Demandware says 30 of its clients booked more than $100 million in online sales in 2015, up from 22 a year earlier.
Web retailers are signing shorter-term contracts and beginning to address potential vendor mergers in contract language as acquisitions heat up. + The leading vendors to Top 500 retailers
By JimmyJazz.com’s account, NetSuite Inc.’s 2013 acquisition of OrderMotion Inc. has been painless. In fact, the merger hasn’t brought about much change beyond new sales and account representatives for the multichannel retailer of urban apparel, accessories and footwear.
“It’s been pretty smooth,” says David Wachter, the retailer’s executive vice president and general manager of e-commerce, of the transition. “As far as the platform itself, there have been no enhancements or changes.”
NetSuite, which sells Internet-based e-commerce and business operations software, bought OrderMotion to improve the order management capabilities of its own SuiteCommerce e-commerce platform and to position itself to win more business from OrderMotion clients.
The timing of the May 2013 deal was good for Jimmy Jazz on two levels. First, the merchant’s rapid growth had maxed out the order management capabilities provided by OrderMotion’s technology in three years instead of the anticipated five years, Wachter says. Because NetSuite wanted to upgrade its existing order management software, the prospect that it will continue to develop the software is promising to Jimmy Jazz.
Second, the merger offers Jimmy Jazz some opportunities to access additional software. “NetSuite allows us to grow with OrderMotion and possibly integrate other programs like accounting and point-of-sale, so there are benefits,” Wachter says. Jimmy Jazz is not currently exploring other NetSuite software, but could do so in the next few years, he adds. Point-of-sale systems enable retailers to integrate store- and web-based systems to produce cross-channel records of customer transactions and available inventory.
As Jimmy Jazz can attest, some online retailers gain access to new software and other resources when vendors consolidate. On the flip side, they can be left hanging if their existing applications are no longer supported by an acquiring supplier. But the recent spate of vendor acquisitions is motivating e-retailers to plan ahead and include renegotiation or termination language in contracts to ensure they aren’t left in the lurch if one key provider is purchased by another.
Jimmy Jazz has been including language covering the potential sale of one vendor by another for about two years, triggered by eBay Inc.’s 2011 acquisition of GSI Commerce, a provider of e-commerce and marketing software and services. FetchBack retargeting software, which Jimmy Jazz used, was among the GSI applications eBay acquired, Wachter says. “As we saw consolidation happening at higher levels we began including clauses with new contracts and renewals that let us opt out or renegotiate,” he says.
Until very recently, web retailers’ due diligence when selecting a technology service provider usually focused on the vendor’s financial viability, says Peter Sheldon, an e-commerce technology analyst with Forrester Research Inc.
And while vendor contracts typically include language addressing a vendor going under financially, most contracts exclude references to vendor mergers. “Standard vendor contracts don’t mention acquisitions, so it’s up to retailers to do so,” he says.
Vendor consolidation can provide opportunities for access to additional software, as in Jimmy Jazz’s case, especially for smaller web retailers. But there are a number of potential pitfalls for any e-retailer, Sheldon says.
“The biggest risk is the acquiring vendor pulling the plug on a product,” Sheldon says. “We see a lot of vendors acquired for certain strategic products, but not for all of their products.”
For example, web site acceleration firm Torbit notified clients that they had just 30 days to transition off Torbit’s services when @WalmartLabs, the e-commerce innovation arm of Wal-Mart Stores Inc., acquired it last year.
Other risk factors for web retailers include the end of further research and development of an acquired vendor’s products, reduced or discontinued application maintenance and support and bug fixes, Sheldon says.
Communication is one of the most important aspects of the service arrangement between retailer and vendor, and in some instances the acquiring vendor can take months to decide whether to continue or to pull the plug on a peripheral product, leaving e-retailer clients without an escape clause in their contract on the bubble.
In addition to presenting challenges to web retailers, the uptick in vendor consolidations is changing the mix of top vendors to North American e-retailers. Consider:
- Viewpoints LLC bought its way into the top three vendors in the Customer Reviews & Forums category in the Top 500 with its purchase of PowerReviews, which was acquired in 2012 by Bazaarvoice Inc. The U.S. Justice Department blocked the sale and ruled that Bazaarvoice must sell PowerReviews. As a result, Viewpoints went from one retailer client in the Top 500 to 82.
- In early July, marketing agency Merkle Inc. leapt into the search marketing services category when it acquired RKG LLC. RKG provides search engine marketing services to 50 of North America’s largest e-retailers, making it the second-most popular search engine marketing provider among the Top 500.
- Oracle Corp. has been one of the more active vendors in the past two years, beginning with its acquisition of Responsys Inc. late in 2013 for $1.5 billion. It now markets e-mail marketing services under the name Oracle Responsys. Those e-mail services are offered as part of the Oracle Marketing Cloud set of services that also includes web-hosted software for commerce, sales, customer service and social media.
The provider was named most often by online retailers ranked in the 2014 Top 500 in content management, CRM, customer service, e-commerce platform and site search (see table below). Those rankings reflect Oracle’s many recent acquisitions of companies that serve online retailers, including e-commerce software provider ATG, site search specialist Endeca and marketing technology firm Eloqua. And although Oracle’s pending acquisition of Micros Systems Inc. for about $5 billion was believed to be targeting Micros’ expertise in the hospitality industry, if the deal closes it would add 41 Top 500 retailers across 10 vendor categories.
But Oracle wasn’t a player among Top 500 retailers in e-mail marketing until buying its way into the No. 2 position with the Responsys acquisition.