Delta's Web Strategy Takes Flight

They call it "the Pit." And really, it is one. Windowless and fluorescent cold, the office at the Atlanta headquarters of Delta Air Lines Inc. has the raw charm of a room that's been assembled on the fly. The furnishings include an assortment of cast-offs from other departments. A Nerf-basketball hoop is taped to one of the walls.

In other words, the Delta office looks like that of a dotcom. And it's filled with dotcom-er look-alikes -- seven smart, young executives who have spent the past 10 months pulling 6-day weeks of 14-hour days. These are the people who make up the e-Ventures team, the shock troops behind the airline's bid to make itself an e-commerce force. Playing the roles of investment banker, venture capitalist, and management consultant, the e-Ventures crew has sealed 14 partnerships with Internet companies that promise to whisk Delta into the world of the Web.

Until recently, Delta's reputation in tech circles has been less than sterling. But the company has engineered a potentially powerful model for old-line organizations that are venturing onto the Net. There is no "delta.com" here, no spin-off that has been kept insulated from the parent. The airline's e-commerce strategy and operations stay in-house and at the core of the business. At the same time, Delta has used its partnerships as a way to speed implementation -- to merge technological nimbleness with the company's power and reach.

The big idea: Big companies bring big-time credentials to the e-commerce table. They also bring in brand clout and established systems that work. What big companies don't do so well is move quickly. But they can import speed and e-commerce savvy by arranging smart, flexible partnerships that serve both sides well. "It's about focusing on the core business but still bringing in new ideas. That's what makes Delta's model special," says high-level technology consultant Charles Feld, 58, who served as Delta's interim CIO for two years, until December 1999.

Ultimately, Delta hopes that its partners will help reorder how the company does business. Delta wants the whole company to be more like its people in the Pit. "The big question is, how does this technology become part of our everyday work?" says Vincent Caminiti, 56, Delta's senior VP for sales and distribution. "We are striving to understand that everything we do involves an e-commerce opportunity."

E-Ventures, E-Nablers, and E-Commerce

Delta is a company that is sorely in need of an edge. Although its operations and profits have improved sharply in the three years since Leo Mullin took charge as chief executive, the company remains more vulnerable than most carriers are to low-priced rivals. Fiscal-year earnings that ended on June 30 at just more than $1 billion were about flat from the year before, and Delta's stock remains sluggish, much like that of other airlines.

E-commerce won't influence these numbers right away. But over time, Delta's partnerships and the ventures that result from them could help build new sources of revenue and could cut operating costs dramatically. And better, more accessible information could strengthen customer loyalty.

By taking an equity stake in every one of its partners, Delta could also participate in the financial upside that is associated with the dotcom sector. Exhibit A, the mother of all partnerships: Delta's famously prescient deal with priceline.com Inc. In 1998, Delta agreed to contribute a steady supply of unsold seats to the then-fledgling venture. In return, the airline took a 10% interest in priceline. Over the past two years, Delta has sold part of that stake for an equity gain of $784 million. Its remaining shares are worth approximately half a billion dollars.

Ed West, 34, Delta's executive VP and CFO, was a member of the team that engineered the priceline partnership. Although he is as straightlaced as any big-time CFO, he is where he is in part because he saw the promise of e-commerce for Delta early on and then pressed others at the airline to embrace that opportunity.

West is honest enough to admit that no one, including himself, imagined that Delta would reap anything close to the investment gains that it has made from that priceline transaction. He also admits that Delta didn't fully grasp the long-term strategic implications of the priceline deal until the company was well into negotiations. "At first we thought that priceline would provide us with a way to go after customers who would not have flown at all," he says. "We thought that we could raise our overall traffic and distribute our product more efficiently. But over time, we figured out that we could do with other companies what we had done with priceline. We started thinking about all of the opportunities that we could go after and about how we could structure ourselves to pursue them."