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Dialog Extends Its E-Commerce Strategy with Acquisition of Write Works Ltd.
by
Posted On November 30, 1998
On November 19, The Dialog Corporation announced the acquisition of Write Works Ltd., a U.K. company that sells business-to-business e-commerce procurement solutions. Dialog will pay up to $10.8 million for 100 percent of the share capital of the small Oxford company. The acquisition consists of $1.7 million in cash and approximately $2.6 million by the issue of 694,025 Dialog ordinary shares (valued at approximately $3.76 per share). A further payment of up to a maximum of $6.5 million in cash and shares ($4.8 million in cash and $1.7 million in shares) will be made based on the achievement by Write Works of earnings targets over the next two years. A company representative would not discuss the targets but did say that it would be "sufficiently challenging."

Write Works Ltd. offers an online purchasing and management control system for businesses called OfficeShopper (take a "test drive" at http://www.officeshopper.com), which features office supply products such as printer cartridges, paper, office equipment, furniture, etc. Write Works became a limited company in January 1998 and reportedly has developed a current client base of over 100 corporations, which enabled Write Works to triple monthly sales between January and September 1998, with annualized sales in excess of $1.7 million. According to the company, Write Works currently has 86 suppliers and access to over 100 warehouses, supplying 150,000 products, with a two-hour delivery in major cities in the U.K.

The three current directors of Write Works and a staff of six will join Dialog as part its e-commerce division (but remain in their Oxford location), headed by André Brown, Dialog's director of e-commerce and special projects. Under the terms of the agreement, Write Works' existing technology will be branded as Dialog OfficeShopper, offering corporations an end-to-end e-commerce corporate procurement system. A launch is planned for the International Online show in London in early December. The first version of the product will mainly offer interface and design improvements, making it "look like a Dialog product," and making it friendly and easy to use.

Brown currently heads Dialog's Planet Retail initiative, which was announced last summer and represented Dialog's "stake in the ground" for e-commerce, according to Brown. Planet Retail (http://www.planetretail.com) is a Web-based comparative shopping service for consumers. At that time, Dialog also unveiled its plans for targeting the business-to-business e-commerce market (Information Today, September 1998, pp. 22-23). The purchase of Write Works will now give Dialog the crucial technology to build upon that effort.

According to Brown, the purchase of Write Works OfficeShopper brings three important elements to Dialog, resulting in a "plug-and-play solution." It offers the technology needed both for the procurement and back-end processing needed for version 2 of Planet Retail and for the OfficeShopper initiative. Second, leading suppliers are already integrated into the system, while other technological solutions they looked at lacked this. And third, it provides an existing client base.

Dan Wagner, chief executive of The Dialog Corporation, said: "In our analysis of the marketplace for e-commerce solutions, Write Works was the only company that came close to what we had planned for our business-to-business solution. We look to roll out this innovative service offering to our global client base of over 20,000 corporate customers who are perfectly positioned for this type of business-to-business solution and are delighted that we have been able to make such considerable progress so quickly."

Version 2 of Dialog OfficeShopper is expected to debut in the first quarter of 1999. According to Brown, it will implement Dialog's searching and indexing capabilities, and possibly also use its Muscat natural language search engine. Version 2 of Planet Retail, also expected in Q1 1999, will be based on the Write Works technology to provide the integrated shopping cart capability and direct purchasing. At this early stage following the acquisition, the company is still discussing other possibilities for the two e-commerce services, such as linking to articles in Dialog databases within Planet Retail, and various plans for consumer versus business-to-business offerings. According to a company representative, the e-commerce team's immediate priority is integrating and developing OfficeShopper.

Some observers are questioning Dialog's move away from its core business of selling bytes rather than tangible products. One searcher commented, "Where are the synergies in this?" Another chuckled at the thought of Dialog selling corporate flower services and office catering products. However, the company management sees this as a logical extension of Dialog's existing paradigm for doing business. Brown noted that Dialog's business model has been aggregation, and now it will be working with suppliers offering tangible products and services, in addition to publishers and database producers with information products. Dialog's corporate customers are used to doing aggregated searching, ordering, and purchasing online, and this will offer them a ready-made procurement system with control and cost savings.

A company spokesperson also stressed that "while we do now have another ground-breaking product to deliver to our corporate customer base, this will not detract from core activities. The people working on this project have either come from the Write Works acquisition, will be hired in at a later stage, or already work in the e-commerce and special projects group anyway, which concentrates on non-core activities." Brown said he expects the operation in the U.K. to comprise about 20 people, with additional staff as the service expands into the European and U.S. markets.

The Numbers and the Media

On the same day of the acquisition announcement, Dialog also announced its third quarter 1998 financial and operating results. It reported that third quarter profit before tax

(after interest expense) increased 49 percent to $4.4 million compared to $3.0 million in pro forma third quarter 1997. The annualized cost savings of $47.8 million continued through the third quarter, and year-to-date revenues are reported to be $223.9 million. However, the company warned investors that its fourth quarter revenues would likely not meet market forecasts. So, despite the positive-looking numbers on the press release, the market responded to the fourth quarter outlook and the company's stock price dropped that same day more than 40 percent, reaching a new 52-week low.

Coverage in the London Financial Times was quite negative, focusing on the drop in shares, and even quoting Dan Wagner admitting that Dialog was now in "the horrible position" of "looking like an easy takeover target." Another commentator for FT chided Dialog for not issuing a profit warning earlier and for mismanaging the acquisition of Dialog from Knight-Ridder, and then boldly reported a nickname for the down-valued company: "Dial-a-dog."

Whew! It's a dog-eat-dog world out there ?


Paula J. Hane is a freelance writer and editor covering the library and information industries. She was formerly Information Today, Inc.’s news bureau chief and editor of NewsBreaks.


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