chapter 4 types of e-commerce providers and vendors

Chapter 4: Types of E-Commerce Providers and Vendors “When nations grow old, the arts grow cold and commerce settles on every tree.” —William Blake (1757–1827) Overview The Internet has proven to be a disappointment for many retailers and manufacturers, as sales channels are hyped to be both efficient and virtual. First generation e-commerce adopters now find themselves mired in technology bearing little in common with their core businesses, because they invested in an infrastructure often costing hundreds of millions of dollars. Today, industry analysts estimate that one-time e-commerce setup costs, including technology and labor, range from $22 million to $42 million, depending on transaction volume (5,000 to 25,000 transactions/day) for companies building from scratch. Very few companies make money, and even fewer return an attractive ROI at those levels. For many companies demanding online profitability and reliability, the traditional buy/build approach is no longer the best option. Without ever buying a piece of software or hardware, new business architectures enabled by e- commerce Internet service providers (ECISPs) allow companies to establish fully customized online sales channels. Under guarantees of world-class service delivery, the ownership, integration, and ongoing management of this infrastructure can be outsourced. By freeing retailers and manufacturers to focus on their brand, merchandise, and customers—not the technology, ECISPs radically improve the attractiveness of e- commerce. This chapter examines types of ECISPs and vendors. It addresses three topics: how the next generation ECISP architecture delivers complete, one-stop online sales channels, which major advantages companies gain by outsourcing their e-commerce infrastructure, and why many early adopters have struggled with the first generation buy/build approach. You will also learn how an ECISP architecture enables manufacturers and retailers to achieve profitability at $50 million to $290 million in online sales, avoid managing numerous integration and third-party service relationships, ensure reliability and scalability in your Web site and order processing, focus your organization on real profit drivers—not technology, and upgrade functionality continuously and seamlessly over time. Traditional Buy/Build Approach Over 93 percent of first generation e-commerce adopters utilized a “buy/build architecture” in establishing their technology platform. This architecture generally begins with a commerce software package from leading vendors such as BroadVision, Blue Martini, ATG, and Microsoft (see Table 4.1) [1] . Bolted upon this are dozens of individual applications to manage the online channel: planning, merchandising, marketing, fulfillment, customer service, business intelligence, and so on. Hardware connects this infrastructure to the Internet, including database, Web, and application servers; routers and firewalls; load balancers; and the secure facility that hosts it all. To customize and integrate the platform, most companies rely on a systems integrator for 3 to 12 months of hard work that is rarely completed on time or within budget. Table 4.1: Sample of e-commerce software vendors Vendor Description Sample Customers Ariba Ariba provides an open commerce platform to build B2B marketplaces, manage corporate purchasing, and electronically enable suppliers and commerce service providers on the Internet. CheMatch, Chevron, Covalex, Dow, Merck Commerce One Commerce One enables buyers and sellers to trade and creates new business opportunities for all trading partners. Commerce One offers solutions for companies who want to establish a portal on the Global Trading Web, those who want to host portals for others, and those looking for a comprehensive e-procurement solution and robust return on investment. The company’s products include the Commerce One BuySite e-procurement application and the Commerce One MarketSite Solution, the technology that allows Internet market makers to build open marketplaces and link them to the Global Trading Web. Duke Energy, Eastman, Praxair, Shell, Schlumberger Crossworlds Software CrossWorlds Software is a leading provider of e-business infrastructure software to enable the integration and automation of business processes within enterprises and among trading partners using the Internet (acquired by IBM). Dow Chemical, DuPont, Royal Philips e-Credit eCredit.com, Inc. is a leader in the market for real-time credit, financing, and related services for e-business through the eCredit.com Global Financing Network™. With the Global Financing Network, the company intelligently connects businesses to financing partners and global information sources so credit and financing decisions can be processed in real time at the point of sale. Beckman, BP Amoco, Cargill, Chevron, Commerx, Inc. (PlasticsNet.Com), Conoco, Procter & Gamble, Texaco HAHT Commerce HAHT Commerce, Inc. is the leading global provider of business-to- business sell-side e-commerce solutions. HAHT Commerce e- Celanese, Dow Corning, OxyChem, Table 4.1: Sample of e-commerce software vendors Vendor Description Sample Customers Scenarios™ are the first suite of packaged Internet applications that integrate and automate marketing, selling, fulfillment, and service functions across the entire business customer life cycle, allowing companies to increase revenue, improve service levels, and lower costs to their distribution channels and customers. Montell Polyplefins, Sigma-Aldrich i2 Technologies i2 Technologies is the leading provider of supply chain optimization