A deal for Build.com to acquire web-only small appliances merchant Living Direct has been in active negotiation, sources tell Internet Retailer.
Web site hosting may not be sexy, but it’s crucial to the success of online retailers and requires close management as online sales grow.
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.