Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Magento gains traction among online retailers by offering software that's flexible and affordable.
When Warby Parker launched its prescription eyewear business online in early 2010, it didn't take long to realize it was in for a wild ride. "We hit our first-year's sales target in three weeks," recalls Dave Gilboa, co-founder and co-CEO.
Gilboa and his partners figured it would be tough to get consumers to switch from purchasing prescription eyeglasses in a store to buying online, so it broke out of the gate with appealing services, such as letting shoppers order up to five eyeglass frames to try out at home for a week, plus free shipping on both initial orders and returned items.
But then problems started to pop up that the retailer hadn't seen coming in the planning stage. The launch platform, though it seemed the perfect base for starting out, didn't allow the e-retailer to make it easy to place an order. A customer, for example, had to click to separate web domains to enter his prescription information and to check out with his chosen frames—a process shoppers complained was slow and cumbersome. "It wasn't a great user experience," Gilboa says. "There was a delay in switching between domains of up to five or six seconds."
In addition, the use of separate domains in the checkout process prevented Warby Parker from obtaining useful analytics data. "We couldn't track who was checking out, or where they had come from," Gilboa says.
The Magento boost
After Warby Parker's first year online, the retailer decided to search for a new e-commerce platform, one with the flexibility to handle its special needs, such as accepting eyewear prescription information. "We were running into so many issues, we needed the ability to customize the shopping experience," Gilboa says.
And after a few months of research and talking with senior executives at other retailers, Gilboa and his partners found what they were looking for in Magento, the open source e-commerce technology platform that quickly captured attention after it burst on the scene in 2007. "We needed to have full functional control over the customer experience," Gilboa says. "Magento enabled us to customize all we wanted without having to use an additional web site."
Warby Parker isn't alone among Magento converts. Now with more than 100,000 retailers using one of its offerings—its free Community edition version, its licensed Enterprise edition, which Warby Parker deployed, or its Internet-hosted Magento Go edition—Magento is growing a reputation for being able to satisfy a retailer's particular needs for web site functionality at an attractive cost.
"Magento is the new darling for retail organizations that want software to extend and customize their sites," says Gene Alvarez, a vice president and e-commerce technology analyst at research and advisory firm Gartner Inc.
Indeed, Magento, now a unit of eBay Inc., which acquired it last year, is in a position to take advantage of several concurrent trends driving up retailer demand for more capable e-commerce technology, industry experts say.
Cathy Halligan, a former chief marketing officer at Wal-Mart Stores Inc.'s Walmart.com who now serves as an independent director at beauty products retailer Ulta.com, says Magento's reputation for offering a flexible e-commerce platform without high cost coincides with a growing conviction among retailers that many legacy e-commerce platforms, including home-grown and commercial varieties, are not as agile as retailers need. And, she says, retailers need the agility to offer a wide range of shopping features at a time when consumers are demanding better and faster online shopping experiences.
Magento's software-as-a-service Go edition, Halligan adds, is particularly attractive to smaller retailers that can't afford to hire teams of software developers to support a licensed platform. On Magento Go's multi-tenant SaaS platform, retail clients share the same software code. That means any new feature added to the code is available to all.
"The innovation brought to market by Magento allows small and mid-sized business to be more aggressive," Halligan says. And those are the retailers mostly using Magento. In the 2011 edition of the Internet Retailer Top 500 Guide only three retailers list Magento as their e-commerce platform, but 20 of the retailers in the Second 500 Guide are Magento clients.
Outside developers, meanwhile, have built thousands of software extensions to all three Magento editions, including e-mail marketing programs, links to social media sites, online merchandising templates designed for specific product categories like consumer electronics and jewelry, and links to financial accounting and inventory management systems. More than 5,500 extensions are offered for sale through the Magento Connect extension marketplace, which is accessible through Magento.com. Magento Go starts at $15 per month for a site with up to 100 product SKUs, and goes as high as $125 per month for up to 10,000 SKUs. A license for Magento Enterprise starts at just over $14,000 per server per year.
In many cases, companies and independent technology developers start off with the free Community edition to explore Magento's open source technology before migrating to the Go or Enterprise editions, says Roy Rubin, who founded Magento and is now its general manager under eBay. The Community edition requires the company deploying it to invest time and expertise, but the Go software-as-a-service, or SaaS, version can be deployed as quickly—in no more than a few hours—by non-technical employees, depending on a site's complexity and depth of content, he says.
Open source technology makes publicly available the core software code, which encourages a community of developers to build new features that then become available to other users. Although the source code is freely available, developers can make money by charging consulting fees to retailers that deploy their feature extensions.
Magento vs the big guys
Rubin says the ongoing development of the Magento platform, both internally and by outside developers, is positioning it against more established e-commerce technology providers such as Demandware Inc., which offers a software-as-a-service platform to small and mid-size retailers, and two leading platforms for larger companies, IBM Corp.'s WebSphere Commerce and Oracle Corp.'s ATG.