In its second-largest acquisition, Amazon buys the company for $970 million.
(Page 2 of 6)
The battle to assign blame can be detrimental to an e-retailer’s business because it results in temporary inaction when it comes to fixing the problem. “The last thing any retailer wants is finger pointing between departments about what went wrong with the site,” says Mike Svanascini, COO of Americaneagle.com Inc., a provider of e-commerce platforms. “With an outsourcing partner, there is a clear line as to who is maintaining the site and performing implementation. A good outsourcing firm has the expertise to correctly handle these issues.”
Improved tech support is just one consideration when selecting an outsourcing partner. Cost savings and return on investment in new technology is another. Paying for the hardware to build an e-commerce platform and the software licenses for the applications to run it are a major expense for e-retailers, and the ROI for these purchases can be spread over a year or longer. Outsourcing an e-commerce platform can spare retailers these upfront costs and deliver ROI in as little as one month, depending on the extent of the services purchased, according to Jason Jacobs, CEO of e-commerce platform provider CoreSense Inc.
“The SaaS model is where the market is going because retailers only have a finite amount of capital to invest in their platform; the rest is spent on marketing and merchandising,” says Jacobs. “The SaaS model makes it possible for retailers to gain access to best-of-breed technology and lower their operating costs, which delivers a faster ROI on their platform.”
Some basic questions
Before considering whether to outsource management of web sites, retailers ought to ask themselves some basic questions to determine if outsourcing will fit their needs. The starting point is to determine the level of control they want over their site.
If retailers want a high level of control and if they want it to extend beyond marketing and merchandising, then licensing software may be the preferred route. “Retailers that exercise the most control over their site tend to operate it in-house,” says Larry Harris, vice president and general manager for site search provider Progress Software Corp., seller of the EasyAsk technology. “SaaS applications tend to take a one-size-fits-all approach and are predicated on everyone operating on a uniform platform. Internal applications can be closely customized to meet the individual needs of the retailer.”
Once the decision has been made to outsource the e-commerce platform, retailers need to consider to what extent the outsourcing partner will work with them to improve the site. For example, the growing emphasis on natural search rankings is prompting retailers to pay closer attention to how they categorize their products across all online sales channels. Proper categorization results in a greater likelihood of search engines finding the products when consumers are looking for them. Improved categorization also helps shoppers find items faster when they are searching on a retailer’s site.
”One of the reasons retailers are moving to outsourcing for help in categorizing is that it is tough for them to be experts at doing this even on their own sites,” says Rob Wight, CEO of Channel Intelligence Inc., which provides online content management and product information syndication services. “Retailers want an outsourcing partner to work with them on organizing and mapping product attributes so they are properly categorized.”
One of the ways service providers can work closely with retailers is by providing customized features and functionality. For some e-retailers, customization means the ability to turn certain features on and off as their needs change. This is particularly beneficial, for instance, when it comes to partnering with a payments processor that provides fraud detection services.
As e-retailers know, fraud is a moving target because criminals are constantly evolving their methods to stay a step ahead of fraud prevention techniques. Since many retailers do not want to create hard and fast rules that say a suspect transaction is automatically declined, they want tools that can be tailored to their needs. Thus many retailers look outside for partners not only with fraud detection and prevention expertise but who also can provide the big-picture view of fraud trends and who have made the technology investment to fight fraud.
At the same time, though, most retailers look for flexibility and the ability to customize to their own needs. “E-retailers want processors that can help them develop business logic around fraud detection that is unique to their business needs,” says ACH Direct’s Thorness. “In some cases, retailers will want a warning about a suspect transaction so it can be manually reviewed, rather than give a hard decline, and other times rules may be more stringent around hot fraud trends. These rules will change and e-retailers want to be able to turn them on and off as the situation dictates.”
Once a retailer has made the decision to outsource, the next step is to find the right partner. A good way to tell how closely a service provider is willing to work with a retailer to achieve the retailer’s goals is to look at the provider’s customer base. “Are their customers your competitors? Are they mom-and-pop retailers or major retailers?” Wight says. “A service provider’s clients will say a lot about the kind of work they do.”
Another question retailers ought to be asking a potential outsourcing partner is whether the e-commerce platform can deliver the flexibility to quickly implement changes as needed to drive traffic to the site, boost sales and deliver a unique customer shopping experience that is consistent with its offline shopping channels.
“Retailers need to be asking, ‘How good are the operating fundamentals of the potential partner?’ because that is what it boils down to,” says Accretive Commerce CEO Henry A. (Hank) Reeves Jr. “There has to be some demonstration of the technology behind the e-commerce platform that justifies the expense to the retailer.”
The proprietary question
Retailers must also consider whether partnering with an SaaS provider is locking them into a proprietary technology they cannot take in-house at a later date if they should decide to do so.
“Outsourcing relationships change and there are retailers that will want to pull their platform in-house once they reach a certain size in revenue,” adds Reeves. “If the retailer can’t purchase a license to take the platform in-house, then they end up rebuilding it, which is pretty costly.”