Thinking small. Here’s what became of the British e-commerce platform industry.

Last week, Shopify, a Canadian e-commerce platform company floated with a valuation of $1.3b. Demandware, a similar business from the US that focuses on meeting the needs of larger retailers now has a market capitalisation of $2.4b. The North Americans have created significant value from this corner of the retail technology market but what happened to all the British e-commerce platforms? We used to have quite a few of these.

ecom platform

Of the 22 vendors listed in the 2009 edition of the e-consultancy platform buyers guide, 18 were home grown. Yet none has gone public, none has passed more than £45m annual revenues and none have made any meaningful impact globally.

It’s not a very positive story and symptomatic of the UK’s inability to capitalise on business opportunities. Although e-commerce has boomed since 2009 and UK retailers are at the forefront of best practice, the 18 remain mostly relatively small businesses serving the local market.

What happened?

Fresca sold out early to BT. Snow Valley was snaffled by Micros. Portaltech went to an Italian buyer. Only three, Venda, Salmon and ecommera (now called Order Dynamics) were strategically set on growth. Venda ran out of steam last year and was sold to Netsuite, And then there were two.

While Salmon and Order Dynamics have managed to both grow internationally and remain British, neither is likely to be a unicorn. But they do have one thing in common and that’s WPP. Martin Sorrell’s firm is a lead investor in Order Dynamics and bought Salmon outright in 2013. Thank goodness for Martin Sorrell otherwise the story might have been worse.

In alphabetical order, here’s what happened to those eighteen platforms listed in 2009. If revenue is “not disclosed” it is below £6.5m and hence not reported to Companies House.

Actinic – an early market leader in e-commerce for small retailers, Actinic was caught out by the move to software as a service. It sold its embryonic cloud business together with its brand name to Oxatis, a French competitor in 2011. The desktop business continues, rebranded as SellerDeck. Revenues are not disclosed.

Fresca – I joined BT Expedite shortly after it bought Fresca, a software as a service platform company. My predecessors had made a smart acquisition as the addition of e-commerce to Expedite’s existing retail software suite helped attract and retain customers. Fresca could have been the British answer to Demandware but BT wasn’t able make product investments fast enough to keep pace with the market. The latest annual accounts show revenue of just £6.5m.

Design UK – A marketing agency that was very early into web development, Design UK still works for brands like Hobbs and New Look. Its marketing continues to reference its in-house software (LavaSuite) although its website claims just nine customers. Revenues are not disclosed

Digivate – this digital agency moved away from its proprietary software to develop on Magento in 2010 although most of its work now seems to be conventional PPC and SEO business. Revenues are not disclosed

eCommera – The most glamorous British competitor, eCommera attracted funding from Tom Hunter and Martin Sorrell while winning high profile accounts such as House of Fraser and Asda. It began as a Demandware integrator but raised £25m in 2014 to reposition itself as “cloud software and big data company and to conquer American. Renamed OrderDynamics after a Canadian software vendor it acquired, the business now commercialises decision support and order management software. Latest accounts show revenue of £25m with operating losses of £5m.

e-inbusiness – Proudly trading as “Yorkshire’s largest e-commerce agency,” e-inbusiness renamed itself eibDigital, now builds on EPIserver and boasts Hallmark among its customers. Revenues are not disclosed.

Ekm – specialising in templated sites for micro-businesses, Ekm now claims to power one in five online stores in the UK and has opened its own sites in France and Spain. Revenue is not disclosed.

eSellerPro – focused on helping brands manage large volume/complex assortments on the leading market places (eg eBay), eSellerPro recently rebranded as Volo Commerce. It boasts 90 employees and reported turnover of £4.5m.

Imano – in 2009 it commercialised its own e-commerce platform called CommerceNow with clients including Radley and Past Times. Imano still exists but is a pure mobile agency with last reported turnover of £1.2m. It was acquired by Israeli integrators, Ness Technologies, in 2012.

Maginus – the leading Microsoft integrator, Maginus recorded sales of £9m in 2014. Predominantly aiming at the mid-market incuding Fortum and Masons and Smeg, Maginus has taken advantage of its strong Microsoft relationship to position itself beyond e-commerce as an integrator of the full AX software suite.

MoneySpyder – first appeared in the e-consultancy guide in 2009 and is still marketing its proprietary platform based on Ruby on Rails. Target customers are smallish catalogue retailers. Revenue is not disclosed.

Motive – now called E-Motive, this business remains focused on helping brands sell on the large marketplaces but is more consultancy than software vendor. Revenue is not disclosed.

Pod1 – one of the first agencies to build on Magento, Pod1 was very successful with brand-led retailers such as Harvey Nichols. It’s now extended to build on Demandware too and is part of an anglo-American digital agency group called Born. Revenue is not disclosed.