solutions. The RHYTHM family of software provides comprehensive decision support across both interenterprise and intraenter-prise supply chains: from suppliers’ suppliers to customers’ customers. OxyChem IBM IBM e-business technology and solutions help chemical and petroleum companies compete for market leadership in the following key areas: building efficient and flexible supply value chains, delivering more than price and quality in customer relationships, providing e-market solutions that transform your business architecture, and building business value through ERP extensions. BOC, Degussa-Hüls, Eastman Chemical, e-Chemicals, Moai Moai is a leading provider of negotiated e-commerce solutions for online auctions, online procurement, and e-marketplaces. Although Moai’s primary focus is on customers in the business-to-business market, the company also has customers in the business-to- consumer and consumer-to-consumer markets. Eastman mySAP.com The mySAP.com marketplace is an open electronic hub that creates seamless intercompany relationships for buying, selling, and collaborating within and across industries. It provides the infrastructure, security, and applications to transform previously disconnected business transactions into a single collaborative process. Various Oracle Oracle Corp. is the world’s leading supplier of software for information management. The company offers database, tools, and application products, along with related consulting, education, and support services, in more than 145 countries around the world. Oracle provides an Internet-ready platform for building and deploying Web-based applications, a comprehensive suite of Internet-enabled business applications, professional services for help in formulating e- business strategy, as well as in designing, customizing, and implementing e-business solutions. Hoechst Marion Roussel, ICI Chloro Chemicals, IMC Global Inc, Reichhold Chemicals Table 4.1: Sample of e-commerce software vendors Vendor Description Sample Customers Sapient Sapient provides Internet strategy consulting, sophisticated end-to- end solutions, and launch support to Global 1000 and start-up companies. As Architects for the New Economy(r), Sapient helps clients define their Internet strategies and design, architect, develop, and implement solutions to execute those strategies. Amoco, ChemConnect, Praxair webMethods webMethods is the leading provider of open solutions for business- to-business (B2B) integration. The webMethods B2B(tm) solution provides companies with integrated, direct links to buyers and suppliers, connecting them to major B2B marketplaces and enabling real-time, interactive communication through the Internet, regardless of existing technology infrastructure. Powered by XML, webMethods B2B can automate critical business processes, such as customer relations, procurement and financial services, supply chain management, logistics, and sell-side/buy-side e-commerce. Ashland Chemicals, ChemConnect, Eastman Chemical, FMC Corp., The Geon Company, Optimum Logistics, OxyChem, Ventro Corp. With this approach, each retailer and manufacturer reluctantly enters the technology management business and replicates an infrastructure that exists at every other company. Bits and pieces might be outsourced to gain scale and expertise, but the core technology platform gets re-created countless times. Drawing a real estate analogy, this would be similar to all mall-based retailers building, owning, and operating the facilities in which their stores reside, rather than renting floor space from specialized mall developers. In an industry that has never invested heavily in IT (under 5% of revenues on average), this technology ownership approach has proven challenging, especially for midsized retailers and manufacturers. Real Profit Drivers Distraction The key elements of retail differentiation have long been branding, merchandising, and customer service. By building e-commerce in-house, organizational focus shifts to technology management, systems integration, and drop ship order fulfillment. Most offline companies have limited experience in these areas and struggle to recruit talent in competitive IT positions. With an average e-commerce staff of 767, multichannel retailers have seen their organizations balloon beyond expectation to support ongoing problems in technology and operations. Scalability and Reliability Struggle Front-page headlines in 2002 showcased site failures at such leading online retailers as Toys R Us, eBbay, Yahoo!, Amazon, and Wal-Mart. Smaller companies wage less-publicized, daily struggles to meet consumer expectations for site uptime, response time, and product shipment. Confirming how difficult most businesses have found owning and operating a reliable e-commerce infrastructure, industry analysts have found that a whopping 85% of companies planned to change their commerce software package within seven months of being surveyed. Even with replacement, the reliability problem persists because 93% of sites are technically understaffed. In other words, because of escalating salary demands, equity inflexibility, and less desirable work environments, offline companies face daunting odds in recruiting against start-ups and professional services firms. The end result: over 37% of orders are failing to get to consumers on time. Third-Party Service Relationships and Integration Management Industry analysts have found that 68% of companies have to rely on nine or more partners to develop and run their Web commerce sites. Systems integration often constitutes the most important outsourced function because (in a buy/build