With so many commerce server software options, retailers must weigh choices carefully

It’s no longer a science experiment. The toe-dipping, let’s-test-the-water days of Internet retailing are over. Web sites have suddenly shifted from being pet projects to critical missions—a metamorphosis that not only shakes up retail ranks, but also thrusts commerce server software into the limelight.

The attitude among retailers used to be “yeah, the Internet sounds good, we’ll get out there sometime,” observes Charles Rich, director of strategy and planning at New York-based InterWorld, a major software developer that counts Guess and Nike among its customers. Yet the 1998 holiday season was a loud wake-up call for retailers. Today, hesitation about going online is nil. “Companies are saying: I need e-commerce revenues that go to my bottom line. I must do it or I’ll go out of business,” says Rich.

That’s good news for providers of commerce server software, the quintessential programs that allow merchants to operate a transaction capable and fully integrated Web site. Total spending for commerce server software totaled about $215 million in 1998, according to research from International Data Corp. Sales are expected to hit $675 million in 1999 and IDC projects a compound annual growth rate of 58% through 2003. “The market is ripe for explosive growth,” observes Albert Pang, an e-commerce analyst at IDC’s office in Mountain View, Calif. “We’ve just scratched the surface,” he adds.

Yet as the market pie gets larger for merchant software, more hands are grabbing for a slice. Software providers no longer must arm-twist retailers to go online. But, as competition heats up, the new challenge for companies becomes setting themselves apart from the pack. Consider these recent developments:

— BroadVision split its One-to-One Commerce product into two versions, one tailored to retailers and the other for business-to-business. This is part of the company’s plan to “focus, deepen and extend,” says David Andrews, BroadVision’s director of product management.

— Intershop Communications launched Intershop 4, its first major update since March 1998, which is 300% faster in searching capabilities and more intuitive for users.

— IBM launched a new and improved edition of Net.Commerce, which continues its migration toward a Java-enabled environment.

— Open Market purchased FutureTense Inc., a provider of content management software—an acquisition that should help Open Market go after big-name retailers and add diversity to its product lineup.

— InterWorld released a new version of Visual Process Builder, part of its Commerce Exchange product that helps retail business managers model, manage and maintain
e-commerce sites. Early this fall the company will launch a new version of its flagship product, Commerce Exchange, which will be the first major update in a year.

“Everyone is refining their market messages,” says David A. Baltaxe, a senior e-commerce analyst at Current Analysis in Sterling, Va. Core products are getting tweaked as vendors try to “meet user needs as opposed to technical needs.”

Sometimes this recasting comes through acquisitions such as Open Market’s purchase of FutureTense. Yet partnerships are perhaps the more popular way to differentiate. Along with IBM’s recent release of Net.Commerce, the company announced relationships with ten different solution developers—including DeskNet and Linguistic Technology—in an effort to beef up content management, relationship marketing and integration.

Today’s retailers typically have three things on their mind as they shop for commerce server software: speed to market, ability to grow and flexibility to evolve. But retailers are having a hard time sorting out all the new options. For as established software developers reinvent themselves, former lines of distinction have become blurry. In 1996, when IBM first announced its Net.Commerce software, it was a one-size-fits-all product. Fast-forward three years, and the Net.Commerce family has evolved into four separate versions to cater to different customers.

Life in today’s e-commerce lane is quite a shift from when retailers such as Amazon had to build Web stores from scratch and relied on internal teams to develop software. Sophisticated software has become readily available in the past five years, which gives retailers a wide variety of options as they flock online.

Packages versus toolkits

At the higher end of the market, commerce server software breaks down into two major categories: “packaged applications” and the “platform-and-toolkit” approach. Packaged application players include InterWorld, Open Market, BroadVision, and Netscape’s SellerXpert and MerchantXpert. These robust packages provide greater “out-of-the box” functionality, which means retailers can easily integrate the software with their existing systems.

The platform-and-toolkit is a slightly newer model, debuting around 1996, and includes companies such as Art Technology Group, Microsoft with its Site Server Commerce Edition and IBM’s Net.Commerce. In a nutshell, these are frameworks on which to program entire systems. This software is usually embraced by merchants looking for a lower upfront investment in software and higher degree of flexibility, explains Erica Rugullies, an analyst at Giga Information Group, a research firm in Cambridge, Mass.

Platform-and-toolkits require greater customization, so retailers favoring this approach often have strong in-house technical teams. “With platforms, you can achieve more flexibility for Web stores, but it’s more work on your part,” points out David Truog, an e-commerce analyst at Forrester Research in Cambridge, Mass.

Whatever direction retailers follow, it’s pricey at the high end—about $6,000 for a platform-and-toolkit from Microsoft, reports Rugullies. But by the time costs for development, customization, third-party software, training and maintenance are added in, platform-and-toolkits can shoot into the six figures. Packaged applications are even higher for software—InterWorld’s average sale is $300,000—and the final cost for a highly scalable Web store can soar into seven figures.

Yet a recent shift in distribution trends has lowered barriers for retailers with slimmer budgets for Web sites. Although Intershop Communications and Open Market sell certain packages directly to retailers, they’ve forged a strong niche by selling products to commerce service providers and Internet service providers. These middlemen re-license (and sometimes repackage) the software for retailers. Merchants typically don’t have to host their own site, but access their Web stores through a browser and pay a monthly fee to the service provider.

This kind of outsourcing helps get retailers online faster and with less fuss. Even highly packaged e-commerce solutions can be difficult to set up, points out Leah Knight, an analyst at Dataquest, a research firm in San Jose, Calif.

