Magento: Measuring the Business Impact of Your eCommerce Platform

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This presentation is from a recent webinar hosted by Magento Inc., where guest speakers, Forrester principal analyst, Peter Sheldon, and Forrester consultant, Michael Speyer, discussed the latest eCommerce industry trends impacting merchants’ technology purchase decisions and reviewed Forrester Consulting’s Total Economic Impact model as a framework for building a business case for your eCommerce implementation or expansion.

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  • Peter Sheldon
    Peter serves eBusiness & Channel Strategy Professionals. He focuses on eCommerce technologies and solutions, including B2C and B2B eCommerce platforms, mobile commerce solutions, digital in-store technologies, and digital commerce.
    Michael Speyer
    Michael is a senior consultant on Forrester's Technology Sales Enablement team. He develops methodologies for measuring the value of business technology products to enable business case justification needs of technology buyers.
  • Source: http://zewar.wordpress.com/2010/10/04/726/
  • Source: http://zewar.wordpress.com/2010/10/04/726/
  • A retailer of equipment, tools, and supplies. The primary purposes of its eCommerce site are to accommodate online sales and to provide product and store information.
    An online-only novelty fashion accessories retailer serving the US and EU markets. The retailer conducts all of its business through its eCommerce site.
    An online retailer of high-end furniture and home accessories products. The retailer operates multiple stores throughout the US and relies on its website to provide production and store information and to support online sales and order management.
    A fashion jewelry and accessories merchant that offers collections curated and designed by in-house stylists. The retailer uses its eCommerce platform to support its network of independent sales agents.
    A retailer of luxury apparel, gifts, and accessories. This retailer uses Magento to power its online factory outlet.
  • Magento: Measuring the Business Impact of Your eCommerce Platform

    1. 1. October 16, 2013 Magento Measuring the Business Impact of Your eCommerce Platform
    2. 2. Measuring the Business Impact of Your eCommerce Platform  Introduction  Market Overview   Peter Sheldon, Forrester Principal Analyst The Total Economic Impact of the Magento Enterprise eCommerce Platform  Michael Speyer, Forrester Principal Consultant   © 2013 Q&A Closing
    3. 3. Introduction: Many variables as you look at re-platforming, upgrading, or expanding your eCommerce platform   Hosting and Infrastructure  Initial Implementation  Time to Market  Maintenance and Upgrades  © 2013 Licensing Anticipated Revenue Lift and ROI Market Overview eCommerce and technology trends to consider as you review your plans and investments. Forrester Total Economic Impact A framework you can apply to assessing the cost, revenue and ROI of your eCommerce technology investments and the impact they will have on your business.
    4. 4. Introduction: Guest Speakers Peter Sheldon Forrester Principal Analyst Serving eBusiness & Channel Strategy Professionals Michael Speyer Forrester Principal Consultant Serving Sales Enablement Professionals © 2013
    5. 5. Measuring the Business Impact of Your eCommerce Platform   Total Economic Impact Study: Purpose and Methodology  Key Findings from the Customer Interviews  © 2013 Market Overview Financial Model
    6. 6. In case you missed it, eCommerce is on a tear © 2013 OWNED BY
    7. 7. By 2017, 10% of total US retail spend will be online, hitting $370 billion $370 $345 $319 $291 $262 (US$ billions) $231 Year-on-year growth 14% 13% 11% 10% 8% 7% Share of total retail sales 8% 8% 9% 10% 10% 10% Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US) © 2013
    8. 8. These stories have become common place on retailer earning calls © 2013
    9. 9. Two thirds of firms will increase spending on eCommerce technology in 2013 How is your investment in eCommerce technology changing? Decreasing 2% Significantly increasing 10% Staying about the same 31% Increasing 56% Base: 49 eBusiness & Channel Strategy Professionals Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US) © 2013
    10. 10. Worryingly however, many retailers are running the show with legacy or home-grown eCommerce solutions © 2013 OWNED BY
    11. 11. Almost a quarter of eCommerce sites are powered by homegrown technology How is your online store supported today? Full service vendor who also supports fulfillment, customer service, and marketing 2% SaaS (on-demand) application hosted and supported by the product vendor 4% None of the above/don’t know 14% The product vendor 13% Commercial application 49% Open Source eCommerce Platform (i.e. Magento OSCommerce) 8% Homegrown solution supported and hosted by our internal IT staff 22% Our Internal IT staff 54% A third party service provider 33% Base: 49 eBusiness & Channel Strategy Professionals Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US) © 2013
