December 31, 2007, 12:00 AM

To build, buy or outsource

(Page 2 of 3)

Experiment gone awry

Patterson of Random Accents cites flexibility and control as other benefits of licensed software. The retailer’s Yahoo Stores platform on the front end had earlier linked to Stone Edge’s order management system on the back end because Patterson found in-house development required too many resources. A subsequent experiment with hosted service from a different vendor for the back-end order management piece eventually brought the retailer back to Stone Edge.

Patterson had tried the hosting option with the different vendor in search of convenience. He wanted to spend less time internally on I.T. management, and he didn’t want to have to concern himself with issues such as security and PCI compliance. “We would not have to worry about managing the system because someone would be managing it for us,” he says.

That was the plan. But once on the hosted platform, he felt constrained. “There were more levels to go through when you wanted to make changes,” he says. For example, order entry via the hosted system was batched, making it difficult to speed up the process from the retailer side.

“It was really a flexibility issue for us,” he concludes of his decision to re-launch on Stone Edge’s platform. Patterson also says going back to Stone Edge’s licensed order management system has saved money, meaning the difference between about $15,000 a year for the hosted service and a license fee of under $2,000 with annual maintenance fees, including updates, of about $400.

Though some retailers say a hosted solution can get expensive if a retailer’s unique needs require a high degree of platform customization on implementation, lower cost of entry is one often-cited benefit of the on-demand model. Nevertheless, some retailers prefer investing and building equity in technology rather than seeing on-demand service permanently on the books as a fixed monthly cost.

But ownership has its drawbacks, contends Jeff Max, CEO of on-demand e-commence platform vendor Venda Inc. Max argues that on-demand service is a model better suited to the frequent delivery of new developments in technology. “The life of innovation on the web now is about six weeks. If Gap comes up with some really great new thing, how long do you think it will take for Urban Outfitters to knock it off?” he says.

Input from fellow users

Max also underscores that on-demand e-commerce platforms such as Venda’s are built for multi-tenanted architecture. Why is this important? It lets user community input as well as the vendor drive new developments on the platform because every retailer on the platform is on the same version of the software at the same time. Shared information and collaborative efforts can be folded into new releases of the platform going forward. The multi-tenanted architecture means that all can participate in contributing if they choose and all receive the advantage of frequent new releases.

Max also positions the hosted model against the do-it-yourself approach. “We are hearing fewer retailers say they have the ability to manage technology projects that are going to be able to remain on the cutting edge,” he says. Max cites but did not disclose one Texas-based consumer brand manufacturer that built its own e-commerce platform but now is considering other options as it begins to run up against limits in its platform’s ability to leverage new Web 2.0 capabilities.

Employing and providing offices and facilities for a web development staff scaled to the needs of that company could cost millions, he says, pointing out, “There are a lot of systems you can get into for less than that.” Venda currently charges $12,000 per month for its hosted platform, which includes development work, production work and software licenses from platform partners such as rich imaging vendors, wrapping it up in 10 new releases a year.

Hosting sounded better than building or buying a platform to organic skincare manufacturer and retailer Jurlique when it relocated its e-commerce operations from Australia to the U.S. last year. Jurlique had been online in Australia since 1993 with a site it had built internally. But in moving its headquarters to the U.S. to pursue the larger e-commerce opportunity, it didn’t want to do that again. I.T. development staff, which remains in Australia, would be better used for global web infrastructure support, the company figured, than for trying to build an e-commerce site for what, to them, would be a foreign market.

Jurlique wasn’t interested in buying the software to assemble its own platform because of the associated cost, according to global marketing manager Jeremy Goldman. And what about the notion that while cost of entry would be lower with on-demand service, Jurlique could over time pay more for hosted technology as a recurring expense than it would by owning its e-commerce platform? Goldman says that after an analysis, that mattered less than speed to market.

“That’s an issue, but we balanced it against the fact that we were missing a selling opportunity,” he says. Jurlique launched a new U.S. site on the Venda platform in September and clones of that site the next month in Australia and the United Kingdom. “If we can project how much something is costing us against how much it will pick up in revenue, that’s a good trade-off,” he says.

A different answer

While Jurlique was looking for a combination of speed, functionality and a predictable cost structure that would also supply a degree of innovation, athletic gear manufacturer and retailer Under Armour did an analysis and came up with a different answer when getting ready to re-launch its site last year. It was time to move up from its original platform built in 2000 by a hired creative agency and tweaked several times since. During that time, the mission of Under Armour’s site had grown from its earlier emphasis on telling the brand’s story to providing a great online shopping experience for customers.

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