the total economic impact™ of cleverbridge webinar - forrester research

The Total Economic Impact™ of cleverbridge WebinarForrester Consulting

Reggie LauTEI Consultant

Peter SheldonSenior Analyst

September 25, 2012

© 2012 Forrester Research, Inc. Reproduction Prohibited 2

Welcome

Introductions


Agenda

Market Overview

What is TEI?

Executive Summary

Analysis

o Interview Highlights

o Benefits

o Costs

o Flexibility

o Risk

Financial Summary

Q &A

Please note: this slide presentation is an abridged, graphical and complementary representation of a full case study. For a full explanation of methodology and details on model calculations, please refer to the full case study: Forrester Total Economic Impact of cleverbridge, August 2012).


Housekeeping

Slides will be provided following the webinar

Submit questions at any time

On Twitter: #CRO

5© 2012 Forrester Research, Inc. Reproduction Prohibited

Market Overview

The global software market is set to grow to $476 billion by next year

Source: Forrester Research, Jan 12, 2011 “Which Software Markets Will SaaS Disrupt” Report

© 2012 Forrester Research, Inc. Reproduction Prohibited

2010 2013

6

Consumers, SMB’s and enterprises alike are increasing acquiring software via direct channels

7

Software firms have many options when choosing an approach for implementing eCommerce technology

8

Many have built and evolved home grown eCommerce solutions

9

But as the complexity of selling increases, these solutions are becoming costly to maintain

10

29% of online retailers are planning to re-platform their existing eCommerce solution in the next 2 years


Source: Forrester Research, Jan 28, 2011 “2011 Online Retail Technology Investment Outlook”11

12

Build-in-HouseAssembling a home grown solution may be viable in the short term, but should not be underestimated and will likely constrain growth in the long-term

Fraud Screening

PaymentGateway

Sales TaxEngine

MerchantAccount

My Account

Required partner solutionsExisting in-house systems

Custom development

CRM

GL / ERP

pricin

g

subscription

billing

BI &

analytics

quote

s

chargebacks

entitlements /

provisioning

Renewals Web Orders Channel Partners

payment

s

customer

accounts

API’

s

revenue

recognition

Front

Office

Back

Office

license keys

CDN

asset mgmt order mgmt

ContactCenter


13

Fraud Screening

Digital eCommerce Platform

PaymentGateway

Sales TaxEngine

MerchantAccount

My Account

Required partner solutionsExisting in-house systems

Custom development

CRM

GL / ERP

pricin

g

subscription

billing

BI &

analytics

quote

s

chargeback

s

entitlements /

provisioning

Renewals Web Orders Channel Partners

payment

s

customer

accounts

API’

s

revenue

recognition

Front

Office

Back

Office

license

keys

CDN

asset

mgmt

order

mgmt

ContactCenter


Outsource to a Commerce PartnerFull service digital commerce solutions provide an integrated suite of solutions and services across channels and markets, but may be overkill in some scenarios

Included in solution


Recap

The world of eCommerce is becoming increasingly complex

With in-house solutions, companies have control over direction, capabilities, priorities, resources, etc.

When building an in-house solution, companies should be cognizant of the effort and resources required

Full service commerce partners can offer end-to-end solutions and extensive expertise


What is TEI?


Disclosures

The audience should be aware of the following:

• This document is an abridged webinar version of a full case study (Forrester Total Economic Impact of cleverbridge, August 2012).

• The study is commissioned by cleverbridge and delivered by the Forrester Consulting group.

• Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers should use their own estimates within the framework provided in the report to determine the appropriateness of an investment in cleverbridge.

• cleverbridge reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning of the study.

• The customer name for the interview was provided by cleverbridge.

• Forrester does not endorse cleverbridge.

17

“Next level” business case justifications are increasingly vital for critical investments.


