Vitessa Changes Net Transaction Model

SAN FRANCISCO (04/20/2000) - Content and community Web sites that offer visitors links to shopping sites such as Amazon.com Inc. will be able to sell products themselves under via electronic commerce merchandising service offered by Vitessa Corp.

Set to officially launch Tuesday, the Vitessa Merchant Exchange offers Web sites a complete hosted e-commerce system, including access to a network of millions of products and services from a catalog of distributors, and a shopping cart that integrates with a Web site's brand and interface.

The exchange includes a Merchant Exchange portal that gives customers access to a suite of e-commerce tools, including utilities to find products, create customized offers, develop reports and manage customer interactions.

Web sites such as Eveo Inc., a video production community site, and Teamplay.net, a games site, have already signed up to Merchant Exchange, according to Vitessa officials.

Vitessa believes giant shopping sites like Amazon.com Inc. have held sway for too long. Community sites like iVillage.com have a built-in customer base to whom they could be selling instead of passing visitors on through affiliate links to sites like Amazon's, Dave Mullan, Vitessa's chief operating officer, said in an interview earlier this week.

"We are addressing a fundamentally broken business model in affiliate programs," Mullan said. "If you have a community site like Teamplay, you have all this traffic, but when the time comes to purchase something, you shoot them out to Amazon.com."

Mullan said 78 percent of community and content Web sites rely on links to affiliate shopping sites, who pay a small fee to the community site for the transaction. About one-half of all e-commerce site traffic, including traffic on Amazon.com, BarnesandNoble.com and Reel.com, comes from content site referrals, he added.

"We say content and community sites should keep their customers, and we'll enable them to sell products," Mullan said.

Several analysts said the exchange is an idea whose time has come in e-commerce development.

"As competition gets more fierce, the affiliate model has a limited lifetime," said Kirsten Cloninger, an analyst with Cahners In-Stat Group in Newton, Massachusetts. "This offers real value to the operators of Web sites and will reduce traffic in the clickthrough stream (to shopping sites)."

"They are going for a market that says, 'Our content and community is the most important part of what we offer, but we will also sell you stuff,'" said Marilyn Muller, an analyst with Summit Strategies Inc., in Boston, Massachusetts. "If Vitessa can come in and provide services, transactions and catalog management, and integrate it into a community site, it allows the site to leapfrog other sites that do not offer value beyond e-commerce."

The Merchant Exchange is built on Vitessa's eConductor transaction processing engine, the Vitessa Internet Product Code (VIPC), which bundles order-processing functions together, and its Transaction Stream Manager, which enables connections to fulfillment systems.

The cost to set up a full-fledged e-commerce Web-based shopping site is estimated by Vitessa officials as up to US$5 million, not including yearly operating and upkeep costs at 50 percent of startup costs.

Vitessa charges a one-time, $100,000 set-up or connect fee to its e-commerce network; an annual subscription charge of about $100,000, and transaction fees of between 5 and 10 percent per transaction. In the affiliate sales model, a community Web site receives between 5 to 10 percent of each transaction, Vitessa said.

Vitessa, in Seattle, Washington, can be reached at +1-206-830-8000, or at http://www.vitessa.com/.

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