E-Commerce Outsourcing All the Rage at Internet World

The “changing of the guard” from Mecklermedia to Penton appeared to have had a generally positive effect on Spring Internet World ’99, as the Los Angeles trade show was teeming with activity. There seemed to be little doubt about e-commerce emerging as the “killer app” of the Internet, with nearly all exhibitors placing a supreme emphasis on their products’ online sales capabilities.

Within the burgeoning e-commerce industry, there appears to be a growing momentum towards providing end-to-end outsource services for online merchants, with the goal of addressing the daunting technology and fulfillment challenges faced by Internet-based vendors. In this special report, E-Commerce Times industry analyst, David Geller focuses on NetSales and Eliance — two “companies to watch” in the e-commerce end-to-end solutions category.

NetSales

Based in Kansas, NetSales provides online Store building and hosting services, call center order handling, secure payment processing, and fulfillment. Basically, the company offers everything an online merchant would require to get started selling on the Internet, without the burden of developing a highly complex technical software, hardware and security plan for a new online store.

According to NetSales, their services are targeted mainly at online stores with sales in the range of $20,000-$75,000 (US$) per month, and the company collects a 15 percent cut on each transaction from each merchant. NetSales indicates that it is flexible in allowing for a sliding scale of its percentage, as the merchant’s volume of sales increase.

The company’s payment processing services are highly sophisticated, with fraud prevention and chargeback management features. To a large extent, these features alone may justify the transaction fees which NetSales charges its merchants. Online fraud and credit card charge disputes are known to be among the foremost reasons for the failure of small-to-medium sized online businesses.

While many companies offer transaction processing services, NetSales also integrates mission-critical order-processing and fulfillment services, as well as customer service. The company provides a 24×7 toll-free call center for online merchants, with guaranteed response times, as well as handling product returns and refunds.

Predictions

NetSales is positioned for prime-time in one of the hottest niches in e-commerce. Our guess is that the company will be a strong IPO or acquisition candidate later this year, especially if any high-profile customers are announced. Ironically, if industry rumors about an imminent IPO for competitor CyberSource are true, then Wall Street’s attention will be drawn to the e-commerce outsourcing market segment. That would be very good news, indeed, for NetSales.

As of now, NetSales needs to focus on solid Commerce Service Provider (CSP) alliances and integration into popular e-commerce software packages to gain market share. Beyond partnerships, however, building brand-awareness is the company’s immediate challenge.

Eliance

Eliance Corporation competes in the same market space as NetSales. The Minneapolis, Minnesota-based company seems to be a step ahead of NetSales in the marketing arena, while slightly lagging in the technology and business process aspects of some of its newer fulfillment services. With a moderate degree of brand awareness, Eliance is poised to become a market force in the end-to-end e-commerce outsource market.

Eliance provides online merchants with comprehensive e-commerce solutions, spanning the gamut from payment processing and fraud prevention services, to merchant account services and fulfillment. The company offers an impressive array of customer service options, including a 24×7 call center and foreign language support.

While the company does not yet create and host e-commerce sites, it specializes in the back-end aspects of online sales. Rather than necessarily representing a void in services, the company might be wise to form partnerships with major Web developers, thereby offering merchants complete end-to-end e-commerce solutions, and also attracting business from the Web developers.

Eliance emphasizes information management as a cornerstone of its merchant services, with real-time data and periodic reports of site activity available to merchants.

Another one of the company’s distinguishing features is its attention to international business. Throughout its services model, support for foreign transactions is an area of concentration.

Like NetSales, Eliance targets online merchants in the monthly sales range of $20,000-$75,000, and charges fees of 12 to 15 percent per transaction.

Predictions

To date, the company has gained a reasonable marketing presence in the print medium, while neglecting to implement a strong online strategy for reaching its target market. This is surprising, considering that the company’s entire market is, by nature, searching the Internet for success models and business solutions. Our prediction is that the company will round out its Internet marketing in late Q2 or Q3 of 1999, at which point Eliance can expect to see market share growth and investor attention in the short run.