Enron’s Brilliant E-Commerce Vision

Even amid the ruins of energy giant Enron, EnronOnline was a still-shining jewel.

The Web-based network set up by the Houston, Texas-based energy giant for trading electricity, natural gas and a host of other commodities helped Enron gain star status from Internet-savvy analysts during the company’s ill-fated bull run.

And earlier this year, the network was the first asset sold in Enron’s bankruptcy proceedings, with three bidders chasing after it.

Strong Medicine

It is easy to see why demand for Enron’s e-commerce assets remained strong. EnronOnline launched in late October 1999. By the end of March 2000, the network had exceeded Enron’s projections for the entire calendar year.

By June 2000, US$50 billion worth of commodities — ranging from metals and petroleum products to emissions allowances and weather futures — had been traded through EnronOnline.

In May 2001, Enron announced it had completed its one-millionth transaction through the network. And by late summer, just before the company’s collapse, it was said to be responsible for nearly one-quarter of daily energy trades in the United States.

Fire Sale

“It was the leading energy trading platform by far, which made it very attractive for us,” UBS Warburg spokesperson Jennifer Walker told the E-Commerce Times. In the bankruptcy court auction earlier this year, UBS outbid two fellow suitors for licensing rights to the EnronOnline platform.

“We recognized that Enron had created something of value,” Walker said. In addition to buying Enron’s online trading platform, Warburg hired several hundred former EnronOnline employees, including Walker.

Since making the purchase, New York-based UBS Warburg has relaunched its own site based on the EnronOnline model, although so far it has traded only North American gas and electricity.

“It’s a little early to speculate on whether we might expand into some of the other areas that Enron had ventured into,” Walker said.

What If?

Even if Warburg does pick up where EnronOnline left off, analysts said it is impossible to know how much of its potential, real or imagined, Enrons Web effort might have achieved.

But Enron certainly was ambitious in its approach to the Web.

Before it folded, the energy giant attempted to create online markets for trading high-speed Internet bandwidth and data storage capacity. Enron also forged partnerships with AOL and IBM to market retail electric power sales.

In addition, the company partnered with Blockbuster on a 20-year plan to deliver movie downloads over its high-speed network. At the time, Enron CEO Kenneth Lay called the plan the “killer app” of the Internet.

Too Much, Too Soon

But like many other companies, Enron also may have overestimated the value of the Web, according to experts.

In fact, some of the energy giant’s online efforts had already started to sputter when it went down.

The company tried without success to make an online market for paper trading, and its storage and bandwidth trading efforts also fell well short of expectations.

Initiatives on the drawing board at the time of the company’s collapse included Internet trading hubs, as well as seemingly ethereal commodities like airport landing rights and railroad hauling capacity.

Legacy Lives

Still, even after its demise, Enron has had a major impact on Internet trading hubs.

One firm that previously struggled to attain No. 2 status in the energy trading space — Atlanta, Georgia-based IntercontinentalExchange — has started to talk about an IPO after seeing a surge of new business since Enron’s collapse.

And Enron’s model, in which the company essentially served as a third party that backed every trade with a money-back guarantee — likely will live on as well, according to Forrester Research analyst James Walker.

In a report, Forrester’s Walker explained the somewhat ironic reason for Enron’s success in this way: “Enron exploded online by managing risk better than others.”

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