In its second-largest acquisition, Amazon buys the company for $970 million.
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Matt Raines, vice president of technology at online apparel retailer Bluefly Inc. (No. 179), thinks of employees as assets that he must allocate most efficiently. He chooses to assign his personnel to those areas where Bluefly can set itself apart from competitors. For example, Bluefly considers sending e-mails an outside job--the company uses Responsys Inc. for e-mail marketing--but it's an inside job to figure out how to collect customer data and use it to build effective e-mail marketing campaigns.
At Abt, whose e-commerce operation brought in about 25% of sales last year, an in-house team of programmers is primarily responsible for web technology. But the retailer also selectively chooses some outside vendors for online customer service functions that prove easier to buy than build.
The company has been using Bold Software LLC for live chat for more than a year, and added a customer feedback system from Kampyle Ltd. last September to improve how it engages customers. The Bold services have provided a good return on investment so far, says co-president Jon Abt, though he declines to provide details.
More comprehensively, footwear and accessories retailer Browns Shoes installed Demandware Inc.'s e-commerce platform in January, seeing it as a customizable package that doesn't require an in-house team of technology experts to support, Sejean says.
What's more, Demandware offers clients pre-built connections to the technology of other vendors that participate in its Link partner program. Browns uses Demandware partners for order management and consumer reviews, all accessed through the single e-commerce platform.
Sejean sees that as a plus, but says he selected Demandware primarily for three reasons. First, the vendor provides Browns with retail practice expertise accumulated from working with many other retailers. Second, Sejean cites the peace of mind in having Demandware host the software, which Browns accesses via the Internet in a SaaS model, freeing Browns from having to deploy its own web servers and other infrastructure.
And third, Demandware's fees are tied to its clients' sales volumes which, to Sejean, supports Browns' growth model and lends confidence in the relationship. "The retail practice guy's bonus is literally tied into whether we reach our sales goals," he says. Other retailers, however, prefer a licensed model, paying a set fee for software so that their fees don't increase as their sales volume grows.
When deciding whether to go with an outside vendor, Overstock's vice president of information technology Carter Lee says speed to deployment is key. Outside solutions can lead to a new web site feature going up in six months, faster than Overstock could develop one in-house, he says.
The expertise a vendor brings can also make all the difference. Not only is time money, but in some areas Overstock is looking for technical know-how as well as a product, Peterson says. He cites Echopass, for example, as a vendor that not only provides call center and other services, but is expert in related business practices, such as how best to route calls--a crucial advantage for a retailer with contact centers that respond to inquiries from some 15 million unique monthly web site visitors.
Nor is Overstock afraid to use specialty products from smaller vendors. An example is HighJump Software Inc., a provider of warehouse management and supply chain software. Overstock began working with HighJump in 2001 when "they were almost at the point where no one had heard of them," Peterson says. HighJump was founded in 1983.
Overstock has stayed with HighJump because of the company's performance and responsiveness. "If you need to talk to the CEO, you can," Peterson says. HighJump now has four Top 500 retailer clients including Overstock, Musician's Friend Inc. (No. 44), Bluestem Brands Inc. (No. 82) and Costume Craze LLC (No. 480).
While Overstock relies on vendors mainly to provide add-on features, Hanover Direct has made a broader shift from its past practice of relying on in-house technology. Hanover, which manages catalogs and online storefronts for multiple brands, about three years ago adopted a Demandware platform for the more customer-facing parts of its online store and an e-mail system from Responsys.
More recently the retailer decided it needed to upgrade several back-end systems and calculated it would take a year and a half to do the project internally, and then it would have to shoulder the cost of keeping those systems up to date. Instead, the retailer is moving to an on-demand e-commerce system from NetSuite Inc. for order processing, financials, call center management and customer relationship management.
"The way I look at this is, we are moving away from a catalog I.T. system to a retail, in-the-cloud, I.T. backbone that really gets us ready for the future," says Hanover CEO Don Kelley. "When something interesting develops in the I.T. world that we want to integrate, it will be much easier to do from a NetSuite platform than from our current home-grown platform."
The retailer is also changing its shipping services, from in-house combined with a small fulfillment vendor locked into an agreement with the United States Postal Service to the larger, more diversified fulfillment services of GSI Commerce. That will free up company personnel to focus on such emerging areas as social marketing and mobile commerce.
"Once our big projects like NetSuite and GSI are done by the summer, our focuses can go more to social and mobile apps, and the brands," Pola says. The remaining in-house tech team of about 30 people will likely tackle those projects, at least at first, he says, "but we are not afraid to ask for help. [We are] always open to seeing who can do it better."
Like Hanover, a growing number of Top 500 e-retailers are concluding they're not likely to be as good as vendor specialists in every aspect of online retailing, not when e-commerce is evolving so rapidly.