Madison Reed has raised $32.1 million since launching 15 months ago.
Retailers creating innovative applications in house are profiting by selling the systems to other merchants.
Several months ago, things weren’t quite as organized at CableOrganizer.com as co-founder and chief operating officer Paul Holstein wanted. The retailer sells everything someone might need to connect computers and other electronic devices to a power source-electric cables and wires, tools for modifying them, materials for fireproofing them, even devices for organizing messes of them neatly under a desk.
CableOrganizer.com also sells popular office supplies like label printers, but shoppers searching the Internet for label printers would often land on its home page-only to quickly abandon it when they couldn’t find the label printers link, which was toward the bottom-“below the fold” in designer parlance-of the navigation bar. “We’re a big seller of label printers, but Google wasn’t sending searchers to our label printer page, only to our home page, and they would just leave,” Holstein says.
But the problem got Holstein’s innovative juices flowing. A certified public accountant by training and a former business technology consultant for the big accounting and technology advisory firm Ernst & Young, he thrives on fixing things that block business. “I love what I do,” he says.
With tons of cable-related products to display, the CableOrganizer home page usually grants label printers only a listing in the bottom half of the site’s vertical navigation bar-where few shoppers arriving from an Internet search bother to look, Holstein admits.
So far, Holstein and his team have come up with four home-grown technology applications, with more on the way, he says. Although the intent is always to improve CableOrganizer.com’s own business, the products eventually make their way into other retailers with similar problems that Holstein meets. And in the case of at least one application, the Precognitive Search tool, CableOrganizer.com is in discussions to sell its software code to vendors of site search technology.
CableOrganizer and other Internet retailers are building on and profiting from a legacy of technology innovation with roots in the early days of e-retailing. Much retailer-driven innovation has come from e-retailers who started on shoestring budgets at the dawn of retail e-commerce in the 1990s. “Lack of money forces innovation,” says Rob Garf, vice president and general manager of retail strategies for research and advisory firm AMR Research Inc., who several years ago worked on innovative ship-to-store software and other applications for hats retailer Lids.com.
Today, though, things are a bit different and many times innovation is coming not so much from lack of dollars as from a desire to be in control of the technology or to create a technology that fills a specific need and that is not readily available in the open market. “Retailers are in a great position to incubate new technologies based on the problems they’re solving in their own operations,” Garf says. “Once a retailer can crack the code to solve problems for themselves, it becomes an interesting opportunity for them to make their technology commonly available.”
At eBags Inc., a retailer recognized for its innovative, home-grown e-commerce platform, its thrust into technology development along with its foray into new geographic markets have opened up a line of business as a provider to other retailers.
One of the first e-retailers to develop an online customer review application when it launched in 1999, eBags, working in Microsoft Corp.’s .Net technology environment, has also configured its own order management system and other applications, including product videos to support the merchandising of 12,000 bags from 250 brands. Its experience attracted requests from other companies to host their retail e-commerce operations. “Selling technology wasn’t our business and we didn’t want to be in the business of building new brands, but we realized we could take our same principles and technology and selectively apply them for others,” says Peter Cobb, co-founder and senior vice president.
For the past five years, eBags has operated the retail e-commerce site of Tumi, the luxury handbag brand. And the ongoing development by eBags in markets as well as technology has broadened its relationship between the two companies. After eBags launched its own retail site in the U.K., it also built and operated a Tumi site in the U.K., followed by Tumi sites in Germany and Japan. EBags operates the three foreign-based Tumi sites and forwards orders to warehouses operated by Tumi in Europe and Asia.
EBags also launched and operates the first retail e-commerce site of Case Logic Inc., a retailer of carrying cases for laptops, cameras and computer-related products. As it did with Tumi, eBags chose to work with Case Logic because it’s a company with a strong brand and customer base in a related market that needed an e-commerce partner, Cobb says.
While CableOrganizer and eBags have stuck to their own retailing operations as their core business, other online retailers or teams of retail executives have made a complete transition to operating as technology vendors ingrained with retailing experience.
Last fall, a group of former executives of Orbitz, the online travel agency, took their experience in risk management to form Accertify LLC and launch the web-enabled Interceptas payments risk management application. Building on what worked for them at Orbitz, the Accertify team designed Interceptas to let retail managers pull information from multiple databases, including consumer addresses, past purchase history, chargeback records and account verification records, and present the data simultaneously on a single computer screen. “You can review more orders without going back and forth to multiple databases,” co-founder and chief marketing officer Mike Long says.