The Fate of Dot Com Spinoffs

It’s a theorem from dotcom history: That which a retailer spins off must eventually return to the parent company or crumble from its own lack of success. That was one of Marco Iansiti’s principal findings when he studied 30 national brick-and-mortar retailers that launched online ventures. Iansiti, a Harvard Business School professor (and an expert consulted for the CIO-100 issue), together with PhD student George Westerman, conducted the study for five years and saw that 21 of the retailers eventually reintegrated those ventures back into the company, and the other nine shut down.

“If you’re a big business, the only way you’re going to do anything material to your bottom line is to do something integrated. A startup takes a long time to grow,” Iansiti says.

And who had time to wait during the Internet boom? Take two examples from the study, CVS and Walgreens. Iansiti says CVS got into e-commerce early by acquiring a company and keeping it separate. It operated that way for quite a while, and in the early days had good success in wrapping up traffic, he says. Eventually though, CVS ended up changing course and integrating its online venture with headquarters.

Walgreens designed its online efforts to work with existing business processes and was able to coordinate in-store promotions with online sales events. “Those synergies are crucial,” Iansiti says.

The lesson? Structure e-commerce spinoffs “so you can integrate with existing systems because that’s [eventually] what will happen,” he says.