Magento

2017 GlobaleCommerce Platforms

Product Line Strategy Leadership Award

BEST PRACTICES RESEARCH

© Frost & Sullivan 2017 2 “We Accelerate Growth”

Contents Background and Company Performance ........................................................................ 3

Industry Challenges .............................................................................................. 3

Product Line Strength and Customer Impact ............................................................ 3

Conclusion........................................................................................................... 8

Significance of Product Line Strategy ............................................................................ 9

Understanding Product Line Strategy Leadership ............................................................ 9

Key Benchmarking Criteria .................................................................................. 10

Best Practice Award Analysis for Magento .................................................................... 10

Decision Support Scorecard ................................................................................. 10

Product Line Strength ......................................................................................... 11

Customer Impact ............................................................................................... 11

Decision Support Matrix ...................................................................................... 12

The Intersection between 360-Degree Research and Best Practices Awards ..................... 13

Research Methodology ........................................................................................ 13

Best Practices Recognition: 10 Steps to Researching, Identifying, and Recognizing Best Practices ................................................................................................................. 14

About Frost & Sullivan .............................................................................................. 15



Background and Company Performance

Industry Challenges ECommerce has been one of the continuous growth stories since the new millennium. In 1999, eCommerce accounted for less than 1% of US retail sales. This figure had risen to about 7%1 by early 2015. Behind this growth trajectory are the driving forces of ubiquitous connectivity and of increasing trust in online retailers. While still accounting for only a small fraction of the overall market compared to bricks-and-mortar retail, there is no doubt that eCommerce will continue to increase its importance.2

It might be tempting to think that online retail will increase in prominence simply at the expense of traditional, offline retail. While the overall tendency is hard to deny, the reality is less black and white. Even though eCommerce still has enormous potential to grow by replacing offline sales, it has already become an indispensable part of retail customer engagement. Retail customers are no longer just going either online or into stores to shop. The customer journey is no longer a linear or otherwise predictable path. Shoppers invariably investigate products, services and retailers online by checking other customers’ experiences on social media before purchasing online, on their mobile, on their tablet, or in-store. However, while the role of retail stores is being transformed, they remain just as vital a part of the customer journey and a cornerstone of brand experience and merchants that have both digital and physical stores can deliver seamless experiences that give them a competitive advantage.

Shoppers today are used to roaming in and out of channels, browsing on one device and ordering from another, or ordering online and picking up in-store. Ongoing technological progress in augmented reality, for example, can blur the boundaries between online and offline as the online shopping experience can increasingly get enhanced with virtualized elements from the offline world. Conversely, the information and multi-media richness of online shopping is finding its way into the store through mobile devices and digital signage. While creating fully immersive sensorial experiences will continue to be only possible in physical shop environments, both physical and digital are indispensable parts of a holistic customer experience of integrated commerce.

Retailers need to be able to provide a seamless customer journey across touch points and mobile, tablet, desktop and physical channels. ECommerce platforms play an essential role in enabling retailers to respond to, and embrace, these trends.

Product Line Strength and Customer Impact Magento was spun out of eBay Inc. in 2015 and acquired by private equity firm Permira. As a leading provider of eCommerce software, Magento is particularly established with high 1 http://www.bloomberg.com/news/articles/2015-05-15/e-commerce-sales-are-surging, accessed on 01 September 2016 2 Compare: https://www.frost.com/q296690090, accessed on 12 December 2016

http://www.bloomberg.com/news/articles/2015-05-15/e-commerce-sales-are-surging

https://www.frost.com/q296690090



growth and medium sized business-to-consumer merchants. It also has a strong presence in the B2B and B2B2C spaces.. Because of the platform’s flexibility and scalability, it is equally capable of providing effective solutions for companies of all sizes.

