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Web building business model changing?

Web building business model changing?

The Internet has changed the global face of communication, coerced your shopping mall into virtuality and, is about to revolutionise the application development business too.

Heralding the new Internet development era, US IT services titan Electronic Data Systems (EDS) has built a Web site for Sony Development's new entertainment and shopping venture Metreon, in return for a cut of the online sales generated through the site.

Despite spending approximately six months incorporating several retail and entertainment elements into what both Sony and EDS describe as "a highly interactive site", EDS has not been paid a cent for the time and effort it invested into the actual development of www.metreon.com. Instead, the big outsourcer has placed its faith in the hands of online shoppers, gambling on the notion that the volume of online sales will more than compensate it for the six months of hard work.

"Our customers are telling us speed to the Web is so critical today that they don't want to waste precious time negotiating with multiple companies," Gary Moore, president of EDS E.Solutions, the division that built the site, said. In explaining the rationale behind the deal, Moore pointed to EDS' ability to deliver an extremely complex site within a very specific time frame as the key to its success.

Apart from hosting the site, EDS will provide customer management, settlement and real-time order shipping for the venture and that, according to Sony, qualifies the deal as a strategic alliance, rather than simply a Web-development contract.

"The collaboration with EDS is an essential component of our retail strategy," Harlan Bratcher, senior vice president of retail development at Sony, said. "No other technology company could do it all - strategy, research, development, marketing, hosting and management of such a dynamic site."

Indeed, the Sony deal is used by EDS as an example of what a global company can do not only for its clients, but also to set new business trends, even if the company itself is an e-commerce latecomer that has not pioneered the profit-share model.

Australia's own Spike Networks and Selenium Interactive have been trialling the joint venture model for some time now. Spike has forged strategic partnerships with the likes of the Mercedes Australian Fashion Week and the US independent music label 4AD, while Selenium partnered with Greater Union and Woolworths based on the Web site in exchange for a revenue participation component.

And according to Martin Fisk, managing director of Sydney-based e-commerce specialist Streamlink, "More and more developers will have to go down that path.

"Web design and development services are becoming increasingly commoditised, while the risks for the customers are still the same and I think customers are becoming less prepared to pay the top dollar for the service that involves so much business uncertainty if there is no risk-sharing model," Fisk asserted. "Therefore, the EDS/Sony model is a very good way to work around it."

Fisk suggests the number of companies who invested in Web sites, and particularly e-commerce enabled sites, and did not get a return on their investment is high enough for the business world to push profit-sharing as its Internet-development commercial model of choice.

"If you look at some GartnerGroup studies, you will see that e-commerce increases marketing bills and decreased margins and it is only fair to ask a Web developer to share part of that risk with the customer," Fisk said.

"All major developers have done it or are getting ready to do it, and we'd certainly be happy to do it too," he added.

An EDS Australia spokesperson agrees the trend is about to take off locally, claiming EDS is ready for it. "In Australia, we are able to leverage off our experience gained elsewhere and use this to pursue similar opportunities," she said.

The old adage "revolution eats its own children" might have been coined in the political arena, but it is now obvious that it applies to technological revolutions as well.

Mike McGee, managing director of Sydney-based Oven Digital, said the model is not ideal for every Web contract.

"However, so many companies were burnt by Web-developing charlatans out there that the only way of assum- ing the work has been completed to the highest standard is to ensure that the developer has a real stake in the venture," he said.


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