People show up at noon. And they want to be there.

Did Someone Say Tech Bubble?

Silicon Alley entrepreneur Kevin Ryan on competing with Amazon—and why Facebook could be worth $1 trillion

By BARI WEISS

'Tell Kevin Ryan he's stealing our business," said an acquaintance I bumped into this week as I walked across the Upper West Side to meet, well, Kevin Ryan.

This young Manhattanite happens to work in the clothing industry; her company sells overstock brand-name clothes at a steep discount. But her sentiment is pervasive in businesses from travel to gourmet food to computer software. These days, 47-year-old Kevin Ryan may be the most disruptive entrepreneur on the Web.

As CEO of AlleyCorp, Mr. Ryan oversees a network of startups in New York City's Silicon Alley. The jewel in his crown, at least for the moment, is Gilt Groupe. Currently valued at $1 billion, the four-year-old business is by some estimates the most valuable U.S. e-commerce company other than Amazon.

Mr. Ryan is the kind of guy who has 10 inventive ideas per day—or hour. But the concept for Gilt originated with a French company called Vente Privée. He travels regularly to France—including for a year in 1990 at the business school Insead where he met his (French) wife—and he witnessed the incredible popularity of the online retailer. "Why," Mr. Ryan wondered, "is no one doing this here?"

It clicked on 18th Street in April 2007. "I was walking by and these 200 women were lined up, waiting in line for a Marc Jacobs sample sale. And I'm thinking: That's unbelievable—the passion!" he recalls. His next thought: "There are 200 here, but how many women would like to be at this sample sale right now? Obviously the ones in Kansas would be. Even the ones in Westchester. There's women even two blocks away in a meeting. So it means that there's tens or hundreds of thousands of people—and I can do that. I can bring that to them."

Six months later, Gilt brought the sample sale online, making it sleeker, cleaner and more accessible to those women in Kansas. Rather than forcing them to schlep to some lower Manhattan corner to dig through bins of odd-sized shoes in the hope of nabbing a pair of Manolo Blahniks, Gilt allows customers anywhere in the country to click through an uncluttered page of, say, 20 pairs of designer heels at 50% off, selected by top buyers and beautifully photographed.

The key markers of the sample sale—urgency and scarcity of hot products—remain. "That's what makes it different and extraordinarily valuable. It's a small change," says Mr. Ryan, "but it means that people show up at noon. And they want to be there." Do they ever. At 12 p.m., sharp, the Gilty are charged as the daily offerings lead the Samanthas, Carries and their executive assistants to type AmEx digits into office keyboards.

When Mr. Ryan launched his first sale in November 2007, he had eight employees. Now, Gilt employs 717 and expects 850 by year-end. He's also setting up new online stores—"verticals," in the industry lingo—all the time.

On Gilt Taste, for example, former Gourmet magazine editor Ruth Reichl selects artisanal products that make yuppies go ga-ga. Eight 6 oz. salmon filets caught by a "co-op of independent Alaskan fisherman" and garnished by buzzwords like "sustainable" and "eco-friendly" can be purchased for $118.95. People are buying. "We can already see we have much more traffic" than gourmet food sites like Dean & Deluca and Harry & David, "and we know from our vendors we're selling much more than they are," Mr. Ryan says of the six-week-old project.

Then there's Jetsetter. Led by a founder of Kayak.com, the travel site launched in January and already makes up 25% of Gilt's business. While sites like TripAdvisor and Expedia leave the searching to the traveler and rely on user reviews for quality control, Jetsetter is highly curated. Eighty-five full-time employees and many more freelance reviewers ensure that every hotel, villa, and bed and breakfast they recommend is somewhere they'd like to stay. The picks are beautiful, if pricey. "This year we're doing $80 to $90 million in travel," Mr. Ryan says.

Later this month Mr. Ryan will launch Park and Bond, a full-priced men's online shop that will compete "head to head" with brick-and-mortar department stores. "If T.J. Maxx launched full price you'd be like, 'I don't think so.' But Gilt works because people think of us as a luxury site," says Mr. Ryan.

"If I said to you, what's the leading men's department store online?"—Mr. Ryan often begins his answers with a question—"There isn't one. Is there a men's department store off-line? No." His assumption that the male experience of stores like Macy's and Saks primarily consists of being doused with women's perfume on the first floor. ("I don't want to be spritzed.")

In essence, Mr. Ryan is offering a new alternative to the way we buy products online. Amazon or Zappos are designed for consumers on specific mission, whether for "The Great Gatsby" or hiking boots. Gilt, by contrast, aims to use highly precise personalization to show customers just the kinds of things an algorithm knows they'll love. It all depends on the quality of the algorithms.

Of course, to build the one-stop boutique that he envisions, Mr. Ryan has to beat out the competition. What of Vente Privée, which does $1 billion a year in sales and has joined American Express to break into the U.S. market? "All I know is that after 10 years they're not the most successful company in other countries in Europe, which are right next door," answers Mr. Ryan.

