October 28, 2009, 12:00 AM

Internet Retailer Survey: E-retailers are ready to buy new technology, and they have long shopping lists

Online retailers say they are ready to start spending again on technology, and they have long shopping lists.

A full economic recovery is barely on the horizon, but web retailers already are planning to spend significantly more on new e-commerce technology and services this year.

With many experts predicting e-commerce will rebound more quickly than stores and catalogs, many web merchants are planning to replace their older homegrown systems and limited off-the-shelf software with new e-commerce platforms that can handle sophisticated applications in such areas as mobile commerce and social marketing.

To give visitors a superior shopping experience, online retailers also are looking to add on-or replace-software and services that can expedite and target e-mail, create a better web site design, and deliver more targeted affiliate and search engine marketing results, according to a recent Internet Retailer survey.

The survey finds that 72.4% of merchants expect to spend more on advanced e-commerce applications and services this year, including 33.8% that plan to increase spending from 10.1% to 20%, 13.1% from 20.1% to 50%, and 14.7% by more than 50%. The Internet Retailer survey of readers of its IRNewsLink e-newsletter was conducted in August with e-mail marketing and survey firm Vovici Corp.

Breaking down the results by type of merchant, 31.1% of catalog companies expect to spend at least 20% more this year on e-commerce technology, compared with 30.5% of web-only merchants, 26.1% of chain retailers and 20% of consumer brand manufacturers.

“The last time many retailers installed a new e-commerce platform was five years ago, and those systems aren’t robust enough to support all of the new technology that’s changing the very nature of how consumers are shopping online,” says David Fry, founder of Fry Inc., a web site design and application development company. “Merchants are looking past the economic downturn and ahead to better online retailing sales. Smart retailers know they need to implement better technology now or they’ll miss out on the recovery and a big opportunity.”

Top priority

Replacing an entire e-commerce platform is the top priority for many web retailers. The Internet Retailer survey of 192 chain retailers, catalog companies, consumer brand manufacturers and web-only merchants reveals that 48.9% expect to install a new e-commerce platform within two years, including 38.3% in 12 months and 22.2% within six months.

One third say they will implement and install their own system, compared with 27.9% that will move to an e-commerce platform hosted by a vendor, 18.2% that will purchase an off-the-shelf application from a vendor and 20.2% that will build a new platform using software-as-a-service applications.

Flexible technology and better pricing are the big reasons more retailers are choosing to spend money on a new e-commerce platform now. Just five years ago, it would have taken a large online retailer up to nine months and $1 million to install a new off-the-shelf e-commerce platform and integrate the system with back-end applications, says Fry.

But now options such as software-as-a-service and hosted platforms can bring down the up-front costs of launching a large-scale e-commerce platform to between $250,000 and $500,000. “The first e-commerce platforms were developed in response to the birth of the industry and, over more than 10 years, the capabilities for these platforms have been forced to evolve,” Fry says. “Now platforms and e-commerce technology are to the point where retailers have multiple options to choose from and lower up-front costs.”

Big plans

For many merchants, replacing their entire e-commerce platform is the top goal, but retailers also have plans to implement or replace other key components of their technology infrastructure. The survey results, which include responses from 113 web-only merchants, 30 chain retailers, 26 catalog companies and 23 consumer brand manufacturers, show that 38.5% of companies plan to purchase a better content management system within the next year, followed by 37% that will implement customer reviews and ratings or product personalization, 35.9% that will update site search, and 33.9% that will purchase a new live chat or order management system.

In order to launch more targeted marketing programs and roll out more advanced features and functions on their e-commerce sites, 44% of companies participating in the survey expect to update or replace their e-mail marketing system, followed by 41.2% that will spend money on a new site design, 30.8% that will invest in a better affiliate program and 26.9% in a search engine marketing program.

Web retailers also are earmarking more money to fund new social marketing, rich media and product personalization projects. Social marketing was a top priority for 49.5% of survey respondents this year, compared with 35.7% for video, 34.1% for blogs or customer ratings and reviews, and 22.5% for live chat or product personalization.

“We’re finding that any increase in e-commerce technology budgets, even higher funding for just a single application, is being done with the expectation that the project will have to produce a superior return on investment,” says Ken Burke, chairman of e-commerce platform provider MarketLive Inc. “Retailers are increasing their spending on technology now because they need more horsepower to deliver what shoppers just naturally expect these days: a very sophisticated shopping experience.”

C-level clearance

It’s clear Internet retailers take technology spending seriously-the survey finds that chief executive officers or presidents have the final say on purchasing any new e-commerce technology or service at 51.1% of companies. At 17% of companies, the chief information officer oversees the budget and at 11.4% it’s the chief marketing officer.

It’s also evident senior executives have very specific business goals tied to any increase in e-commerce technology spending. The survey reveals that attracting new customers is the top reason 24.4% of merchants are spending more on better applications and related services this year, compared with 22.9% that want to generate higher sales conversions, 17.6% that need better web site optimization, and 11.5% seeking to boost multichannel sales or web site performance.

“E-commerce budgets are increasing along with the detail decision makers are asking for in a proposal because they have very clear business goals and objectives they want to achieve,” Burke says. “If we cite in a proposal that customer reviews have the potential to double a conversion rate on a particular product or category page, CEOs are asking us to supply support documentation that details how our other retailers are hitting that target. Providing that level of detail was practically unheard of five years ago, and now it’s almost standard operating procedure.”

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