1998 Annual Report 1998: VALIDATING the VISION

1998 Annual Report 1998: VALIDATING THE VISION June 21, 1999 TO VERTICALNET INC. SHAREHOLDERS: 1998 was the year when we validated our vision to create the Internet’s leading community of vertical industries for business-to-business e-commerce. This paved the way for our initial public offering in February 1999, which raised net proceeds of $58.3 million. We immediately began to put that capital to use to grow our company aggressively and have concluded several acquisitions. The favorable valuation our shares have gained since our IPO allows us to use our shares, either directly or indirectly, as currency that we can invest to grow even more aggressively. We believe that the most critical issue we face on a daily basis is how fast we can grow while improving the quality of the web- based communities we are building. Certainly, over the long-term, our success will be determined by the ramp-up of our bottom line, but in the short-term, we will measure our performance by how rapidly we can dominate our markets, and that issue is the focus of this letter. OUR BASIC PREMISES: The Internet is an entirely new medium in a virtual world of limitless possibilities. VerticalNet® has a very simple mission: to be the online community and e-commerce leader for global vertical industries. Our game plan is simple: We create, acquire, and operate sites on the Internet where businesses interact with each other, access vital information, and recreate their industrial communities in the environment of the new media. We provide each of these communities with content and an e-commerce environment that will attract professionals within each industry, serve them and retain them. We expect that community members will rely increasingly upon the exceptional information, communications tools, events and transaction activity they can obtain from VerticalNet while online. As we grow the number of VerticalNet communities, we will grow their value to members, which in turn will increase their value to important advertisers and sponsors. This multi-phased growth will result in increasingly higher revenues for VerticalNet and extend the dominance we have already established in our markets. OUR POSITION: At the end of 1998, VerticalNet consisted of 29 industrial communities and we: · reached critical mass in our markets; · attained First Mover status in this sector of e-commerce with 2 million unique site visits during the fourth quarter; · established revenue streams from · Advertising and Sponsorships · Transactions · Career, and · Newsletters; · developed synergistic sales vehicles; · identified future revenue-generating opportunities; and · developed a suite of features that enhance the content and community of the VerticalNet model. In quantitative terms, in 1998 VerticalNet: § generated revenues of $3.1 million. Net loss for 1998 was $13.5 million. § attained 1,315 unique storefronts, 735 unique advertisers and 1.9 million unique visitors. The momentum of growth that we achieved for the full year has continued into 1999. In the first quarter, VerticalNet: § achieved revenues of $1.9 million, a 52 percent increase over Q4 revenues of $1.3 million. Net loss was $5.6 million, slightly above Q4’s net loss of $5.3 million. § and attained 1,600 unique storefronts, 892 unique advertisers and 2.9 million unique visitors. These results not only are a direct reflection of our market opportunity, but also of our own sense of urgency to fully exploit our First Mover status. This desire permeates our corporate culture. Many long- established media companies serve industrial markets with news and information, trade shows, and marketing environments. We believe they have been slow to adapt to the Internet. At the same time, Internet users are open to new relationships, where old media brands have limited advantage. This disintermediation in the market gives VerticalNet an unprecedented opportunity to seize the new media leadership of this valuable space. And seizing that opportunity is what drives us. For our members, we provide –online, in real time, and aggregated— valuable information and context, with ubiquitous communications combined with real time transaction services. In short, we are facilitating and redefining how businesses interact and transact with each other around the world, 24x7, using e-commerce. For our sponsors and advertisers, and for vendors of products and services to members of our communities, we offer comprehensive reach in time, space and market to the most desirable customers in their target industries all around the globe. We also provide these benefits at cost savings of an order of magnitude and with state-of-the-art, maximally convenient and secure transaction mechanisms. The capital we raised in February is fueling our progress. HOW WE MEASURE SUCCESS: The dynamics of the Internet economy require us to measure our success against certain indicators of market penetration and potential for revenue generation. These metrics dictate a strategy to grow the number of vertical communities, streams of revenue and market leadership to effectively execute our plan. We must widen our lead in this space to create an insurmountable barrier to entry. In the near-term, we will measure ourselves against these criteria, which will be most dramatically reflected in the growth of our top line. We ask our investors to share our appreciation for the fact that such a measurement, while inappropriate for traditional businesses, is the singularly most critical measure to gauge how well we are succeeding in building our dominance. After all, dominance achieved now, while the Internet is still in its “horse and buggy” stage, can translate into dominance for years to come, when the Internet has been fully integrated into our commercial patterns. Accordingly, as was detailed in our registration statement and elsewhere, we will sacrifice profitability in the short-term for the sake of dominance in the long-term. OUR SHORT TERM GOALS: Our goals for 1999 are to: · increase the number of vertical communities through development and by acquisition, which in turn will expand the number of unique visitors, create a compelling opportunity for advertisers, and grow the market for e-commerce and other transaction revenue. Our 42 vertical industry communities are currently grouped into eight target areas: communications, services, food and packaging, environmental, advanced technologies, science, process industries, and healthcare. Our criteria for new verticals include industries in which there is an existing community with trade publications, conferences and events, a critical mass of members and the potential for extensive global e-commerce. · enhance our online products and information services, through development and by acquisition. We more than doubled our expenditures for product development and R&D in the first quarter, and we will continue to devote the resources required to have a satisfying online experience. In April, we announced a co-marketing agreement to promote eVisio, Visio Corp.’s new Internet-configurable drawing and diagramming software, among appropriate VerticalNet sites. In addition to offering sophisticated, state-of-the-art products to our communities, the agreement to “community brand” eVisio is a pioneering example of customized mass marketing over the Internet. · maintain technology leadership that presents our unique visitors with an experience of unequalled convenience, value and ease of use. The pending acquisition of Isadra, Inc. completes our search for a future-proof, industrial grade e-commerce enabling technology. Isadra will help us to create “Market Maker” platforms for more than 1,000 manufacturer and distributor relationships among our vertical communities. · expand our revenues from advertising and sponsorships. During the first quarter, we added significantly to our sales organization. This should allow us to expand both the number of advertisers and sponsors, and to cross-sell them among multiple vertical industry communities. We recently signed a multi-year, multi-million dollar affinity marketing agreement with First USA bank card, which will facilitate our e-commerce capabilities while providing additional credit facilities for our members. Our recent agreement with Visio is an example of other breakthrough opportunities in our unique market space. · increase our streams of revenue from e-commerce and new markets · Our major thrust into e-commerce is the rollout of online auctions, which have been introduced through more than 15 vertical communities; our goal is install auctions in every unique community, and realize commissions on each transaction. We will expand our reach by teaming with other relevant auction sites and will initiate a campaign to create high visibility for this feature. We already offer transaction protection mechanisms through an escrow service and credit reporting feature. We expect to add additional financially related services to the transaction, such as insurance, shipping, and cross-border financings or letters of credit. · Our Business Services Center, a central source for online retailing as well as other types of e-commerce, will serve each of our unique communities with an increasing array of business products and services. Some of these may involve · important affinity marketing arrangements that will benefit our members while providing various sponsor and royalty revenues to VerticalNet. The company also facilitates locating career opportunities and/or available talent among our vertical communities.

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