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Build or Buy?
Whichever way they go, online retailers have learned that asking tough questions helps build strong e-commerce platforms.
Managing Editor, International Research
Jon Hoch likens choosing between operating an e-commerce platform in-house or outsourcing it to the decision a bricks-and-mortar merchant makes when opening a shop in a mall.
“When you own a store, you don’t have to worry about price increases or drilling a hole in a wall or about getting permission to paint,” says Hoch, founder and CEO of online retailer Power Equipment Direct. “When you lease, you don’t have to worry about maintenance or upkeep.”
Hoch is firmly in the in-house camp. “I’d rather own my own store than lease it,” he says. “It gives me more stability and more ability to customize.”
Most online retailers have taken the same path-but they’re not all as committed to it as Hoch. While 62% of retailers now manage their own e-commerce platforms-some using vendor-supplied applications-55% are considering outsourcing, according to a Forrester Research Inc. survey of 291 online retailers released in January.
That’s not surprising given that retail web sites are increasingly complex to build and maintain. That complexity means that retailers have to ask more and tougher questions of potential vendors. And a retailer keeping the work in-house must hire well and ensure it could manage if a key employee walks out the door.
For many e-retailers, cost is the starting point in the buy-versus-build decision. That was the case for Power Equipment Direct, which launched after building its retail site in 2002 using osCommerce, a free shopping cart program that uses an open source programming language called PHP.
Open source means the underlying source code is made available for free to users to modify as they wish. Such software programs often are supported by online communities where users contribute ideas, report bugs and develop patches.
“When we launched we had two choices,” Hoch says. “Pay $300,000 or use open source for free. We used osCommerce as a starting point and basically re-did all the code. Now it’s our own little in-house system.” The retailer, which posted web sales of $29 million last year, operates nine e-commerce sites that sell such products as snow blowers, water pumps and electric generators.
Power Equipment Direct employs two full-time programmers to maintain its site and write new code as needed.
For example, osCommerce originally didn’t allow the retailer to modify the metadata on a web page that search engines use to determine its contents. So the retailer rewrote the code so it could update metadata on each page. Hoch doesn’t have hard numbers on how much he saved with the customization, but he says it has made a significant impact in improving natural search results.
“If your pages are not optimized for search, you must pay for the majority of your web traffic-which is a very expensive endeavor,” Hoch says.
Keeping it simple
Power Equipment Direct is a web-only retailer, and Hoch felt he had the in-house expertise to go it alone. But that was not the case at multichannel footwear and accessories retailer Bakers Direct, which generated less than 10% of its $183 million in sales via the web in its last fiscal year that ended Oct. 31, 2009.
When it relaunched its retail site in the summer of 2008, Bakers Direct wanted to focus on marketing and merchandising, not debugging code. That led it to choose a hosted Microsoft.Net program from e-commerce platform provider Virid, says Scott Cohn, director of merchandising and sales for Bakers Direct.
Bakers and Virid worked together to create page templates with categories for adding text, graphics and images and develop a schedule for site advancements and customizations three months, six months and a year down the road.
“Instead of a canned platform, which is what we had before where you get in a queue and the vendor gets to your projects when they get to them, we worked with Virid through how we wanted to execute our goals,” Cohn says. “It’s a lot better than putting a ticket in with someone in a foreign country and hoping it gets done.”
The need for speed
Bakers, which wanted to move from its old platform quickly because of frequent site downtime, says it agreed with Virid on a schedule for adding such features as customer reviews and a rolling home page banner. And it says Virid, which charged Bakers a launch fee and takes a set percentage of revenue each month, was mostly able to deliver on time because there were no surprises.
Using commercially available software is the faster way to get a site launched, Cohn says. But the downside is that if a vendor creates a new feature for one client, it generally is free to offer it to others.
“Once you launch something with a vendor, it’s out there for all their clients,” Cohn says. “We wouldn’t want to be withheld a cool feature Virid is offering others.”
Some retailers can’t afford the upfront licensing, implementation and customization fees vendors charge. That’s what Keith Maddox, CEO of Parentgiving.com, decided when his company, a self-funded start up that sells senior care products, relaunched its site last year.
“The capabilities we wanted were very pricy though vendors,” Maddox says. “We didn’t want to invest a quarter of a million dollars in a platform and then realize later on that we didn’t have the sales to support it.” He says vendors’ quotes ranged from $250,000 to $500,000.
Taking the plunge
So Parentgiving chose to launch and manage its retail site in-house using open source shopping cart software from Shop-Script that uses the PHP programming language. Rackspace U.S. Inc. hosts the site.
Because the platform, which went live in April, is open source, the software is free. However, getting it to do what Parentgiving.com wants isn’t. The retailer pays two full-time employees to manage the site and an additional $2,000 per month for hosting, Maddox says.
The biggest benefit of managing a platform in-house is turnaround time for improvements, Maddox says. “We can do anything we want and we can make any task a top priority,” Maddox says.