E-Commerce Provider Throws Lifeline to Abandoned Clients

Looking to capitalize on the demise of many of its competing e-commerce service providers, Minneapolis, Minnesota-based Digital River (Nasdaq: DRIV) announced Wednesday the launch of its E-Rescue Program.

The program purports to be a lifeline for companies and government agencies that are working with e-commerce service providers which are failing or have gone out of business.

With high-tech company casualties mounting in a post-Goldilocks economy, Forrester Research associate analyst Kyle Johnson expects these types of transition offers to become more common. However, he cautioned companies to do their homework when embarking on a transition.

“Some e-commerce service providers might promise a relatively seamless transition,” Johnson told the E-Commerce Times. “But companies should expect to see interface changes, data changes, and the like. It shouldn’t feel quite like starting from scratch, but it might be close.”

To the Rescue?

Digital River provides outsourced e-commerce software and consulting, including site development and hosting, order management and customer service. Its E-Rescue transition program is laden with incentives, and it claims to be able to bring a client up and running in as little as seven days.

“An increasing number of e-commerce service providers are shutting down operations or battling layoffs, revenue shortfalls, slowing sales and growing debt,” said Digital River chief executive officer Joel Ronning. “In some cases, [clients] are left hanging when their sites unexpectedly go dark. We can offer these companies a transition plan that can keep their e-businesses growing.”

Digital River’s clients include manufacturers, distributors, retailers and software publishers.

Screen Savings

Johnson said the complexity or ease of a transition will depend greatly on the compliance between a company’s current commerce application with the incoming provider. Further, companies must consider in-house legacy systems that will need to be integrated with the outsourced application.

According to Johnson, service providers offering transition programs such as Digital River’s E-Rescue Program will likely be modulating their sales pitches on a per-customer basis. He advised companies to screen a transition provider just as diligently as they did the original provider — if not more so.

“Companies need to do a thorough needs analysis,” said Johnson. “They shouldn’t rely on word of mouth recommendations, but should carefully check the financials and client references of the new provider.”

Measure by Measure

Johnson offered Vienna, Virginia-based rival firm Entigo as an example of an e-business company attempting to take the place of a recently defunct competitor.

When SpaceWorks closed its doors, Entigo swooped in to try to nab SpaceWorks’ bewildered customers, Johnson said. But in many cases, according to Johnson, Entigo’s offering was not a good match for the customers’ needs.

Sure Steps

There is no fail-safe way to prevent or to even foresee the demise of an e-commerce service provider, Johnson said, but there are precautionary steps companies can take early on in the relationship with a provider, including:

  • Proactively make sure knowledge and data transfer from the provider is as complete as possible, regardless of the stability of the provider.
  • Whenever possible, request a contractually binding source code escrow, which is the provider’s pledge to give the client the application’s source code in the event that the provider’s own company goes out of business. Clients will likely have more success obtaining this agreement when the application is a licensed software package, rather than a hosted application via an application service provider (ASP).
  • Thoroughly investigate such items as vendor references, client histories and financial health.
  • Conduct frequent internal requirements analyses in order to be able to effectively judge the suitability of prospective service providers.

Home Alone

E-commerce service providers who go out of business are very rarely under any contractual obligation to manage the needs of their newly deserted clients, Johnson noted.

“At the most, companies might receive a courtesy call from a member of the service provider’s executive team,” warned Johnson.

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