It's Saturday night, and the only thing between you and a movie from Blockbuster Video is the unpaid late fee for last week's rental. If that sounds familiar, then you'll appreciate this: next year Blockbuster plans to offer up to 500 movie titles online in more than a dozen major cities around the U.S. That's right, video on demand (not the frustrating no-rewind, no-pause pay-per-view offerings of today) for anyone with a DSL line at home.
What's remarkable is that Blockbuster's partner happens to be an energy company called Enron. At a time when so many old-economy companies seem helpless against the dizzying pace and technology of the digital age, Enron is demonstrating why FORTUNE magazine keeps voting it the most innovative large company in America. For years the Houston-based firm simply produced, transported and marketed natural gas. Then, as energy deregulation threatened profit margins in the gas business, Enron discovered it could make billions by trading and brokering packages of energy the way Midwesterners do pork bellies. Now Enron is moving into the telecommunications business, with a national fiber-optic cable network and a floor bulging with Sun supercomputers.
In fact, Enron may be the most interesting old-economy company around. Since moving its trading operations from the phone to the Web eight months ago, the company has doubled revenues to more than $30 billion. Most of that is made through trading everything from energy and paper to weather risk derivatives and now bandwidth--more than 800 offerings in all. Think of eBay, but instead of auctioning $5 used Baby Gap pajamas, the company trades $600,000 blocks of natural gas--and pockets commensurately huge commissions. Boasts Enron president Jeffrey Skilling: "In terms of dollars transacted, we're the world's largest online site by a factor of 10."
So far this year, that has meant $120 billion in transactions. And when you're running the network, all sorts of profitable opportunities arise. Last week, when word spread that natural-gas prices would spike this winter, Enron's in-house traders saw their gains surge as customers raced to lock in future supplies at today's prices. And Enron's stock price? It hit $90 last week, tripling its value of a year ago. Kind of like an Internet play, only better.
The market loves Enron because Skilling and CEO Kenneth Lay seem to have come up with a business model that works for just about anything. They provide a service to their customers by packaging a supply of name your commodity and then using the efficiency of their vast network to beat most prices. They arrived at this model back in the mid-1980s almost out of desperation, when crude-oil prices had collapsed, natural-gas deregulation had thrown that market into chaos, and the Peruvian government had just nationalized Enron's offshore properties. Figuring they might as well leverage deregulation instead of succumbing to it--call it business judo--Skilling, a McKinsey & Co. consultant at the time, came up with a plan called the Gas Bank, to buy up reserves of natural gas, then package them for sale, with various prices and conditions for different customers. When electricity markets deregulated a few years ago, the company did the same. It's the oldest concept in business: buy low, sell high.