Enron's internet monster

The internet has a lot to answer for at Enron.

It is the reason that so many companies around the world have such a huge exposure to the collapsed energy firm.

Enron's online trading sites
Enron Online
Energy and metals
EnronCredit.com
Credit derivatives
ClickPaper.com
Pulp and Paper
DealBench.com
Financial products

It has also been the driving factor behind Enron's extraordinarily rapid growth over the past few years.

The firm's string of prestigious awards - and the ensuing confidence of investors - have largely been fueled by the company's online success.

That is because Enron managed to create an internet monster that quickly became by far the largest e-commerce web site in the world.

Even Amazon.com may find itself slightly over-awed to learn that Enron has bought and sold products worth a mind-boggling $880bn (£618bn) online in just two years.

Small beginnings

Enron was one step ahead of almost all its energy company peers in transferring its daily trading transactions onto the web.

It all began when a pioneering gas trader decided that it would be much more efficient to buy and sell over the internet rather than through conventional methods - a lesson that many e-commerce sites and online stores have been trying to tell shoppers for years.

The gas trader in question - Louise Kitchen - rallied the support of Enron's best commercial, legal and technical people to work on the project after normal working hours and largely without the knowledge of senior staff.

Jeffrey Skilling - the then head of Enron - is reported to have known almost nothing about the creation of Enron Online until just a couple of weeks before it launched.

But its launch quickly changed not just the firm but markets around the world.

Fee-free - but where's the catch?

On 29 November 1999, Enron Online was born, as "an internet-based global transaction system which allows Enron's customers to view real-time prices from Enron's traders and transact instantly online".

Commodities on offer at Enron Online (selection)
Argentine Natural Gas
Japanese weather
Dutch Aluminium
Spanish electricity
US lumber
Nuclear outage

Two years after its launch, the platform was averaging 6,000 transactions a day worth an average $2.5bn.

2,100 different financial products were on offer to traders, across four continents in 15 different currencies.

The site is offering products as varied as Dutch aluminium, Japanese weather derivatives, US lumber, European plastics and Argentine natural gas.

There is no commission and no subscription fee, an offer which led some analysts to forecast the extinction of traditional brokerages.

Self-promotion

But there was one catch.

Enron made itself the trading partner in every deal.

Most online trading sites work by pairing up buyers and sellers out of a whole range of companies.

But Enron Online worked by matching its own self with every potential buyer or seller.

And so Enron's power and influence in markets around the world grew to ever dizzier heights.

"With the power of the Internet, we believe the potential for extending our business model to new markets is limitless," said Jeffrey Skilling, the then chief executive of Enron, as he announced in May that the site had completed one million transactions.

And it certainly seemed like it at the time, as the firm continued to lead the way into new commodity markets around the world.

Financial secrets

There may also have been another catch.

The scale of Enron's internet activities did not exclude it from the bugbear of the dot.com world - making money.

Analysts and journalists alike pressed Enron for indications of whether its online trading system was profitable.

But that's a secret that Enron chose not to disclose.

And the gaping, mysterious hole that has appeared in Enron's profit sheet over the last few years would suggest that it wasn't exactly a money-spinner.

Dot.com disaster

Enron's pioneering internet trading platform saw it win the Financial Times' "Boldest Successful Investment Decision" award and gain the top ranking in Smart Business's list of companies that have successfully embraced the internet.

But the monstrous e-commerce site is now reduced to a shell of its former self.

No new trades are being accepted and the site has been reduced to a mass of traders scrabbling to try and cancel out their existing deals.

Suddenly the potentially largest corporate collapse in US history sounds like just another dot.com disaster.