architecture) literally dozens of complex linkages must be created across applications, commerce packages, databases, legacy systems, and third-party services. Unfortunately, most companies receive less than desired results from their integration partner. For example, in a comprehensive evaluation of the leading e-commerce integrators, industry analysts have found that even top performers among a sample of 65 integrators earned unimpressive scores, and those on the low end showed surprisingly few strengths. Additionally, not one vendor demonstrated excellence across all service offerings. Integrators face intense pressure to deliver committed projects, but little pressure to improve quality. That’s because demand for integration services will exceed supply, thus driving the major 3,900 global Web sites to hire whatever service providers they can get. Vendor clients are confused, too. Stunned by skyrocketing price tags and un-even quality, clients cut corners, switch vendors, or bring work in-house. Unfortunately, few integrator customers have enough depth of experience to know what to cut, whom they should turn to, or how to build complex e-commerce sites themselves. [1] “e-business vendors,” © Copyright 2003 eChemPeople, eChemPeople, 131 Shady Lane, Bolingbrook, Illinois 60440 Online Sales Channels: Internet Selling Environment The Internet selling environment includes a hosted online store featuring customer management, advanced selling, shopping cart, and order processing functionality. Although the ECISP builds and hosts the store, clients retain complete control over design elements and merchandising. Consumers see only the client’s brand, content, and merchandise. The ECISP handles everything technical, including site uptime, response time, and the management of customer shopping sessions. The ECISP also handles tax calculation, payment processing, data encryption, order routing, and customer e-mail notification. The Integration of Business Services and Applications Integrated business applications and services includes a full suite of tools and services to manage the online channel, including merchandise planning, storefront management, marketing, fulfillment, and customer service. These applications allow clients considerable flexibility. Companies can choose to fulfill orders in one or a combination of ways: in-house warehousing and fulfillment, third-party logistics services using a preintegrated provider, and/or drop shipping using preintegrated vendors. Similarly, clients can perform customer service in- house, or they can outsource this service to a preintegrated call center. In either case, account management and advanced CRM applications support the service representatives. Marketing applications and services include e- mail campaigns and affiliate programs. Storefront management applications include catalog management, pricing and promotions, and content management. And finally, merchandise planning includes optional applications for seasonal planning, demand forecasting, replenishment, and purchase order management. Business Intelligence Service Business intelligence service (BIS) includes real-time reports, advanced ad hoc reporting, and financial data feeds to analyze client business performance. In an ECISP environment, clients retain ownership of their data and flexibility as to its usage. Clients receive a combination of direct data feeds (in a format of their choosing) and access to standard reports delivered through an online portal. With an online analytical processing (OLAP) package, reporting capabilities become extremely powerful and flexible in terms of ad hoc design using multiple data sources. Advisory Service Advisory services include e-commerce expertise and assistance in merchandising, demand forecasting, marketing, customer service, and logistics. Given their advantaged position in serving dozens of companies simultaneously, ECISPs can leverage a single team of business experts across many clients. Clients benefit from performance benchmarking and best practices gleaned from the entire network. For example, clients can benchmark their performance in customer acquisition, shopping conversion, fulfillment time and accuracy, and staffing levels, all while their ECISP partner recommends changes to move closer to best practice. Rather than reinventing the e-commerce wheel, businesses implement well the first time and receive ongoing help from a partner financially committed to their success. Infrastructure of Hosted Technology Hosted technology infrastructure includes world-class e-commerce infrastructure with guaranteed reliability. ECISPs specialize in designing technology platforms built to scale with the highest degree of operational excellence. ECISPs achieve economies of scale by managing a single, multitenant architecture. Rather than operating a separate technology cluster for each client (thereby losing all of the advantages of scale), ECISPs focus on a single platform built with best-of-breed components throughout. Some even issue industry-leading service level agreements covering site uptime, response time, and customer service responsiveness. Clients sleep at night knowing that their sites run on the best hardware and software, all backed by failover redundancy, technology operations experts, and quality of service guarantees. And, they never have to own, build, or manage any technology themselves. The Advantages of Outsourcing an Infrastructure to an ECISP Thanks to the new ECISP architecture, many companies can for the first time sustainably conduct e-commerce while selling less than $594 million annually online. With dramatically