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
Bill Briggs , Senior Editor
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:
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.
In the 2014 Top 500 Guide, 72 of North America’s largest e-retailers said they worked with Experian for e-mail marketing while 71 said they used Oracle Responsys. In the 2013 Top 500 Guide, 71 of ranked e-retailers said they used Experian, and 58 cited Responsys.
Salesforce.com Inc. also is becoming a stronger competitor in the e-mail marketing space since acquiring ExactTarget last year for $2.5 billion. 54 Top 500 retailers in the 2014 guide said they use either Salesforce.com or ExactTarget as their e-mail marketing vendor, up from 36 a year earlier. Salesforce.com trails closely behind Google’s 59 e-mail marketing retailer clients in the Top 500, which is the third-highest number in the category. Salesforce.com had no presence among Top 500 retailers in the 2013 edition.
Department store retailer Kohl’s Inc. recently switched e-mail marketing suppliers from Responsys to Salesforce.com’s ExactTarget, but the change had nothing to do with Oracle’s purchase of Responsys, a Kohl’s spokesman says. Rather, it was the result of its three-year contract with Responsys coming to an end and Kohl’s looking for a new supplier as it seeks to knit together multichannel e-mail marketing services to reach shoppers on any device they choose for opening e-mails, the spokesman says.
Kohl’s typically signs three-year contracts with e-mail marketing services providers, but the spokesman says including “out-clause” language in those contracts hasn’t been the norm.
Two to three years are the most common lengths for supplier contracts these days, says Sheldon, the Forrester analyst. Not so long ago, contracts signed by GSI Commerce, prior to its acquisition by eBay, ran seven, eight or even nine years, he says. At that time, some retailers outsourced all e-commerce functions to GSI and e-commerce was a non-strategic channel, making long-term contracts attractive for both sides. Such extended contract terms are no longer the norm. As some of those long-term contracts are coming to an end, many retailers are renewing with eBay Enterprise, but now with two-year renewal clauses, he adds.
CPO Commerce Inc., a niche retailer of tools and related items that operates 46 e-commerce sites, prefers to sign one-year supplier contracts, says Jeff Emmons, vice president, e-commerce.
That short duration offers the company more flexibility than two- or three-year contracts, he says. Until CPO Commerce itself was acquired in May by United Stationers Inc., a B2B retailer of industrial products and related items, the web-only retailer, which had 2013 web sales of $78 million, tended to work with smaller vendors and did not account for vendor consolidation in supplier contracts, Emmons says.
“We never had a legal team or gave it much thought, but we probably want to make sure it’s included as part of a larger company,” Emmons says.
One of his main fears about supplier consolidation is losing technical support for the applications CPO Commerce uses. “Generally the third parties we evaluated and selected were small, because we were small and they were easy to talk to,” Emmons says. If a CPO Commerce supplier is acquired by a large vendor, he’s concerned about submitting support requests to an e-mail address instead of speaking to a live technician. “I worry we are going to be just a number.”
Still, there’s an upside in such scenarios for existing retailer clients. “There are times when if it’s a smaller, less-mature vendor being acquired, that once it’s acquired clients can see an improvement in processes, such as 24/7 support and more timely responses than a smaller vendor can provide,” Sheldon says.
For retailers like CPO Commerce and Jimmy Jazz, the most successful relationships they have with suppliers are based on personal relationships between the companies. “Even when there’s a changing of the guard it’s about relationships,” says Jimmy Jazz’s Wachter. “Companies don’t do business with companies, they do business with people.”
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