Portaltech – listed as Quicklive in the 2009 guide, Portaltech was one of the first Hybris integrators, listing clients such as Monsoon. By 2010, with sales of £4.5m and EBIT of £0.8m, it was acquired by Reply (an Italian group) for £1.6m. It now claims to be the world leader in Hybris implementation with offices in the UK, Italy and Germany. Turnover is now £13m with operating profit of £3.2m.

Red Technology – operating a proprietary platform called Trade.it, Red continues to invest in new features and has maintained a decent client list including Hotel Chocolat and Crabtree & Evelyn. Revenue is not disclosed

Salmon – the most successful of all the businesses listed in 2009, Salmon built its capability around implementing IBM Websphere for tier 1 retailers including Sainsbury and Selfridges. WPP bought the business in 2013 and most recent financials were turnover £42m and operating profit £3m.

Screenpages – coming into e-commerce very early from a catalogue background, Screenpages moved to Magento from Microsoft in 2008. It has now delivered over 50 Magento projects including Atterley Road and RSPB. Revenue is not disclosed.

Snow Valley – building on Microsoft Commerce Server, Snow Valley listed Majestic Wine and Clarks Shoes among it customers. It was acquired by Micros in 2011 at a time when its revenue was reported as just £3m. Subsequently, Micros was bought by Oracle and, although the old Snow Valley business persists, it’s future isn’t clear.

Venda – the closest thing to Shopify listed in the 2009 guide, Venda was the initial mult-tenanted SaaS e-commerce platform. Founded by Dan Wagner, Venda attracted plenty of customers but racked up losses throughout its existence (see Farewell Venda). Revenue did manage to hit £20m but the business was acquired by Netsuite in 2014 for $50m, rather less than the owners has been hoping for just 12 months previously.

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Notes from APEX Europe

The convergence of mobile and digital, of money and data, of people and identity is affecting all parts of the retail and payments industries. Every corner of the market is confronting the same challenges but each brings its own specific rules, culture and heritage.

Consumers might say they would like a single app on their phone that does everything for them. But the reality is that a number of global giants have tried and failed to bring a ubiquitous solution to market – Google Wallet and Paypal Instore are just two examples. To these we can add any number of attempts by the mobile phone industry to incorporate payments into its product set culminating in the successive failures of CurrentC (ISIS) in the US and Weve in the UK.

If the future belongs to niche players that understand their customers and eco-systems, the pre-pay industry should be prospering. These businesses provide niche services that supply digital money for the unbanked, loyalty and gifting schemes on behalf of retailers, international money transfer and payroll programmes.

The pre-pay industry is moving from being a market in itself to becoming just one part of a much larger retail payments ecosystem and will need to integrate technically and emotionally with the mainstream mobile app world.

This was reflected in the opening up of the APEX conference to a much wider set of speakers and delegates. Unfortunately, this led to a fragmented and sometimes incoherent agenda of often unrelated content. Many of the presentations were worthwhile but they were not always in the right order and you have to respect the reckless iconoclasm of the organisers to run a three day conference without a chairman.

Nevertheless, three themes became quickly apparent:

  • The pre-pay industry risks being upstaged by Fintech start-ups that are looking simply to solve problems and don’t feel bounded or restricted by the etiquette and regulations of the payments industry.
  • There was a chasm between the questions the retailers were asking – rooted often in the physical challenges of printing and distributing gift cards – and the digital dreams of seamless mobile shopping journeys expounded by some of the speakers. It’s not that retailers don’t think about such things; it’s more that the content wasn’t matched to the needs of the individuals invited.
  • The SEPA area makes life much easier for everyone. The UK – benefiting from a strong and vibrant payments industry – would be ill-advised to withdraw.

Apple Pay

Apple Pay is quickly taking root in the US. Does this provide a model for the future of payments in Europe? Samee Zafar from Edgar Dunn thought Apple faced three significant obstacles bringing its service to this side of the Atlantic.

  • Apple’s market share is much lower than in the States, typically between 15%-30% in most EU countries compared to over 50% in the US
  • European banks still control the payment “switches” and so have more ability to throw obstacles in Apple Pay’s path
  • Recent regulatory reductions in interchange don’t leave enough margin for Apple to charge card issuers as much as in the US

In Samee’s view, this leaves the way clear for other wallets or similar mobile payment services to prosper. Zapp in the UK could be one. Or even the mobile network operators that may have finally arrived at the killer app…

Mobile networks

Christian Van Hommell Bonten from Wirecard (the conference sponsors) used his keynote slot to explain to a slightly bemused audience the three ways mobile operators can deliver a tap-and-pay service: using an NFC SIM, using the secure element (eSE) or via that latest buzzphrase, host card emulation. WireCard has powered a number of NFC SIM projects, most recently Orange in France which links to a pre-paid card embedded in an Orange Cash app.

