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.

1. October 16, 2013
Magento
Measuring the Business Impact of Your eCommerce Platform

2. 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


© 2013
Q&A
Closing

3. Introduction: Many variables as you look at re-platforming,
upgrading, or expanding your eCommerce platform


Hosting and Infrastructure

Initial Implementation

Time to Market

Maintenance and Upgrades

© 2013
Licensing
Anticipated Revenue Lift and ROI
Market Overview
eCommerce and technology trends to
consider as you review your plans
and investments.
Forrester Total
Economic Impact
A 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.

4. Introduction: Guest Speakers
Peter Sheldon
Forrester Principal Analyst
Serving eBusiness & Channel
Strategy Professionals
Michael Speyer
Forrester Principal Consultant
Serving Sales Enablement Professionals
© 2013

5. Measuring the Business Impact of Your eCommerce Platform


Total Economic Impact Study: Purpose and Methodology

Key Findings from the Customer Interviews

© 2013
Market Overview
Financial Model

6. In case you missed it, eCommerce is on a tear
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7. By 2017, 10% of total US retail spend will be online, hitting
$370 billion
$370
$345
$319
$291
$262
(US$ billions)
$231
Year-on-year growth
14%
13%
11%
10%
8%
7%
Share of total retail sales
8%
8%
9%
10%
10%
10%
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013

8. These stories have become common place on retailer earning
calls
© 2013

9. Two thirds of firms will increase spending on eCommerce
technology in 2013
How is your investment in eCommerce technology changing?
Decreasing
2%
Significantly increasing
10%
Staying about the
same
31%
Increasing
56%
Base: 49 eBusiness & Channel Strategy Professionals
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013

10. Worryingly however, many retailers are
running the show with legacy or home-grown
eCommerce solutions
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11. Almost a quarter of eCommerce sites are powered by homegrown technology
How is your online store supported today?
Full service vendor who also supports fulfillment,
customer service, and marketing
2%
SaaS (on-demand) application
hosted and supported by the
product vendor
4%
None of the above/don’t know
14%
The product vendor
13%
Commercial
application
49%
Open Source
eCommerce Platform
(i.e. Magento
OSCommerce)
8%
Homegrown solution
supported and hosted by our
internal IT staff
22%
Our Internal
IT staff
54%
A third party
service provider
33%
Base: 49 eBusiness & Channel Strategy Professionals
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013

12. Omni-channel, mobile and content management are top priorities
for retailers in 2014
What are your technology investment priorities for the coming year?
eCommerce platform
52%
Multi-channel integration
52%
Web Content Management (WCMS) tools
52%
50%
Customer Relationship Management (CRM) tools
48%
Mobile commerce platforms
Customer Insights and Analytics Systems
40%
Responsive design
40%
33%
Product Content Management (PCM/PIM) tools
Site payment, system security compliance & protection
27%
Site Search
27%
25%
Back-end integration (ERP, Financial Reporting)
17%
Order Management (OMS) tools
POS/Store Systems
15%
Call center systems
15%
Other (please specify)
4%
Base: 49 eBusiness & Channel Strategy Professionals
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013

13. The online channel today influences 40% of offline retail spend
$1723
$1741
$1771
$1780
$1812
$1672
$1103
$1206
$1320
$1429
$1552
$1660
44% of total retail sales
will be impacted by the
Web in 2016
CAGR (2011 to 2016):
9%
$202
$226
$252
$278
$304
$327
2011
2012
2013
2014
2015
2016
(US$ billions)
Source: Forrester Research Online Retail Forecast, 2012 to 2017 (US)
© 2013

14. The right ownership model for platform ownership often depends
on online revenue
Build
Online
Revenue
Tiers
Typical
Business
Models
< $5 million
Market
Place
Buy
$5 million to
$25 million
Open
Source
$100 million to
$1 billion
$1 billion to
$5 billion
Commercial Solution
SaaS or On-Demand > Hosted Managed or On-Premise
SMB (<$25m online revenue)
© 2013
$25 million to
$100 million
Build
> $5 billion
Custom
Build
Enterprise (>$25m online revenue)

15. There are pros and cons to consider evaluating ownership
models
SaaS
On-premise
Application
Application
Application
Runtime
Runtime
Runtime
Runtime
Virtualization
Virtualization
Virtualization
Virtualization
Servers
Servers
Servers
Servers
Storage
Storage
Storage
Storage
Networking
Networking
Networking
Networking
Security
Typical business model*
Hosted / Managed
Application
Infrastructure
management
On-demand
Security
Security
Security
Revenue share
Perpetual license + Perpetual license +
hosting fees
hosting fees
Perceptual license
Upgrade effort
Low
Medium
High
High
Application tenancy
Multi
Single
Single
Single
IT skillset required
Low
Low
Medium
High
Managed in-house
© 2013
Managed by vendor/hosting partner

