Deal Radar 2010: Volusion ,Austin, Texas

According to some analysts estimates, nearly 20,000 entrepreneurs open online storefronts every week, and the growth in e-commerce sales continues to outstrip that of sales in physical stores. Early online players such as Dell and Starbucks are now joined by luxury watchmaker Longines and clothing designer Roberto Cavalli. With so many businesses now on the Web, there is a strong need for e-commerce products. Volusion makes software and offers design and marketing services for entrepreneurs setting up online stores.

Volusion, which has offices in Austin, Texas, and Simi Valley, California, was founded by Kevin Sproles in 1999. Sproles started coding and designing websites. Out of the hundred clients he soon acquired, most started to request the same feature – a shopping cart. Shopping cart software was in its beginning stages, and Sproles took on the endeavor. COO Clay Olivier was one of Sproles’s early customers – after leaving his job at Dell’s Business Sales division to travel, Olivier decided to build an online store. He became friends with Sproles and later joined Volusion.

Forrester predicts that the U.S. e-commerce market will increase from $176.9 billion in 2010 to $229.1 billion in 2013. Volusion’s bottom-up approach is to look at the number of existing and new small and midsize businesses, businesses with a retail presence but limited or no online presence, and retailers and manufacturers in multiple verticals. Its TAM calculation uses a combination of average monthly payment, plus revenue from the initial set up and revenue from additional services provided during the customer life cycle.

In 1998, before Kevin Sproles founded the company, online retail sales accounted for about 0.5% of all retail sales in the United States. Dell was one of the only companies really succeeding with online retailing in the mid-nineties. By the end of 1997, Dell was the first company to record $1 million in online sales. It was around this time that the Internet became popular with the general public, and Sproles saw an opportunity to bring e-commerce capabilities to more companies. In 2000, a great number of brick-and-mortar companies saw the value in having e-commerce capabilities despite the demise of many dot-com era e-commerce players. By the end of 2001, business-to-business (B2B), which was also the largest sector of e-commerce, recorded around $700 billion in transactions. According to a recent Forrester Research forecast, e-commerce sales today account for close to 7% of total retail sales, and are predicted to grow at a 10% compound annual rate through 2014. That’s promising for the e-commerce industry and for Volusion, which has experienced an almost 900% increase in revenue since its start in 1999.

Forrester Research also released a five-year forecast for the e-commerce industry in March 2010. According to this report, apparel, computers, and consumer electronics represented more than 44% of online sales ($67.6 billion) in 2009. Volusion’s customer base has a similar breakdown, with apparel accounting for about 20% of customers. Other major sectors where Volusion has seen strong traction are health and beauty, electronics, and sporting goods. In 2009, Volusion’s SMB and enterprise customers achieved more than $2 billion in transactions, which accounted for 1% of all Internet sales last year.

The company’s core product, which is now is its fifth version, is an online store with shopping cart that includes marketing tools, design templates, and inventory management. Other products include domain names, credit card processing, SSL certificates, and social media software. Prices range from packages for 25 products and 2GB of data transfer for $24.99 a month to an unlimited number of products and 25GB of data transfer for $159.99 a month. All packages come with QuickBooks integration and 24/7 customer support, among other features. E-Commerce Review has a recently published comprehensive review of Volusion, as does ZippyCart. Small Business Arena and Andy Beard both have reviews that, since they are older, do not describe improvements to and the Web 2.0 features of Volusion but are still careful, in-depth analyses of the product that any entrepreneurs looking for shopping cart software should read.

Volusion says that over the past ten years, thousands of companies have used its solutions, including Disney, Motorola, The Chicago Tribune, Michigan State University, and Crutchfield, as well as small and medium-sized businesses in multiple industries.

There are numerous competitors in the space, including BigCommerce, covered on Deal Radar in March. Others include CoreCommerce, Shopify, ShopSite, SiteSell, and WebStore by Amazon. Volusion aims to compete on price (no hidden fees and not charging customers a percentage of sales as their bandwidth use increases in order to compensate for this growth); security, with a network that is 100% PCI/CISP certified; and reliable hosting.

Volusion is a mature company that has been profitable since 2005. Revenues have increased steadily in the past five years: they were $4.8 million in 2006; $8.6 million in 2007; $15.7 million in 2008; and $22.5 million in 2009. The bootstrapped company has not received any outside funding to date and has no plans to raise any money.

The management team at Volusion says that it is in this for the long haul, with the goal of dominating the market. It is not currently seeking an exit.

Recommended Reading
Deal Radar 2009: Bazaarvoice
Deal Radar 2010: WinBuyer
BigCommerce Turns To Facebook To Socialize Online Storefronts (from TechCrunch)

This segment is a part in the series : Deal Radar 2010