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The growing importance of electronic commerce over the Internet is creating demand for software tools that connect the customer interface at a storefront on the World Wide Web with the company's back-room operations. The movement of electronic commerce away from electronic data interchange (EDI) and to Internet shopping, however, is contingent on improved transaction processing (e.g., secure payments and inventory management). In particular, there is a need for improved coordination between the customer and supplier during the purchase transactions.
As companies ponder the challenge of developing electronic commerce sites, they do not see clear industry-standard solutions to assist them in their efforts. As a result, they are often faced with the choice of developing internal software solutions to manage the process of online purchasing. A variety of companies are offering software solutions that are beginning to address these issues. Offerings range from low-end and mid-range products with price points less than $50,000 to robust solutions that range from $100,000 to $1 million. The off-the-shelf solutions link a company's storefront web server to back-end software to improve the speed, efficiency and security of online purchases.
The competition in the creation of software solutions is diverse. The usual suspects such as Microsoft, IBM, Netscape are serious contenders. There also are a number of less established players, including Open Market and Broadvision, that are posed to assume leadership positions in this market. Although commitment, speed and superiority of these companies matter, another factor may end up shaping the future: patents. Earlier this month, Open Market received patents for areas of electronic commerce that may require other software providers to pay them royalties or discontinue using increasingly common features such as online credit card verification and shopping carts. The impact of these patents may play a role in shaping the future of this market.
The rise of electronic commerce (e-commerce) over the Internet is creating demand for software tools that connect the customer interface with the company’s back-room operations. The market for such e-commerce platforms is the focus of this paper. In the four remaining sections, we present the opportunity that currently exists in the market. We then discuss the concept and technology of software tools that fill the void identified. Next, we identify the software manufacturers and their products in this market space. Finally, we discuss a recent event that is expected to drive the industry in the future.
E-commerce first became popular with electronic data interchange (EDI),
an expensive but effective means to conduct business-to-business transactions.
EDI allowed corporations or organizations with similar equipment and established
relationships to exchange information such as purchase orders, bid requests
and responses. However, the increased use of the Internet has prompted
many companies to create electronic storefronts on the World Wide Web (Web)
to meet the demands of business customers and consumers alike. Some companies
created electronic stores to complement their other distribution channels
(e.g., Barnes and Noble and Office Depot), while other firms used the Internet
as a means to enter markets for the first time (Amazon.com and E*Trade).
A matrix created by Microsoft (see below) indicates the types of transactions
conducted via electronic commerce. The trend is moving from business purchases
of hard goods to both business and consumer purchases of digital goods
and services.
| Contact/Goods | Hard Goods | Digital Goods & Services |
| Business to Consumer | Retail/Direct | Information, Media, Software, Ticketing, Reservations, & Financial Services |
| Business to Business | Wholesale, Corporate Purchasing, Supply Chain & Trading | Corporate Subscriptions & Professional Services |
| Spring 1996 | Spring 1997 |
| Payments | Trust |
| Security | Inability to accept/make payments |
| Network robustness | No interoperability between applications |
| Information access | Lack of standards |
| Business models | Inability to find/access information |
| Lack of public key infrastructure | Lack of public key infrastructure |
As many of today’s companies ponder the challenge of developing e-commerce sites, they do not see clear industry-standard solutions to assist them in their efforts. As a result, they are often faced with the choice of developing internal software solutions to manage the process of online purchasing – frequently a long, expensive process that may not succeed. This barrier has prevented many companies from establishing active e-commerce channels; the market is currently in the early-adopter stage of the product life cycle. However, the market is currently seeing the emergence of companies offering a variety of software solutions that address these issues. Offerings range from low-end and mid-range products with price points less than $50,000 to robust solutions that range from $100,000 to $1 million. The solutions offered by entities like BroadVision, Open Market, Netscape, IBM and Microsoft vary in both functionality and complexity.
