The Modular Approach, The E-merchant’s Dimensions & Metrics: Thoughts on the E-commerce Platforms and Addons Industry

The Modular Approach

All major existing e-commerce solutions have chosen this path: a main “core” solution, complemented by a large selection of downloadable smaller programs that extend the core functionality.

It’s a great ecosystem. To a certain extent, one could argue that the entire software industry (Operating Systems and Software Applications) as well as Mobile (Apple and Android) App Stores and even Facebook (and its upcoming own new App Store) have used the same approach.

But when it comes to e-commerce platforms and their “addons”, “modules” and “extensions” (the name varies according to the platform), there is one specific expression that, as a PrestaShop module developer ourselves, we keep hearing from our e-merchant clients, small and large alike: “It’s a jungle out there”.

Many simply do not know which modules are right for them and often purchase and install modules without fully understanding how they will concretely impact their bottom line. And the marketplaces that sell them often lack in structure and categorization to adequately guide and advise merchants through the process of purchasing the right solutions for them.

The E-merchant’s Dimensions

We would argue that truly placing the merchant in the center and knowing which categorization criteria matter most are essential points. Enter the E-merchant’s Dimensions:

• Industry (and its market characteristics)
• Size
• Country
• Functional areas

In effect, we are asking the following questions:

• What are you selling?
• How large is your business? (daily number of orders, catalog size…)
• Where are you located and which country(ies) are you selling in ?
• What part of your business can we help you with today ?

There are of course many additional dimensions that would be good candidates, but if we had to pick just a few, these would be the most important ones in our eyes.

What are you selling ?

This question is essential, because not all modules or Addons are meant for everyone. A module that lets merchants display Lookbooks and Products Sets might be very useful to a clothing or decoration shop, but utterly useless to an automobile spare parts store. Conversely, some modules are more universal and adapted to almost anyone, such as our Facebook modules for PrestaShop.

It is worth noting that PrestaShop Addons is the only one who has taken this industry factor into consideration, although only for sorting out its graphical themes. Modules, which extend the shop’s functionalities, could definitely use a “tell me what’s good for my products” approach as well.

How large is your business?

Some modules, such as the ones that help automate things, speed up catalog updates and order processing (e.g: bulk update interface tools), will not be of much use to a merchant that is just getting started, with a very low initial volume. They will however become essential once the shop’s sales volume reaches certain critical points.

Where are you located ?

The most obvious categories that come to mind are the ones related to Shipping and Payment. Some, such as UPS and Paypal, are truly global, but many will have country specific offers: Authorize.net in the US and Atos in France in the case of payment, USPS and La Poste, respectively, for shipping. That being said, this can apply to marketing or other areas as well: a given promotional technique may work in one country but not another.

The question…

As illustrated, there are several factors, all critical, one needs to take into consideration when choosing a module. One question remains. And so we ask you :

What part of your business can we help you with today ?

This leads us to our next section…

Business Tech’s “4 Levers and 3 Pillars” (4L3P) Model ®

There is no need to justify the legitimacy of asking a customer “How can I help you today?”, but to help answer this question, we need a simple, yet correct way to sum up e-commerce mechanics in a way that is easy to understand from a business person’s perspective.

So here goes… The following diagram was extracted from our brochure, where we outline our approach as a web agency:

It is our assertion that an e-commerce website’s global profitability can be boiled down to 4 main Levers: Traffic, Conversion rate, Average cart amount and Customer loyalty, as well as 3 main Pillars: Logistics, Promotion and Development.

While levers represent the main opportunities and factors on which a merchant can act to increase revenues, pillars support the online business and allow it to grow, but generate expenses. There are therefore opportunities to act on these as well by implementing functionality that either reduces costs, or saves the merchant time.

• The Logistics pillar includes not only shipping, but additional elements such as payment, insurance, fraud management, order processing and catalog management, activities that all carry a heavy financial or time-based price tag.
• The Promotions pillar is the flip-side of the Visitors lever. Surely, it costs money to advertise, gain visibility and generate traffic.
• Development is a bit of a broader one. It includes of course the costs associated with developing the website itself, but also more concrete aspects like money tied up in inventory and growing one’s catalog and variety of products, structuring processes and staffing the business etc… It also includes all modules related to statistics and business reports, as these provide the feedback loop that is essential to business development.

Taking stock and the importance of metrics

Within this theoretical framework, any piece of functionality provided by a module or addon will serve one or more levers or pillars. Merchants can therefore now look at a module with a structured approach and ask themselves:

• What do I need to work on ? (traffic, conversion rate, average cart, loyalty)
• Does this module seem to be able to improve one of these metrics?
• Is this module adapted to my country and / or to my customers’ countries?
• Is this module adapted to the kinds of products I sell ?

But this approach cannot possibly work if the shop does not have the proper metrics (site traffic, conversion rate, average cart and repeat purchase / loyalty measures) in place. The first thing any shop should check is whether their analytics scripts (e.g. Google Analytics) are properly installed and accurately providing all these measures.

There are much more advanced metrics shop owners could compute for themselves and that e-commerce platforms could provide to their users.

New York University’s Stern School of Business in fact just launched a new Business Analytics program at its Shanghai and NYC campuses: http://finance.yahoo.com/news/nyu-stern-announces-masters-business-131700585.html - illustrating the importance of one’s ability to extract meaningful business information out of raw data.

Beyond simple sales and net profit figures, here are just a few metrics that come to mind:

• Sales volume and profit to inventory valuation (e.g: “I need $10,000 in inventory to make $5,000 in sales per month).
• For stores with products that tend to produce repeat purchases (such as perfume or printer ink cartridges), the average replenishment cycle length, both at the aggregate and individual levels.
• The sales and profit growth rate compared to the catalog size growth rate, broken down by product category and / or brand, allowing a merchant to identify which products and / or brands are really contributing to overall growth and profitability.

