November 24, 2004
Mercent Stakes Position between Retailers and Pivotal Amazon Web Services
Once, it was all about markets. Back then, Amazon.com was a bookseller
and warehouser, leveraging the World Wide Web to redefine retail sales.
Now, as e-commerce is thriving, it's all about technology platforms.
Once again, the Seattle-based giant is defining the business
environment and, as it morphs from online bookstore to
the online retail mall, Amazon is creating opportunities in the marketplace.
Key to the trend is Amazon Web Services,
through which Amazon shares its internal functionality and product data
free of charge. In early October 2004, the Seattle firm released
upgraded specs (Amazon E-Commerce Service 4.0), and data (Alexa Web Information Service) which gives access to Amazon's Web site usage database. According to Jeff Barr, Amazon's Web Services evangelist (his Amazon Web Services blog caters to developers), 80 percent of the developers using AWS prefer the REST interface. The smaller number use SOAP.
The move has Amazon increasingly dictating how retailers decide to
participate in e-commerce. The platform gives outsiders the technical
means to link their own order, purchase, fulfillment and accounting
systems directly to Amazon. Amazon provides the point-of-sale and
e-commerce functionality and merchants operate their own back offices
through Amazon Web Services. Amazon says that 65,000 developers have
registered to use Amazon Web services since the program's beginning in
2002. Those who have their hopes pinned to this sector expect that
Amazon's growth will float all boats -- not just the retail players but
also those positioning themselves in between Amazon and its merchant
partners, offering specialized services that meet a demand created by
the Amazon web services phenomenon.
Tim Clark, analyst with Fact Point consultants of Los Altos,
CA, in a July 2004 report, says that the strategy of choice now for
online e-commerce giants like Amazon and eBay is to increase the speed
and volume of sales, to engage investment from entrepreneurs, and to
enter new markets via merchant partners.
Well-positioned
One firm well-positioned to benefit from this trend to Amazon
Web Services is Mercent, a two-year-old, privately held, Seattle-based
systems integrator. Mercent is certified by Amazon to bring third party
sellers into compliance with the Amazon technical standards.
It is a service for which demand is growing. Outsourced fulfillment
services overall are predicted to grow from $6.5 billion in 2004 to $13
billion in 2010, according to data gathered by NewRoads, a fulfillment company and Shop.org, a unit of the National Retail Federation.
The technological challenges of synching one's business to Amazon "
including XML formats, data feed exchanges, and logging and
notification of system errors -- are not insurmountable, but they are
significant, says Eric T. Best, Mercent CEO. Getting the Mercent
product up and running for a customer typically takes eight weeks, Best
says. In addition to the upfront license fee, which starts at $25,000,
Mercent charges clients 18 percent of the license fee each year for
maintenance and to ensure ongoing compliance with Amazon's standards.
One of his customers can attest to the complexity of the job.
"Integrating with Amazon is an arduous task," says Jeff Binder, CEO of
the Canadian firm Saffron Rouge.
From its headquarters in Guelph, Ontario, the two-and-a-half-year-old
SR supplies Amazon with high-end, organic and natural skin care,
cosmetics and aromatherapy products. To interface with Amazon, SR spent
between $100,000 and $150,000 on the Mercent Commerce System and
customized integration.
"For a smaller-to-mid-sized organization, you don't want to attempt
that thing by yourself," says Binder. "A large-scale integration
project like this is intense. There is significant cost, time,
knowledge and expertise required to do it." Binder advises smaller
firms to upload their use product data to Amazon using the flat file
method of integration (called AIM, for Amazon Inventory Management),
since it doesn't require a large capital outlay. The downside to that
approach, Binder says, is that it requires manually uploading and
downloading information on a regular basis or even re-keying
information routinely.
The Road to Mercent
When Amazon decided to share its platform with the world, Best
was well-situated to be an intermediary. He'd started a software
consultancy, MindCorps in the '90s, which spun off Emercis Corporation,
a supplier of e-commerce infrastructure tools to enterprise businesses.
