing for essential reagents and equipment is of secondary importance at firms where delays in launching a new product are measured in millions of dollars per day.
For commodity and repeat purchases just the opposite is true. Price is king, but so are customer relationships developed over months or years. Perhaps I'm being too hard on Chemdex and not understanding what they were all about. Their business model, which seemed sound, was after all rewarded with a sky-high valuation, although that was not uncommon among online B2B enterprises.
At some point, every company's valuation catches up with its profitability, or lack thereof, and so it was with Chemdex. Karen Greer, Ventro's VP of marketing, summed it up on December 6 at the Ground Zero B2B conference in Los Angeles (as quoted by Adam Feuerstein in Upside Today): "The bottom line is that Chemdex and Promedix did not reach liquidity at a rate acceptable to us, and if we can't garner the liquidity, we're going to get out."
By Angelo DePalma
Managing Editor, Pharmaceutical Online and Drug Discovery Online
adepalma@vertical.net