Escalate Promises Full-Scale E-Commerce Provider Service

Keng Lim, Steve Yen, Boogie Shafer and Mercedes Dy found themselves with money on their hands after America Online Inc., Dulles, VA, bought browser company Netscape Communications Corp., Mountain View, CA, this year. So the four Netscape stockholders decided to do what most young, entrepreneurial types do these days: start their own Internet company.

Enter Escalate Inc., Redwood Shores, CA, a firm that wants to pioneer the market for e-commerce providers – sort of an application service provider “taken to the next level,” in the words of now-cyber-CEO Lim. Escalate plans to put together entire commerce operations for client sites, from designing stores and processing transactions to managing relationships with manufacturers and fulfillment houses. He thinks his firm can do it for a lot less than it costs sites to do it themselves.

“It doesn’t have to cost $2 million. It doesn’t have to take nine months,” Lim said.

Lim and Yen founded Kiva Software in 1995 and hired Shafer and Dy as high-level executives before selling the firm to Netscape in 1997. When Netscape was, in turn, swallowed by AOL – a windfall for many Netscape shareholders – the four took their winnings and cut loose to spend their own money and start again. And spend they have, setting up, among other things, a $6 million data center in Sunnyvale, CA, that is designed to handle up to $1 billion in monthly transactions.

Tack on $26 million in venture funding the company announced last month, and suddenly you’re in business. Escalate is taking its first clients through a dry run of the service now. Lim would not identify the companies, saying some had not yet made their planned e-business ventures public. But he said Escalate will take most of them live before Thanksgiving.

Escalate is designed on a transaction-processing model, similar to credit card organization Visa International, San Francisco. Escalate claims to be capable of setting up an e-commerce site or building sales capability into existing sites in three weeks. The service includes actual selling of goods – from running promotions to controlling targeting of site visitors – as well as order management, payment processing and billing.

Escalate also handles product shipment and supply chain management through relationships it has built with distributors and third-party fulfillment houses. The company even said it can supply products if Web sites don’t have any – Escalate struck deals with “high-quality names” in about 20 product categories, Lim said. He would not identify the fulfillment operations or manufacturers that have agreed to work with Escalate, however.

The company hopes to work primarily with sites that have developed content but lack the ability to sell anything. Escalate anticipates working with retail sites that have found updating their existing operations prohibitively expensive or time-consuming.

Clients will keep control of the things Escalate’s market research has indicated they want: the products they sell and their customer data. Lim insisted e-commerce sites working with Escalate will still “own” their membership base and the ability to convert it into something tangible – namely, revenue. As the program is envisioned, retailers will continue managing the branding of their sites and handling customer service.

The company has two ways of charging sites for its services. Under the first, clients pay between $2,000 and $25,000 a month as a subscription, plus a part of their revenue as a transaction fee. Sites choosing the second option can skip the subscription fee, but will pay out a larger percentage of sales. Lim said transaction fees will fall between 3 percent and 12 percent of sales generally. He guarantees that whatever the cost of the service, it will be less than what sites pay to run a cyber-business themselves.

“If it gets cheaper for you to do it yourself, then it doesn’t make sense for us to exist,” Lim said.

Escalate’s early investors include Accel Partners, Norwest Venture Partners, Barksdale Group, Discovery Ventures and Angel Investors LP.

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