Hard times ahead for shopping cart providers
Since my μIVS is providing sales forecasting services for eCommerce, I have been spending a considerable amount of time reviewing the market of eCommerce frameworks and providers. I did come up with a few conclusions that may be of interest for people considering developing business in this area.
The first shocking element when I did start to review the online shopping cart market is the insane amount of competing software solutions. Based on my own market survey, I roughly estimate that the market includes roughly 1000 companies actually trying to provide shopping cart solutions of some sort. More over, in 2007, there was almost one major entrant per month in this market. Microsoft is, most probably, planning to make its own entrance through Microsoft Office Live in 2008.
One can argue that the eCommerce market needs a large amount of specialized solutions to fit all the market niches. But I think the reality is quite the opposite: the best shopping carts are the ones that stick to the mainstream design. As a result, most shopping carts provide nearly identical features : catalog management, check-out process, payment provider integration, … I can’t think of any other software area with so many competitors providing nearly identical products.
I see a few reasons that could probably explain such a situation
designing some (naive) e-commerce solution is easy, and can be done in 3 months by an experienced programmer. In addition, there are plenty of open source software packages to get you inspired.
getting your first ten customers is relatively easy. Just prospect your neighborhood, and you will probably find a few retailers that would accept to get an online front-end for their existing business.
e-commerce is hype and all major media are promising a huge business growth for online transactions in the next few years.
Yet, all those positive elements seem seriously flawed to me. Although, a minimal shopping cart can be designed in 3 months, a practical one needs to support virtually all payment providers and all shipping providers (and probably many accounting, ERP solutions as well, if you wish to catch successful e-commerce owners) . And then, it’s not any more a 3 months project, but requires some major development efforts.
Then, as getting your first few customers might be (relatively) easy, because you can leverage your immediate neighborhoods, this approach does not scale at all. Considering the decreasing costs of the e-commerce hosting, I don’t think that any e-commerce provider business will be sustainable within a few years with less than a couple of thousands of customers. In order to scale-up on such a market, you need a huge online presence, that will drive huge amount of customers to your website. But considering that most e-commerce provider websites already have a Google PageRank of 7 or above (osCommerce has 8 ), competition is clearly super-tough in this area.
Finally, although the e-commerce market is promised to grow, I suspect that most of the growth of the retail activity is going to be absorbed by a few hundred companies. Beside those leading online retailers, there will probably be some room for a few thousands online retailers operating in niches. Even if we assume that the web can sustain 100.000 profitable web shops worldwide (which looks already quite an optimistic estimate to me), it clearly won’t sustain the 1.000 shopping cart providers that currently exists. Thus, I would expect 90% of those companies to either disappear or merge in the next decade. Since it does not cost much to maintain an online business, the process can be quite slow though.
Finally, if the shopping cart software itself may have been an issue in the past to create an online store, it is not anymore (unless you have to deal with millions of customers, because most e-commerce solutions don’t scale, but very few online businesses end up with such issues). And the amount of money that needs to be invested in the e-commerce software is now ridiculously low compared to the other - non software related - areas such as creating textual content and marketing.
Reader Comments (6)
The big new entrants to the marketplace (and I’m thinking of StoreSuite, Magento, Shopify, etc.) are very impressive and are businesses in their own right. I think what will probably happen is that new unfunded part-time open source ventures (like say, nextagecart.com) will wither on the vine.
December 24, 2007 | That Software Guy
[…] OSCommerce guru Joannes Vermorel argues that there is a glut of software on the market and that there is a coming shakeout for shopping cart providers. We’ll see if he’s right! addthis_url = ‘http%3A%2F%2Fthecartblog.com%2F2007%2F12%2F24%2Fshakeout-in-cart-providers%2F’; addthis_title = ‘Shakeout+in+Cart+Providers%3F’; addthis_pub = “; […]
December 24, 2007 | The Cart Blog » Blog Arc
Joannès, Thanks for this post. I found you doing much the same research as you now are doing re: shopping cart providers. I am trying to compile the top 25. Is this something you might be able to post? Hint, hint… Will be checking back often. Good luck with you new project.
January 21, 2008 | An interested reader
A top 25 ecommerce providers would be interesting indeed, but it’s probably going to be quite hard to estimate the respective market share.
January 21, 2008 | joannes
We had no idea there were this many competitors! Sometime it takes stumbling across a great article like this to remind us that we need to stay keen on the competition and to always be improving our product. thx
May 9, 2008 | Shopping Cart
Very true, This Shopping Cart software business is loosing the Margin and with such High competition and Especially due to availability of oscommerce, zen cart and other such Free and feature rich options. eshopper
February 19, 2009 | eshopper