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Mega Tech Mergers
E-retailers must recalibrate their technology strategies as vendors consolidate.
Topics: Adobe Systems Inc., ATG, Carrie Allen, Compuware Gomez, Coremetrics, David Redlich, Donald Cohen, eBay, Ecometry, Gaiam, GSI Commerce, Hayneedle.com, IBM, Magento, Mergers and acquisitions, Monsoon Commerce, Omniture, Oracle, RedPrairie, ReStockIt.com, Sterling Commerce, Steven Dee, Stone Edge Technologies, technology consolidation, technology vendors, Tool King LLC, Unica
E-retail technology executives are growing increasingly accustomed to learning that one of their technology vendors is being bought or buying another company. As e-commerce matures, many vendors that have spent years refining their specialties—such as order management, analytics and performance monitoring—are finding new homes within larger organizations that offer increasingly complete assortments of e-commerce tools.
These large companies argue that they can handle the complex technical challenges of selling online so retailers can focus on retailing. That's the promise, for example, coming out of IBM Corp., which in the last two years picked up order management vendor Sterling Commerce for $1.4 billion, web analytics firm Coremetrics for an undisclosed price, marketing technology vendor Unica for $480 million and data warehouse provider Netezza for $1.7 billion; the company says it's earmarked another $20 billion for acquisitions globally over the next few years. Oracle Corp., which closed its $1 billion cash deal for e-commerce software vendor Art Technology Group Inc. in January, makes a similar pledge to let retailers focus on what they do best.
Plenty of more deals abound: eBay Inc. just closed its $2.4 billion deal to buy e-commerce services vendor GSI Commerce Corp., which itself had been on a buying spree, acquiring ad firm Fetchback, e-mail marketing provider e-Dialog and others; eBay also announced last month plans to acquire open-source e-commerce platform company Magento Inc. Adobe Systems Inc. strengthened its e-commerce portfolio with its $1.8 billion purchase of analytics provider Omniture. RedPrairie Corp. picked up Escalate Retail, Monsoon Commerce Inc. snagged Stone Edge Technologies, MyBuys Inc. acquired Veruta.
The list goes on and activity shows no signs of slowing. There have been more than 1,200 marketing technology acquisitions since 2008, more than half occurring in the last 18 months, says investment advisory firm Petsky Prunier. The 333 year-to-date transactions in 2011 are nearly equal to the full-year total of 338 in 2010.
The acquired companies figure prominently among the top vendors to the retailers in the Internet Retailer Top 500 (see vendor chart on pages 16-17.) What will vendor consolidation mean for Top 500 retailers and their smaller peers? Many retailers are optimistic that vendors will provide products and services that fit together more smoothly and will have more funds to invest in innovation. But some web merchants fear they'll be too small to get much attention from tech giants.
In the former group is Steven Dee, chief information officer at multi-site e-retailer Hayneedle Inc., No. 77 in the Top 500 with approximately $265 million in sales last year. He looks forward to working with fewer vendors, hoping that will free up resources to work on pressing consumer-facing initiatives like mobile commerce, and allow for more long-term technology and growth planning. Hayneedle operates 280 product-specific e-retail sites like Hammocks.com and Daybeds.com. Among the wary is Carrie Allen, director of operations at apparel, media and fitness e-retailer Gaiam Inc., No. 285 with approximately $38 million in sales last year. She's not convinced a company the size of an IBM or Oracle will pay much attention to Gaiam. "It tends to be our experience that a very large firm doesn't have the time for us as a mid-level retailer," Allen says.
In this case it's the retailers who are the customers, and they'll reward vendors that deliver as technology contracts come up for renewal over the next few years. Meanwhile, vendors say they'll be working to show that they can provide products that fit together more easily and can introduce new technology at a faster rate—in some cases because, having been acquired, they no longer have to focus on short-term profitability in order to boost profits in advance of going public.
Hayneedle's Dee says he wants both ease of integration and the most compelling technology for his e-commerce sites. He says the e-retailer leans heavily toward deploying the technology it views as best serving its customers, but might favor a product that's easier to integrate with Hayneedle's existing systems than another vendor's tool that is marginally better. "The hardest part of any implementation is the integration," he says. "When you are looking at best-in-breed services, you have a lot of options and it's great—up to the point where you figure out you have to get, say, Oracle to integrate with ATG. While having the variety is nice, if I can avoid doing that integration I'll do that. I'd love for that to be somebody else's problem."
Hayneedle uses Oracle software for order management and accounting. The e-retailer doesn't use any ATG services—yet. Dee says he called his Oracle representative the day Oracle announced the ATG deal in November and asked what the product integration plan looked like. His representative didn't have an answer. "We might have jumped the gun on it," Dee says. "I don't think they understood when we started asking questions."
Oracle began in January laying out to clients its plans for combining ATG and Oracle. Since then, Hayneedle's existing Oracle representative and an ATG representative visited Dee at headquarters and pitched him on ATG's services. The representatives explained in general how Oracle and ATG were mapping out their software integration plan, but didn't dive further into the details of how they would work out system processes to support the growth of his business. Dee says he left the meeting impressed, but made no commitments. "The major components were very well thought out, but they couldn't really get into the weeds with me," Dee says. "But it made it easier for me to say we should continue investigating this."
If Hayneedle were to go all in with Oracle and ATG, Dee sees the potential for cost savings because Oracle and ATG would be responsible for the integration and maintenance of the sister services. That could free up funds for Hayneedle to invest in improved services.