October 1, 2015 11:46 AM
Pegasus Lighting wanted to consolidate vendors when it moved to a new e-commerce platform. But CEO Chris Johnson was taken by surprise in early 2015 when a month after signing a contract for an e-commerce platform by ShopVisible LLC, the vendor announced it was being acquired by Epicor Software Corp.
For Johnson and Pegasus, surprise quickly turned into confusion.
“I didn’t know who Epicor was,” Johnson says. “Then in June we learned that Epicor was spinning out its Retail Solutions Group and ShopVisible was part of that.” Epicor named the new business unit Aptos and it was under that name that the vendor began installing the new e-commerce platform for Pegasus.
So far so good, Johnson says, of the installation process under the newly formed supplier. Johnson has seen some turnover among vendor staff but he couldn’t attribute that to the merger. The jury is still out, though, because “we’re not yet live and I don’t know the impact of being a live customer yet,” Johnson says. “The biggest challenge could be the vendors internally dealing with their own combination.”
At press time, Pegasus was targeting the end of September to launch its redesigned website on the new platform. The new site uses responsive design, which enables it to render appropriately on any size device.
In Johnson’s case, the original plan was to reduce the number of vendors that Pegasus needed to supplement its Yahoo Small Business e-commerce system. The new Aptos platform, called Aptos Digital Commerce, will cut 5-10 other suppliers from the mix, Johnson says. Whether trimming vendors or adding new technology, retailers like Pegasus often have little option but to adapt as vendors buy other vendors or companies spin off business units. They have no control over consolidation, and vendor combinations inevitably cause delays and sometimes lead to the phasing out of services e-retailers like, say e-commerce directors and technology analysts. But once they are completed, merchants can pick up some new technology tools from merged companies and some analysts argue the bigger companies will be more reliable service providers in the long run.
According to an analysis of data in the Internet Retailer 2016 Leading Vendors to the Top 1000, vendor consolidation has touched many of the largest North American online retailers. For example, Oracle Corp.’s acquisition of Micros Systems Inc. in mid-2014 affected 67 retailers in the Internet Retailer 2015 Top 1000—that is, the online retailers Internet Retailer ranks in the 2015 Top 500 Guide and the 2015 Second 500 Guide—across 11 technology categories. And two of the biggest website performance management companies to serve retailers in the Top 1000 have merged. Dynatrace LLC said in June 2015 it would absorb Keynote, creating a company with more than 7,500 customers and 1,750 employees. Terms were not disclosed, but both companies are owned by private equity firm Thoma Bravo LLC.
Before the merger, Dynatrace and Keynote were among the top providers of web performance management services for Top 1000 retailers, along with New Relic Inc. and AlertSite, a vendor that was itself acquired by SmartBear Software back in 2011. Keynote had 55 Top 1000 clients, while Dynatrace led with 140, which includes retailers that listed Gomez and Compuware as suppliers. Dynatrace in December was spun out of Compuware, which had acquired Dynatrace in 2011 and Gomez in 2009. Post-merger, the “new” Dynatrace has 176 retail clients in the Top 1000 because some of the retailers used both services.
Consolidation is a fact of life these days, as major providers of business software increasingly recognize the need for e-commerce expertise and make acquisitions. Recent examples include Oracle buying ATG, SAP AG buying hybris, NetSuite Inc. acquiring Venda Inc. and, reaching back to 2011, eBay Inc. buying GSI Commerce and Magento.
That trend is likely to continue, say Forrester Research Inc. analysts. “E-business leaders should not be blind to the probable risk that the nimble, supportive vendor they fell in love with will probably become clunky and more expensive should it come under the umbrella of a new, larger organization,” wrote analysts Peter Sheldon and Michael Yamnitsky in the report, “U.S. Commerce Platform Technology and Services Forecast, 2014 to 2019.”
Such mergers among large suppliers often reflect companies with no credible e-commerce technology making a strategic move to buy their way in, Sheldon says. Two remaining heavyweights that Sheldon says many industry observers speculate will move into e-commerce via acquisition are Salesforce.com Inc., a customer relationship management supplier that’s “evolving into an end-to-end vendor,” and Adobe Systems Inc., which has a customer experience management platform. Neither has an e-commerce platform of its own, Sheldon adds.
But retailers can ride the consolidation wave with a degree of confidence because, “for the most part, it’s good and positive for the industry,” Sheldon says. “As more money goes into these solutions it removes some concerns about viability. Look at hybris. It’s going to be around for a long time. You’re not going to lose your job if you pick them. The last thing a retailer wants to do is make a deal with a small, unfunded vendor.”
The downside for retailers is what happens when big companies, like Oracle, buy technology they don’t need. For example, Oracle bought Micros Systems Inc., which included the Micros Open Commerce Platform. “Oracle didn’t buy Micros to get that, they wanted its point-of-sale and hospitality and restaurant solutions,” Sheldon says. Oracle has an e-commerce platform through its purchase of ATG and Endeca so it really doesn’t need Micros OCP.”
That would force retailers using the Micros technology to move to a new e-commerce platform, and that’s an expensive proposition. Oracle did not respond to a request for comment.
The cost of a new e-commerce platform can typically range from $500,000-$10 million or much higher, but the average is closer to $5 million for larger retailers, Sheldon says.
