SAP, Amazon Web Services underpinning Kogan.com's technology infrastructure

Kogan has revealed in its prospectus that Kogan.com websites and its SAP enterprise resource planning platform are primarily hosted using AWS datacentres in Sydney.
Written by Aimee Chanthadavong, Contributor

Kogan.com has outlined in its prospectus [PDF] as part of its first day trading as a public company on the Australia Stock Exchange (ASX) that its websites, apps, databases, and IT and management systems are critically important to its success, and will continue to be in helping the company deliver efficiency across its value chain.

The company revealed that it completed the implementation of the SAP enterprise resource planning platform at the end of August 2015 in preparation for trading as an ASX-listed company.

Following the completion of the implementation, Kogan.com said it saw improved operating efficiencies including in financial reporting, customer experiences, data analytics, inventory management, business planning capabilities, and the ability to achieve a fully-automated dispatch of all in-stock stock keeping units.

More specifically, the company has been able to synchronise SAP and the Kogan.com websites with Allocate, the company's bidding platform to allow third-party branded products suppliers to compete against each other to win Kogan.com's orders. The company said the link between SAP and Allocate gives it "operational connection" between customer orders, supplier fulfilment and the customer receiving their purchases. Allocate is hosted in the cloud on Heroku, a Salesforce company.

In addition, the company pointed out it was able to reduce call centre costs, and saw a year on year improvement to February 2016 in its net promoter score from 49 to 60.

However, the company revealed during the implementation process that Kogan.com experienced significant disruptions, such as incorrect and delayed dispatch of products, including double dispatches of stock, which resulted in margin loss and heightened level of goodwill credits and cancellations by customers.

As a result, the difficult SAP implementation, together with a sharp decline in the Australian dollar, saw Kogan.com cash constrained during 2H FY2015 and 1H FY2016, the company admitted.

"These factors negatively impacted Kogan.com's operating cash flow, particularly during 1H FY16 Christmas inventory ordering period," the company said in its prospectus.

According to Kogan, the SAP ERP system is maintained and extended by internal IT and operational development teams using Microsoft SQL Server and C# .NET technologies. The SAP system has also been designed, the company said, to be duplicated across two Amazon Web Services (AWS) datacentres in real-time, and is backed up to an offsite Microsoft Azure storage account every 15 minutes.

The prospectus revealed Kogan.com websites and SAP are primarily hosted using AWS datacentres in Sydney -- the same ones that recently suffered a catastrophic power outage due to severe storms.

The company added that its website database has five-minute point-in-time recovery to allow for rollbacks in five-minute increments going back 10 days; meanwhile daily snapshots are taken and backed up across multiple datacentres.

The company assured all backups of databases and server logs are securely transmitted and stored across multiple datacentres, including Microsoft Azure storage.

However, the company warned if a catastrophic failure, such as telecommunication and network failures, computer viruses, and other similar events, were to occur in the systems of a third-party provider it would likely have a "material" impact on the systems and operations of Kogan.com.

"Kogan.com's websites, apps, databases, and management systems are all hosted on servers owned by third-party providers," the company said.

On the security front, the prospectus showed Kogan.com uses internally-developed patented anti-consumer fraud prevention technology, designed to provide added security against credit card fraud on higher-value items; and the company also secures its development, staging, and production environment in a virtual private cloud.

The prospectus also revealed the company has invested in its proprietary algorithmic prediction engine that is integrated into its various marketing channels, which is used to analyse the purchasing patterns and behaviour of customers, as well as to manage stock levels relative to forecast stock purchases.

"We often joke that we're a statistics business masquerading as a retailer, but a lot of truth is said in jest. Analytics-driven decision-making is at the core of our culture. Our entire team is obsessed with analysing data to improve the efficiency of our business and drive better customer experience," Kogan.com CEO Ruslan Kogan said.

The electronic retailer floated on the share market on Thursday with a market value of AU$168 million. The initial public offering stood at AU$1.80 a share to raise AU$50 million; however by close, it had slumped to AU$1.50.

Kogan launched an IPO of AU$50 million in mid-June, however the public were shunned in the offer. Instead, the company had an institutional offer, broker firm offer, priority offer, and an employee offer.

Kogan, and COO and CFO David Shafer, who are existing shareholders, will hold on to a 69.2 percent share of Kogan.com

The float follows the company's acquisition of electronics retailer Dick Smith's online business after the latter entered administration in early January.

Kogan outlined that going forward the company will continue to build on the Dick Smith legacy, as well as grow its Kogan Travel and Kogan Mobile businesses, which remain in their infancy.

In April, Kogan Mobile entered into a Mobile Cooperation Agreement with Vodafone for an initial four years, with automatic extension of 12 months.

Under the terms of the agreement, Kogan Mobile operates as an online-only MVNO offering low-cost, prepaid mobile plans supplied by Vodafone.

However, the prospectus said Vodafone has the rights to terminate the agreement if Kogan or its officers have received significant fines or penalties, or are found guilty of serious misconduct; or a competitor of Vodafone acquires 20 percent ownership of Kogan.com, appoints a director to the board, or becomes able to materially influence Kogan.com's business decision.

Additionally, there are plans to increase the range of its private label products, which according to Kogan typically have a higher gross margin than third-party branded products. During 1H16, 45 percent of core website channels' gross sale was generated through the sale of private label products and 55 percent was through sales of third-party branded products.

In the longer term, there are also plans to launch in verticals that are non-inventory based, expand further internationally, and be involved in more mergers and acquisitions.

Kogan.com has forecast statutory FY16 revenue will be AU$201 million; FY17 revenue will be AU$241.2 million; earnings before interest, tax, depreciation, and amortisation will be AU$6.9 million; and net profit after tax will be AU$2.5 million.

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