33%, Somewhat important

4%, Somewhat unimportant

3%, Not at all important

60%, Very

impor-tant

Base: 825 IT decision-makers at North American enterprises

Investment Impact Categories TCO ROI TEI

IT ImpactIT costs

IT cost savings

Business Impact

User efficiency Business

effectiveness

Risk and Uncertainty

Risk mitigation Risk vs. reward

Strategic Impact

Scalability Flexibility

Do I need a business case? What is an effective business case?• Over 90% of IT decision-makers

find value in a business case

• Decision-makers will likely want to apply standard criteria/factors to investment opportunities

• TCO and ROI only tells the story of costs and quantified benefits

• TEI adjusts for risks and factors the flexibility of a product into the case study

18

TEI Framework and Components


Total Economic

ImpactRISK

Benefits(Impact on Business)

Costs(Impact on Budget)

Flexibility(Options)

Perform due diligence

Conduct customer interview

Construct financial model

Write case

study

Conduct webinar

The TEI framework centers on quantifying benefits, capturing costs, evaluating flexibility, and adjusting risk.

TEI Approach and Methodology


Executive Summary

20

cleverbridge generates incremental revenues and simplifies eCommerce for organizations.

• Forrester was commissioned by cleverbridge to examine the financial benefit of cleverbridge

• cleverbridge is a full-service eCommerce provider for companies that sell software or SaaS

• Its services include customer shopping cart and experience optimization, transaction ownership, channel/partner integration, and customer service

• Based on an analysis of cleverbridge’s customer feedback and quantified benefits, costs, risks, and flexibility, Forrester has determined cleverbridge has a three-year risk-adjusted ROI of 18% and NPV of $769,566, with a payback period of less than 1 month

Executive Summary

Three-Year Risk-Adjusted Financial Snapshot

ROITotal

Benefits (PV)Total Costs

(PV)NPV

18% $5.1M $(4.4)M $769,566

Payback Period

<1 Month

Source: cleverbridge website and marketing


Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012


Analysis

› Interview Highlights

› Benefits

› Costs

› Flexibility

› Risk

22

cleverbridge’s customer found value in migrating from an in-house solution to the cleverbridge SaaS platform.

cleverbridge had an 8% impact on incremental international revenue.

The testing environment and overall product management

functionality created efficiencies.

Outsourcing eCommerce freed up both IT and customer service resources.

cleverbridge’s semi-annual networking events provided partnership and future

sales opportunities.



23

Incremental international revenue is the largest benefit area of the cleverbridge platform.

Three-Year Non-Risk-Adjusted Benefit

Metric Year 1 Year 2 Year 3 Total

Annual revenue $20,000,000 $21,500,000 $23,112,500

Annual revenue growth 7.5% 7.5% 7.5%

Incremental international revenue ratio 8.0% 9.0% 10.0%

Total $1,600,000 $1,935,000 $2,311,250 $5,846,250

Incremental international revenueCustomer migrated from an in-house platform supporting three languages, two payment options, and three currencies to the cleverbridge platform, which supports over 30 checkout languages, 20 payment options, and 30 currenciesKey metrics: International revenue growth



Incremental international

revenue91%

Three-Year Non-Risk-Adjusted Benefits

24

Although IT-focused productivity is a relatively small piece of the total benefits, it is a cost avoidance with implications for organizations seeking more automation.



Hourly rate/FTE $40.00 $41.20 $42.44

Annual hours spent on manual process 144 144 144

Annual dollars spent on manual process $5,760 $5,933 $6,111

Efficiency gain ratio 50% 50% 50%

Efficiency gain $2,880 $2,966 $3,055

Relevant and adopted automated features 2 3 4

Total $5,760 $8,899 $12,222 $26,881

IT-focused productivityCustomer heavily adopted report generation and product management/testing features, which produced material time/resource savingsKey metrics: Heavily adopted automation features, efficiency/time saving, labor cost



IT-focused productivity

0.4%


25

eCommerce efficienciesCustomer was able to reallocate resources to more strategic initiatives like new product development, while also experiencing a resource efficiency in customer supportKey metrics: eCommerce/customer service headcount, average customer support inquiries, labor costThree-Year Non-Risk-Adjusted Benefit

There are intrinsic resource efficiencies in IT and customer service when outsourcing eCommerce.




