Of all the companies that lost a ton of money trying to create stand-alone subsidiaries to build an Internet presence, hardly any lost more than Citigroup, the parent of Citibank, Salomon Smith Barney, and Travelers Insurance. But by last year, after the company had taken a hit of over $1 billion, managers from the old Travelers Corp., which had taken control of Citicorp after the two merged, insisted that the bleeding stop. Citi reined in its 1,600-worker e-Citi unit, closed the online bank e-Citi had set up to compete with Citibank itself, and handed Web operations over to the company's five big operating businesses: consumer, asset management, corporate, insurance, and private banking.
What's left of e-Citi? About 100 people who implement Web plans cooked up by the core businesses. (Most of the rest of the old e-Citi staff now work in the operating businesses.) Citi's Web efforts ultimately are in the hands of Vice-Chairman Deryck C. Maughan, CEO of Citi's Internet Operating Group, which coordinates Citigroup's online businesses to make sure they share new technology and use Citi's branding consistently. Citi now has 10 million customers who use one of its 38 U.S. Web sites to manage accounts or buy services. Maughan sat down with BusinessWeek e.biz editor Timothy J. Mullaney. Edited excerpts from their talk follow:
Q: Of the Citigroup-wide Internet push, in terms of how much money and effort you spent, how much of that was Citibank and how much other businesses?
A: I don't think there's a good answer to that, honestly. It's not the way we organize or report things. Citibank is a part of our larger global consumer-services group. Even the question of how much we spend on the Internet is hard to answer, because some Internet activities are fully integrated with what we do. We have an estimate for the e-Consumer [unit that] is running about $225 million, $250 million a year. At the beginning of last year, we had something called e-Citi. E-Citi was on a run rate forecast to spend for the 2000 calendar year about $500 million to $550 million.... The spend of e-Consumer and e-Citi this year will be about $250 million combined. We're spending half the money we did and getting twice the results.
Q: You came into the year in 2000 with a clear short-term business plan, including how much you're prepared to lose. Along the way, you decide it has to be half that. What prompted the change?
A: It's fair to say that at the beginning of 2000, people were dreaming you could take e-Citi or parts of e-Citi public. That we could issue a tracking stock that would somehow capture the bubble valuations. But I will be honest with you: I looked very carefully at -- not their inputs, which were quite strong -- but at their outputs. I said, "How many customers does this entity have? What revenues does it have? What are its projected growth rates? When could it make a profit?" Because I'm afraid we're of the old school here. And the answer was, not in our lifetime.
So before the bubble burst, we said no. The idea, for example, of building a pure online bank to compete with Wingspan or to compete with Citibank, I didn't find that credible. And so we merged the best features of Citi f/I, which was the pure online bank, with something called Direct Access, which was Citibank's proprietary bank site. Merged the two and created Citibank Online.... We did the same with brokerage. They were trying to build a pure online brokerage -- another Ameritrade or something. And we said, well, we have a major brokerage called Salomon Smith Barney.
Q: You exited your investments in startups. What were those?
A: Finance.com, which was supposed to be an agnostic site. It wasn't obviously Citibank. It was going to pull content from various financial service providers.... And they thought through advertising, and then maybe through subscriptions, they could attract an audience. We were going to be a bank to a professional sports site. It was all of these things. We said, you know, that's not our main business. I'll sell it to venture capitalists for nothing.
The theory had been that we needed to invest in startups so we had access to the latest technologies -- that was one of the theories. People who were doing this in e-Citi said they would get a strategic benefit, meaning we got a first look at some whiz-bang wireless or other technology. And I said, you know, it's funny: I've got 100 people knocking on my door every week [to show me technology].... E-Citi was partly people trying to start pure, online financial-services companies. The other half was trying to invest our money, because they thought we needed the technology. And I said, I'll just buy direct. We don't have to invest. The companies that approached e-Citi would say, "You're a group of smart technology people, but could I talk to the person who has the customers please?" And so e-Citi was just a step toward talking to the person who runs global credit cards or global brokerage or insurance. That's who they were trying to get to.
Q: Now, is it up to the business units to set Web policy or the Internet Operating Group?
A: The Internet Operating Group is a policy-setting, strategy-reviewing group. And that means the heads of our businesses -- consumer, corporate, insurance, asset management, and private banking -- sit at a table with me every two weeks. We talk about how things are going against the objectives we gave the board a year ago. How are we doing on the customer-acquisition, revenue, spending targets we set ourselves? Oh, and here's a speaker from outside who has something interesting to say. I view it as a cooperative exercise across the businesses where they can leverage each others' knowledge and agree on common standards. And where, occasionally, you know, the slow learner is encouraged to do more.
Q: But as far as what happens when a specific thing is done to a specific Web site...
A: That's in the business. There are essentially two families of brands. One is Citibank and Citi -- they go together. The other is Citigroup, which we apply to the institutional business. The first goes with consumer business. And we're beginning to regroup our sites around these brands, By the end of the year, hopefully sooner, we'll have a common brand architecture for the Internet. Every front page will have a blue wave across the top. It will have a red umbrella. There'll be a common look, hopefully a common feel to the site. We're trying to pull the thing together and make it more coherent. We'll get down to four or five major portals, targeted to different customer segments.
Q: And those will be?
A: Well, Citi.com, Citigroup.com, and some of the product sites. Smith Barney Access will always be a major site.
Q: How much of this change in emphasis in your Internet operations is about winning efficiencies, and how much is about winning customers and growing revenue?
A: I don't think that's a choice you want to make. They sort of go together. I think by, for example, moving to common [software] platforms or getting standard processes, you can both cut costs and improve service. Some of our actions are aimed at new markets -- for example, Internet payments. Both in corporate payments and in consumer payments we are seeking to ensure that our payments business -- a very big business, that's what banks do -- reaches into the Internet space. And so we're developing new brands, we're developing new technologies, we have preferred placement in both America Online and the Microsoft Network.
Q: You pick up a newspaper these days, and their argument is that nothing has really changed because of the Internet. What have you found about the Internet that's unusual or unique?
A: Corporate payments, the way big multinational companies move money, will fundamentally change in the next three years. Of our top 2,000 multinational companies, how many use CitiDirect [the bank's online corporate payment processing business]? Three hundred. In two or three years, it will be three-quarters of them. In the first part of the year, we did 47,000 payments, valued at $14 billion. So you could say 15 times four -- $60 billion a year. That probably counts as nothing in the language of The [New York] Times. But you know, for us every million counts.
The institutional marketplace is changing very quickly, because you only have to convince 2,000 people, not 200 million people. And these are bottom-line people. If they can save money, they'll do it. If it speeds up transactions, if it's more certain. And I think more and more of the capital-market, cash-management, foreign-exchange activity will be automated over the Internet.
The consumer space is harder to call. My view is that dot-coms are dead, but the technology isn't. We've almost doubled in a year the number of customers that use us online. You know, 10 million is not small. Three years ago, we didn't have any. Twenty three percent of our brokerage customers access us online.
Q: Which areas are generating the most online business, and are any of them profitable?
A: You can't say, look at your private-client business and tell me what the profitability is of the 23% who are online and the 77% who are not. All I can tell you is that the online audience holds more assets at the company than the offline. The online customer, at the brokerage or the bank, holds more assets and has much lower attrition rates, much lower turnover rates. All our businesses are very profitable, and the most profitable part of those customer sets is online.