Intershop looks homeward to Europe

For Intershop Communications AG, there's no place like home. The electronic commerce software maker is renewing its concentration on the European market, after plans to take the U.S. by storm have failed to come to fruition.

Founded in the eastern German city of Jena in 1992, Intershop once represented the bright economic hopes that the formerly Communist region pinned on the New Economy. The company, whose board of directors is headed by longtime Compaq Computer Corp. Chief Executive Officer Eckhard Pfeiffer, moved senior management to San Francisco in 1996, hoping to keep a finger on the pulse of Silicon Valley trends.

But facing a plummeting stock price, the German concern has slashed its U.S. staff; it now maintains 130 workers there, down from 260. "We have reduced the size of the team in the U.S. a little bit due to the changing environment there. We have concentrated some of our corporate functions in Europe, because 70 percent of our business is in Europe, and in the current economic environment in Europe. I think it makes sense to concentrate on your strength," said Intershop co-founder and Chief Operating Officer Wilfried Beeck in an interview.

Intershop offers a line of e-commerce software packages, including its flagship Enfinity product; Intershop 4, aimed at ISPs (Internet service providers); and a set of industry-specific packages aimed at the automotive, consumer goods, high technology and retail sectors.

The company blamed poor North American sales in part for losses that more than doubled in 2000, to 38.9 million euros (US$34.4 million), and cut earnings forecasts after a number of important U.S. contracts, including one with Motorola Inc., collapsed.

Andrew Parker, a senior analyst at Forrester Research BV in Amsterdam, called Intershop's European sales "stable and small." The e-commerce software market has failed to explode on the continent as some had hoped, he said.

"I think it's very true to say we never had the sort of dot-com mania that existed in the Western U.S. in particular up until about a year ago," he said. "There was a small trend in that direction, but Germany was probably better insulated against it than most large Western economies. The problem that I think Intershop faces in the German market is that a lot of the large companies like to develop their own software."

Beeck said the company still has its sights on expanding across the Atlantic. "We're still there, (Chief Executive Officer Stefan Schambach) is still there, I'm spending half of my time in Silicon Valley, and we're not changing that. We have all our trend scouts there, we're developing the definitions for future products in Silicon Valley, so none of that has changed."

But Intershop is maintaining the bulk of its development team, some 500 people, in Jena, in part in order to avoid the rapid employee turnover that has plagued Silicon Valley companies, said Beeck.

"I think (Jena) is an excellent choice for us, not only because the company was founded there, but also because we have five top technical universities around us. We have a pool of talent that you hardly find anywhere else, and so we have a consistency there... All the developers who started with us five to six years ago are still there."

"I don't see any particular reason why that shouldn't fly," said Parker, "Although maybe in due course they might feel it's worthwhile for them to do quite a lot of their software development in somewhat cheaper environments like India and some of the former Iron Curtain countries, where costs are somewhat lower."

Beeck said the company is trying to conserve cash at present, but that over the long term the U.S. market is vital for an aspiring "global player."

"These are difficult times, but these are also times of great opportunity. I think we feel very comfortable in our situation that we don't have such a high exposure in the U.S. in this weakening economy there. But of course the economy in the U.S. will come back, and we want to be ready when it does."

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