The basic architecture of an Internet commerce system is illustrated in Exhibit 1: Internet Commerce System Architecture. Customers use a web browser to connect to a company’s web site, which is run off of its web content server. After navigating through product offerings customers can either download information directly from the site (if ordering soft goods, such as software or research reports) or complete order forms for desired products (if ordering hard goods such as clothing or consumer electronics). The web server is linked to several back-end software components including:
As solutions begin to emerge from different software vendors, certain trends are becoming apparent. Initial solutions tended to provide stable product platforms and architectures for e-commerce. Early adopters were forced to spend significant amounts of time and money to customize these solutions to meet their unique needs. Now, the types of solutions coming to market are different, as merchant and Web application server vendors are beginning to focus on vertical markets and are tailoring their offerings to meet more specialized business demands. For example, Open Market is appealing to vertical markets by combining its Transact payment engine with offerings and partnerships in the business-to-business catalog, document publishing, content management and electronic software distribution sectors. BroadVision is offering a set of WebApps for financial services, electronic retailing and knowledge management.
As they continue to evolve, software solutions will not only differentiate themselves by becoming focused on different vertical markets, but they will also vary in the way in which they choose to link the components of their solutions. Companies recognize the need to base their e-commerce infrastructure on an open-software platform and production-quality Web technologies. However, they are also faced with the challenge of linking new front-office Web storefronts with existing back-office business processes and legacy systems without limiting their business options. Solution providers are responding with different models to meet these needs, from point products for building online stores to "industrial-strength" integrated enterprise applications that can run crucial parts of the business.
E-commerce software solutions will continue to evolve based on vertical markets and on scale and scope of the solution. This evolution will enable customers to purchase solutions that are not only better suited to their needs, but require much less time, effort and money to implement. As the market becomes more defined, leaders will begin to establish market standards. For now, different competitors are pursing different routes to win market share in the e-commerce software solution marketplace.
The competition in this market is diverse. Some of the competition is from in-house programmers striving to create a product that meets transaction criteria unique to the firm. Recently, however, off-the-shelf solutions have become sophisticated and are replacing in-house efforts. Although the off-the-shelf solutions can take up to three months to customize (depending upon their complexity), they can save companies valuable time and effort. The companies below represent many of the key players in this market space.
· Generally considered the best of class in this product segment. However, its products are also more expensive than some others, although its product line is more robust.
· Pioneer in back-end integration. It recently added front-end products to complement this strength.
· Transact 4.0 merchant server software product provides secure payment, order management, and other related features. Its entry level price is $125,000 (recently dropped from $250,000), and it insists that this solution costs much less than building comparable software in house.
· Executives at the company describe Transact as industrial strength software that can run crucial aspects of a large enterprise’s business and link critical systems. It is not just a product for building online stores. In fact, Open Market bills Transact as "[t]he first full, packaged e-commerce application, not just a toolkit for merchants to build their own Web stores."
· Transact is sold through Open Market’s own sales force and by CSPs (Commerce Server Providers) who operate hosted commerce sites that generate recurring revenue to Open Market.
· Partners include Ariba Technologies, Portland Software, Allaire, iCat, and Vignette.
· CSPs include AT&T, BBN, Beflacom, British Telecom, CM Telecommunications, FUNB, ECNet, ICOMS, iStar Internet, JADCO, ManGlobe Virtual Corporation, MCI, Telstra, Toronto Dominion Bank, UUNET.
· Runs only on Unix, but NT version expected in tandem with NT 5.0 release. Also works with Oracle and Sybase databases.
· Most industry publications consider IBM to be Open Market’s most serious competition, other than in-house developers.
· Net.Commerce Start is designed for medium-sized and large companies that want to set up an e-commerce site quickly for a low entry price. It includes a store creation wizard, payment processing, and database communications tools.
· Net.Commerce Pro, designed for large enterprises, adds advanced catalog tools that include search methods and "shopping advisers." It also comes with back-end integration tools to integrate with legacy systems (specifically those that handle inventory and logistics) and EDI software.
· eTill software add-on provides an electronic cash register for its Commerce Point payment system.
· Much of IBM’s efforts in this area are based on its desire to become a commerce service provider and manage commerce sites.
· Runs on NT, AS/400, and Unix.
