Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
With more technology choices than ever, retailers must sharpen their pencils as they evaluate their requirements and resources.
Today more than ever, e-commerce technology is largely a buyer’s market. There is more functionality in e-commerce platforms and applications, more deployment options, and a wider price range for all this technology than in the recent past.
“A few years ago, there were fewer than 12 e-commerce platform providers; now there are hundreds of different solutions,” says Danielle Savin, a former retail e-commerce executive who is vice president of multichannel retailing and marketing at FitForCommerce, a consulting firm that helps merchants choose e-commerce technology.
At the same time, more vendors, including those that have traditionally served only large retailers, are developing technology platforms and software for small and mid-size retailers within the annual revenue range of $5 million to $40 million, or roughly the bottom half of the Internet Retailer Top 500, says Bill Mirabito, founder and principal analyst at technology consulting firm B2C Partners. “Vendors are all looking for ways to serve smaller retailers,” he says.
Indeed, as web-based technology enables vendors to better serve larger retailers with more elaborate multichannel retail and supply chain systems, vendors are also offering Internet-based on-demand systems designed to be easily deployed by smaller retailers.
That’s not to say that deciding on an e-commerce technology investment is easy. Matching each vendor’s technology and services to a particular e-retailer’s needs is more challenging than ever, experts say. But for those retailers that do their homework the payoff can be happier customers, more revenue and a solid return on investment.
Retailers are shopping for technology that can help them better understand, and thus serve, consumers, experts say. “E-commerce technology investments appear to remain focused on customer intelligence and insights, as well as on improving the customer shopping experience,” says Nikki Baird, managing partner of research and advisory firm Retail Systems Research LLC.
Retailers are focused on managing inventory and supply chains, aiming to keep a tight lid on inventory costs while making sure popular products remain in stock, she adds.
And, despite the weak economy, retailers stepped up e-commerce technology investments in the second quarter, Savin adds. “In the first quarter retailers were holding their breath, but the worst in terms of consumer spending didn’t happen, and we saw an increase in technology spending plans from retailers. One thing many of them won’t cut back is technology, because if they don’t do technology projects this year they’ll be another year behind.”
Baird agrees. “We’ve seen little overall cutback in technology spend,” she says. “There’s just more consolidation into projects that either capture more spending from existing customers or help retailers manage against fluctuating consumer demand.”
When it comes to a primary e-commerce platform, retailers have ample choices among basic shopping carts and broader platforms that include order management and such shopping features as site search and navigation, content management and self-service applications.
Retailers also can deploy these systems in several ways, each offering its own cost structure, its own demand on internal resources, and a different degree of control over the technology.
Following are some of the major options as outlined last month at the Internet Retailer 2009 Conference & Exhibition by Gene Alvarez, vice president and e-commerce analyst at research and advisory firm Gartner Inc., and Paul Holstein, founder and chief operating officer of retailer CableOrganizer.com:
Build your own. Retailers that want maximum control over their technology, including its source code for making modifications, will build it in-house, often with open source technology. This requires considerable in-house expertise.
Licensed software. For retailers who want highly customizable technology without having to build it from scratch, the next option is to buy commercially available technology that still requires an in-house I.T. team to deploy it on a retailer’s own infrastructure.
Rent on-demand. To minimize investment in hardware infrastructure and software, retailers can rent on-demand software they directly operate to maintain control over the customer interface.
Hosted, managed services. Some retailers want to own their software, maintaining control over the data and software code, but not maintain their own hardware infrastructure or operate the software. They can opt for having a third party host and manage the software.
Software-as-a-service. Retailers who want to relieve themselves of most technology responsibilities and not own e-commerce software or hardware, enabling them to concentrate solely on merchandising and marketing, can subscribe to an on-demand software-as-a-service, or SaaS, offering. This is typically a multi-tenant platform shared by multiple retailers. That can limit differentiation, while making it easier and faster to get common upgrades.
Each of these e-commerce technology deployment options has its own pros and cons, Alvarez and Holstein say.
Choosing the right technology platform, therefore, requires finding the option that matches a retailer’s operating goals and its I.T. and funding resources, Alvarez says. He lists the following points to consider when choosing technology:
Online sales as a percent of a retailer’s revenue. The higher the share, the more a retailer may want to spend on a customized web site.
A retailer’s I.T. resources. Build-your-own and licensed software require extensive in-house resources; on-demand and SaaS less so.
Technology as a capital or operating expense. Build and licensed options are typically capital expenses; on-demand and SaaS operating expenses.
Required time to market. Build and licensed options can take much longer than on-demand and SaaS options.
Control of software code. Build offers the most control, but retailers can try to work out favorable terms with licensed vendors for access to software code for future modifications. Code access is generally not available in on-demand and SaaS environments.
Data center location and control of product and customer data. Build offers the most control of data, followed by licensed software. Retailers should work out data access terms with all vendors.
Innovation or commodity-based strategy. The build option allows the most innovation, but only if a retailer has the resources to invest in development. Retailers should determine with each licensed, on-demand and SaaS vendor the degree to which they can customize the technology.