More DIYers

Guide to E-Commerce Technology

By Kurt Peters

Gardeners’ Supply faced a problem: Its web site had become an important part of its business and the company felt its servers were reaching their capacity. It needed a new web hosting arrangement.

Executives believed they had an in-house IT staff second to none for a company its size. But management was reluctant to commit to continual upgrades in hardware and software as e-commerce sales continued to grow. What makes more sense, they wanted to know, taking hosting and management in-house where the company would have total control, but also total responsibility for system upgrades, or outsourcing those operations, where someone else would assume the technology burdens, yet the company might not have direct control over operations?

The co-location option

Gardeners Supply’s situation is one that many retailers must deal with today. As traffic at their web sites reach new levels every month and as the web comes to represent a greater proportion of sales, many retailers are outgrowing their servers. A single e-commerce server can handle up to 500 concurrent visitors. That would translate into up to $5 million a year in web-based sales, says Rudy Pataro, vice president of information technology at web site hosting and management company Fry Inc. In addition, a site requires a database server to deliver content to users. Then there’s back-ups in the event of a failure on the main servers.

Web site hosting may not be sexy, but it’s an issue crucial to the success of online retailers and requires close management scrutiny as online sales grow. Gardeners Supply’s initial approach to expansion when it outgrew its Yahoo store was to own the servers but locate them with a local Internet services company that provided the electric power and the bandwidth. Last year, that arrangement started proving inadequate as volume grew and further technology upgrades became necessary. But because the web had come to represent 35% of Gardeners Supply’s sales, management was adamant that any changes not disrupt e-commerce—either before or after the changes took place. “It was costing us quite a bit of money to co-locate,” recalls Chris Thompson, chief technology officer, “and, as sales went up and there was more demand on the servers, there was no margin for error any more.”

The company first explored taking web hosting in-house. “We have two full-time developers on the web site so it’s not like we were afraid to put resources into it,” Thompson says. Furthermore, even from its first days as a Yahoo store eight years ago, Gardeners Supply, which also operates Dutch Gardens, had operated its web site in-house. Even after expanding from a Yahoo store, Gardeners Supply owned its own servers and managed them itself. “We have been profitable on the web every single year, we just couldn’t afford not to be, so we were very frugal and careful,” Thompson says. “We had to do it all in-house.”

Quality of service

But the continuing growth suddenly made technology a bigger issue than it had been. “Part of the problem is we’re in Vermont,” Thompson says. “It was dubious that we could have gotten the quality of Internet service that we needed.”

Quality of service is not the only problem that technology places in retailers’ paths. There’s also the issue of keeping up with the technology. “For a company like ours, a highly seasonal gifting business, the technology is not our core competency,” says Kim Land, vice president of Godiva Direct, the online and catalog arm of Godiva Chocolatier.

Godiva made the choice 10 years ago to outsource its web hosting and management. “We looked at what it would take and decided it wasn’t worth it to do it ourselves,” Land says. Godiva was the first customer to outsource its web hosting and management to Ann Arbor, Mich.-based Fry. “We needed someone who could deliver strong, consistent levels of service, were never down and were flexible enough to deal with seasonal peaks,” Land says.

Last fall, that’s the decision that Gardeners Supply arrived at as well. “We wanted to focus on what we did best,” Thompson says. Gardeners Supply is also a Fry customer.

Learning best practices

Part of the appeal, Thompson says, was getting out from under the equipment and software burden. “Simply keeping up with Microsoft licenses and paying for database licenses was prohibitively expensive,” he says. “And the idea of no longer owning the equipment was wonderful.”

Furthermore, retailers like the idea that a hosting and management company deals with dozens or hundreds of other retailers and so can share with one client the solution that another client took to a problem. “They’re really in a position to know industry best practices,” Land says. And that also applies to approaches to technology, she says. “Since they deal with it all the time, they understand technology changes and when is the right time to adopt a new platform or make other changes,” she says. “We don’t always want to be the first to adopt new technology. Fry can tell us when the right time is to take advantage of new technology. Because they’re watching it all the time, they’ll know when it’s fully vetted.”

The path not chosen

When outsourcing, retailers can go down one of two paths. On the one hand, they can choose the simple co-location method, as Gardeners Supply previously did with its local service company. That takes the hardware maintenance out of the retailer’s hands but leaves all site development and systems maintenance with the retailer. On the other hand, a retailer can choose a managed services agreement in which the hosting company maintains the hardware and monitors, updates and troubleshoots the operating and applications. In either case, product presentation and the posting to the site and removing of products, product descriptions and images is up to the retailer.

