In its second-largest acquisition, Amazon buys the company for $970 million.
Cloud computing promises flexibility and savings, but retailers should keep an umbrella handy.
Most small, up-and-coming e-retailers would welcome a call from CBS Evening News inquiring about running a story on their business. But when Will Johnston, general manager at sustainable living products e-retailer GrowAndMake.com got such a call he was nervous. He feared the publicity boost could create a surge in traffic that his e-commerce site couldn’t handle. “Today, we’re only set up for about 100 users at one time,” says Johnston. “If I go to our hosting company and say ‘scale our store for supporting 10,000 visitors a day’ just in case we get a huge amount of traffic, that would be a huge project and an expensive commitment.”
Johnston, who knows a thing or two about technology from his gigs at Apple Inc. and e-commerce vendor MarketLive Inc., is considering a technology strategy that could help. It’s called cloud computing, and it enables a retailer to rent Internet-based computing power and data storage to support its web business.
With cloud technology, users can ramp capacity up or down in minutes and only pay for the power they need. That can amount to significant cost savings and flexibility for e-retailers. For example, it could eliminate the need to add I.T. staff and extra web servers for peak traffic periods, when those people and equipment would be superfluous when traffic is low.
But there are downsides. Some e-retailers are leery of storing data outside their own centers. And if the company providing the service goes down, or there is an interruption in the retailer’s web connection, there is little a retailer can do.
Breaking down the cloud
“Cloud computing” is a phrase technology vendors throw around freely these days, but its meaning can be hard to pin down. Some define it as little more than renting online storage space or accessing applications through the Internet. Others claim it is a revolutionary way of using the web to cut costs, increase capacity and deliver better service to consumers.
Imad Mouline, chief technology officer for Gomez, the web performance division of Compuware Corp., says it is all of the above. According to Mouline, cloud computing comes in three flavors: infrastructure-as-a-service, platform-as-a-service and software-as-a-service.
Infrastructure-as-a-service offerings such as Amazon.com’s Elastic Compute Cloud Service, or EC2, and Rackspace give retailers the most control, offering a virtual blank page on which they can build their platforms and create applications. These providers offer raw computing power and let the retailer choose its own programming language and applications. In effect, it’s like having the computing power of many servers without actually owning them.
Platform-as-a-service offerings, such as Google App Engine and Force.com from Salesforce.com, provide both hardware and basic resources to help retailers build their own applications. Retailers access these resources through the web to accomplish specific tasks such as rotating an image or sending e-mails to a list of addresses. Such programs give retailers less freedom—for example they may only support a few programming languages—but they provide more of the basic technology needed for developing applications.
Software-as-a service is the most common type of cloud technology and has been around the longest. It offers pre-built applications and services to retailers delivered via the web. E-retailers can’t build a new application, but they can typically customize and configure the application to meet their specific needs.
Cloud-based services beyond software-as-a-service offerings are relatively new, but drawing interest. 4% of small to medium-sized businesses and 7% of large companies are expanding or upgrading their use of cloud infrastructure, according to a February study from Forrester Research Inc. Looking ahead, 16% of smaller and 23% of large businesses plan to implement such services in the future. Forrester defines small to medium-sized businesses as those with 20 to 1,000 employees and larger businesses as those with 1,000 or more.
The bright side of the cloud
Dean Richardson, co-founder of Genlighten.com, a site that enables visitors to search for and purchase genealogy documents, recently moved his e-commerce site to a cloud-based infrastructure from Engine Yard.
The vendor offers access to many web application and database servers, and adjusts capacity as needed. Richardson says operating in the cloud eliminates the worry of having enough server capacity and reduces financial risk.
“It’s less hassle because someone else administers the servers and adds or subtracts them virtually as needed and we pay for just what we need, and that’s a lot less than the cost of buying our own servers,” Richardson says. “If we committed to hardware up front, we could be on the hook for lots of money even though our revenue wasn’t growing like we hoped.”
Richardson says capacity was a concern with his old hosted platform where he shared a server with other web sites. “If we get 10,000 visitors tomorrow night, our server and storage infrastructure won’t be the reason that our site crashes,” he says. “With the shared hosting solution, we’d bump up against hard limits pretty quickly and we’d probably be stuck for a day or two while they brought up new capacity or moved us to a new server.”
Engine Yard costs Genlighten about $100 a month, about three times more than what Richardson was paying his old platform provider. But he says as his company grows and requires more bandwidth and storage, operating in the cloud will become more economical than other options.
Pick and choose
And an e-retailer doesn’t have to move its entire infrastructure to take advantage of the benefits of cloud technology.
Nathan Wright, owner of online store HerbalLodge.com, a natural Native American-inspired health products retailer, uses Internet-based technology from Mailchimp.com for storing and sending e-mails.
“Basically instead of doing things in-house, you have companies that specialize in whatever task you’re looking for,” he says. “Cloud computing has been a big plus for my company. I don’t have to hire full-time staff.”
Some retailers use Google App Engine to build and host web applications on Google’s infrastructure, says Rishi Shah, CEO of Flying Cart, a company that offers a hosted shopping cart service for online stores.