Annual IT FTE salary $80,000 $82,400 $84,872

IT FTE need for in-house 3.5 3.5 3.5

IT FTE need for outsourced 2.0 2.0 2.0

IT FTE cost avoidance $120,000 $123,600 $127,308

Hourly rate/customer service FTE $40.00 $41.20 $42.44

Average contact hours/year 702 1,160 1,247

Call center FTE cost avoidance $28,064 $47,806 $52,933

Total $148,064 $171,406 $180,241 $499,711

eCommerce effi-ciencies 8%


26

Incremental partnership revenueCustomer actively participated in cleverbridge’s semi-annual event and achieved a tangible, revenue impacting outcomeKey metrics: Events attended, conversion ratio


cleverbridge’s semi-annual events are a value-add that generate leads and partnerships.




Event frequency/year 2 2 2

Incremental revenue $20,000 $20,000 $20,000

Probability/conversion 50% 50% 50%

Total $20,000 $20,000 $20,000 $60,000

Incremental part-nership revenue

0.9%


27

cleverbridge’s customer experienced three costs that are based on sales and usage.

Three-Year Non-Risk-Adjusted Costs

Cost Year 1 Year 2 Year 3 Total

Direct sales transaction ($1,003,600) ($1,651,200) ($1,765,795) ($4,420,595)

Affiliate sales transaction ($50,050) ($94,600) ($114,407) ($259,057)

Backup software ($156,000) ($258,000) ($277,350) ($691,350)

Total ($1,209,650) ($2,003,800) ($2,157,552) ($5,371,002)

Direct sales transactionThis is the transaction fee (8%) charged per direct sale, which can vary by customer. Direct sales accounted for over 96% of sales for the interviewed customerKey metrics: Direct sales transaction fee, direct sales revenue

Affiliate sales transactionThis is the transaction fee (11%) charged per indirect sale, which can vary by customer. Affiliate sales accounted for 3.5% of sales for the interviewed customerKey metrics: Affiliate sales transaction fee, affiliate sales revenue

CD/DVD Backup softwareThis is the blended fee ($6.50) charged per backup copy requested, which can vary by customer. The interviewed customer’s end-users requested an average of 2,000 copies per month – an above average amount as reported by cleverbridge across all clientsKey metrics: Cost per backup copy, backups requested



28

In addition to benefits and costs, TEI focuses on potential risks along with “flexibility” for future benefits.

Flexibility – Future ValueFraud management: Potentially allows customers to reduce support for fraudulent orders, reduce legal fees and fines, and lower risk of losing credit card contractsContinuous technology updates: Expect to experience updates in functionality that spans from new international payment options to compatibility with social media and mobileBusiness intelligence (BI): Sales data is analyzed and displayed through the BI module and can also be integrated with other popular BI applicationsNo exclusive contract required: Flexibility to stop using cleverbridge at any point or even split eCommerce operations with another third-party provider or an in-house solution

Risks*

Implementation risks (causing higher costs)−Transaction fee increase−Unexpected increase in affiliate revenue−Unusually high amount of backups requested

Impact risks (causing lower benefits)−Low focus on international growth−International product saturation−Low adoption of technology−Large eCommerce and customer service staff

Costs LowMost Likely

High Mean

Direct sales 98% 100% 110% 103%Affiliate sales 98% 100% 105% 101%Backups 98% 100% 102% 100%

Benefits LowMost Likely

High Mean

Intl revenue 90% 100% 105% 98%IT productivity 85% 90% 100% 92%eCommerce efficiencies

90% 95% 100% 95%

Partnership revenue

0% 50% 100% 50%

*Please refer to Appendix slides for details on how to use the risk adjustment table




Financial Summary

30

The three-year risk-adjusted cash flow for cleverbridge shows a positive ROI (18%), a NPV of over $750,000, and a payback period of less than 1 month.