    12. 12. Omni-channel, mobile and content management are top priorities for retailers in 2014 What are your technology investment priorities for the coming year? eCommerce platform 52% Multi-channel integration 52% Web Content Management (WCMS) tools 52% 50% Customer Relationship Management (CRM) tools 48% Mobile commerce platforms Customer Insights and Analytics Systems 40% Responsive design 40% 33% Product Content Management (PCM/PIM) tools Site payment, system security compliance & protection 27% Site Search 27% 25% Back-end integration (ERP, Financial Reporting) 17% Order Management (OMS) tools POS/Store Systems 15% Call center systems 15% Other (please specify) 4% Base: 49 eBusiness & Channel Strategy Professionals Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US) © 2013
    13. 13. The online channel today influences 40% of offline retail spend $1723 $1741 $1771 $1780 $1812 $1672 $1103 $1206 $1320 $1429 $1552 $1660 44% of total retail sales will be impacted by the Web in 2016 CAGR (2011 to 2016): 9% $202 $226 $252 $278 $304 $327 2011 2012 2013 2014 2015 2016 (US$ billions) Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US) © 2013
    14. 14. The right ownership model for platform ownership often depends on online revenue Build Online Revenue Tiers Typical Business Models < $5 million Market Place Buy $5 million to $25 million Open Source $100 million to $1 billion $1 billion to $5 billion Commercial Solution SaaS or On-Demand > Hosted Managed or On-Premise SMB (<$25m online revenue) © 2013 $25 million to $100 million Build > $5 billion Custom Build Enterprise (>$25m online revenue)
    15. 15. There are pros and cons to consider evaluating ownership models SaaS On-premise Application Application Application Runtime Runtime Runtime Runtime Virtualization Virtualization Virtualization Virtualization Servers Servers Servers Servers Storage Storage Storage Storage Networking Networking Networking Networking Security Typical business model* Hosted / Managed Application Infrastructure management On-demand Security Security Security Revenue share Perpetual license + Perpetual license + hosting fees hosting fees Perceptual license Upgrade effort Low Medium High High Application tenancy Multi Single Single Single IT skillset required Low Low Medium High Managed in-house © 2013 Managed by vendor/hosting partner
    16. 16. Measuring the Business Impact of Your eCommerce Platform   Total Economic Impact Study: Purpose and Methodology  Key findings from the customer interviews  © 2013 Market Overview Financial Model
    17. 17. The Forrester TEI methodology is an established ROI framework focused on impact beyond costs Framework and Components “Options” created •Are there new opportunities created for the future? Cost •People •Process •Technology Benefits •Quantified value •Defined metrics Flexibility (Options) Costs (Impact on Budget) RISK Total Economic Impact Benefits (Impact on Business) Uncertainty Source: August 4, 2008, “The Total Economic Impact™ Methodology: A Foundation For Sound Technology Investments” Forrester report •Impact of assumptions Approach And Methodology Perform due Conduct customer interviews onstruct financial model Write case study C diligence © 2013
    18. 18. Measuring the Business Impact of Your eCommerce Platform   Total Economic Impact Study: Purpose and Methodology  Key Findings from the Customer Interviews  © 2013 Market Overview Financial Model
    19. 19. Interviewed five merchants with online revenues ranging from $10 million to $100 million   An online-only novelty fashion accessories retailer serving the US and EU markets  An online retailer of high-end furniture and home accessories products  A fashion jewelry and accessories merchant that offers collections curated and designed by in-house stylists  © 2013 A retailer of equipment, tools, and supplies A retailer of luxury apparel, gifts, and accessories
    20. 20. Magento Enterprise Edition adoption driven by shortcomings of current solutions Revenue loss and downtime triggered by high traffic Inability to support sophisticated online marketing activities Unfavorable economics associated with adding new functionality and updates to existing platforms © 2013
    21. 21. The composite organization used for the TEI analysis  TEI analysis based on a composite of the interviewed companies.  Characteristics of the composite organization are:  Operates both brick-and-mortar stores and an eCommerce website and had $40 million in annual online sales.  Challenges with its pre-Magento eCommerce platform are:    © 2013 Inability to scale to handle large spikes in traffic, resulting in instability and downtime. Lack of features and flexibility necessary to support more sophisticated and frequent digital marketing efforts. Inability to quickly make changes to site content.