· Netscape is in the process of integrating a number of different product lines into its own. Actra, formerly a joint venture of Netscape and GE Information Services, and Kiva, formerly a private company, have recently been purchased by Netscape in order to grow its presence in this segment. Its efforts are intended to provide a complete line of Internet commerce application software tools for both business-to-customer and business-to-business transactions. Target markets include electronic commerce, customer self-service, supply chain management, and workflow.
· Merchant System (formerly Actra) combines front-end catalog management with back-end order management and payment processing. Its architecture includes three servers: one where the site is staged (Staging Server), one at the live site (Merchant Server), and one to perform transactions (Transaction Server).
· PublishingXpert is a server application that acts as a front end for business-to-business communications.
· MerchantXpert, a consumer oriented catalog server, includes personalization (the ability to direct content to customers based on their preferences) and order tracking.
· ECXpert is a web-based EDI application that will act as a data translator, allowing companies to communicate seamlessly with each other over the Internet.
· Netscape Application (high end) and Enterprise (low end) Server products (formerly Kiva) enable rapid development of Web-based business applications and offer a fast and scaleable platform for application deployment. Products are designed to speed transaction processing and simplify interoperability.
· Products work on NT and Unix.
· One-To-One is the flagship product that allows customers to build, deploy, and maintain interactive, customized web sites.
· A robust application system which provides a secure transaction and open architecture for scaleable performance and business integration, a profiling database and matching engine for one-to-one personalization, and easy-to-use desktop tools enabling dynamic control and content management of large-scale, complex sites.
· Primarily focused on customer centric one-to-one marketing technologies as opposed to back end transaction processing, although the company recently added capabilities in this area.
· For $125,000, a systems integrator will deliver a working Web storefront within 30 days.
· Targets specific vertical markets with WebApps: commerce, finance, and knowledge management.
· US West, Kodak, Liberty Financial, GTE, HP, and Bell Atlantic
· Merchant Server product has been modestly successful. A second generation product was introduced in 1997—after the first generation was scrapped due to poor performance.
· Merchant Server suite is now included in Site Server Enterprise Edition, which provides both toolkits and pre-built software modules for building catalogs, processing orders, and administering sites.
· Its technology is not as robust as the some other offerings, but a Web storefront can be developed using templates for about $50,000.
· Microsoft’s products generally require more programming expertise than some of the competitors’ offerings.
· Runs only on NT.
· Commerce Exchange 2.0 links existing back-end systems of large corporations to the Internet for commerce applications.
· Commerce solutions deliver back- and front-office functionality, including product presentation, credit card processing, order and purchase order processing, product fulfillment, and distribution.
· For corporate customers, InterWorld’s suite lets companies link Web storefronts to existing shipping and receiving, management resource process, EDI, and inventory management systems.
· For CSPs, the software allows a company to host multiple Internet storefronts while giving each merchant or vendor the ability to administer and manage its sites remotely.
· According to Zona Research, InterWorld is the only high-end software vendor that offers an auction application, so it could be well positioned to move into the rapidly growing online auction market.
· Pricing for Commerce Exchange 2.0 and catalog applications starts at $75,000, but a typical configuration averages $195,000.
· Runs on NT and Solaris Unix and supports Oracle, Sybase, SQL, and Informix databases.
· Customers include Micro Warehouse, Multiple Zones International, Broderbund Software, Scholastic, and Digital Equipment.
· OneServer handles user registration, content management, and payment processing.
· Features such as Adaptive Response System (ARS) allow merchants to customize the information that is presented to the viewer on a continual basis.
· OrderStream & PurchaseStream automate corporate procurement processes.
· While it is considered a high-end solution, erratic revenue and employee (including senior management) turnover have continually plagued the company.
· Customers include 3Com, Fruit of the Loom, and Compaq.
· Pandesic is the result of a recent joint venture between Intel and SAP. It intends to package SAP business application software with Intel based hardware, thus enabling almost any company (fledging to Fortune 500), to do business over the Internet.
· Vendor of merchant server software which targets Internet marketing, order processing and fulfillment, inventory pricing, materials management, tax handling, payment processing, shipping and handling logistics, financial reporting, and vendor payment processes associated with e-commerce transactions.