Small retailers, with less than $2 million in annual web sales, can pay much less, ranging from $7,000-$50,000 for the first year and hosted versions can be purchased for a small monthly fee, says Rod Forsythe, a senior consultant at FitForCommerce, an e-commerce technology consulting firm.
Despite such potentially lofty price tags, Forrester says spending on e-commerce technology doubled from 2010 to 2014, and will nearly double again from $1.2 billion last year to just under $2.1 billion in 2019. “This growth is coming on the back of more than five years of rampant commerce technology replatforming as online retailers have upgraded their commerce technologies to support increased revenues and to drive innovation,” the Forrester report says. The consultancy also expects companies will upgrade their e-commerce platforms on average every five or six years between 2014 and 2019, as opposed to seven years or more previously.
On the flip side, when an e-commerce platform vendor buys a smaller vendor that offers a specific service, such as a site search engine or email marketing software, it can help retailers, Forsythe says. “It benefits the retailer because it forces the platform to fully ‘bake’ the point solution into the platform,” Forsythe says. “That means less integration costs for retailers.”
Some vendors do it better than others, but the most successful ones weave the task-specific technology into the broader platform, Forsythe says. And when a vendor adds a specialized application, such as email marketing, to an e-commerce platform it can mean new budget dollars are available for research and development. “That’s good for the smaller company and it’s a way for the retailer to watch a point solution grow rather than stay stagnant,” Forsythe says.
Like Pegasus Lighting, many other Top 1000 merchants also are investing money and resources in commercial e-commerce applications and services, particularly in specialized categories such as social media marketing, content delivery and fulfillment. That conclusion is based on an analysis of data from the 2016 Leading Vendors to the Top 1000, Internet Retailer’s annual ranking of the biggest vendors based on the number of Top 1000 merchants that list a particular vendor as a provider, and the total web sales those retailers represent. Internet Retailer bases its rankings on the retailers listed in its Top 500 Guide and Second 500 Guide that verify vendors as their provider in 30 categories.
While the number of retailer clients for the 310 vendors ranked in the 2016 Leading Vendors to the Top 1000 across all 30 categories (some appear in multiple categories) collectively grew 4.8% to 14,328 in 2015 from 13,675 in 2014, vendors in several specialized categories grew much faster. Based on the number of Top 1000 clients, e-commerce platform was the fastest-growing vendor category with a customer base that grew 20.1% to 508 retailers in 2015. That compares with growth of 19.2% to 236 retailers for mobile commerce, growth of 15.6% to 252 merchants for customer service software and 15.1% to 856 e-retailers in online advertising. The fifth-fastest growing vendor category, website testing/optimization, grew by 8.8% to 432 Top 1000 retailers.
All web retailers face changes as vendors merge with one another, but vendor spinoffs also are a factor. In July 2015, eBay agreed to sell its technology division, eBay Enterprise, for $925 million to a group of investment firms: Sterling Partners, Longview Asset Management, Innotrac Corp., along with companies owned by the Permira Funds. The transaction is expected to close before the end of the year. 178 of the Top 1000 use either the free Community edition or Enterprise versions of the Magento platform, which is part of eBay Enterprise. 27 Top 1000 merchants use eBay Enterprise for their e-commerce platform, 42 for fulfillment and 15 for search engine marketing.
A month after eBay’s announcement, Yahoo Inc. initiated its own spinoff of Yahoo Small Business as part of a move to minimize the tax burden from Yahoo’s lucrative investment in Alibaba Group Holding Ltd., China’s leading e-commerce company. The Yahoo Small Business unit is now called Luminate from Aabaco Small Business. Yahoo says it expects the separation will be completed in the fourth quarter. At that time the name will change to Aabaco Holdings Inc.
The client base for the former Yahoo Small Business technology service has declined, but it’s still significant. Of the retailers in the Internet Retailer Top 1000 in 2014, 38 listed Yahoo Small Business as their e-commerce platform provider—12 in the Top 500 and 26 in the Second 500, according to Internet Retailer’s Top500Guide.com. That’s down significantly from 2010 when 65 Top 1000 e-retailers used the Yahoo technology, 19 in the Top 500 and 46 in the Second 500.
For online retailer Matthew O’Donnell, president of NorthShoreCommercialDoor.com, nothing will change. The online seller of garage-door controls, parts and openers, says he believes the transition will be smooth, and he looks forward to how Yahoo’s unit could help his business grow even more when Luminate operates as an independent company. O’Donnell considered moving off of the Yahoo platform, but says he couldn’t make other alternatives work.
“Yahoo customizes the different plug-ins to meet my needs,” he says. “The template makes it super-easy for a novice to get started. And I could get everything done through Yahoo’s chain of vendors, from shipping managers for specialized shipping orders down to data feeds.”
But for retailers like NorthShoreCommercialDoor.com and Pegasus Lighting, change driven by vendor spinoffs or consolidation is out of their hands and they generally just hope for the best regarding continued product innovation and technical support. In Pegasus’s case, installing and transitioning to a new e-commerce platform is challenging for both parties and success will be determined by the people and product just like any other such project. With a month to go before the rollout of the Aptos technology, Pegasus CEO Johnson didn’t report any negatives and anticipated the process would go the way most such launches do. “No project is clean, so they are going to hate me and I’m going to hate them for a while,” he says.