Three-Year Risk-Adjusted Cash FlowInitial Year 1 Year 2 Year 3 Total PV

Benefits $0 $1,729,274 $2,083,743 $2,465,161 $6,278,179 $5,146,281

Costs $0 ($1,209,650) ($2,003,800) ($2,157,552) ($5,371,002) ($4,376,716)

Net Benefits $0 $519,624 $79,943 $307,609 $907,177 $769,566

ROI 18%

Payback Period <1 month

Initial Year 1 Year 2 Year 3

($3,000,000)

($2,000,000)

($1,000,000)

$0

$1,000,000

$2,000,000

$3,000,000

($1,209,650)

($2,003,800)

($2,157,552)

$1,729,274 $2,083,743

$2,465,161

CostsBenefitsPayback




Recap

Incremental revenue

Positive ROI

Short payback period

Organizational efficiencies

Ongoing partnership approach


Q & A


Wrap Up - The Total Economic Impact™ of cleverbridge

Expect an email follow up in the next 24 hours

Check out our TEI resources at http://tei.cleverbridge.com

• Executive Summary of the TEI Study

• Copy of the full TEI study

• On-demand version of this webinar

• ROI Calculator

http://tei.cleverbridge.com/

Thank You for Attending our Webinar

www.cleverbridge.com

http://www.cleverbridge.com/


Appendix

Introduction

Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders.

The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility.

Benefits

Benefits represent the value delivered to the user organization — IT and/or business units — by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line.

Costs

Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created.

Appendix A: TEI Methodology and Framework



Introduction (cont.)

Risk

Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as “triangular distribution” to the values entered. At minimum, three values are calculated to estimate the underlying range around each cost and benefit.

Flexibility

Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprise-wide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point in time. However, having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEI captures that value.

Appendix A: TEI Methodology and Framework (cont.)

Perform due diligence

Conduct customer interview

Construct financial model

Write case

study

Approach



Framework and Components

Benefits(Impact on Business)

Costs(Impact on Budget)

Flexibility(Options)

Benefits• Quantified

value• Defined

metrics

Cost• People• Process• Technology

“Options” created• Are there new

opportunities created for the future?

Uncertainty• Impact of assumptions

Total Economic

ImpactRISK

Appendix A: TEI Methodology and Framework (cont.)



Interviewee

Forrester interviewed a current cleverbridge customer for this study. The customer is a U.S.-based utilities software company with annual eCommerce revenues of $20M. The primary revenue model focuses on the sale of software licenses – approximately 65% for consumers, and 35% for upgrades and enterprises. The customer had approximately 10 full-time staff supplemented by contractor support in its eCommerce department. The eCommerce department was responsible for building and maintaining the prior in-house eCommerce platform, which supported three languages, two payment methods, and three currencies.



Appendix B: Interviewee Description



Appendix C: Model Assumptions

Metric Value

Hours per week 40

Weeks per year (M-F, 9-5) 52

Hours per year (24x7) 2,080

Hours per year 8,760

Annual salary $80,000

Hourly wage $40.00

Annual labor increase 3%

Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organization to determine the most appropriate discount rate to use in their own environment.

Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs.

Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present value of cash flows.

Payback period: The breakeven point for an investment. The point in time at which net benefits (benefits minus costs) equal initial investment or cost.

Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs.



Appendix D: Glossary



Appendix E: cleverbridge Overview

cleverbridge is a full-service eCommerce provider for companies that sell software or SaaS. Its services include customer shopping cart and experience optimization, transaction ownership, channel/partner integration, and customer service. cleverbridge works with more than 300 clients and more than 17,000 affiliates globally to provide eCommerce for B2C and B2B software licenses and subscriptions. Key highlights of cleverbridge capabilities include:

• A customizable checkout process that integrates into the customer’s web experience.

• The ability to enable a variety of promotions and discounts during the checkout process.

• Detailed multivariate and A/B testing modules that can assist in layout, regional, and pricing decisions.

• Localization with more than 20 local payment options, 30 checkout languages, and 30 currencies.

• Fulfillment of both online licenses/subscriptions and physical backups.

• An in-house customer service center.

• A standalone business intelligence module with the option of integrating sales data with existing CRM, ERP, and BI tools.

• A .NET solution with structured layers, multiple API’s and flexibility in customization.

• Management for eCommerce support functions such as marketing, affiliates, and fraud.

the total economic impact™ of cleverbridge webinar - forrester research

Technology

forrester research

reproduction prohibited3

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existing ecommerce solution

effective business case

software markets

integrated suite of

solutions arebecoming