July 12, 2013, 9:54 AM

Second 500 merchants are hands on with technology

Many of the merchants ranked in Internet Retailer’s new Second 500 Guide prefer an in-house approach to building and maintaining their e-commerce systems. 82% of those retailers, for example, manage site design internally, while 77% do so for fulfillment.

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With an annual technology budget of $500,000, Steals.com invests heavily in e-commerce systems development, says CEO Rett Clevenger. But rather than spend money on commercial e-commerce applications, web-only retailer Steals.com prefers to hire seasoned software engineers, data programmers and web designers to do the work in-house. “We don’t buy what we can’t afford,” Clevenger says. “If we can do the job better internally, we will.”

Developing and maintaining e-commerce technology internally remains a top priority for Steals.com (No. 550), which booked $15.4 million in 2012 online sales, and many other Second 500 merchants. An analysis of data collected from across 28 e-commerce technology and services categories for the web merchants ranked in Internet Retailer’s 2013 Second 500 Guide reveals that Second 500 merchants now do even more of their systems development and maintenance in-house in 14 categories, including for such primary applications as content management, customer relationship management and customer service systems.

In comparison Second 500 merchants increased their use of a commercial e-commerce applications or services in only a handful of areas, including content delivery, e-mail marketing, personalization, security certification and shipping.  Among the Second 500 merchants supplying data on their e-commerce technology choices, 82% manage site design internally, 77% fulfillment, 71.8% content management, 61.2% customer relationship management and 57% rich media. “There are many instances when a smaller retailer can build an in-house application that can work very efficiently for their current business,” says Gartner Inc. vice president and information technology analyst Gene Alvarez..

Many smaller web merchants prefer to do most of their e-commerce systems development internally to keep operating costs down, Alvarez says. At the same time, they may select commercial technology for core functions, such as order management and transaction processing, he says. “Smaller merchants are willing to pay for a well-known bread-and-butter platform that will give them availability, scalability and reliability,” Alvarez says. “But adding other e-commerce applications become a cost issue, and many small web retailers decide an internally developed tool or an application they can build from different types of open source software is a cheaper way to go.”

At Steals.com the focus on in-house development began with Clevenger using the information technology and web design skills he acquired from working at such retailers as BackCountry.com and Coldwater Creek Inc. to build and launch the company’s first e-commerce site in 2008. Hiring and training its own e-commerce staff and keeping most technology development in-house give the retailer a solid base of technical expertise, Clevenger says.

That expertise was recently put to the test when Steals.com decided to completely retool its e-commerce sites using responsive site design techniques that adjust web pages according to whether a visitor is using a computer, tablet or smartphone. Steals.com also built a new e-commerce platform that for the first time integrated numerous disparate back-end systems and designed a universal shopping cart that enables Steal.com private-event shoppers to click between web stores, select merchandise and pay for all their purchases with a single checkout.

It took Steals.com, which is still putting the upgrades in place, about a year to revamp its site designs and back-end e-commerce technology. “It was our internal expertise and deep knowledge of how our customers want to shop with us that gave us the wherewithal to pull this off.”

But not all Second 500 merchants operate all of their e-commerce technology internally. That’s particularly true when it comes to the e-commerce platform they use. Overall, 255—68.7%—of 371 Second 500 merchants supplying data about the technology they use operate on a commercial e-commerce platform. Most Second 500 merchants also use commercial technology or provider for many specialized applications such as shipping, payments processing and security and web hosting or web analytics. Nearly 100%—94.7%—use a commercial application for web analytics and 99% use a commercial carrier to deliver goods. For security certification and payments processing about 99% use an outside provider.

FullSource.com is a web-only retailer of safety supplies and workplace apparel and accessories, such as hard hats, safety glasses and vests and work gloves. The company likes to do as much technology work in-house as possible. But the company also uses technology from NetSuite to run its e-commerce platform, enterprise resource planning and accounting programs. “It’s core technology that has served us well for more than a decade,” says CEO Jim Graham.

The 2013 Second 500 Guide is available in three formats: print, digital and as part of the all-new and completely updated Top500Guide.com. Information on how to order the brand-new 2013 Second 500 Guide is available here.

To read previous Second 500 Insider stories click here.

 

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