As companies begin to create electronic storefronts, many are realizing that a Web site is only the first step. To take full take advantage of the electronic medium, they need to find a way to integrate this front end into back-end processes such as customer relationship management (CRM) and enterprise resource planning (ERP) systems.

Jim Gauer, general partner at Palomar Venture Associates (www.palomarventures.com) sees three phases to electronic retail, or "e-tail" integration. In the first phase, online retailers simply set up stores that have little or no integration with back-end systems. This phase requires a great deal of manual work by retailers to enter and process orders.

In the second phase, Web-based retailers develop better back-end integration among the various systems for ERP, CRM, accounting and merchandising. Although companies such as Amazon.com have succeeded in this area, it has been at enormous expense. Gauer believes that e-tailers need a publish-and-subscribe infrastructure, whereby the various components publish transactions, and others subscribe to them based on their needs.

Gauer is helping to develop Yellow Shirt, an early pioneer in this area. Yellow Shirt, which is still in the formation stage and has not yet opened its doors for business, plans to act as an application service provider (ASP). But Yellow Shirt wants to do more than simply host customer applications; it also plans to provide an infrastructure that will automatically communicate any changes, such as an update to inventory after an order to a company's back-end systems. This will allow companies to deploy systems comparable in ability to that of Amazon, without having to take on all the risk involved in integrating the applications themselves.

The third phase involves integrating a company's internal processes with its business and supply partners. This will help ensure that when an item does run low, all the materials necessary to produce more are either in stock or able to be shipped quickly.

A major concern about integrating systems is that the number of connections between them goes up exponentially. Hard-coding connections between a company's applications could be a great effort, and one that could get significantly more complicated if many business partners also need to be integrated.

Various efforts are under way that promise to greatly simplify this process. For example, ObjectSpace has developed an infrastructure called OpenBusiness that allows companies to encapsulate all applications within objects. This enables the applications within a company or its partners to communicate without requiring developers to make changes to individual applications. As long as the object interfaces remain the same, no changes need to be made in how other applications communicate among themselves.