Towards a better Addons Marketplace experience

Taking stock of what we have looked at, an Addons Marketplace menu based on this framework might look something like this (this is in no way a definitive mock-up, it is just a simple, basic draft):

And a revised search interface that would complement the above navigation menu might incorporate some of these elements:

NB: PrestaShop Addons has been working a lot on improving its platform lately and our sources tell us that a new and improved navigation system is due to be launched soon. So keep checking back at http://addons.prestashop.com over the next few weeks…

Taking the Modular Approach to the next level: What if…

What if… EVERYTHING (the category page, the product page, the checkout process, promotions and everything else) was a module? What if e-commerce platforms started relying on crowdsourcing to help them constantly evolve, while minimizing their own maintenance and development costs, increasing their module sales, and simultaneously empowering merchants and giving web agencies the opportunity to recycle and monetize their technical work?

Fact # 1: E-commerce platforms are constantly trying to balance functional richness and power against simplicity and accessibility, to try to reach out to small and large merchants alike.

Alternative # 1: By refactoring most of the Core code in modules, and applying the kind of classification described above, modules could then be packaged and assigned on installation of the main solution to user profiles based on industry and size. Unnecessary complexity would be hidden from smaller merchants and reactivated later once the need arises, while more power could be delivered to the larger merchants. One size does not fit all, but if the platform could size itself on installation, then it could address the various segments of the market more effectively and become more universal.

Fact # 2: Maintaining and developing the “Core” of an e-commerce platform represents a very large share of the manpower and resulting financial costs involved for the platform.

Alternative # 2: The main solution would be closer to an Operating System. The platform would then be mostly responsible for providing 1) a correct database model, as well as 2) the mechanisms to link and intertwine modules together to form a whole. Existing functionality would still be present in the refactored “Core modules” but adding new functionality could then be crowdsourced to external developers, thereby considerably reducing the costs of maintaining and developing the platform.

Fact # 3: Addons represent a sizeable share of revenue for the platform through module sales and commissions.

Alternative # 3: Imagine if we could have a module called “Category page for Electronics stores” or even “Product page for furniture stores”, each with layouts, features and ergonomics adapted to the products being sold. By allowing a much larger portion of custom developments to be developed as modules, standardized and resold through the Addons Marketplace, the 30% charged to developers by the platform would all of the sudden represent a much larger base and would considerably boost revenues.

Fact # 4: Because a large part of e-commerce functionality is still contained in the Core, most of the custom developments performed on the Core by web agencies are lost to the platform and public at large, when they could be reused at a profit and industrialized.

Alternative # 4: With a fully modular approach, this would no longer be the case. The entire ecosystem would benefit from it. Smaller merchants could have access to sophisticated personalized functional packages that would have previously been out of reach due to financial constraints. Web agencies would derive additional revenue from the work they have done for larger clients by packaging it and reselling it to smaller merchants. Agencies with particular expertise in a specific industry could position themselves as an expert and focus on modules aimed at that industry. Much like Adobe has focused on creative applications and Microsoft on business applications in the standard software industry…

Fact # 5: Many E-commerce platforms struggle to find a viable long-term business model.

Alternative # 5: By putting Addons and the modular approach at the very center of the business model and leveraging it to the highest possible level, a large share of the platform’s revenue can now be derived by, well… what is in the end an online store itself. And all the principles we have seen so far become reproduced in a fractal pattern internally. Everything becomes more measurable, predictable, industrialized. And because the model truly uses crowdsourcing as one of its cornerstones, growth is much less limited by internal manpower.

As we said in the beginning: most of the software industry has organized itself around these principles. The mobile apps world and social networks as well.

Sounds too good to be true? Technically impossible you say? We think not so.

This part gets a bit technical and is reserved to people with technical knowledge. It is also based solely on the PrestaShop e-commerce platform, since this is the one we work with and know best.

Currently, in its 1.4 version, if one opens up one of the “root level” PrestaShop files, such as category.php, they will find this code:

include(dirname(__FILE__).'/config/config.inc.php');
ControllerFactory::getController('CategoryController')->run();

What we suggest is that the main core code be refactored inside modules so that this would become something along the lines of:

include(dirname(__FILE__).'/config/config.inc.php');
Module::hookExec('core_category');

Each module could then execute its own code, or call other modules, or even create it own hooks.

How that might be accomplished in detail technically is beyond the scope of this article and will not be discussed here. All we are saying is that with its current modular structure, PrestaShop is already in a very good position to achieve this from a technical point of view.

Of course, relying on third-parties to provide additional platform functionality presents its own risks: quality control, conflicts of interests, diminished overall control… These problems will not be solved by technology alone.

Clear rules must be set and enforced, and developers and partners must be picked carefully. It is our belief that, much as is the case with universities or even night-clubs, the more selective and exclusive the establishment, the more one is able to attract higher-end profiles. Though this implies more screening work, the end result is a high-quality ecosystem.

Business Tech has already started applying some of these principles to its own activities, with great success and surprisingly fast results and growth. You’ll be hearing a lot more from us over the next few months…

About the Author

David Niry is a web entrepreneur with 15 years experience. He holds a BS with a double major in Management and International Business and a minor in Psychology from New York University’s Stern School of Business, as well as a Specialized Master’s Degree in Databases and Systems Integration from the CERAM’s MBDS program in Sophia Antipolis.

Business Tech is an International IT Consulting & Web Agency and think tank currently specializing in the development of Prestashop modules as well as custom, high value-added web based business applications. New start-up projects are also currently under development and will be launched in 2013 and 2014.