Retailers’ holiday promotions and a shift in consumer buying habits generates heavy demand for Monday deliveries by FedEx.
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.