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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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April 10, 2023
Measuring the Business Impact of Your eCommerce Platform
Magento
© 2013
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
Q&A
Closing
© 2013
Introduction: Many variables as you look at re-platforming, upgrading, or expanding your eCommerce platform
Licensing
Hosting and Infrastructure
Initial Implementation
Time to Market
Maintenance and Upgrades
Anticipated Revenue Lift and ROI
Market OvervieweCommerce and technology trends to consider as you review your plans and investments.
Forrester Total Economic ImpactA 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.
© 2013
Introduction: Guest Speakers
Peter SheldonForrester Principal AnalystServing eBusiness & Channel Strategy Professionals
Michael SpeyerForrester Principal ConsultantServing Sales Enablement Professionals
© 2013
Measuring the Business Impact of Your eCommerce Platform
Market Overview
Total Economic Impact Study: Purpose and Methodology
Key Findings from the Customer Interviews
Financial Model
OWNED BY
© 2013
In case you missed it, eCommerce is on a tear
© 2013
By 2017, 10% of total US retail spend will be online, hitting $370 billion
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
(US$ billions)$231
$262
$291
$319
$345
$370
14% 13% 11% 10% 8% 7%Year-on-year growth
8% 8% 9% 10% 10% 10%Share of total retail sales
© 2013
These stories have become common place on retailer earning calls
© 2013
Two thirds of firms will increase spending on eCommerce technology in 2013
How is your investment in eCommerce technology changing?
Decreasing2%
Staying about the same31%
Increasing56%
Significantly increasing10%
Base: 49 eBusiness & Channel Strategy Professionals
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
OWNED BY
© 2013
Worryingly however, many retailers arerunning the show with legacy or home-grown
eCommerce solutions
© 2013
Almost a quarter of eCommerce sites are powered by home-grown technology
How is your online store supported today?
Base: 49 eBusiness & Channel Strategy Professionals
The product vendor13%
Our InternalIT staff54%
A third partyservice provider
33%
Commercialapplication
49%
None of the above/don’t know14%
Full service vendor who also supports fulfillment, customer service, and marketing
2%
SaaS (on-demand) application hosted and supported by the
product vendor4%
Open Source eCommerce Platform
(i.e. Magento OSCommerce)
8%
Homegrown solutionsupported and hosted by our
internal IT staff22%
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013
Omni-channel, mobile and content management are top priorities for retailers in 2014
eCommerce platform
Multi-channel integration
Web Content Management (WCMS) tools
Customer Relationship Management (CRM) tools
Mobile commerce platforms
Customer Insights and Analytics Systems
Responsive design
Product Content Management (PCM/PIM) tools
Site payment, system security compliance & protection
Site Search
Back-end integration (ERP, Financial Reporting)
Order Management (OMS) tools
POS/Store Systems
Call center systems
Other (please specify)
What are your technology investment priorities for the coming year?
Base: 49 eBusiness & Channel Strategy Professionals
52%
52%
52%
50%
48%
40%
40%
33%
27%
27%
25%
17%
15%
15%
4%
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013
The online channel today influences 40% of offline retail spend
(US$ billions)
2011 2012 2013 2014 2015 2016
44% of total retail sales will be impacted by the Web in 2016
CAGR (2011 to 2016): 9%
$1672$1723
$1741$1771
$1780$1812
$202 $226 $252 $278 $304 $327
$1103$1206
$1320$1429
$1552$1660
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013
The right ownership model for platform ownership often depends on online revenue
< $5 million $5 million to $25 million
$25 million to $100 million
$100 million to $1 billion
$1 billion to $5 billion
> $5 billion
Build BuildBuy
Online Revenue
Tiers
Typical Business
Models
MarketPlace
Open Source
Custom Build
Commercial Solution
SaaS or On-Demand > Hosted Managed or On-Premise
SMB (<$25m online revenue) Enterprise (>$25m online revenue)
© 2013
There are pros and cons to consider evaluating ownership models
Application
Runtime
Virtualization
Servers
Storage
Networking
Security
Application
Runtime
Virtualization
Servers
Storage
Networking
Security
Application
Runtime
Virtualization
Servers
Storage
Networking
Security
Application
Runtime
Virtualization
Servers
Storage
Networking
Security
SaaS On-demand On-premise
Infrastructure management
Perpetual license + hosting fees
High
Single
Medium
Perceptual license
High
Single
High
Perpetual license + hosting fees
Medium
Single
Low
Revenue share
Low
Multi
Low
Typical business model*
Upgrade effort
Application tenancy
IT skillset required
Managed in-house Managed by vendor/hosting partner
Hosted / Managed
© 2013
Measuring the Business Impact of Your eCommerce Platform
Market Overview
Total Economic Impact Study: Purpose and Methodology
Key findings from the customer interviews
Financial Model
© 2013
The Forrester TEI methodology is an established ROI framework focused on impact beyond costs
Benefits•Quantified value•Defined metrics
Cost•People•Process•Technology
“Options” created•Are there new opportunities created for the future?