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Open Market competes in the hosted storefront arena with ShopSite, a company it acquired in May 1998 that plays at the lower end. “We’re attractive to companies that have less than $10,000 per year to spend on e-commerce,” explains Nathan Rawlins, ShopSite’s product marketing manager. “Quick, easy and inexpensive is our mantra. We’re trying to be what QuickBooks is to management.” Online retailers using ShopSite include the L.A. Dodgers, Amtrak and Radio City Music Hall. Granted, Radio City Music Hall is not a small business, “but they’re running their online store as a small store,” explains Rawlins.

Both Open Market and Intershop’s hosted solutions are available in varying degrees of functionality, which means the software prices that retailers have to pay escalate accordingly. With Intershop’s E-pages, merchants can set up “mini-stores” on a server. With Hosting Edition, retailers still share a server with other merchants, but win more space, reducing the time it takes to search and load pages. The top-of-the-line hosting product, Merchant Edition, offers retailers their own server.

Getting what you pay for

Although Intershop and Open Market dominate the hosted storefront field, numerous competitors have been popping up, particularly at the entry level. “The Web store is quickly becoming a must-have for the portal,” says Baltaxe pointing to Yahoo! Store. Even IBM gets into the act with its Homepage Creator, a very basic catalog solution.

One caveat: you get what you pay for. Retailers trying to hawk a few T-shirts can get by on entry-level merchant software. But once a store’s inventory and customer base begins to grow, they need more horsepower. Unlike high-end applications, these solutions limit the number of products that can be sold and usually don’t link a store’s catalog with important back-office operations like inventory and shipping. “A storefront is the easy part of the overall process,” says David Liederbach, director of e-commerce marketing for IBM Net.Commerce. “The game is won when you’re able to provide a higher level of sophistication for business functions beyond the storefront.”

Online customers are no longer content to fill a shopping cart and check out. They want to find out whether the product is in stock right now before fishing for their credit card. If they’ve already placed an order, they want to know when it’s going to show up on their doorstep.

With fancy graphics on their storefronts, it’s easy for small merchants to look like major players online—at least initially. But that smoke-and-mirrors illusion only lasts so long. If sites don’t meet consumer expectations, retailers will not win repeat business.

Today’s online shopper is getting discerning, and tomorrow’s shoppers will be even more demanding, warn analysts. “Internet shopping has moved beyond the early adapters and innovators. The next generation of buyers will need more hand-holding,” says Scott Latham, an e-commerce analyst at AMR Research, a Boston research firm. Parents of Baby Boomers may be e-mailing birthday cards to their grandchildren, but their technical savvy only goes so far. If a site is hard to navigate, shoppers will lose patience quickly—and retailers will lose sales just as quickly.

With that in mind, functionality becomes a key theme today and vendors are beefing up commerce server software to be more intuitive. In the pipeline is greater integration into back-end systems, content management and personalization. “Personalization has been around for awhile, but it keeps getting better and better,” says Knight at Dataquest.

Chipshot.com, an online golf retailer, has been using its own software since its Web debut in 1995. But recently Chipshot.com turned to BroadVision, a major software developer based in Redwood City, Calif., for stronger profiling and personalization capabilities. “If you come to our Web site and read three articles on Tiger Woods, we would tag you as a Tiger Woods fan and target you with appropriate product. We can’t do that with our current application,” says Rajeev Goel, vice president of technology at Chipshot.com in Sunnyvale, Calif.

Presenting the right products

Because his company offers a large variety of custom golf equipment, Goel wanted to leverage customer profiles with its product database. “We need to learn as much as possible about our customers in order to present them with the right products quickly,” explains Goel.

Presenting merchandise and services consistently is another new spin, as software companies enhance their products. InterWorld has won kudos for its process-centric software, which allows retailers to use the same business models both offline and online. But now “channel synchronization” is a new buzzword. Explains Rich: “We’ve focused for a long time on the how—process centric computing—but we realized it’s now more appropriate to focus on what retailers can do with this.”

The issue at stake is “channel shifting,” says Rich and InterWorld has refined its product to help retailers provide consistent service across channels. Say that a shopper is on a major gift-buying spree and wants to have purchases shipped to different addresses—and pay with different credit cards. You can do that in a store, you should be able to do the same online, says Rich.

If the customer has been shopping exclusively online, then suddenly walks into a bricks-and-mortar store one day, retailers need to recognize that he or she is a preferred customer and extend appropriate incentives and service. “Companies want that overall channel integration capabilities so that it so doesn’t matter where that customer comes in—they’re able to take the deal down,” observes Rich.

When it comes to winning market share in the commerce server arena, it’s still a horse race. “We’re about at a quarter mile and none of these vendors have really broken out,” says AMR’s Latham.

The race is on

Pang at IDC agrees: “It’s too early in the game to say who’s got a really sustaining strategy out there to claim the No. 1 spot.” Still, Pang looks for InterWorld, Broad Vision and Intershop to be among players chalking up the fastest growth.

Heightened competition makes this arena ripe for a shakeout. Analysts look for lots of acquisitions and consolidations, particularly at the entry level. “There are too many people to fit in the boat—some have to sink,” observes Truog at Forrester.

Truog wagers that platform-and-toolkit players have the best chance at flourishing because they create an “ecosystem of other vendors around them.” He also favors younger players such as Blue Martini because they enter the market embracing new technologies like Java and XML instead of playing catch-up. Some older companies might be “saddled with historical baggage,” Truog points out.