Target and Toys R Us posted overall sales declines during the holidays.
With improved customization for individual web sites, software-as-a-service is building a stronger following among e-retailers.
When Tom Davis joined Tommy Hilfiger U.S.A. Inc. in 2007 as director of e-commerce, charged with rebuilding the trendy apparel brand’s dormant retail web site on a reduced budget, it didn’t take him long to decide how to tackle his new assignment.
Facing tough competitors in the likes of J. Crew and Banana Republic, brands already supported by feature-rich e-commerce sites, Davis wanted a technology platform that offered the best combination of low cost, quick launch and maximum control over merchandising his company’s brand. “We’re playing in a competitive market and we have a lot of catching up to do,” he says. “But my new employers said, ‘Don’t come to us saying you need millions of dollars to get e-commerce up and running.’ So I knew I needed software-as-a-service.”
Tommy Hilfiger, more than a year after having abandoned its former in-house e-commerce platform, re-launched ShopTommy.com in November 2007 on Art Technology Group Inc.’s ATG On-Demand software-as-a-service platform. Software-as-a-service, a technology commonly known by the acronym SaaS (almost universally referred to as “sass”), is designed to be shared among multiple retailers who subscribe to it over the Internet rather than license and install it on their own web servers.
Looking back on Tommy Hilfiger’s new SaaS platform’s first year, Davis can easily figure he made the right move, he says.
Despite the poor economic environment that greeted the start of the 2008 holiday shopping season, ShopTommy.com’s sales surged fivefold year-over-year during Thanksgiving Week 2008 as the new site headed toward doing more than $10 million in its first full year. Much of that rise stems from Tommy Hilfiger’s ability to use the new e-commerce platform to better serve customers with more timely and effective merchandising-without breaking its technology budget, Davis says.
SaaS technology is gaining ground throughout the e-commerce technology market, as Tommy Hilfiger and other retailers take a hard look at how it can serve their needs while limiting their costs to deploy and upgrade e-commerce sites. By 2013, 40% of e-commerce deployments will use a complete SaaS platform, and 90% of e-commerce sites will subscribe to at least one SaaS-based service, such as a product recommendation engine, Gene Alvarez, vice president and retail e-commerce analyst for Gartner Inc., says in the July 2008 report, “SaaS Impact on E-Commerce.”
SaaS technology, however, has not always been seen in a positive light. While it offers several advantages-in particular, low start-up operating costs, less need for in-house technology expertise or infrastructure, and instant technology upgrades delivered over the Internet-it can also come with major disadvantages, primarily the relatively limited ability for a retailer to customize its shared technology platform.
In addition, many retailers looking to offer a highly differentiated online shopping experience continue to choose licensed or “buy-and-build” technology they run on their own infrastructure and customize with their own software programmers.
But improvements in SaaS platforms are making them more competitive against licensed, customizable software, experts say. “There’s definitely a blurring of the lines as technology companies mix and match the functionality of licensed and SaaS technology,” says Chris Fletcher, research director and e-commerce analyst at research and consulting firm AMR Research Inc.
In some cases, online retailers choose SaaS technology for only particular applications while keeping their main e-commerce platform on licensed or in-house technology. Overstock.com Inc., for example, is supporting sales to foreign markets with the SaaS-based FiftyOne Global application from e4X Inc. that automatically puts its product pricing into the local currency of 34 countries-a move that let it quickly ramp up its international strategy without a major technology investment, says Jake Bailey, Overstock’s director of international sales.
And Jelly Belly Candy Co.’s JellyBelly.com, which operates on an in-house e-commerce platform, has deployed SaaS applications from site search vendor SLI Systems Inc. and rich media provider Fluid Inc. because they provide functionality that would have taken too much time and resources to build in house, says e-commerce marketing manager Jason Marrone.
SaaS vendors providing core e-commerce platforms as well as specific solutions, meanwhile, have been increasing their level of service to help retailers get the most out of their technology, says Bernardine Wu, president of FitForCommerce, a consulting firm that helps online retailers choose technology vendors.
A crucial ingredient of SaaS technology is the capability of the merchandising toolkit SaaS vendors provide-the better the kit, the more likely retailers will choose SaaS over licensed software, Wu adds.
A case in point is The Reader’s Digest Association Inc., where vice president of e-commerce Brad Sockloff oversees multiple online retailing operations on different platforms, including both licensed and SaaS versions.
For the company’s retail sites ShopTasteofHome.com and CountryStoreCatalog.com, which sell products ranging from kitchenware to apparel and gift items, Sockloff chose the SaaS platform from Demandware Inc., even though he had to overcome initial doubts. “My initial concern with Demandware was that we might be giving up flexibility, but it turns out we’re not,” he says.
Sockloff admits that he wasn’t concerned about maintaining high-end images of leading brands on his company’s two Demandware-hosted sites, which sell mostly reading materials and household products under the TasteofHome label. But he was surprised at the ability Demandware offered in its tool kit to manage merchandising displays. In fact, he has found the Demandware SaaS platform to offer the same level of flexibility in merchandising as the IBM WebSphere Commerce platform on which other Reader’s Digest sites operate.
The results have shown up in improved integration between the web page content viewed by shoppers and the images stored in product databases, Sockloff says. “One of the biggest things with Demandware is a nice, clean look that matches our printed product catalogs,” he says. “Our old site wasn’t matching the catalog and was not a good branding experience.”
This has also resulted in better cross-selling on the sites, which has led to shoppers spending more time online and a rise in conversion rates, Sockloff says. Since the CountryStoreCatalog.com and ShopTasteofHome.com sites went live on Demandware within the past year, having migrated from older licensed platforms, page views per visit are up 47%, the number of units per order is up 22%, and average order values are up 11%, Sockloff says.