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On Monday, Art Technology Group of Cambridge, Mass. officially released LiveStore™ for Commerce On Demand — a new and improved version of their on-demand ecommerce platform. How is it improved? Well, ATG fully retooled its out-of-the-box design. LiveStore is a starter-kit on steroids in a purely hosted model. With it, ATG promises to launch new clients in as few as four months.

ATG’s previous On Demand solution was a misfire that taught them important lessons on what’s required of a managed service. Their first On Demand release in 2007 was technology designed for an enterprise, just re-packaged for mid-size merchants. At the time, they demonstrated On Demand with a store demo called “Fresh.” This latest release delivers striking improvements by way of fully tested, ready-to-configure features that users can actually put into practice without engineering from scratch.

This is not multi-tenant software-as-a-service, like Demandware or Venda. Each client runs their own application instance sharing http and database servers. But LiveStore does have the full complement of ATG Commerce features, pre-fabbed for rapid deployment. Features can be customized as required; though ATG recommends limiting customizations to the administrative console to keep upgrades simple.

ATG LiveStore trims about a third off normal deployment cost. Monthly hosting fees remain a bit pricey for the mid-market, typically between $20K and $30K after discounting. ATG says the uplift in revenue offsets its premium cost, but each customer should build their own business case to determine fit. A portion of recurring service fees for LiveStore may be applied toward a full license down the road. This is ideal for clients who exercise the option to purchase the software at a later date, and end their subscription.

What does this mean? B2C Partners thinks ATG now has a much better solution for clients who want a hosted ecommerce platform comparable to Demandware and Fry. But is hosting enough to make a real difference? The challenge isn’t the quality of ATG’s product, which is remarkably advanced. Rather, it’s the price of these solutions that remains out of reach for the vast majority of today’s mid-market prospects.

One third of merchants on the Internet Retailer Top 500 are under $20 million in revenue. In most cases, these companies have limited IT resources; and lack the budget for enterprise software.

Regardless of the size of its business, budgets for ecommerce software (not incl. creative branding, online marketing, customer care and fulfillment) are a rare find over 3% of revenue. Therefore, when costs exceed the 3% benchmark, supplemental budgets and build vs. buy options must be examined. It all boils down to a painfully slow decision process that no quota-carrying sales rep will enjoy.

Mid-market retailers between $5 and $20 million are too small for Tier 1, and too big for Tier 3. Vendors who keep first year costs under the 3% mark while maintaining quality are addressing the greatest need in today’s market. Therefore, providers who deliver strong solutions for an initial investment of $150K to $600K will enjoy no shortage of prospects.

Tier 2 alternatives are gaining steam. Stay tuned for leading vendors like ATG to figure this out soon.