Revenue increased 11.9% in Q1 of 2015, to $17.26 billion compared with $15.42 billion in the year-ago period.
The move toward e-commerce
Scalability and flexibility are key reasons retailers are shifting management of their web sites away from I.T. to service providers
As consumers flock to the web to shop, their expectations of the web store continue to rise. Today’s consumers want to shop at web sites with stunning graphics, intuitive navigation and seamless checkout.
Not surprisingly, many retailers are feeling the pressure to keep up with consumer expectations, especially since most retailers’ expertise lies in marketing and merchandising, not technology. Further compounding matters is that web site technology itself is advancing at such a dizzying pace that some retailers have yet to get their arms around the preceding generation of web site technology, let alone the latest applications.
Recognizing that their I.T. departments are already overloaded with managing internal technology issues, such as databases, systems networking, systems audits and maintenance, e-retailers are increasingly turning to outsourcing partners to manage web sites and keep them on the cutting edge of technological innovation.
“E-retailing is moving out of the era where retailers have to be engrossed in technology to successfully run the site,” says Jeffrey Max, CEO of outsourcing e-commerce platform provider Venda Inc.
The chief advantages of outsourcing are that the retailer doesn’t have to make technology investments upfront and at the same time achieves a system that can grow as the business grows. In the case of the former, retail managers can implement merchandising and marketing changes to the site without having to enlist their I.T. department for every alteration. In the case of the latter, e-retailers are spared the cost of adding servers that remain underutilized except during peak periods when site traffic and orders jump.
“About 20% of the technology used to build an e-retail web site is going to change every two years, which means retailers are in a never-ending cycle of updating the functionality of their sites,” says Curtis Hampshire, general manager of e-commerce platform provider USi eBusiness. “Having an outsourcing partner that can implement and guide them through these changes is more important than ever, because I.T. departments don’t move with the same speed as the web. That’s why they are a cost center, not a profit center.”
Indeed, outsourcing firms which provide software as a service, widely known by the acronym SaaS, are better positioned to help e-retailers navigate changes in web site technology because they work with multiple clients that have similar needs. In contrast, many I.T. departments operate in a vacuum, which limits their view of the e-retailing infrastructure, making them reactive instead of proactive when it comes to implementing web site technology.
“Outsourcing firms have broader knowledge about the marketplace, best practices and how new technology is being applied than an internal I.T. department, which operates in an insular environment,” says Stephan Spencer, founder and president of e-commerce platform provider NetConcepts. “It’s rare for an I.T. department to be experts in all areas of the web site, whereas service providers hire the specialists needed to meet a retailer’s needs.”
Outsourcing to meet PCI
One prime example of an instance where outsourcing can save retailers multiple headaches as well as investment costs is PCI compliance. Created to protect credit card account data, the PCI standard is the card companies’ requirements for protecting card data, including who can store it and how. The standard is constantly evolving and therefore requires personnel dedicated to managing compliance. The outsourcing partner that hosts the payment processing for the retailer must undergo continual PCI certification, which spares the retailer that cost and effort.
“Not only are the rules for PCI compliance constantly changing, but compliance includes changing internal procedures and processes for handling payment data,” says Ken Burke, chairman of e-commerce platform provider MarketLive Inc. “It is hard and expensive for merchants to stay on top of all the changes, but an outsourcing partner can do it for them more efficiently and at a lower cost.”
Database security is another issue for retailers to consider. “Having a processor that is PCI compliant and stores transaction data in a hosted environment can decrease the retailer’s exposure to a data breach,” says Jeff Thorness, president of payments processor ACH Direct Inc. Outsourcing card processing and data storage makes sense for many retailers, industry participants say. “It reduces the retailer’s liability,” Thorness says.
This level of expertise and depth of human resources that technology requires means that outsourcing firms can act faster and less intrusively when it comes to implementation and site maintenance. Many I.T. departments are caught up in other duties and myriad technologies and they may not be able to keep abreast of changes in web technology and thus have difficulty when trying to fix problems. Such mistakes can result in poor site performance that degrades the shopping experience. Even if it is only a temporary problem, it can end up costing the retailer sales and harm customer loyalty.
“The rapid evolution of web technology limits how fast an I.T. department can update the retailer’s site because they are not seeing the entire world, only their little corner of it, and that can create site maintenance burdens that can negatively impact the retailer’s business,” explains Eric Best, CEO of online performance marketing and e-commerce platform company Mercent Corp. “The SaaS model allows retailers to keep pace with changes in technology without creating maintenance or implementation burdens on their business.”
Relieving the burden of maintenance and implementation on the I.T. department can be another huge plus in removing the potential for finger pointing when implementation of an application goes wrong. In many instances, marketing and merchandising will blame I.T. for the error and I.T. will argue the application chosen by marketing and merchandising is itself the root cause, not the implementation.