May 29, 2013, Posted by Phil Wohl
If consumer sites such as Gilt, Fab and Warby Parker are the shiny gems of the eCommerce world, then the eCommerce platform vendors are the miners, engineers and heavy equipment that allow these gems to be unearthed.
Companies like Demandware, hybris and Elastic Path may not be household names, but they play a critical role in the eCommerce ecosystem, providing a full suite of tools for building, operating and optimizing a commerce site.
Buy or Build
One of the most important decisions an eCommerce property makes before launching the site is whether to buy or build this platform capability. Those who build (usually larger organizations) typically believe that the eCommerce platform functionality is so mission critical that it cannot be entrusted to a 3rd party vendor. A recent Forrester report highlighted the prevalence of “homegrown” eCommerce systems, estimating that a whopping 40% of global enterprises conducting online commerce built their own proprietary systems. These homegrown platforms can no longer keep up with the pace of change and architecture demands of today’s mobile web.
Those who buy have plenty of choices. Catapult currently tracks over 30 platform vendors – a figure that does not even include all the point solution vendors in areas such as product recommendations, cart recovery and mobile optimization. In many cases, these point solution companies are looking to partner with the large platform vendors, in order to gain access to the large installed base of merchants.
The dynamic nature of the eCommerce sector requires that the platform vendors be extremely nimble in their ability to bring new features to market quickly. Yesterday’s differentiating features (publishing engine, shopping cart, catalog management, order management, search etc.) have become “check-the-box” table stakes. The battlefield has clearly shifted towards next-generation features such as:
IPO and M&A Activity
Last week, eCommerce platform vendor ChannelAdvisor (ECOM) joined Marketo (MKTO) and Tableau Software (DATA) in the ranks of recent high-flying software IPOs, soaring 30% in its market debut. At $56M in LTM revenue, ChannelAdvisor is relatively small when compared to industry giants such as IBM and Oracle/ATG, but well-positioned to continue to outgrow the market based on its industry-leading ability to manage marketplace channels such as eBay, Amazon and Google Shopping. Munich-based hybris is widely expected to be the next eCommerce platform company to file for an IPO, perhaps as early as Q3.
The M&A market for eCommerce platform companies remains extremely healthy. Oracle, IBM and eBay have all effectively used M&A to build out their eCommerce capabilities. Earlier this month, Netsuite raised some eyebrows when they acquired OrderMotion, an eCommerce order management solution. This deal has led to speculation that NetSuite, after years of nibbling around the edges of eCommerce, is now ready to jump in with both feet.
The CEOs we have spoken to in this space echo a similar refrain: running an eCommerce platform company is not for the faint of heart. The most commonly cited reasons include:
As ChannelAdvisor demonstrated last week, the IPO window is open for eCommerce platform companies with differentiated next-generation features , scalable infrastructure and revenue scale/momentum. In addition, we expect the larger vendors, both private and public, to augment their internal R&D efforts with strategic acquisitions as a way to keep up with the breathtaking pace of innovation this space is currently experiencing.
Phil Wohl is a Partner at Catapult Advisors, an investment bank providing M&A and capital raising advice to leading software and internet companies. https://www.catapultadvisors.com