Uncertainty•Impact of assumptions
Total Economic
ImpactRISK
Source: August 4, 2008, “The Total Economic Impact™ Methodology: A Foundation For Sound Technology Investments” Forrester report
Approach And Methodology
Perform due diligence
Conduct customer interviewsConstruct financial model Write case study
Benefits(Impact on Business)
Costs(Impact on Budget)
Flexibility(Options)
Framework and Components
© 2013
Measuring the Business Impact of Your eCommerce Platform
Market Overview
Total Economic Impact Study: Purpose and Methodology
Key Findings from the Customer Interviews
Financial Model
© 2013
Interviewed five merchants with online revenues ranging from $10 million to $100 million
A retailer of equipment, tools, and supplies
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
A retailer of luxury apparel, gifts, and accessories
© 2013
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
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:
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.
© 2013
New eCommerce platform requirements and attributes
Scalability To meet growing online traffic volumes
Flexibility
Easy Integration
Rapid Deployment
To easily and rapidly create custom landing pages, perform catalog updates and other management tasks
With back-office systems and external marketing services providers
To begin growing their online businesses
© 2013
Qualitative benefits of Magento Enterprise Editionexperienced 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
Increased Levels of Marketing Activities Allowed merchants to support more diverse and frequent
marketing tactics Major contributor to the overall revenue uplift
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
Measuring the Business Impact of Your eCommerce Platform
Market Overview
Total Economic Impact Study: Purpose and Methodology
Key Findings from the Customer Interviews
Financial Model
© 2013
Interviewed five merchants with online revenues ranging from $10 million to $100 million
Accounts for all costs and benefits reported by the interviewed customer
3-year forward looking analysis
Uses a 10% discount rate for Present Value and Net Present Value calculations
All costs and benefits are adjusted for variance, uncertainty and risk as described in the TEI methodology
© 2013
New eCommerce platform requirements and attributes
License fees
Professional Services
Internal Labor
Hosting Services
$98,206 for three production servers and one nonproduction server
$324,000 for initial deployment$537,150 for ongoing support
$476,732 for initial deployment, ongoing maintenance, upgrades to back-end systems
$337,632 for bandwidth, server hosting, load balancing, content delivery network (CDN), and a firewall
© 2013
3-year benefits included in the financial analysis
eCommerce uplift attributable to the Magento platform
Costs Avoided
$3,960,893 20% of total revenue uplift is attributed directly to the Magento platform
$147,719 for prior platform software license maintenance
$350,533 for prior platform maintenance and upgrades
$147,719 for software development when using pre-built extensions from Magento Connect
For composite merchant with $40m in annual online sales
© 2013
Risks and drivers of variance in costs and benefits
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.
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.
Magento licensing fees will vary with the number of servers and the level of support purchased.
© 2013
Three Year Risk Adjusted Cash Flow
Initial Year 1 Year 2 Year 3 Total PV
Costs ($420,960) ($537,802) ($544,282) ($551,086) ($2,054,130) ($1,773,730)
Benefits $1,413,400 $1,801,760 $2,422,672 $5,637,832 $4,594,156
Net Benefits ($420,960) $875,598 $1,257,478 $1,871,586 $3,583,702 $2,820,426
ROI 159%
Payback Period 5.8 months
© 2013
Magento Enterprise Edition eCommerce Platform and Ecosystem
Solution Partners
Hosting Partners
Industry Partners
OWNED BY
© 2013
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.