Jerry Kozak started printing and selling shirts out of his dorm room at the University of Michigan in Ann Arbor 12 years ago. By 2009 the business had moved into a warehouse building, selling on eBay Inc. with success.

Then two years ago the company enlisted the help of Morrisville, N.C.-based ChannelAdvisor Corp. to manage annual sales of 150,000 T-shirts online.

But despite doubling sales, Kozak plans on parting with ChannelAdvisor this month. With only 12 percent of sales coming from other online marketplaces outside of Amazon Inc. and the direct website, it no longer makes sense to stay retain the software company.

“It was turning into a very expensive middleman between us and Amazon,” Kozak said.

Two years ago, ChannelAdvisor decided to turn its main focus away from clients such as Kozak, instead looking to larger, enterprise-level firms seeking to navigate the fragmented space of online marketplaces and search engines as the future of the business. But after switching up up its pricing policies and management roles, ChannelAdvisor is still flat-footed with its execution.

The company reported a mixed fourth quarter, missing on its revenue estimates. A poll from Bloomberg projected revenue to be $32 million for the quarter, but ended up increasing 8 percent year-over-year to $31.8 million. The company projects another year of mixed sales and a further dropoff in earnings, as the company continues to roll off smaller clients and run a declining business in its digital marketing services.

While the shift in strategy has taken time to take off, other key metrics look promising. ChannelAdvisor ended the year with 20 fewer customers than it had in 2015, but was able to increase its annual revenue by 13 percent to $113.2 million.

“Frankly, it takes time for that stuff to come together, I’d like to see happen faster obviously,” said David Spitz, ChannelAdvisor’s chief executive officer, in the fourth quarter earnings conference call.

“It’s — as you could imagine relatively easy to eliminate unqualified prospects from the pipeline as we focused on more…higher-quality customers,” Spitz said. “But we need to be doing more to drive more of that into the top of the funnel and to close them, even though we know there’s going to be longer sales cycles.”

The Amazon effect

Spitz dismissed Amazon’s heavy promotional pricing over the holidays as unusual and unlikely to recur next year. The promotional activity cut into third-party retailers’ ability to compete and beat out pricing, shifting consumer demand to Amazon’s own first-party products and leading Amazon to ship 50 percent more items over the holidays than third-party vendors.

The sales drop hurt ChannelAdvisor’s revenue in turn, as the firm takes a cut out of how much volume its clients move on marketplaces.

“We imagine that Amazon will continue to grow [first-party] for products that it wants to ensure are available at the best price on Amazon, and continue to grow [third-party] to provide selection and competitive prices for its customers,” said Melissa Sargeant, ChannelAdvisor’s chief marketing officer, in an email. “We’ve recently announced support for sellers that are selling [first-party] or drop shipping through Amazon, in addition to our [third-party] marketplaces support, so we now cover retailers and brands however they’re selling on Amazon.”

ChannelAdvisor introduced a new repricing mechanism to help clients keep up with Amazon’s pricing, as well as counseled customers to avoid directly competing with the world’s largest e-commerce firm.

“When we work with clients, we advise them to explore ways to partner with Amazon, rather than competing against them. Whether they sell [first-party] to Amazon or [third-party] on the marketplace if sellers are concerned about Amazon having access to their sales data or products, they can consider only selling certain items on Amazon and keeping proprietary SKUs available only on their personal websites,” Sargeant said.

While other marketplaces play a nonessential role in Kozak’s T-shirt business, ChannelAdvisor’s other clients see diversifying their marketplaces outside of Amazon as critical to their business.

Vitamins2You co-founder Brandon Owens said it’s crucial to expand to different online marketplaces and avoid going head-to-head with Amazon Prime.

“It’s a losing battle to the bottom,” Owens said. “The companies that want to sell [to us] don’t want to compete with Amazon. There’s a loyalty to customers in our store, that doesn’t extend online.”

Online sales channels are becoming more fragmented, according to UNC-Chapel Hill marketing professor Sridhar Balasubramanian. He said selling software won’t be enough for ChannelAdvisor to retain its competitive edge.

“The big opportunity is in the most strategic part of that area: which is advising firms on how you construct an omnichannel strategy, and how do you execute an omnichannel strategy,” Balasubramanian said. “Companies really need help with that.”

Balasubramanian said doing so would require ChannelAdvisor to shift its focus to strategy consulting, helping companies to design an end-to-end solution for operating both online and in the brick-and-mortar space.

“How do you design metrics, build the right teams, incentives and processes? That is where a lot of companies are struggling,” Balasubramanian said. “They talk the talk, but very few companies really know how to ‘get this done’ in an excellent way.”