The move to bring Web spin offs back into the corporate fold is creating a number of IT problems. Among them: unifying customer data, linking separate logistics systems and maintaining the best of overlapping product lines.

Drug distribution giant McKesson HBOC, as well as Kmart, Barnes & Noble and other retailers, are reintegrating their offline and online businesses since the stock market stopped rewarding Web spin-offs. Despite technical and financial hurdles, the companies and their customers are expected to benefit.

A single business that sells online and offline serves customers better and operates more efficiently than separate units because it can leverage a single product database, a single customer database and one accounting system, said AMR Research analyst Joan Harbin.

"People are figuring out that the Internet is just one element of a multichannel strategy," Harbin said.

By the end of this month, McKesson hopes to complete the reintegration of its iMcKesson spin-off. The unit lets doctors manage patient data in their offices and process claims via direct links to insurance companies over the Web. A key software product from the parent company is used by hospitals to tap institutional databases so doctors can examine patient records. This overlap created customer confusion and drove the decision to bring the companies back together, officials said.

The work McKesson now faces is rationalizing the two separate product portfolios-and the systems that support these applications on behalf of customers-and integrating them where necessary. Since the two businesses are currently being integrated, an ongoing SAP implementation project should go more smoothly, according to McKesson officials.

"By moving these Internet-based offerings back into our core business, we will now be able to more effectively package them with existing products to existing customers," said John Hammergren, CEO of McKesson. The company will take an undetermined fourth-quarter charge to cover restructuring costs.

In the retail industry, online and offline transaction histories stored in disparate databases must be combined and made accessible to online merchandising and credit verification systems. Separate product databases, sometimes using different SKUs for the same items, must be integrated. Online storefronts, previously boasting Internet links to back-end systems built from scratch, must now be retrofitted for connectivity with legacy inventory management systems used by brick-and-mortar operations.

Walmart.com cut 10 percent of its staff in February to refocus on the technology behind its troubled site. In the past two months, Walt Disney Co. said it would shut down its spin-off Web search engine Go.com and lay off staffers, but last week the company reversed course and said the site will remain open.

Formerly separate Barnesandnoble.com is conducting a project to integrate operations with Barnes & Noble's brick-and-mortar stores. In October Barnes & Noble began sharing consumer data with its e- retail business to form a common customer loyalty program, and the two companies linked their transaction data so customers can return online purchases to brick-and-mortar stores.

BlueLight.com is staying the spin-off course. It was never really a complete spin-off, though, and is gaining more integration with Kmart. Kmart has launched a $2 billion technology upgrade. The bulk of that investment is to upgrade the retailer's legacy inven-tory management system and give BlueLight customers real-time access to Kmart's inventory information, explained Chris Lien, BlueLight's CFO.

This will build on an already rich set of benefits that the e- retailer derives from Kmart. BlueLight gets the same volume discounts from suppliers that Kmart receives because the two firms buy goods together. Most of BlueLight's 160 employees work in IT or in Web design, focusing on usability, online merchandising and other Internet issues, while Kmart handles product selection. "We may be labeled an independent company, but we have a very symbiotic relationship with Kmart and understand quite clearly the potential this relationship represents," Lien said.

Such a close relationship begs the question: Why don't Kmart and Wal-Mart Stores just buy back their online operations? Purchasing companies generally look for two things in acquisition targets- profits and low operating costs-and most dotcom spin-offs have neither, said analyst Jeff Klinefelter of US Bancorp Piper Jaffray. Walmart.com was recently said to be in talks with Amazon.

com, apparently to have the latter serve as Walmart.com's outsourcing partner, as Amazon has done with Toys "R" Us. Neither company has confirmed the talks, and Walmart.com wouldn't comment for this story.

Toysrus.com's success with Amazon, however, makes a compelling case that outsourcing is another option worth considering.

Amazon handles site development, order fulfillment and customer service, while Toys "R" Us buys and manages inventory. Toys "R" Us executives have indicated that Amazon will lead Toysrus.com into the black.

"We know that we can be profitable in this space with our Amazon alliance at substantially lower sales volumes than when we were looking at going it alone," Toys "R" Us president and CEO John Eyle told financial analysts.

In the coming weeks, Toys "R" Us expects to outsource its Babiesrus.com site to Amazon.

In some cases, a spin-in can be painless for the parent company, especially if the spin-off was mostly a gambit to grab easy funding.

Vitamin Shoppe Industries Inc. (VSI) expects to consummate a buyback of its Vitamin-Shoppe.com spin-off on April 1. Though funded with venture capital, VitaminShoppe.com was dependent on VSI for its inventory and fulfillment, said Phil Teplitzky, VitaminShoppe.com's former chief technical officer.

VitaminShoppe.com's limited technological infrastructure was outsourced: Exodus hosted the site and Sapient built it.

At least one expert believes that the recognition of the benefits of a unified offline-online business model is crystal clear. "There are only negative ramifications to having separate companies," said Carol Baroudi, director of electronic business strategies at the Hurwitz Group.

She added, "There isn't going to be the same license for stupid- ity that there was in the past, and that's a good thing."

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