16. Measuring the Business Impact of Your eCommerce Platform


Total Economic Impact Study: Purpose and Methodology

Key findings from the customer interviews

© 2013
Market Overview
Financial Model

17. The Forrester TEI methodology is an established ROI framework
focused on impact beyond costs
Framework and Components
“Options” created
•Are there new
opportunities created
for the future?
Cost
•People
•Process
•Technology
Benefits
•Quantified value
•Defined metrics
Flexibility
(Options)
Costs
(Impact on Budget)
RISK
Total
Economic
Impact
Benefits
(Impact on Business)
Uncertainty
Source: August 4, 2008, “The Total Economic Impact™ Methodology: A Foundation For
Sound Technology Investments” Forrester report
•Impact of assumptions
Approach And Methodology
Perform due
Conduct customer interviews onstruct financial model Write case study
C
diligence
© 2013

18. Measuring the Business Impact of Your eCommerce Platform


Total Economic Impact Study: Purpose and Methodology

Key Findings from the Customer Interviews

© 2013
Market Overview
Financial Model

19. Interviewed five merchants with online revenues ranging from
$10 million to $100 million


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

© 2013
A retailer of equipment, tools, and supplies
A retailer of luxury apparel, gifts, and accessories

20. 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

21. 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:



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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.

22. New eCommerce platform requirements and attributes
Scalability
Flexibility
To easily and rapidly create custom landing pages,
perform catalog updates and other management tasks
Easy Integration
With back-office systems and external marketing services
providers
Rapid Deployment
© 2013
To meet growing online traffic volumes
To begin growing their online businesses

23. Qualitative benefits of Magento Enterprise Edition
experienced 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

Allowed merchants to support more diverse and frequent
marketing tactics
Major contributor to the overall revenue uplift
Increased Levels of Marketing Activities

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

24. Measuring the Business Impact of Your eCommerce Platform


Total Economic Impact Study: Purpose and Methodology

Key Findings from the Customer Interviews

© 2013
Market Overview
Financial Model

25. Interviewed five merchants with online revenues ranging from
$10 million to $100 million


3-year forward looking analysis

Uses a 10% discount rate for Present Value and Net Present Value
calculations

© 2013
Accounts for all costs and benefits reported by the interviewed
customer
All costs and benefits are adjusted for variance, uncertainty and risk
as described in the TEI methodology

26. New eCommerce platform requirements and attributes
License fees
Professional Services
$324,000 for initial deployment
$537,150 for ongoing support
Internal Labor
$476,732 for initial deployment, ongoing
maintenance, upgrades to back-end systems
Hosting Services
© 2013
$98,206 for three production servers and one
nonproduction server
$337,632 for bandwidth, server hosting, load
balancing, content delivery network (CDN), and
a firewall

27. 3-year benefits included in the financial analysis
For composite merchant with $40m in annual online sales
eCommerce uplift
attributable to the
Magento platform
$3,960,893 20% of total revenue uplift is
attributed directly to the Magento platform
$147,719 for prior platform software license
maintenance
Costs Avoided
$350,533 for prior platform maintenance and
upgrades
$147,719 for software development when using
pre-built extensions from Magento Connect
© 2013

28. Risks and drivers of variance in costs and benefits


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.

© 2013
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.
Magento licensing fees will vary with the number of servers and the level of
support purchased.

29. Three Year Risk Adjusted Cash Flow
Initial
Costs
Year 1
Year 2
Year 3
Total
PV
($420,960)
($537,802)
($544,282)
($551,086)
($2,054,130)
($1,773,730)
$1,413,400
$1,801,760
$2,422,672
$5,637,832
$4,594,156
$875,598
$1,257,478
$1,871,586
$3,583,702
$2,820,426
Benefits
Net Benefits
ROI
Payback Period
© 2013
($420,960)
159%
5.8 months

30. Thank You
Peter Sheldon
psheldon@forrester.com
Michael Speyer
mspeyer@forrester.com
forrester.com
© 2013

31. Magento Enterprise Edition eCommerce Platform and Ecosystem
Solution Partners
Hosting Partners
Industry Partners
© 2013

32. 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.
© 2013
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BY