Product Line Strength Criterion 1: Breadth One size does not fit all. This is the reality that is becoming more and more evident in the post-industrial age of micro-segmentation and one-to-one marketing. In order for retailers to address their target customers and differentiate themselves from their competitors, they need to build a clear positioning and differentiated experiences. Because digital touch points are becoming an ever more central part of the customer journey, eCommerce platforms are becoming mission-critical for retailers, who are wise to select software that enables them to support their unique value proposition and differentiation. ECommerce platform vendors certainly cannot boil the proverbial ocean but need to focus their resources by making choices about features and capabilities that are strategically aligned with the requirements of their target segments. Magento has made smart strategic portfolio decisions that have allowed the company to focus its resources and build a platform to enable businesses and merchants to deliver distinguished experiences that mirror the differentiation of their brand. In addition, Magento has native Order Management and Business intelligence which ensures not only the best experience in the online store, but in the fulfillment of the purchase. The trade-off between breadth and strength of appeal to any specific user (or user type) makes it all the more remarkable when an eCommerce platform manages to be a ‘category-spanner’ – a solution whose value-proposition is so strong and malleable that it is amongst the very best for addressing the requirements of many retailer segments. This ability to be a top choice for diverse requirement is one of the great strengths and guarantors to the success of Magento. Magento offers an open source product, which can be downloaded for free, and is widely supported by developers that can build innovative customizations and push them for consideration back into the product for the benefit of the community. The open source platform is widely adopted which means there is a large and skilled developer community of over 200,000 strong, that can help companies leverage the Magento platform. The community edition of the product is well productized nature and can get up and running for a low cost, which makes the open source platform particularly attractive to small companies. Moreover, the Magento Marketplace offers a great number of functional extensions and themes, developed by the Magento community of users and third party developers so that the businesses can leverage innovation and extend the capabilities of their store. Magento Enterprise Cloud Edition offers significant performance and scalability for retailers that have a higher transaction volume and require a more comprehensive feature set. In



the most recent version of the software, Magento is offering an improved content management and cataloguing, merchandising and personalization, targeting, staging and preview, returns management, for example, ensuring that large company requirements can be met. Beyond out-of-the-box and marketplace-based functionalities, the Magento Enterprise model offers even greater customizability, account management, technical support3, and enhanced security packaged as a subscription. Launched in Aprilof 2016, Magento Enterprise Cloud Edition aims to further reinforce the appeal of the Magento Commerce solution to the enterprise segment. This product is set to become increasingly important for the Magento go-to-market as the company plans to focus more on a cloud-based delivery model, which gives their customers significant manageability and security advantages. The Magento single tenant nature to some degree reflects a learning curve from the discontinued multi-tenant, SaaS offering that Magento offered to small businesses back in 2012 that proved misaligned with what users valued in Magento most – flexibility. Magento Commerce Order Management, a solution that orchestrates orders and fulfillment across channels, and the recently acquired Magento Business Intelligence product, enhance and round out the Magento offering. Further complemented by partnerships with leading technology players such as Adobe and Acquia, Magento is evolving beyond its mono-product beginnings and towards a more comprehensive commerce suite. Criterion 2: Scalability While many competing eCommerce solutions are following conventional wisdom in their strategy and clearly delineate their target market as either the smallest or largest retailers, Magento has something to offer to retailers of almost any size. Magento provides a scalable platform that can handle hundreds of thousands of products and transactions volume that extends upwards to hundreds of millions dollars annually. The new release of Magento has further increased scalability and performance. Magento provides outstanding value to medium-to-large companies, most commonly in the five to hundreds of millions in annual gross merchandise value (GMV) range. It is the preferred platform for a great number of global brands, such as Nike and Ford. Magento is justifiably proud, with a recent announcement that “31% of mid-to-large companies rely on Magento for their commerce platform, more than any other vendor,”4 referring to Internet Retailer’s 2016 Top 1000 U.S ranking of eCommerce solutions providers.“Further, Magento now powers over 25% percent of all ecommerce sites in the Alexa top one million, more than any other ecommerce platform”5, which speaks for itself. 3 Rather than the reliance on community based support as in the case of Magento community edition 4 https://magento.com/press-room/press-releases/magento-1-digital-commerce-platform-provider-fourth-straight-year, accessed on 06 December 2016 5 https://magento.com/press-room/press-releases/magento-1-digital-commerce-platform-provider-fourth-straight-year, accessed on 06 December 2016

https://magento.com/press-room/press-releases/magento-1-digital-commerce-platform-provider-fourth-straight-year






