Cheesesteaks, Tastykakes and … Information Technology?

When most people think about the nation’s hot sites for information technology—IT, also known as The Future—the Greater Philadelphia area does not come to mind. Yet there is a surprising amount of IT activity in the region, and Paul Morin W’91 WG’98 wants people to know about it.Which is why, last year, he wrote The Greater Philadelphia IT Report: Creating Wealth and Opportunity in the Region

“The objective was to understand how and to what extent IT companies in this region were creating wealth,” said Morin, a principal of the Philadelphia-based Vector Strategic Management Group, which provides “strategic advisory services” for corporations. In addition, he noted in an e-mail interview, the Wharton Entrepreneurial Programs were “eager to reach out into the IT entrepreneurial community and let key players know that Wharton is interested in the region.” Working closely with Morin on the project was Mark Fraga, Wharton Entrepreneurial Programs’ managing director.

The report, sponsored by Bank of America and Wharton’s Sol C. Snider Entrepreneurial Research Center, employed a database of 165 key regional IT companies —a sample that focused on companies with quantifiable track records, and one that did not purport to represent the entire IT population. (The region’s Eastern Technology Council has more than 800 “tech-company” members.) It also made use of extensive interviews with 70 regional IT CEOs, senior managers, venture capitalists and service providers.

One of the reasons the region’s IT sector is relatively unknown, Morin pointed out, is that it contains “very few ‘B2C’ [Business-to-Consumer] IT companies,” such as Amazon .com or Yahoo! (A notable exception is Comcast Corporation.) What it does have is a “wealth of B2B [Business-to-Business] IT/e-commerce companies that most people have never heard of. Fortunately, since the report was published (though we can’t take credit for it), B2B has become very fashionable (and fruitful).” A case in point is VerticalNet, based in Horsham, Pa., whose recent $100 million investment from Microsoft confirmed its status as one of the nation’s premier B2B companies. (Its “industrial trading communities” include such unfashionable sites as Solid Waste Online and Bakery Online.)

“VerticalNet is the most extraordinary example in this sample—a company that, with just $3.1 million in 1998 revenues, has managed to reach a market capitalization of $1.3 billion,” says Morin. “Clearly, the market is expecting great things from this company.”

VerticalNet, incidentally, is one of the companies financed by the wildly successful Internet Capital Group Inc. (ICG), a suburban-Philadelphia-based Internet-holding company and venture-capital fund whose roster reads like a page out of the Gazette. The list includes Dr. Thomas P. Gerrity, former dean of the Wharton School and current head of the Wharton Forum on Electronic Commerce [“Gazetteer,” March/April] (director); Douglas A. Alexander W’83 EE’88 (managing director); Julian A. Brodsky W’56 (director, also a founder of Comcast); Robert A. Fox C’52 (father of ICG co-founder and director Kenneth A. Fox); Mark J. Lotke W’90 (managing director of acquisitions); John A. McKinley Jr. W’79 (advisory-board member); Henry A. Nassau G’76 W’76 (managing director, general counsel and secretary); and Robert A. Pollan W’82 EE’82 (managing director of operations). After its initial public offering last August brought in $179 million, ICG went public again in December to the tune of $1.26 billion. Its market-capitalization was valued at $37 billion in March. It recently joined forces with the Hong Kong-based Hutchison Whampoa Ltd. to launch two B2B businesses in Asia.

“Internet Capital Group and the extraordinary growth in its market capitalization is just the shot in the arm that the region needed,” says Morin. “It highlights the strength of the region in the B2B sector and, by example, proves that companies in this region can be major players in B2B—which by most estimates is a much larger opportunity than B2C.” 

While the Philadelphia region is “replete with wealthy individuals and angel investors,” says Morin, “most of these individuals did not make their money in IT and typically don’t understand it very well”—which makes them “less likely to cut checks for IT deals.” But, he adds, that is “changing rapidly, as “many more individuals are making significant fortunes in IT in this region,” and are then “turning around and investing a portion of their wealth in seeding the great IT companies of tomorrow.”

Morin describes the feedback on his report as “very positive,” adding that “about 100 business leaders showed up to the release of the study, which helped to begin a healthy dialogue about the strengths and weaknesses of the region as they relate to IT.” In addition, he said, “many IT companies are using the study to help them recruit IT talent from outside the region. Many talented employees want to understand the size and level of activity in the IT sector in the region before moving from their current (typically very lucrative) positions.

“The key implication is that Wharton students should not automatically head for the hills when they go looking for the next best entrepreneurial IT opportunity,” he concludes. “There are a great many tremendous opportunities right here in Greater Philadelphia. This region has so many advantages over many other IT ‘hot spots,’ not the least of which is cost of living. Many of the now-successful IT entrepreneurs who are on to their second or third IT company in this region are in great need of managerial (and other) talent, much of which can be provided by graduating Wharton/Penn students.”

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