What of Rue La La, now owned by eBay? "If we were sitting here 18 months ago, you would have said to me, 'Kevin, eBay just announced publicly they're going after you. They launched private sales. They have 100 million credit cards. . . . You're in trouble.' And I would have said the same thing I say today: They have 20 people doing private sales. Today we have 750 people." Hautelook, which was bought by Nordstrom in February for $180 million in stock, barely gets a mention. Same goes for Ideeli, which in April raised $41 million. Then again, in May Mr. Ryan announced he'd raised $138 million in venture capital.

So Gilt's going to wipe the floor with these guys? Not so fast. The game changed two months ago when Amazon launched its version of Gilt. MyHabit has a similar look, it offers free shipping, and, Mr. Ryan readily admits, the company "has some things that no one else has," including massive infrastructure and tens of millions of Amazon customers.

"What's going to happen in this space is in the next year or two you're going to see a lot of shake-out," Mr. Ryan predicts. The winning strategy, he says, requires laser-like focus—which he doesn't think Amazon demonstrates. "What happened like eight years ago when Amazon announced they were going to go after auctions? What happened to that? They lost. Why did they lose? Because eBay was really focused on it and Amazon was just trying to do it," argues Mr. Ryan. "So I can tell you that when I'm in Milan and I'm having dinner with the CEO [of a major fashion house], Bezos is not there. And for them, personal relationships are important."

Consider that Volkswagen decided to sell three 2011 Jettas on the site for $5,995 each as a way to promote the car. (VW says it eventually sold 69 Jettas at full price to customers that came to them through the Gilt promotion.) Other brands offer to hand over their products free on the logic that a sale on Gilt is fundamentally a marketing opportunity.

A crowded market, competitors hungry to conquer the Internet's newest frontier—Mr. Ryan's been here before. From 1996 to 2005 he ran DoubleClick, a personalized Web advertising company that survived the burst dot-com bubble, eventually emerging as the industry's Goliath. The private-equity firm Hellman and Friedman bought the company in 2005 for $1.1 billion and sold it two years later to Google for $3.1 billion.

The question hanging over Gilt's plans for market domination is whether everyone is partying like it's 1999. I ask the big question: Are we in another tech bubble? Mr. Ryan replies with a definitive no.

"Let's define what a bubble is," he says. A bubble is not the same as being slightly overpriced. A bubble, which I lived in and benefited from and enjoyed enormously was, in 1999, companies were valued at a number. And as a group, three years later, they were worth about 10% of that. Which is true of the tulip bubble. So things were overvalued by 10x."

That was certainly the case with DoubleClick, which at the height of the bubble was valued at $12 billion. "I didn't know how I could justify $12 billion. But I'm not the one who set the price. People just kept moving it up. And I was sitting there going, 'We only do $500 million in revenue and we don't make money. I think we're doing great, but it's not worth $12 billion.' But you can't say that when you're running a public company," he says.

For Mr. Ryan, the test is: As a group, are today's Internet companies going to eventually be worth 10% of their current valuation? "There's no way," he answers. "There's no way that LinkedIn at $7 billion today is worth $700 million. They own a position. Our recruiters don't have any product they think is as good as LinkedIn." Fair point, but is it really worth that much? "That feels like a big number to me. But three, four, billion, five billion? Definitely. And it may grow into that. So we're just debating plus or minus 40%. That's not a bubble."

Yet when LinkedIn went public in late May, it was valued at $8.9 billion by the time the market closed—despite a profit of merely $15.4 million and revenue of $243 million last year. The experience set off speculation about other IPOs that could make LinkedIn's look cheap.

Mr. Ryan thinks Facebook's IPO will be historic. "I've said that it has a chance at being the first trillion-dollar company. Do I think it will be? No, that's a stretch. I definitely think it's worth easily $100 billion. And I think when it goes public it will probably be worth maybe even $200 billion," says Mr. Ryan, whose brother Sean is a senior executive at Mark Zuckerberg's company.

By Mr. Ryan's estimation, a major Facebook advantage is that there simply is no alternative. Right now, it's offering its service for free. "If I went to Gilt or The Wall Street Journal or Starbucks and said: 'Do you have a lot of people on your Facebook page?' They'd say an incredible number," he says. Facebook "can go out to everyone—Gilt included—for $100,000, $200,000, cash tomorrow and they'll say yes" in order to keep those pages.

That's just what happened to Zynga, the gaming behemoth that gets the majority of its users via Facebook (and which filed for paperwork for an IPO just yesterday). "One day Facebook went to Zynga and said, 'You know what? It'd be really great if you paid us 30% of revenues. What did Zynga say? Yes. Can you imagine? Thirty percent of revenues!" Zynga "whined about it for like a week or two to pretend they were negotiating and then they said yes," he says. "Facebook will go out and extract value, which they deserve."

Which brings us to Mr. Ryan's plans for Gilt. In 2008, revenues were $25 million. Two years later, they exceeded $400 million. This fiscal year, which ended Thursday, brought $500 million. An IPO seems inevitable.

The operative question is this: Will shopping online without Gilt's algorithm be as impossible to imagine in 2020 as surfing the Web without personalized ads is today? Will the road to an e-commerce revolution be paved with Gilt?