September 1, 2005, 12:00 AM

Getting those new e-commerce wheels

(Page 2 of 4)

l A retailer can license and directly operate the software, but pay the vendor to host it on servers outside of the retailer`s infrastructure, an option several vendors are making available.

l A retailer can rent software under a more comprehensive subscription hosting plan, getting use of dedicated software running on the vendor`s servers.

l A retailer can rent software under a multi-tenant "software-as-a-service" hosting model, where the merchant uses the same software used by others, the option offered by Venda, Demandware, Vcommerce and others.

A new kind of ASP

Software-as-a-service is the newest of these options and attracting a hard look from retailers, analysts say. It`s actually a revival of the ASP model trendy several years ago. ASPs initially created a stir by promising a relatively quick entrÈe into e-commerce as a way to establish an online presence by subscribing to software made available to a pool of clients.

But the early hoopla subsided as retailers and other clients realized they had limited flexibility to configure their platforms in a way that would make their web sites stand out from the competition. In addition, the early ASPs were part of the e-commerce-as-a-separate-business mindset. "Retailers were nervous that ASPs wouldn`t offer them integration into their back-end systems, so that they wouldn`t get real-time access to inventory updates or consumers would try to buy something on their web site that wasn`t really there," Garf says.

Today`s revised interest in the ASP model, now re-badged with the more literal terms software-as-a-service and on-demand service, stems partly from interest stirred by the growth of Salesforce.com, a provider of hosted customer service applications. Salesforce, many experts say, has greatly improved the multi-tenant hosting model, overcoming some of the earlier shortcomings. "Salesforce.com has done a good job of building steam in the market for hosted applications," says Gene Alvarez, retail technology analyst who joined Gartner as part of its acquisition of Meta Group.

The e-commerce industry`s perception of Salesforce.com`s success is coinciding with retailers` need to upgrade their platforms without taxing what are often overworked IT departments. Indeed, 29% of retailers think their internal IT departments are incapable of even adequately operating their existing e-commerce platforms, according to The E-Tailing Group`s study, much less expanding it. Instead, many retailers now see hosted applications as a good alternative for getting up to date with the latest e-commerce features, such as A/B testing of multiple merchandising pages, streamlined checkout processes, and order management and inventory management systems integrated across multiple selling channels. "Hosting is back in vogue," Rosenblum says.

The revived interest in hosting, and the new competition from the likes of Venda and Demandware, meanwhile, are coinciding with more hosted and on-demand options from existing providers ATG and IBM. "Established vendors are picking up on this and dusting off their hosted models," Sarner says.

The credibility game

So far, there`s no clear leader among the new breed of hosted platforms, according to analysts who advise retailers about their technology options. In more than 60 valuations of retailers` e-commerce technology strategies conducted this year by Sarner, more than 30% have asked about hosted models without picking out any single favorite, he says. "We don`t have one big vendor that everyone is asking about," he says. "There`s no one leader in the market."

Interestingly, both Gartner and Forrester Research have recently published reports on e-commerce technology providers, and each report names ATG and IBM as the two leading overall e-commerce vendors. ATG is cited mostly for its several years of experience in serving retailers with integrated platforms, with a special emphasis on cross- channel marketing. IBM is cited for its market presence with its widely deployed WebSphere Commerce platform as well as its secure corporate finances. ATG and IBM both have moved recently into offering hosted services.

But analysts also note that, in terms of technology capabilities, the e-commerce platform market is evening out among several vendors. Although each e-commerce technology vendor has a ready argument about why its technology and delivery model are better than its competitions`, the features and functionality offered by both hosted and licensed platforms are reaching a common level of value across multiple vendors, several analysts say. "There`s less differentiation among vendors in features and functionality, because all the players we`ve looked at have about 85% overlap," Garf says.

To vendor chiefs like Demandware president, CEO and co-founder Stephan Schambach and Venda CEO Jeff Max, that perception of a new leveling of technology is opening the market door wide for their hosted services.

More flexibility

Unlike early ASPs that offered limited if any flexibility in how retailers could configure their web site features and integrate with multiple selling channels, the new breed of hosted services are designed to offer exactly that, their proponents say. "We take care of the heavy lifting--we provide an e-commerce platform and build features like guided search and A/B testing," says Schambach, the founder and former CEO of Intershop, a provider of b2b as well as b2c e-commerce software. "But we don`t hold our customers hostage. We give them drag-and-drop tools to let them improve the shopping experience, change merchandising and the checkout process, and the look and feel of their sites."

At the same time, Demandware`s software-as-a-service model frees its clients from ever having to migrate to software upgrades, Schambach says. Because it uses single versions of software shared by clients, upgrades to those single versions are immediately available to all users, he adds. "It`s basically designed to support a continuous software optimization philosophy," he says.

Demandware, which began operating in February, is designed to serve retailers ranging in size from $2 million to $100 million a year in sales, though Schambach says its infrastructure, based on a grid computing model, can easily scale up to handle much larger companies. Existing clients include Zabar`s, a specialty foods retailer, and bathroom fixtures merchant Village Tub & Bath. Demandware charges fees by either overall sales volume or number of transactions, typically ranging from $5,000 to more than $10,000, Schambach says.

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