Criterion 3: Features Magento does offer capable functionality for the very smallest shops that have just a few, simple products. However, it shines wherever more complex requirements, such as with many or configurable products, large catalogs, for businesses with more than one brand, or looking to serve more than one market or country, or where high traffic volume has to be accommodated. Features include the ability to support multiple storefronts, multiple currencies and languages. Other elements that deserve highlighting are powerful search engine-optimization tools, pre-existing themes, optimized checkout, secure payment processing, and more. Payment gateway support includes, for example, Apple, PayPay, Amazon Payments, Google Checkout and many dozens more. Responsive design, paired with browser detection to optimize user experience across devices, extensive promotional features such as discounts, cross-selling and upselling, and wish lists also come in handy to design high-quality shopper experiences. The Magento marketplace offers rich extensions and themes. Stricter quality control and curation was introduced with a recent upgrade which significantly reduced the number of extensions available, however the number has already grown to over a thousand. Most extensions carry a price tag of some hundred dollars, others are free. They include, for example, tools for marketing, analytics, contact center, reviews, personalization, order management, fulfilment, and accounting. Something exists for almost any aspect of business, reflecting the benefit of the Magento Marketplace as providing modular solutions from developers that enable merchants to add custom extensions to meet the precise needs of their business. In the open source spirit, users can also modify, optimize, and customize Magento to their specific requirements such as non-standard implementations and business-to-business commerce in different industries. The feature richness does require an investment into familiarization and routine building and can draw on a wealth of educational resources as support. Customer Impact Criterion 4: Price/Performance Value Purpose-built for eCommerce, Magento is for those who have serious plans to build and grow an eCommerce business to scale. For these companies, Magento offers a clear choice. For the small business and developer, there is the Magento open source product where they incur costs mainly for web hosting, domain names rental, an SSL certificate, payment processing and add-ons. The Magento Enterprise Cloud Edition offering bundles in these costs, and is still and affordable alternative for larger and fast-growing companies. Either out-of-the-box or after adding some modular extensions, total cost of ownership tends to be at a competitive level. Bespoke development of functions or appearance will require greater investment as is the nature of any bespoke development. The fact that Magento offers this flexibility is of great value.



With the latest version of its software, Magento has changed the pricing model for its Enterprise Edition to a value-based, annual fixed price subscription model based on a tiered matrix of the merchant's gross merchandise volume. The new model simplifies the commercial relationship and is cost attractive at the low end. The license cost as a percentage of transaction volume decreases progressively and significantly for larger eCommerce operations. This gives Magento a strong value-for-money proposition compared to pure enterprise eCommerce software vendors. Criterion 5: Customer Ownership Experience A strength of the Magento eCommerce portfolio strategy is that the company offers an attractive entry point. With a low barrier to entry, the open source product introduces new users and developers to the community, familiarizes with the ecosystem, and generates momentum and engagement. Once investment in skill-building done, the extra value of the Magento Enterprise Cloud Edition product is exponentially higher. Companies should understand both their near term and longer term objectives when determining which approach is best for them. Magento Enterprise Cloud Edition customers also receive account management and technical support including via phone and online. The open source product relies on self-support but can access the development community and many forums and the extensive community. All customers have extensive other resources at their disposal that include official training, tutorials, webinars, technical documentation, whitepapers, a wiki, a user forum and a directory of certified partners that can support with consulting services. Magento, as could be expected, leverages current Web technologies, such as PHP 7, HTML5, jQuery, CSS3 and HTML5. The company has impressively demonstrated its ability to build and apply its technological prowess to develop cutting-edge solutions. The example of Fraport, and its Frankfurt Airport home base, is a case in point and testament to these capabilities. As one of Europe’s largest travel hubs, Frankfurt Airport catered for over 60 million passengers in 2015 and has over 300 retail shops. This makes the airport the largest shopping center in Germany. Magento provides a shopping platform that offers an integrated commerce experience. “With the ability to buy in the air and pick-up on the ground … the myriad of food, beverage, luxury and apparel brands that occupy the airport get a new way to attract and delight travelers through a unique digital marketplace.”6 “The solution … combines the flexibility of the Magento eCommerce platform, coupled with the robust Magento Commerce Order Management capabilities to manage the complex order processes and fulfillment across channels and geographies including stores, drop shippers, multiple warehouses or third-party logistics companies.”7

