Vitessa Corp. is expected this month to debut an online store-building service that will challenge established firms in the space, plus an even bigger set of rivals: the Web's affiliate programs.
“Over the past year, as I've traveled around and talked to all the major players in [the high-traffic portal] space, unanimously, without exception, they all tell me they hate the affiliate model,” said Vitessa CEO Dave Mullan.
Affiliate programs are popular among online retailers, which use them to drive shoppers to their sites. The programs link Web sites affiliates to a central retailer through banner ads on the affiliate sites. Typically retailers monitor traffic coming from the affiliates and pay the sites a cut of sales they generate.
The programs are nice as an easy source of revenue for affiliate sites. But they siphon traffic away from the sites to the affiliate program operator and give sites a relatively small cut. Amazon.com, for example, pays associated sites up to 15 percent as a referral fee but typically shells out less. BarnesandNoble.com pays as much as 7 percent on books and less for music items.
Seeing an opportunity to tap into affiliate dissatisfaction, Vitessa plans to announce the Vitessa Merchant Exchange late this month. The Seattle firm will provide full e-commerce capability for clients, including fulfillment and a selection of inventory from across several product categories. Vitessa will go after high-traffic content and community sites as its first customers.
“They want to be able to conduct e-commerce directly, but they have no internal capacity … no desire to build the staff and infrastructure to manage a distribution network,” Mullan said.
As the program is envisioned, Vitessa will host the e-commerce portion of client sites, provide sets of inventory for the sites to choose from and fulfill sales for an initial set-up fee and a cut of sales. Stores will be branded for the site they're on. Set-up fees will range from $100,000 to $250,000. Vitessa will take roughly between 5 percent and 20 percent of the sales depending on the product being sold.
The company is not alone in the space. Rival Escalate Inc., Redwood Shores, CA, went live last year. Before launching its service, Escalate told DM News it would charge a subscription fee of between $2,000 and $25,000 a month plus transaction fees that would fall in the 3 percent to 12 percent range.
So how will Vitessa compete against other companies with similar business models that have entered the market? Mullan suggested some of his competitors would not be able to handle the same number of online transactions as Vitessa. The company began hosting portions of the e-commerce puzzle as early as 1997, providing shopping carts, checkout pages and other services.
Vitessa has tested its technology up against the huge sales volume big e-tail players face, Mullan said. “Amazon.com could plug their transactions into us. We've tested beyond their volume,” he said.
The company has inked agreements with distributors across several product categories, including Baker & Taylor Inc. for books, Ingram Entertainment Inc. for music, Corporate Express for office supplies, Ingram Micro for computer hardware and software and Orgill Inc. for home and garden goods. Vitessa plans to form direct relationships with manufacturers down the line.
Last month, the company began testing the system with a beta client, question-based search engine eHow.com. As of press time, Vitessa was managing book sales on the site. The search engine is able to pick and choose inventory, down to specific titles, through a Web interface. eHow also can change the pricing of products it sells.
eHow still has links to Amazon for some of the products in its shopping area but no longer turns to the retail giant for books.