Like the founders of a lot of Web-based start- ups, Larry Gerhard and Michael Osborn were passionate about their product, but not about the technology required to sell it. In their case, the product was wine. Gerhard and Osborn, who both have plenty of experience in high tech, wanted to open a wine shop for the Internet, dubbed eVineyard. But as the two men knew, selling online in the highly regulated liquor distribution industry is a technically complicated task.
To operate in the 22 states in which it is currently licensed, eVineyard had to have an E-commerce Web site that could serve up entirely different product catalogs, pricing and discount schedules, freight tables, and order screens, depending on where an order would be shipped. The site would also require real-time inventory system integration with the company’s four warehouses (one more is waiting for regulatory approval). In the wine business, explains Osborn, the company’s executive vice president, there are no back orders: “When a particular vintage of wine is gone, it’s gone.”
Osborn and Gerhard, eVineyard’s CEO, evaluated these impending challenges and eventually decided to let someone else conquer them. “There’s plenty of work for us to do without worrying about technology,” says Osborn.
As a result, the company outsourced its entire E-commerce operation. eVineyard offloaded the creation and operation of its E-business to Pandesic LLC, a Sunnyvale, California-based joint venture of SAP AG and Intel Corp.
In May 1999, eVineyard launched its online store (www.e vineyard.com). The company handles nothing but the content. All transactions are processed by Pandesic, which hosts the Web site; serves up the right version of the catalog to visitors; processes credit-card payments through CyberCash, a leading E- payments vendor; and confirms sales using real-time inventory data, which it houses on its servers. The Pandesic system (which is built on SAP’s R/3 enterprise resource planning software) then routes the order to the appropriate warehouse and bills the customer.
Cost? After a start-up fee, eVineyard pays Pandesic a small percentage of its annual online revenue and a nominal monthly hosting fee. Osborn says the company can focus on wine while Pandesic makes sure the site is fully operational, 24/7. Using this operating model, privately held eVineyard anticipates quarter-by-quarter growth of 300 to 400 percent in 2000.
Outsourcing’s bleeding edge
Pandesic is one of a new breed of end-to-end E-commerce outsourcers that has sprung up in the past year or so. These outsourcers integrate traditional E- commerce offerings with back-end systems. In some cases, they also offer traditional logistics, warehousing, and supplier services. It’s a young service, but one clearly needed, as highlighted during the Christmas 1999 buying season, when Web shoppers complained bitterly about chronic online stock outages and late or nonexistent deliveries.
Although no figures are yet available on the size of the full- service E-commerce outsourcing market, traditional E-commerce outsourcing–usually defined as Web-site design, strategy consulting, and software creation and hosting–was a $6.6 billion industry in 1998 and is expected to grow to $39.5 billion by 2002, according to Gartner Group Inc., a technology advisory firm in Stamford, Connecticut. Gartner also predicts that by 2003, fully half of all package-delivery traffic in the United States will be from electronic retailers.