This kind of solution requires phones to be equipped with new SIMs which costs the operator money and can take up valuable selling time in a mobile network’s retail outlets. Not a bad thing, said Christian. “The best way to bring a new payment type to a user is in a shop.”

Christian said that NFC SIM or eSE give the best user experience as you just tap and pay, even if your phone is locked. In contrast, HCE based services, which store card details in the cloud, necessitate a strong password on the payment app itself which slows things down. But HCE does present clear advantages to app vendors of all kinds – they should be able to add high value contactless payments to their services with as much ease as linking to Facebook Connect. There is a clear opportunity here for digitising gift cards and joining them up with location based communications of various kinds.

Meanwhile, in Italy, Poste Italia Mobile (an MVNO) is going live with an NFC SIM based service which allows its customers to tap and pay (provided they have a Post Italia payment card of some kind) at shops but also on public transport. Loyalty cards will be next. Already, 850K people have downloaded the Poste Italia app, 500K have got one of the new SIMs and 80K have digitised a payment card.

The video is slightly misleading. You don’t just tap and pay. You tap first. Then the app prompts for a passcode. So, it’s actually a two step process. Anyway, by next year 4m SIMs will have been swapped out and Daniela Maurello, the marketing director who made the presentation, was sure that Poste Italia’s reach alone would drive mass adoption of the service. Interestingly, the mobile network is not looking to make any money from this. The business case is about customer acquisition and this has allowed it to focus on customer experience.

Vodafone are expected to launch a similar service in a number of European markets imminently.

Unrelated to either the mobile operators or the pre-pay world itself, a couple of interesting start-ups presented:

LocalZ – winners of the John Lewis prize last year, LocalZ uses geo-location techniques, including beacons, to improve customer service. Pete Williams gave an example from Peter Jones, a John Lewis shop in Chelsea. If a shopper approaches the store and she has a click-and-collect order waiting, staff get an advanced notification so they can get the parcel ready. This cuts waiting time from 12 to 5 minutes. While still conceptual, this is a great example of technology being used to solve a specific and very measureable problem. The central assumption, that the people nearing the store are intending to come in an pick up their parcel, remains to be tested but sounds plausible.

Reward Technology – Paul Sheedy explained that his venture was aimed at the middle aged females that do most of the world’s grocery shopping. His business puts RFID tags in loyalty cards. This allows stores to recognise customers as they enter and to push messages back to their phones – by SMS primarily. Paul sees the need for a bridge from analogue to digital as real consumer behaviour is moving slower than some would like to admit. 45% of Spanish people don’t have a smartphone, for example.

Several other start-ups got a positive mention:

Quixter – a Swedish idea that registers your payment details along with your handprint, then pay by placing your hand on a reading-frame. It works using vein recognition and is live at one University.

SEQR – another Swedish venture, this is a multi-retailer mobile wallet which works by scanning a QR code produced by the till. It is live with McDonalds in the Sweden.

Orderella – order for drinks at counter-service bars and pick them up when you’re ready, avoiding the queue. It’s now available at 1000 location around the UK but will face the usual issues that the bottleneck in bars is not ordering drinks, it’s making them. That’s why there’s a queue. If you increase demand without increasing supply, the (virtual) queue will just get longer.

Tiply – use your phone to tip hotel and restaurant staff by taking their photo. It’s a great idea from the UK with a good tagline: “Don’t feel like a jerk because you don’t have cash.”

Sage H1 Results – good cross-selling but slower growth

Sage Pay’s half year results demonstrate that it continues to prosper although there may be signs that momentum is slowing.

Revenue grew 11% to £17m, continuing the positive long term trend that has seen the business grow strongly alongside the e-commerce explosion over the past five years. Management pointed out that the £17m figure was flattered by c.£1m in one-off hardware sales and that organic growth was closer to 5%. This compares to annualised increases of up to 25% reported in previous years. Clearly, growth rates diminish as businesses get larger but Sage Pay remains focused on SME clients at a time when the major market expansion is in enterprise and in-app payments.

Sage Pay revenue (£m)
Sage Pay revenue (£m) – Barraclough & Co derived from Sage Pay accounts

Sage’s new management is reportedly keen to bring the sometimes disparate family of Sage businesses together so it’s interesting to watch the only Sage Pay KPI that makes it into the group results pack. This is the number of customers that take integrated payments – defined as having a core accounting package from Sage integrated with the Sage Pay gateway.

There is real value for customers in taking the integration – the gateway automatically loads e-commerce transactions into Sage and creates and updates customer records. The number of customers taking integrated payments grew by 9% to 16,600 – a very respectable performance – and a rare example of a genuinely useful integration of payments-derived data into a business process.

Number of Sage accounting customers with integration to Sage Pay
Number of Sage accounting customers with integration to Sage Pay. Barraclough & Co derived from Sage Pay accounts.