6 Compare: https://magento.com/resources/fraport-customer-story, accessed on 19 Dec. 2016 7 Compare: https://magento.com/resources/fraport-customer-story, accessed on 19 Dec. 2016

https://magento.com/resources/fraport-customer-story

https://magento.com/resources/fraport-customer-story



Criterion 6: Brand Equity Considered by most to be a leader or the global leader in terms of number of eCommerce sites using the platform, with a user base of hundreds of thousands of merchants, there is no dispute that Magento has outstanding market presence and clout. Customers acknowledge the Magento distinguished position and take pride in being part of the Magento community as reflected in the words of one customer from a leading professional services firm who told us: “Our store site is built on the world's leading Magento E-Commerce platform.”8 The Magento brand shines not just from the user perspectives but has been building an ever-expanding and vibrant ecosystem that comprises several hundreds of solution partners, and a self-reported more than 205,000 developers around the world.9

Conclusion With a strong and continuously refined eCommerce platform offering, an established brand and the newly gained freedom to optimize its strategy as an independent company, Magento has an outstanding value proposition, especially for medium sized online stores and above. Indeed, Magento should be on the short list of any eCommerce operation that aspires to grow to scale. The leading market position of Magento is testament to these capabilities. This award is not an endorsement, it is recognition. Having experienced the strong performance of Magento amongst Commerce Platforms first-hand, Frost & Sullivan is honored to present Frost & Sullivan’s 2017 Market Leadership Award to Magento.

8 Email communication from Magento customer 9 https://magento.com/about, accessed on 22 December 2016

https://magento.com/about



Significance of Product Line Strategy Ultimately, growth in any organization depends upon customers purchasing from your company, and then making the decision to return time and again. A full, comprehensive product line that addresses numerous customer needs and preferences is therefore a critical ingredient to any company’s long-term retention efforts. To achieve these dual goals (customer value and product line strength), an organization must be best-in-class in three key areas: understanding demand, nurturing the brand, and differentiating from the competition.

Understanding Product Line Strategy Leadership As discussed above, driving demand, brand strength, and competitive differentiation all play a critical role in delivering unique value to customers. This three-fold focus, however, must ideally be complemented by an equally rigorous focus on building a superior and comprehensive product line.



Key Benchmarking Criteria

For the Product Line Strategy Leadership Award, Frost & Sullivan analysts independently evaluated two key factors—Product Line Strength and Customer Impact—according to the criteria identified below.

Product Line Strength Criterion 1: Breadth Criterion 2: Scalability Criterion 3: Features

Customer Impact Criterion 4: Price/Performance Value

Criterion 5: Customer Ownership Experience Criterion 6: Brand Equity

Best Practice Award Analysis for Magento Decision Support Scorecard To support its evaluation of best practices across multiple business performance categories, Frost & Sullivan employs a customized Decision Support Scorecard. This tool allows our research and consulting teams to objectively analyze performance, according to the key benchmarking criteria listed in the previous section, and to assign ratings on that basis. The tool follows a 10-point scale that allows for nuances in performance evaluation; ratings guidelines are illustrated below.

RATINGS GUIDELINES

The Decision Support Scorecard is organized by Product Line Strength and Customer Impact (i.e., the overarching categories for all 10 benchmarking criteria; the definitions for each criteria are provided beneath the scorecard). The research team confirms the veracity of this weighted scorecard through sensitivity analysis, which confirms that small changes to the ratings for a specific criterion do not lead to a significant change in the overall relative rankings of the companies.

The results of this analysis are shown below. To remain unbiased and to protect the interests of all organizations reviewed, we have chosen to refer to the other key players as Competitor 2 and Competitor 3.



DECISION SUPPORT SCORECARD FOR PRODUCT LINE STRATEGY LEADERSHIP AWARD

Measurement of 1–10 (1 = poor; 10 = excellent)

Product Line Strategy Product Line Strength

Customer Impact Average Rating

Magento 9 9 9.0

Competitor 2 8 7 7.5

Competitor 3 7 6 6.5

Product Line Strength Criterion 1: Breadth Requirement: Product line addresses the full range of customer needs and applications

Criterion 2: Scalability Requirement: Product line offers products at a variety of price points and functionality levels

Criterion 3: Features Requirement: Products offer a comprehensive suite of features to serve customers at multiple levels of functionality, ease of use and applications

Customer Impact Criterion 4: Price/Performance Value Requirement: Products or services offer the best value for the price, compared to similar offerings in the market

Criterion 5: Customer Ownership Experience Requirement: Customers are proud to own the company’s product or service, and have a positive experience throughout the life of the product or service

Criterion 6: Brand Equity Requirement: Customers have a positive view of the brand and exhibit high brand loyalty



Decision Support Matrix Once all companies have been evaluated according to the Decision Support Scorecard, analysts can then position the candidates on the matrix shown below, enabling them to visualize which companies are truly breakthrough and which ones are not yet operating at best-in-class levels.

