New Economy Lesson #99:
It's Hard to Make Money Online

Repeat Lesson #99: It's Hard to Make Money Online... Remember when online project management was going to "revolutionize" the way buildings were built?   Buzzsaw.com, which was launched by Autodesk in 1999, was (and still is) one of the hot companies in this space.  Yet in July 2001, Autodesk announced that it would bring Buzzsaw back under its wing by acquiring the 60% of the company that it didn't already own for $15 million cash plus assumption of liabilities (versus total venture funding of $90 million).  Buzzsaw's principal services are secure project hosting, CAD document distribution, and online bid management. 

Now part of Autodesk with sales of $1 billion, Buzzsaw must be considered one of the strongest project management players.   According to Buzzsaw, more than 125,000 construction professionals have used its services to collaborate on some 35,000 projects during its first twenty months of operations.  But what really struck me about the repurchase announcement is how difficult it is to translate this digital leadership into significant revenue.  According to Autodesk's latest 10-K filing, in calendar 2000 Buzzsaw had revenues of just $5.4 million with a net loss from operations of $50.9 million.  If you arbitrarily halve the number of projects to, say, 17,500 and assign them to calendar 2000, the revenue per project is roughly $300.  Of course, this is a horribly crude metric.  But it sure doesn't appear that users are paying very much for this digital service.  However, Carol Bartz, CEO of Autodesk, said in her recent earnings conference call to analysts that Buzzsaw will shortly be revenue neutral and will not affect Autodesk's earnings.  Translation: "We're going to reduce Buzzsaw's expenses to match revenues -- quickly." 

Bottom line: documenting the value and efficiency of new online tools remains a big challenge.  Even if you initially offer a system for free (which I believe Buzzsaw does for 30 days), users will incur costs in hardware and training.  So you better have a big war chest to encourage adoption and work closely with new users. ...  Is your company using a web-based project management system?  Send me a story.

--Peter Pike / ppike@pikenet.com