lower up-front costs, predictable ongoing fees, and guaranteed operational reliability, the ECISP architecture equips offline companies with the confidence that their online business will succeed. Better Return on Investment The ECISP architecture enables profitable e-commerce at one tenth the revenues of those required by traditional buy/build approaches. Based on industry averages for transaction values and operating costs, branded apparel manufacturers and multicategory retailers could achieve profitability at between $22 million and $24 million in online sales, if operating on an Escalate e-commerce platform. Even multicategory pure-plays could hit profitability at $32 million in sales. These compare to the $84 million to $2.3 billion breakeven estimates for the traditional architecture discussed earlier. Best of all, companies earn a far higher return on investment when using an ECISP due to the low setup costs. Focus and Decision-Making Improvement With the ability to focus on profit drivers, the ECISP architecture enables companies to outsource less important “context” technology functions (customization, integration, maintenance) while owning “core” business functions (branding, merchandising, service). Companies typically require at most one IT employee to interface with their ECISP provider. In fact, most companies require just 8 to 12 employees to run their entire online business, as compared to staffing averages for those who build/own (76 for store-based retailers and 90 for pure-plays). With an ECISP, employees focus on core business functions, including marketing, merchandising, and content management—not the technology. Third-Party Service Relationships and Management of Integration Reduction When using an ECISP, companies may require as few as one additional e-commerce relationship, that with a Web design firm. The ECISP translates the design work into a functioning Web storefront, thereby simplifying even that relationship. Some companies will also choose to hire a third-party consulting firm to perform implementation on the ECISP architecture. Having preintegrated all other third-party applications and services, the ECISP ensures ongoing quality of performance, freeing the client to focus on running the business. For example, should a client desire to outsource customer service, the ECISP recommends one or more providers based on the client’s specific requirements, from the service providers that have already been integrated. The ECISP handles ongoing service provider integration, data transmission, billing, and quality monitoring. The client focuses on the real business drivers: service policies and representative training. Solution Dynamics Finally, the dynamic solution here is the continuous upgrading and addition of new functionality. By managing a single, multitenant architecture, ECISPs can continuously enhance applications, features, and functionality for all clients simultaneously. An analogy can be drawn to telephone companies (telcos). When a telco adds a new feature like call waiting, the telco can immediately make it available to any customer on their network. Similarly, as the ECISP adds a new feature like digital gift certificates, every client can receive it on their site. And, because ECISPs must continuously innovate on behalf of their broad network of clients, each individual company can expect frequent platform improvements that keep them ahead of their competition. Summary Selling online has become an imperative for retailers and an increasing number of manufacturers. Recognizing that a 24 percent loss in customers can completely eliminate the profitability of their offline stores, retailers have raced to drive e-commerce growth to $77 billion in 2004 (6.8% of U.S. retail). By mid-2005, over 95 percent of the largest U.S. retailers (over $60 billion in annual sales) will be e-commerce enabled. And, for midsized retailers ($900 million to $60 billion in sales), over 85 percent will be selling online. Yet these adopters face a fundamental challenge: using the first generation buy/build architecture, many cannot make money at e-commerce, but none can afford to avoid trying. For most of them, owning and operating an e-commerce infrastructure does not make economic or operational sense. Finally, next generation ECISPs make that ownership unnecessary. They leverage the Internet itself to deliver a complete online channel solution with guaranteed levels of performance quality. Companies contract for a fully branded online store, all of the applications and services required to manage it, and a partner committed to their ongoing performance improvement. Implementations of 4 to 13 months get accelerated to 4 to 14 weeks, and up- front costs are cut by 64 to 89 percent. From a profitability and reliability standpoint, businesses can now justify e- commerce to their shareholders and customers. By enabling companies to focus on their core business, ECISPs unlock the full potential of online sales channels. ECISPs provide the sustainable e-commerce solution that manufacturers and retailers have been seeking. . Chapter 4: Types of E-Commerce Providers and Vendors “When nations grow old, the arts grow cold and commerce settles on every tree.” —William Blake. improvement. Implementations of 4 to 13 months get accelerated to 4 to 14 weeks, and up- front costs are cut by 64 to 89 percent. From a profitability and reliability standpoint, businesses can now. focus on their brand, merchandise, and customers—not the technology, ECISPs radically improve the attractiveness of e- commerce. This chapter examines types of ECISPs and vendors. It addresses three