June 6, 2014, 9:13 AM

Creating an innovation lab for small and mid-sized e-retailers

E-retail giants like Amazon and Wal-Mart spend millions on technology innovation. A startup that’s announcing funding today will test technology for companies that subscribe to its service, aiming to help smaller and midsized online retailers keep up with the big boys.

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Glenn Edelman, the vice president of e-commerce for Wine Enthusiast, is inundated with sales calls. Many of those calls come from people hawking the newest technology solution for e-retailers. “I just don’t have time to vet them all,” he says.

A new company says it will do that vetting for Edelman, and other e-commerce execs at smaller and midsized e-retailers. Iterate Studio aims to be an innovation lab, similar to Wal-Mart Stores Inc.’s @WalmartLabs, for e-retailers that can’t afford their own development centers, says co-founder John Grech. The company announced today $1 million in seed funding.

Grech comes from the vendor side of this equation, having worked at consumer reviews platform PowerReviews, search advertising firm HookLogic and web analytics provider Omniture. Joining him are Scott Anderson, who previously worked at VitaminShoppe.com, Jon Nordmark from eBags, Brian Sathianathan from Apple Inc., and Andy Wichern, who handles the legal side.

Grech and his founding team noticed it was getting harder and harder for technology vendors to connect with e-retailer executives. “At a time when technology is being made available at a really fast pace, the rate of adoption has slowed down,” he says. The volume of vendors and limited time of e-commerce executives has paralyzed the process, he says.

This is where Iterate comes in, he says. The idea is that Iterate discovers and vets the vendors and then plays matchmaker between the vendors and Iterate’s retail clients.

(The July issue of Internet Retailer magazine will feature a survey about e-commerce technology trends. Please click to take part in the short survey.)

Retailers join Iterate with an annual membership, which includes all of the discovery and testing of as many vendor tools as the retailer wants. The membership fee is tiered and based on the retailer’s size, though Grech declined to give specific pricing information. Grech says retailers will not incur any additional costs for testing or hourly rates for meetings.

The technology vendors, on the other hand, do not pay a membership fee because Iterate wants to be accessible for all startups—not just those with the financial backing of large venture capital firms, Grech says. The vendors do pay, however, if a retail client purchases a license or technology. Iterate calls this an adoption fee. Grech declined to release the pricing for this fee.

The vendors come to Iterate through several sources: a network of e-retail experts worldwide, the firm’s own retail clients, and technology accelerators and incubators—organizations that help support and grow technology startups. Iterate then begins the process of vetting all of these vendors. Grech says they’re evaluated on 20-30 dimensions that include such criteria as the founding team, the technology, the implementation process, the financial backing and the security. Only 5%-10% make it into Iterate’s lab.

Iterate enters into multi-year agreements with each vendor and acquires a license for the technology so the vendor does not have to be involved with the testing on the retailer side. Iterate also implements and deploys the technology to test it for the retailer, unless the retailer elects to handle it in-house. If the test is successful, Iterate introduces the retail client to the vendor and steps out of the process, Grech says.

When a retailer signs on, an initial meeting is held to determine the retailer’s plan for the next year or so, the problems the retailer is hoping to fix and the technology the retailer has already tried. Iterate assesses the needs of participating retailers to determine the lab’s focus. If several retail clients are looking for help with e-mail marketing, for example, finding e-mail marketing vendors will be a priority, Grech says.

Iterate prepares a roster of technology vendors that meet a retailer’s needs and presents those. The retailer ultimately decides which vendors’ products to test. Before testing, Iterate and the retailer develop metrics for gauging the technology’s success, and the test is launched.

Edelman of Wine Enthusiast says most of its tests are complete within 30 days. Although Iterate declines to release the names of vendors it’s working with, Edelman ran one test with an e-mail marketing startup. Edelman says the company was trying to decide whether to buy software or develop it in-house. “I didn’t have the time to write out a request for proposal,” he says. “I trust these guys enough that they’ve already done that. This allows us to get to market so much faster.” The test was done in 30 days, and Wine Enthusiast is now using that technology.

Eric McCoy, CEO and founder of e-retailer Heels.com, tested technology that lets shoppers search based on an image rather than words. Navigating through all of the styles of shoes on his site is a challenge for consumers, McCoy says. He was looking for a system that would allow a consumer to more easily and quickly narrow down options to the exact color, shape and heel height she was looking for.

The results of each technology test—successful or not—are shared among the retail clients, though the name of the test retailer remains anonymous.

Iterate started adding retail clients and vendors to the lab in fall 2013. There are currently 41 clients—20 of them in the retail industry—and 20 technology vendors in the lab. Iterate also works with media companies. The lab has 46 live experiments in various stages of testing. Iterate is already working with several top e-retailers, including Newegg Inc., No 17 in the Internet Retailer Top 500 Guide; Build.com Inc., No. 79; Wine Enthusiast, No. 440; and Heels.com, No. 498.

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