GSI Commerce (NASDAQ: GSIC) is buying another competitor. Innotrac (NASDAQ: INOC) will bring GSI 30 new clients and additional capacity for outsourced fulfillment and call center services. GSI is paying $52 million for the deal, after which it will boast nearly 5 million square feet of warehouse space and more than 2,000 seats in its call centers. In a similar deal, GSI acquired Accretive Commerce last year.
Mercado Software may be hanging by a thread. Reports from two separate sources today indicate that the company has run out of cash, and dismissed much of its staff — paring down to a skeleton crew to support existing clients. Mercardo president, Corey Leibow, denied the report, but only before hanging up the phone with a terse response, “It’s not true. That’s all I can say right now. Bye.”
The news gives further support to our assessment that a shakeout of the ecommerce platform market is now underway. In August, MICROS (NASDAQ: MCRS) acquired Fry Inc. for a mere $31 million. In this case, the acquirer had complementary software that won’t displace Fry technology. But according to credible sources, two more hosted platform providers have been out soliciting offers to be rescued… ahem, I mean purchased. Clients of these companies may not fare as well.
Economic conditions have made it much harder for businesses to borrow cash and raise capital. The problem is particularly acute in the crowded ecommerce platform space. Time is running out for vendors to become self-sustaining. Without new sources of financing or investment, old fashioned profits are needed to fuel the business. Without profits, hope is waning. B2C Partners predicts this situation will become more prevalent in the months ahead.
What does this mean for merchants shopping for a new platform? Buyer beware. New clients must evaluate the viability of prospective vendors far more carefully. Failing to do so puts the investment at risk — especially if the vendor is already on the ropes and a suitor arrives to end support for your platform.
Want to learn more? Please join Bill Mirabito of B2C Partners on Thursday, October 30, 2008 at 2:00 PM Eastern for a webinar on “Choosing the Right Ecommerce Platform in a Tough Economy.”
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{ 4 comments… read them below or add one }
Great article. You are quite right, I have sensed Mercado was in trouble and they are not alone. The truth is ecommerce platforms are gradually becoming commodity. This makes sense because we don’t have hundreds of companies making cash registers. Cash registers are commodity, as are ecommerce platforms. I say the market has room for maybe three large ecommerce platform players. The rest will slowly, but surely die away.
I disagree with BetterRetail. I believe the market will support many more than 3 ecommerce players. Each niche vertical needs a unique platform. Fashion companies typically have different needs than an average e-commerce platform and run with different providers. Multi channel businesses have different needs than pure play e-commerce. Car dealerships & hotels have unique needs. Multi lingual international sites have substanially different needs. Each niche market may only support 3 but I believe that still provodes a great oppurtunity for many platforms.
Specialize and conquer I say.
In regards to Mercado software I believe e-commerce platforms will slowly buy indepedant search solutions and integrate it into their platform long term. This also applies to custom product cross promotion companies (rich relevance, certona, etc). It is inevitable.
David Patterson
Hi David:
Different niche verticals have unique customer acquisition, retention and service strategies but why would they need a specialized platform? Why not bake multiple vertical strategies into the same platform?
Even if such niche platforms exist (and I know they do) it’s not because they are needed, its just that the platform developer has craftily convinced customers niche level specialization is needed. If the world of analytics is supported by a big 3 why should platforms be any different?
BetterRetail
GSI Terminates Merger With Innotrac
What happened: Before the market open today (1/29/09),GSI Commerce announced the termination of the Innotrac (Nasdaq: INOC) acquisition based on a mutual agreement between the two companies. GSI quoted unfavorable market valuations as the primary reason for termination the merger. Recall GSI announced the acquisition of the eCommerce fulfillment and customer care services provider for a total of $52mn ($22mn in cash and $30mn in stock) on 10/6/08. The deal was subject to Innotrac shareholder approval and was expected to close in 1H09. However given the GSI and Innotrac stock prices were trading down 28% and 57% respectively since the announcement date, the offer price has declined accordingly from $52mn to $43.5mn (based on yesterday’s close of $9.35).