Rightly or wrongly, good environment and good business are often thought to be at odds. But four Internet sites that plan to launch on or around Earth Day, with the aim of garnering mainstream attention for their traditionally niche market, are out to prove that the two concepts can indeed coexist. And at least a few of them are hoping they can ride the green wave all the way to the IPO market.
"We're on that trajectory," declared Mona Lisa Wallace, a former environmental lawyer and now chief executive of ShopEco.com, a business-to-business site that connects businesses wanting to buy environmentally friendly office products - such as biodegradable tape or staples recycled from aluminum cans - with the manufacturers that make those products.
The other three sites launching lean more toward the business-to-consumer space. E-tailer Green Home sells household products, like toxin-free cleaning supplies and clothing manufactured from organically grown cotton and hemp, while WholePeople.com, a spinoff of natural nutrition retailer Whole Foods, is bidding to become a one-stop eco-shop, offering environmentally friendly housewares, organic foods, and eco-travel. (Helping the latter's cause, Oak Investment Partners, Invesco, and three other venture capital firms last March teamed up to provide the company with $35 million in financing.)
Perhaps also slated for some serious financing is Verde, which is owned by Ted Turner's son-in-law, Peek Garlington. That site will provide eco-content as well as products.
While conventional wisdom might have it that these companies are turning new soil, a slew of environmentally minded companies, some purely online and others clicks-and bricks, have already planted their seeds in the online eco-space. Real Goods Trading Corp. (NNM:RGTC), Organic Food Products Inc., (NNM:OFPI) and Wild Oats Markets (NNM:OATS), as well as privately held GreenMarketplace.com and Seventh Generation, also represent a few of the dozens of companies selling green goods.
But as a group, these soon-to-be-public companies offer some real appeal to investors: positive margins, low customer acquisition costs, and consumers that visit the site for more than just comparison shopping. "Take away the fuzzy, feel good stuff, and you'll find that we've found a way to target the audience inexpensively and produce a rock-solid corporate business model," says Josh Knauer, the CEO at one-year-old GreenMarketplace. In 1991, Knauer founded the Envirolink Network, regarded as the Yahoo! of environmental portals.
By the very nature of their business, environmental product retailers have advantages that the Buy.com's and CDNow's of the world can only dream of. The environmental community is a tight-knit one, where word of mouth really does have an impact. Couple that fact with the numerous partnerships and co-branding arrangements that these companies have entered into with some of the world's biggest non-profit organizations, and it becomes clear that eco-tailers have tapped into a huge market opportunity with minimal spending. The top 10 environmental organizations, Knauer notes, have more than 20 million members.
To be sure, those millions of customers make a hefty market opportunity, but are still dwarfed by the tens or hundreds of millions that online department stores are targeting. The difference, however, is customer loyalty and site stickiness.
"These are not the kinds of people that use the Net to go price comparison shopping," Knauer says. For example, when the average customer wants to buy a sweater or a CD, he or she might visit a dozen sites. But when a green shopper wants an organic shirt or recyclable garbage bags, he will restrict surfing to the sites he knows.
"Seventy to eighty percent of our customers shop with us because they want products that have been edited from the larger mainstream world," says Mark Sweedlund, president of Real Goods, a company originally founded in 1978 that does business today not only through its traditionally established retail and catalog channels but also through its own e-commerce site.
And the way Real Goods and its competitors keep customers coming back is by aiming for the "double-bottom line," a business philosophy made famous in eco-circles by ice cream success story Ben and Jerry's Homemade Inc. (NNM:BJICA). In essence, the philosophy calls for companies to run a socially and environmentally responsible business, while making a profit at the same time.
Although the costs in labor and material may be higher than those of other companies, there are certainly millions of customers willing to have those costs passed on to them if they believe they are doing something good for the planet. And according to some studies, roughly 100 million American consumers, to greater or lesser degrees, want to buy products that are environmentally friendly and that have corresponding health benefits.
Also, some products, such as energy-saving light bulbs, do offer savings in the long run. To boot, economic prosperity has given consumers more cash to spend on these often pricier goods, while the Internet and better organized nonprofit organizations have managed to make more people aware of environmental and health issues.
"People think of an eco-site as being in a niche market," says Deborah Ellman, a GreenMarketplace spokeswoman. "But it's becoming more mainstream as many of our customers are coming to us for health reasons."
That kind of market opportunity has spawned a fierce competitive spirit among the different players, which analysts like to see. Despite the smart business sense that some eco-companies have shown, investors have largely ignored them. For example, Seventh Generation, despite 20% growth for four consecutive years, went private in January after nearly 11 years as a public company.
"Investors felt we were too small from a market capitalization standpoint, and we couldn't get any analyst coverage," says Seventh Generation CEO Jeffrey Hollander. "The benefits of being public didn't seem to be there, and we wanted to protect our shareholders."