· Introduced electronic business package in September 1997 at an entry price of $25,000, plus a monthly transaction fee ranging from 1-6% of revenue generated.
· Partners with The Vision Factory to provide front-end solution.
· Runs on NT only.
· Internet Commerce Server is priced at $20,000 per processor. It comes bundled with CyberCash’s Cash Register, Credit Card, and CyberCoin Internet Payment Services, but it lacks taxation, shipping and payment modules. Also it does not include EDI support, repeat ordering and back-end integration that more sophisticated business-to-consumer and most business-to-business packages need. Also, its reports cannot be customized.
· Works only on Oracle database software, but runs on NT and Unix.
· Oracle is targeting e-commerce as part of an effort to provide added value to its database customers in what is increasingly becoming a commodity business. Oracle and other database marketers are branching out into specialty technology, such as Web servers, middleware, and e-commerce software, to counterbalance what analysts expect will be a gradual slowing of database server sales over the next few years.
· Provides credit card processing software.
· ICVERIFY operates in Internet, client/server, and mainframe environments.
· Provides integrated credit/debit authorization, check processing, security against fraud and errors, and cross platform support.
· Automatically tracks consumer demographics and transaction data for use by merchant and integrates back office applications.
· Partners include Microsoft, Oracle, Visa, and American Express.
· Developer of retail e-commerce software.
· The flagship product, SoftCart, allows a merchant to display products in an online store.
· Calculates shipping and sales tax information in real time, creates an invoice, and processes secure payment for the items purchased.
· Online stores using SoftCart include Gateway 2000, Motorola, GeoCities, and GolfWeb.
· Paylink processes electronic payments from a variety of sources and interfaces with Web servers, call centers, and interactive voice response (IVR) systems to perform transactions and reporting.
· Strategic partnerships with Microsoft and Chordiant Software.
It is clear that as companies continue to create storefronts on the web and their internal information technology departments are stretched increasingly thin, software tool providers like those mentioned above have the opportunity to be profitable by providing off-the-shelf solutions. However, the question remains: Who will win? The answer to this question is not so clear.
The usual suspects are serious contenders. Microsoft may do well by sheer strength alone. IBM is clearly committed to this product segment, and it has developed an excellent product. The same can be said for Netscape, although its strategy is in a bit of flux. Oracle has started off well, but it is still trying to catch its competitors.
What are the chances of the "little guys" succeeding in this market? Will they be able to hold on to and, more importantly, improve their positions, or will they be squashed by the larger companies intent on dominating this emerging sector? Of the smaller public companies, both Open Market and Broadvision have established themselves as leaders in the field. Connect, however, has stumbled repeatedly and its future is uncertain. It is difficult to gauge how well the other private companies are doing, but there seems to room in this emerging sector for many vendors.
An interesting development announced on March 3, 1998 may shine a light on the answer to these questions. On that day, Open Market announced that it had received three patents covering widely-used technologies for Internet commerce and marketing. To quote the CEO, the granting of these patents was probably "the most critical event in the company’s history." Erica Rugullies of the Giga Information Group commented "This is not your typical patent announcement. They can control the definition of the direction of the industry." Chris Stevens of the Aberdeen Group echoed these comments about the importance of these patents: "It appears to knock the life out of virtually every payment system on the Internet, as well as every single company that uses any kind of deferred transaction or shopping cart."
So what got everyone so excited? The first patent covers current Internet technologies that let people pay for goods online and receive instant credit card verification. The others cover the use of the "shopping cart," which let user gather goods before "checking out," and a technology that allows the merchant to track the actions of visitors to the storefront website. All three technologies are used extensively throughout the industry. When asked about its intentions, Open Market stated "We will defend our intellectual property."
Will Open Market shut everyone down? Unlikely. Moreover, it may be several months before a course of action is announced. These patents are broad and their enforceability is an issue. However, the head of IBM’s e-commerce division has already said that he would be willing to license the technology(ies) if a legitimate claim can be established. At a minimum, these patents should cement Open Market’s position in the industry and allow it to collect some royalty revenue. In addition, it should raise the profile of the company and enhance its ability to compete in the marketplace.
While the future remains unclear, it should be exciting at the very least.
