In its second-largest acquisition, Amazon buys the company for $970 million.
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Orders had grown from a handful a day when the site was founded in 1998 to about 250 a day in 2002 when Howard decided the lack of the user features and backend manageability he wanted required a different e-commerce system. Howard found what he was looking for in a move to IBM’s Websphere Commerce suite, which supported a series of customer-focused and merchandising improvements to the web site. As a result, average order size has increased by 10%, abandonment rates among new shoppers are down, and Howard says the lifetime value of each customer has increased by about 20%. The web site can now accept a 20-fold increase in orders per day with no significant degradation response time, he says.
Growth without IT Investment
Howard also had his eye on another growth scenario, which led him to choose IBM, an established company. “People talked lot about viability then,” he says. “I wanted something in place that would let me say to an investor or potential acquirer, we have a system in place that can grow 100-fold without needing another dime of IT investment. Some of my competitors are on storefront platforms where they have to pay percentage of every transaction. When you get to $10 million to $12 million online, you have to get off of that.”
Growth is the goal for any e-retailer, and industry analysts say that overall, the online marketplace is set to deliver, with the rate of increase in market size exceeding many earlier predictions. But capitalizing on that trend will be more of a scramble for some than others, with technology that’s not up to the tasks of rising scale and higher consumer expectations capable of sinking even the most creative marketing plans.
Pendleton, for example, did an ROI analysis when planning its MarketLive and CommericalWare implementation that calculated payback based on a three-year growth schedule that it is already exceeding. The company realized that the sales growth it sought would not be adding as much to the bottom line without technology in place that would handle the increased traffic, orders and all the attached processes more efficiently. “We figured we would save in terms of cost per order,” says Pendleton’s Bishop. “So in large part, we didn’t look at the implementation so much as an ROI proposition, as we looked at it as a cost of doing business. And we knew we had to do it.”