DECISION SUPPORT MATRIX FOR PRODUCT LINE STRATEGY LEADERSHIP AWARD

High

Low

Low High

Cu

stom

er I

mp

act

Product Line Strength

Magento

Competitor 2

Competitor 3



The Intersection between 360-Degree Research and Best Practices Awards

Research Methodology Frost & Sullivan’s 360-degree research methodology represents the analytical rigor of our research process. It offers a 360-degree-view of industry challenges, trends, and issues by integrating all 7 of Frost & Sullivan's research methodologies. Too often, companies make important growth decisions based on a narrow understanding of their environment, leading to errors of both omission and commission. Successful growth strategies are founded on a thorough understanding of market, technical, economic, financial, customer, best practices, and demographic analyses. The integration of these research disciplines into the 360-degree research methodology provides an evaluation platform for benchmarking industry players and for identifying those performing at best-in-class levels.

360-DEGREE RESEARCH: SEEING ORDER IN THE CHAOS



Best Practices Recognition: 10 Steps to Researching, Identifying, and Recognizing Best Practices Frost & Sullivan Awards follow a 10-step process to evaluate award candidates and assess their fit with select best practice criteria. The reputation and integrity of the Awards are based on close adherence to this process.

STEP OBJECTIVE KEY ACTIVITIES OUTPUT

1 Monitor, target, and screen

Identify award recipient candidates from around the globe

• Conduct in-depth industry research

• Identify emerging sectors • Scan multiple geographies

Pipeline of candidates who potentially meet all best-practice criteria

2 Perform 360-degree research

Perform comprehensive, 360-degree research on all candidates in the pipeline

• Interview thought leaders and industry practitioners

• Assess candidates’ fit with best-practice criteria

• Rank all candidates

Matrix positioning all candidates’ performance relative to one another

3

Invite thought leadership in best practices

Perform in-depth examination of all candidates

• Confirm best-practice criteria • Examine eligibility of all

candidates • Identify any information gaps

Detailed profiles of all ranked candidates

4 Initiate research director review

Conduct an unbiased evaluation of all candidate profiles

• Brainstorm ranking options • Invite multiple perspectives

on candidates’ performance • Update candidate profiles

Final prioritization of all eligible candidates and companion best-practice positioning paper

5 Assemble panel of industry experts

Present findings to an expert panel of industry thought leaders

• Share findings • Strengthen cases for

candidate eligibility • Prioritize candidates

Refined list of prioritized award candidates

6 Conduct global industry review

Build consensus on award candidates’ eligibility

• Hold global team meeting to review all candidates

• Pressure-test fit with criteria • Confirm inclusion of all

eligible candidates

Final list of eligible award candidates, representing success stories worldwide

7 Perform quality check

Develop official award consideration materials

• Perform final performance benchmarking activities

• Write nominations • Perform quality review

High-quality, accurate, and creative presentation of nominees’ successes

8 Reconnect with panel of industry experts

Finalize the selection of the best-practice award recipient

• Review analysis with panel • Build consensus • Select winner

Decision on which company performs best against all best-practice criteria

9 Communicate recognition

Inform award recipient of award recognition

• Present award to the CEO • Inspire the organization for

continued success • Celebrate the recipient’s

performance

Announcement of award and plan for how recipient can use the award to enhance the brand

10 Take strategic action

Upon licensing, company may share award news with stakeholders and customers

• Coordinate media outreach • Design a marketing plan • Assess award’s role in future

strategic planning

Widespread awareness of recipient’s award status among investors, media personnel, and employees



About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth and achieve best in class positions in growth, innovation and leadership. The company's Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined research and best practice models to drive the generation, evaluation and implementation of powerful growth strategies. Frost & Sullivan leverages over 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investment community from 31 offices on six continents. To join our Growth Partnership, please visit http://www.frost.com.

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