If you have a great IT department, it is very tempting to offer them the task of building your syndicated e-commerce application from scratch, reasoning that your own marketing department and IT department know your customers best and that this way, you would be sure that your sales channel partners were getting what they need.

And, you would be right - about your marketing personnel knowing how your sales channel partners will use the tool. The rub comes when the IT department's knowledge of what goes into an easy-to-use, customer-friendly, profitable online store meets the marketing department's appreciation how difficult it is for programmers (who may be used to programming manufacturing tools) to convert those skills to catalogs and shopping carts that are easy for your customers to use. This is where the risk lies. It is not a matter of whether they could do it, but rather what the combined learning curve will be to produce a product worthy of your brand. Depending upon the number of false starts, the price for your own application can easily run from $150K to $500K. And the infrastructure to handle the traffic and secure the site will be at least another half of that. And the staff to suppport a 5-year run may be $200K/year. Total can easly be over $1.0M. Compare that to getting the software, infrastructure and support for $150/month/partner. Do the math for the number of partners you expect to support over those same 5 years.

Here is another key consideration - how are you going to provide training and support to your partners (distributors/dealers)? Oh, well IT will do that! Really? They have the customer training and support skills in IT, or are you going to hire new personnel to test the application, certify its security, train your customers and provide 24/7 phone support when a partner calls with an irate customer on the phone?

Reality check! E-commerce providers have been working on these issues for nearly 15 years. E-commerce developers have been developing and refining the software for 2 decades. The e-commerce services has been "commoditized," even to the extent that nearly every feature you can imagine has already been developed and is even available as Open Source for providers to alter and customized for you. There are hundreds of off-the-shelf e-commerce packages and dozens of good service providers. Your job will be to find the right ones for your company. 

To me, the pathway is clear; find yourself a good provider, one with whom you can trust your sales partners' online health. Make sure that the provider knows the e-commerce software that they are proposing to use and that your marketing staff agree that the software fits the needs of your partners.  Share with that provider your knowledge of the products, your customers, and their customers. Work with your provider to adapt the software to your partners' needs and provide the interface design and your technical credibility to the relationships. If you go with off-the-shelf software, you may even have enough left to underwrite the service to your partners and create an incredible value for them.

The next blog post: Where to start?

So, I've started this blog and now it seems I need to find things to say. Ok, how about, "who are the businesses that would make good candidates for such a model?" It turns out that there are those that sponsor a syndicated network an those that subscribe to such a network.

The service sponsors are those that have a business affiliation with a significant number of other businesses, usually smaller than the sponsors. These smaller businesses are typically distributors, dealers, or agents that belong to the sales channel of the sponsor (you might imagine a lawnmower manufacturer (1) with regional distributors (10) and local dealers (3000) in most cities and towns across America).

In the typical situation, the manufacturer has a marketing department and an information technology department. And, the manufacturer has a nice, fancy website that is maintained by an internal web team or their advertising agency of record. There is strong temptation/incentives to enable the manufacturer's website to sell their lawnmowers online. And by cutting out the middle man, the lawnmowers can be sold more competitively. Good for them - right? Not so much!

Then, at the end of the sales channel, there are the dealers. These dealers are typically small businesses with no, or small, marketing staffs. They have no information technology in-house - maybe a part-time consultant that keeps their computers running. So they resort to Internet website solutions that are designed and administered locally without the content expertise (lawnmowers) and digital assets (marketing copy and images) of the manufacturer. In fact, the dealers' lack of Internet marketing skills is one of the manufacturer's primary concern with the dealers' online presence. 

Here is the problem:

1. The dealers' independently created websites put the manufacturer's brand at risk if the lawnmower images are distorted or out of date or the copy makes extravagant claims about cost, performance or warranty. There is no continuity to the marketing message.
2. On the other hand, the dealers resent the manufacturer going after their customers online with lower prices than they can sell the lawnmowers in their local retail shop. They are, after all, the business with the customers and they like to sell lawnmowers as well as service them.

And, here is the solution:

As in most industries, the sales channel members depend upon the manufacturer to set the marketing message and enable the advertising through photography and other media. Then they co-op the cost with the distributors and the dealers - think "billboards". It turns out that the same model holds together very well with the Internet by using syndicated e-commerce.

With a syndicated e-commerce network, the manufacturer provides their expertise in online marketing, information technology and product content to build a conceptual website model for their sales channel partners. From this model, custom stores can be co-branded for every distributor and dealer in the channel. The manufacturer's catalog can be centrally maintained. The cost can be shared through the manufacturer's co-op program and the overall cost greatly reduced while the manufacturer's products online presence is spread across the nation through 3000 localized web sites.