MindCorps was sold to Amazon.com in 1999 and Emercis was absorbed by
Impressa, Inc. in 2000. Best joined Amazon as manager of business
development for the e-commerce network, then left to start another
consultancy, Morse Best Innovation,
in 2000. But he kept close ties to Amazon. When Amazon launched its
third-party seller platform, Merchants@Amazon.com a couple years later,
Morse Best was hired to create user documentation. As Morse Best worked
with vendors to help integrate their systems with Amazon's, the need
for a product became evident. Morse Best spun off Mercent to create
that product -- Mercent Commerce System. The Mercent system, built on
Microsoft's .NET platform and XML Web services, manages data between
retailers' line-of-business systems and Amazon's. Mercent Commerce
System also integrates retailers with the Web Services APIs of nine
other shopping aggregators: Froogle, Yahoo! Shopping, BizRate.com,
PriceGrabber.com, AOL inStore, NexTag, MSN Shopping, Shopping.com and
mySimon. Mercent claims that these sites, combined, give a retailer
access to 100 million customers. Amazon alone is believed to have more
than 40 million customer accounts, says Best.
Merchants affiliate with Amazon in one of a variety of ways. ECS is one
of those ways. For online retailers that want to sell Amazon product on
its Web site or push traffic to Amazon from its site in exchange for a
referral fee, Amazon ECS (Web services) is the vehicle. For suppliers
and retailers who push product listings into Amazon.com and fulfill
orders made on Amazon.com, the vehicle is Merchants@Amazon.com,
Amazon's other Web services platform. The Mercent Commerce System, for
example, works on the Merchants@Amazon.com platform. Each relationship
carries a different set of commissions and fees for Amazon, affirming
Amazon's decision to give away its Web services platforms and move away
from warehousing and toward the facilitation of retail transactions.
Synergy
The theory, according to Best, is that the Web Services retail synergy
gives merchants access to this huge new pool of customers at brand-name
e-commerce retail sites, and they bring their own new customers to the
mix, growing the phenomenon further. While retailers can, and will
continue to, sell their good through their own Web sites, the
association with a mall such as Amazon carries more than just cache:
from the consumer's point of view, there's no need to enter credit card
information into numerous sites around the Internet with dubious
security; one-stop shopping and the ability to connect with just one
retail interface is appealing, as are the standards, for quick delivery
and customer service, for example, that Amazon imposes on affiliating
merchants.
After the doldrums of the early part of this decade, the sector is
growing. According to "The State of Retailing Online 7.0," an annual
Shop.org study conducted by Forrester Research (Nasdaq: FORR) of 150
retailers, 2003 online retail sales jumped 51 percent to $114 billion
and are predicted to reach $144 billion in 2004.
Robert Garf, an analyst who writes on the sector for AMR Research, reported on September 28, 2004:
"Much like the benefits they see with supplier data synchronization,
multichannel retailers are automating the direct exchange of product
and inventory data with popular marketplaces and seeing positive
results." When the car electronics specialist Car Toys engaged Mercent
to integrate its systems with Amazon and other e-commerce sites, Garf
adds, "the retailer saw a return on investment within a few months from
dramatically increased sales and lower cost per transaction."
Exacting specifications
To play in the e-commerce mall arena, however, merchants must
comply with very specific and exacting guidelines from Amazon and other
commerce sites regarding data integration, order orchestration and
scheduling.
"Amazon doesn't push or pull data from its internal systems to a
partner merchant's systems," Best says. "That's where Mercent comes in,
letting all the transaction information be integrated and pumped into
Amazon, using Amazon's Web Services, then pumped back into retailers'
line-of-business systems." XML is the language used to exchange data,
and each retailer has a different database to be integrated with these
XML data feeds in both directions. "There are about 15 feeds going
toward Amazon or from Amazon, and the XML content in those feeds
ultimately needs to be written to and read from the retailer's line-of
-business systems," says Best. "So, there are certain integration
issues. But, the bottom line is, it's kind of invisible once it's in."
Adds Binder, of Saffron Rouge: "Mercent's technology is nice. It's
fully integrated with Amazon. Then, the challenge becomes connecting
Mercent with your accounting system. We use NetSuite.
It's entirely Web-based, run on Oracle databases, and (like Mercent
Commerce System and AWS) it is also XML compliant, so we were able to
fully integrate NetSuite with Amazon via Mercent. Our Mercent server
essentially talks to Amazon. It gets orders, pushes them into NetSuite,
pulls order fulfillment from Amazon."
Meanwhile, Best is looking ahead. He has seen the future, and
it's all about metrics. While Mercent's business still revolves around
getting retailers launched onto the new e-marketplaces, Best is
envisioning how all those electronically enabled merchants will want to
tweak their online commerce experience, evaluating the data they are
collecting and manipulating their sales strategies based on what they
learn, all in the pursuit of ever-better profits.
"The next phase of this," Best says, "is all about gauging the
success of each marketplace, about getting intelligence back to the
retailer to enable them to make better decisions about where to sell
their products and how."