Depending on the redundancy they seek, retailers with online sales of $2 million to $25 million a year pay $2,000 to $4,000 a month for managed service, reports Ken Burke, president of Petaluma, Calif.-based Multimedia Live, with the price going up from there for larger retailers.

There are thousands of hosting companies to choose from so retailers have to be careful in their choices. The number one question to ask a potential hosting partner is the extent of their knowledge of retailing, merchants and consultants say. “Make sure they understand the scope of your business—the traffic you expect, the dynamics of your site, how long people stay, traffic patterns, spikes and valleys,” Land says.

One way to get at whether a hosting candidate understands that information, Thompson says, is to know who the hosting company’s other clients are. “If they have other retailers, you can be pretty sure they understand the direct marketing industry,” he says. “Anybody can put a box on a network and call themselves a co-location facility. But if they have other retailers, they’ll know how important it is that you’re always up.”

Further, a hosting company that deals with retailers will understand the phenomenon of bursting—that is, dealing with sudden spikes of traffic—and will be prepared to deal with it without charging exorbitant fees, Thompson says.

Retailers also should learn if their hosting companies keep up with technology from third party-vendors. “You don’t want to have to do your own basic research on other vendors,” Thompson says. “They should be able to tell you what their other clients are using.” For instance, Fry helped Gardeners Supply choose Coremetrics Inc. as its analytics vendor, Thompson says.

The types of service level agreements that a hosting company is willing to offer ares also important to a decision. While service level agreements are standard, a hosting company should be willing to offer seasonal agreements, experts say. “We have one retail client whose business peaks in February, May and November, so we give them an SLA significantly higher in those months than the rest of the year,” Pataro says. “Not only are the SLAs higher that month, but the penalties assessed for not meeting them are higher as well. We try to craft agreements in a way that makes them most comfortable.” Adds Land: “Any web hosting company that handles any kind of retailer business should be comfortable with seasonal SLAs.”

One area that businesses seeking a hosting company sometimes overlook is the physical security of the hosting facility, consultants say. “It’s a question retailers should ask,” says Burke of Multimedia Live. “They should know who gets into a facility and how many levels of security a facility has.” For instance, Multimedia Live’s hosting facility in Northern California has five levels of security that involve some forms of biometric scanning, Burke says. Says Land: “Security is a really important question to ask.”

Of course, electronic security almost goes without saying, analysts say. “Especially in today’s environment, a web hosting company should have strong security compliance,” Land says.

Redundancy

Retailers should also ask about a web hosting company’s routine redundancy, such as its ability to respond to a garden-variety power outage, as well as its disaster recovery procedures. Multimedia Live, for instance, has generator backup at its hosting facility in the event of power failure. It also has multiple connections to the Internet backbone.

Hosting companies argue that geographical diversity is not a requirement of redundancy. For one thing, Burke points out that Multimedia Live’s facility is in a building that is supposed to withstand an earthquake of up to 9 on the Richter Scale. For another thing, even if something happens to a facility, re-starting on a new facility elsewhere is fast and relatively cheap if the retailer has the applications and e-commerce data backed up, Pataro says. “It’s a matter of how long it takes to get the site operational again vs. paying the insurance,” he says. “If you’re under $20 million a year it might not be worth the costs.”

Another area to explore with a potential hoster, Thompson says, is the experience of the engineering staff. “If my in-house staff is not available, I need to know if the hosting company has somebody who understands how each individual platform works,” he says. “It’s very important that somebody there know the actual e-commerce platform you’re working on and how to troubleshoot it.”

Know what’s coming

Before even interviewing hosting companies, though, a retailer should clearly understand its own needs and be able to forecast accurately the amount of business it expects to get via its web site. With the phenomenal growth of online retail sales, forecasting is harder in the virtual world than in the real world. “Some retailers don’t have an idea how to forecast their needs,” Pataro says. “They’ll forecast 20% and get 35%. They have a tough time getting their hands around how their marketing initiatives affect their capacity needs.”

If failing to know that information leads to problems with a hosting company, it can lead to disaster for a retailer that hosts its site on its own, observers say. “There’s no margin for error any more,” Thompson says.