December 31, 2007, 12:00 AM

To build, buy or outsource

Web merchants can build, buy or outsource e-commerce platforms, the most critical technology in the business. But which route to take?

Neil Kugelman, CEO of online jeweler Goldspeed.com, is convinced there is no better way to run his business than outsourcing his e-commerce platform.

“Today I’d only go with a hosted solution,” says Kugelman, a client of on-demand, software as a service platform vendor OrderMotion Inc. “When you start a company, you are focusing on your product and your customer. A focus on infrastructure takes your eye off the ball. If it’s developed and I can plug into a network that can be used anywhere, I want to do that.”

At home dÈcor and gift e-retailer RandomAccents.com, Bill Patterson, president of site operator Concentric Business Group Inc., is sold on buying much of the software he needs to run the back end of his web site, which attaches to the Yahoo Stores platform on the front end. He believes he’d have less flexibility to make needed changes quickly on the back end if he were using the software as a service model to support his order management system. So instead, he licenses software to do it from Stone Edge Technologies Inc.

“If you own the software, you can pretty much do what you want with it, providing the software allows you to do that,” he says.

Mark Kuhns, vice president of athletic clothing manufacturer and retailer Under Armour Inc., says his company’s e-commerce site thrives on a platform the company largely developed internally. In-house developers wrote the platform using Cold Fusion with a Microsoft SQL server database infrastructure. Under Armour also has added to its platform outside technology from image management services provider Scene7, operated by Adobe Systems Inc., and from web analytics vendor Omniture Inc.

“Our platform is a hybrid-we’ve built it off of what we know will integrate with our operating system, and we’ve purchased best-of-breed solutions to help with the consumer experience and other elements of the site,” Kuhns says.

The basics

The e-commerce platform is the technology infrastructure on which an online retail site operates. It supports all the basic functions needed to make a site run.

“E-commerce solutions have evolved to include core functionality for navigation, shopping cart checkout, shipping and handling, taxes, and some level of integrating with an order management system, enterprise resource planning system or warehouse system,” says Joseph “Tocky” Lawrence, vice president and partner at retail operations, fulfillment and consulting firm F. Curtis Barry & Co. “Then there are Web 2.0 options: rich media with audio and visual tools, customer product reviews, social networking, blogs.”

That array of options means there’s no one-size-fits-all answer for retailers out to decide on an e-commerce platform solution, whether outsourced (also known as hosted or on-demand); built from licensed, packaged software; internally-developed; or using some combination of these choices. While the right choice will be different for every web merchant, however, the path leading all of them to that point is universal: they must balance priorities, resources and business demands.

For many retailers, another factor is in play: a core belief based on experience in the rationale supporting one model or another. Kugelman, for example, is not just a user of the on-demand model, he’s an advocate. “When a typical company starts out, what do they do? They rent an office,” he says. “They don’t say, I have a great idea, let’s first find a piece of property and build an office on it.” Retailers, he says, should view e-commerce platforms in the same way.

In the early days of e-commerce, the two most common choices made by e-retailers setting up a site were buying packaged software or building a platform in house either themselves or with a hired web developer. This was in part because fewer hosted options existed. Purchasing software to support an e-commerce platform-an e-retailer pays a software vendor a license fee up front and then an annual maintenance fee-was and is a way to hand off platform development responsibilities to experts.

This is part of what appealed to multi-channel retailer Casual Male Retail Group Inc. in 2003 when it experienced rapid growth in its e-commerce channel. With that increase and the growth it projected, Casual Male determined the e-commerce platform it was using, an add-on offering from its fulfillment vendor, no longer was up to the task.

Room to grow

Because it went directly into the company’s fulfillment center, the original platform ran on the same operational database as the retailer’s warehouse, call center and other systems that run the company’s direct-to-consumer business, which then was much larger than the retailer’s e-commerce business alone, says Jack McKinney, chief information officer.

“We didn’t see how we could grow e-commerce in that environment,” he says. “When we looked at alternatives, the best options at that time were with the licensed model.” The company went live in 2004 with a licensed software platform from Art Technology Group Inc. and now operates five e-commerce sites on that platform. ATG also offers a hosted platform option.

McKinney says the company did not seriously consider building a platform in house. “We couldn’t see having to worry about being able to support a customer environment on an ongoing basis, or worry about having skilled resources and turnover, when there are packaged application vendors continually making big investments in developing products,” he says.

That is one key differentiator of the licensed option from the build-it-yourself option, says Bill Zujewski, ATG vice president of product marketing. “Retail I.T. departments have very limited resources. When it comes to a question of build vs. buy, companies that choose to build an e-commerce platform and applications in house are often putting themselves at a competitive disadvantage,” he contends.

Zujewski argues that while with time it’s possible for retailers to build their own platforms, they’re following the market rather than leading if competitors buy an e-commerce solution with the latest practical or cool features already bundled in.

Casual Male has done some customization specific to its business on top of the ATG platform using its in-house developers: for instance, making sure that custom online ordering options such as specifications on alterations and hemming are easily communicated to its fulfillment system. “Anytime anyone implements their site on top of ATG, or any other packaged platform, they want their own look, feel and flow,” McKinney says. “But we didn’t make any major customization away from the environment ATG built.”

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