    22. 22. New eCommerce platform requirements and attributes Scalability Flexibility To easily and rapidly create custom landing pages, perform catalog updates and other management tasks Easy Integration With back-office systems and external marketing services providers Rapid Deployment © 2013 To meet growing online traffic volumes To begin growing their online businesses
    23. 23. Qualitative benefits of Magento Enterprise Edition experienced by the interviewed merchants Increased Scalability and Stability  “Supports increases in average daily orders from 2,000 per day to 10,000 per day”1 Flexibility to Enable a Broad Range of Functional Requirements   Integration with 3rd party marketing providers Enablement of custom business processes  Allowed merchants to support more diverse and frequent marketing tactics Major contributor to the overall revenue uplift Increased Levels of Marketing Activities  Rapid Time-to-market  Deployment times of 6-9 months — Variations due to project scope, resources used, scope changes Low Total Cost of Ownership (TCO)  5.8 payback with 158% ROI over three years SOURCE: Measuring the Business Impact of Your eCommerce Platform, July 2013; 2013 Forrester Research, Inc. © 2013
    24. 24. Measuring the Business Impact of Your eCommerce Platform   Total Economic Impact Study: Purpose and Methodology  Key Findings from the Customer Interviews  © 2013 Market Overview Financial Model
    25. 25. Interviewed five merchants with online revenues ranging from $10 million to $100 million   3-year forward looking analysis  Uses a 10% discount rate for Present Value and Net Present Value calculations  © 2013 Accounts for all costs and benefits reported by the interviewed customer All costs and benefits are adjusted for variance, uncertainty and risk as described in the TEI methodology
    26. 26. New eCommerce platform requirements and attributes License fees Professional Services $324,000 for initial deployment $537,150 for ongoing support Internal Labor $476,732 for initial deployment, ongoing maintenance, upgrades to back-end systems Hosting Services © 2013 $98,206 for three production servers and one nonproduction server $337,632 for bandwidth, server hosting, load balancing, content delivery network (CDN), and a firewall
    27. 27. 3-year benefits included in the financial analysis For composite merchant with $40m in annual online sales eCommerce uplift attributable to the Magento platform $3,960,893 20% of total revenue uplift is attributed directly to the Magento platform $147,719 for prior platform software license maintenance Costs Avoided $350,533 for prior platform maintenance and upgrades $147,719 for software development when using pre-built extensions from Magento Connect © 2013
    28. 28. Risks and drivers of variance in costs and benefits   The percentage of total revenue uplift attributable to the Magento platform also affect the final return on investment (ROI) value.  Costs avoided for licensing and maintenance fees associated with the prior platform will vary with the type of platform used and the scale of the prior implementation.  © 2013 Incremental revenues will vary with each merchant’s ability to effectively utilize Magento Enterprise Edition’s features, its marketing effectiveness, and other activities that stimulate purchasing activity. Magento licensing fees will vary with the number of servers and the level of support purchased.
    29. 29. Three Year Risk Adjusted Cash Flow Initial Costs Year 1 Year 2 Year 3 Total PV ($420,960) ($537,802) ($544,282) ($551,086) ($2,054,130) ($1,773,730) $1,413,400 $1,801,760 $2,422,672 $5,637,832 $4,594,156 $875,598 $1,257,478 $1,871,586 $3,583,702 $2,820,426 Benefits Net Benefits ROI Payback Period © 2013 ($420,960) 159% 5.8 months
    30. 30. Thank You Peter Sheldon psheldon@forrester.com Michael Speyer mspeyer@forrester.com forrester.com © 2013
    31. 31. Magento Enterprise Edition eCommerce Platform and Ecosystem Solution Partners Hosting Partners Industry Partners © 2013
    32. 32. Contact us today to see how Magento can help you realize your eCommerce vision. Schedule a thirty-minute personalized demo. We'll assess your needs and discuss how they can be met with the powerful capabilities of Magento Enterprise Edition. © 2013 OWNED BY

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