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Better Integration Will Bring Holiday Cheer to e-Tailers
Q&A with venture capitalist Jim Gauer, a general partner in Palomar Ventures, about systems integration and its impact on e-tailers.
Posted Jul 26, 2000
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Jim Gauer is a general partner in Palomar Ventures, which has grown to over $750 million under his management. He has led investments in Borland, Isocor and Netscape. His interest in the eCRM space springs, in part, from an active interest in the growth of Internet startup YellowShirt, an application service provider for e-tailers.

Q: What is in store for e-tailers this Christmas?

A: My first bet is that the leading e-tailers this Christmas will begin to see the ability to do real time order confirmation and the ability to tell a customer when the order can be fulfilled.

Q: What is the problem with the existing approach to e-tailing?

A: In the first wave, we saw the basic standalone applications for e-commerce in terms of both B2B and B2C exchanges. But in general, the first wave of technology has been less than fully integrated into the legacy systems that these platforms need to work with. The standalone Web commerce platforms are not going to survive. They are going to have to work with legacy system, CRM systems, merchandising systems and ERP systems.

Q: What is the importance of integration?

A: Integration is the next big topic--and specifically integration that leads to a better customer experience for the e-tailer. Today, if you are a customer at an e-tailer site, you cannot get, in most cases, real-time order confirmation. This is because the stand-alone applications typically FTP their order to the fulfillment side, and at the time the customer is trying to order, there is no indication whether there is inventory to fulfill the order. We think that inventory will be a big customer fulfillment problem. Also today, the CRM systems don't typically work well with the Web site e-commerce system. Having those applications work together and integrated in real time is going to be a primary battleground over the next couple of years for retailers.

Q: What kind of architecture will evolve to support better integration?

A: What you will see in the next stage is business event routing. A customer order will get routed to the applications like CRM, ERP and merchandising systems that need to be aware of the state of the business in real time. Orders can be confirmed by the same business routing network. We think this paradigm of publish and subscribe loosely coupled architectures will allow real-time status for each of the applications that needs to be kept current.

Q: How will integration evolve between companies?

A: The third wave is going to be the real time integration of the supply chain. I know of some large retailers who are spending $40 million to $60 million trying to achieve this kind of integration because you have to build individual connections between applications. We think that companies that will be hosting a solution will be assuming the risk and will be charging the retailer a monthly subscription fee or charging for a solution.

Q: Why can't all e-tailers build their own systems like Amazon has done?

A: Someone like an Amazon that is building its own warehouses can impose a standard on how applications work together and can do it to a certain extent by brute force. A typical e-tailer cannot afford a brute force approach. We will see a new class of infrastructure software and business models to solve this problem more efficiently.

Q: What will be the primary concern of e-tailers going forward?

A: The customer experience is going to be a primary concern. Customers have been patient about idiosyncratic behavior at Web sites when they place orders, but I don't think they will over the next two to three years. A customer needs to know when they place an order that it is going to be fulfilled, and they need to be able to track delivery of that product; this requires integration of systems that are not integrated today. Finally, the CRM systems are going to have to be integrated because the customer is going to want to be able to send an e-mail or place a call to the call center and know the status of the order.

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