The manufacturers keep their dealers happy, and the dealers keep their customers happy!

The next blog: in-house or outsource

There is special form of e-commerce networks that I classify as syndicated e-commerce. Actually, it as more of a model for deploying e-commerce than an actual network itself, as you will see.

First of all, a syndicated e-commerce network requires a sponsoring agency. This agency can be a manufacturer, a distributor, a professional asociation, or any group of affiliates that share a common commercial purpose. And, the sponsoring agency must have a significant number of affiliates (members, sales partners, agents, etc.) who share a common set of e-commerce objectives.  

A sponsor takes the lead in providing the online marketing expertise and developing the requirements for the e-commerce enterprise. The purpose of the syndicated approach to e-commerce is to share the reduced cost benefits with the affiliates, such as:

• A shared, secure server infrastructure (I like a private cloud)
• A shared design template (that can still be customized to the member's custom branding)
• A shared catalog schema (that will accept multiple lines of products)
• A shared sales force (that shares a homogeneous customer base (e.g.homeowners)
• A shared set of marketing materials (web portal, flyers, etc.)
• A shared webmaster  (for technical support and administration) 

The fundamental idea behind syndicated e-commerce is that a sponsor can work with a web developer to enable its partner/members enjoy a professional online presence and its commercial benefits for greatly reduced costs without having to hire and manage the expertise themselves. 

I have been working with this type of online syndication for a number of years and have been lucky to have worked with excellent sponsors. I will try to share what I have learned about syndicated e-commerce as I see what level of interest and questions the subject generates.

Please feel free to jump in with your comments an ideas. You can reach me at john.francis@webstack.com

 

Fifteen years ago I was a WorldCom Project Manager managing my first e-commerce web site project. The client was a major industrial filtration company that wanted to sell their appliances and especially their filter media over the Internet. Their intentions were to place workstations in their dealers' shops and permit the dealers' customers to purchase their media replacements online through this type of kiosk arrangement. The fee for building this e-commerce capability was in the neighborhood of $250K and the team numbered about a dozen people; designers, developers and managers. It was eye-opening to see the cost of developing the design, catalog and shopping software from scratch (lesson #1). I had the rather (as it turned out) unpleasant task of introducing this "service" to an annual dealers meeting. My presentation started a small firestorm of negative response. It seemed that the dealers saw this form of "disintermediation" as an attempt to "capture" their customers by dealing directly with them, and eventually cutting the dealers out of the sales channel (lesson #2). So, since that day, I have been on a mission to convince manufacturers to ENABLE their sales channel partners, rather than going around them. To do that, I had to figure out a way to reduce the cost and complexity of e-commerce for the small businesses that had neither the financial nor technical resources to build and operate their own.

Over the intervening years, I have had some success in finding ways to reduce both the financial burden and the complexity. My initial approach was to adopt a software as a service (SaaS) model which reduced the cost for e-commerce to a monthly fee of $5K. Big improvement, but not enough. Next, I figured out how to use a single e-commerce software installation (and license) to serve multiple businesses of the same type (dealers for a large manufacturer). This brought the cost below $200/mo primarily because of the ability to replicate the catalog database. Now we were getting somewhere, but it still required a rather substantial customer base to make good business sense. Finally, some enterprising software companies decided to take advantage of the SaaS model and offer e-commerce software on a rental basis from data centers for less than $100/mo.  So now, any small business can afford to have an e-commerce sales channel online.

But, there is still one problem - most of these small businesses do not have the staff to run a profitable online sales operation - a person with the specific skills for web design, online marketing, SEO, maintaining the catalog, responding to customer issues and processing the orders. Fortunately, I have discovered that, with the monthly cost of the software dropping, I have been able to raise the level of service I provide for my customers. This has eliminated the need for them to have their own e-commerce skills, making my prospective customer base larger. And more customers are as essential to successful businesses on the World Wide Web as anywhere else. This reality has led me in search of ways to build and service NETWORKS of e-commerce web sites. These networks are to be the subject of discussion on this blog - vertical networks, horizontal networks and franchises. I will be offering ideas on all of these and would like to read your thoughts about these enterprises.

I also invite you to read some addition publications on this subject: 

Manufacturers' Strategic Issues Relating to E-commerce

The Business case for A DealerStack Network