Groupon says its focus is on the bottom line, rather than top-line growth.
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Minimus initially selected a shared hosting option; Datapipe hosted the e-retailer's site on a server that also accommodated around 100 other small companies. As Minimus grew, it upgraded to a server shared with fewer companies, Shrater says, and a few years ago it purchased a dedicated server that it has recently upgraded with new software. The retailer pays around $1,000 a month for dedicated hosting that includes the data storage and what hosting providers call a managed level of service, which means a team of tech experts monitor the health of the server, perform updates as needed and provide customer support.
This type of scalable arrangement has been beneficial for Minimus as it hasn't had to endure the arduous task of switching hosting providers as it grew from a fledgling e-retailer to one that generated 2010 web sales of $4.5 million. "It's not easy to move and you should be ready to write a check for a loss for down time," Shrater says. "It's very important that you shop around and find a solution that will work for at least two or three phases of your business."
The flexibility afforded by web hosts with access to cloud-based capacity has been a boon to custom gift book retailer LoveBookOnline.com, as its need for bandwidth varies widely depending on the day or season, says John Baranowski, part of the retailer's development team. With traffic levels that range from a thousand or fewer visits per day to tens of thousands around Valentine's Day and other holidays, the ability to scale up and down is critical.
"Traditionally, with dedicated or shared hosting, if you were to build a computer system for our business you would have to size it to handle the largest amount of traffic we ever see," Baranowski says. "But when you're not in that busy mode, you're sitting on all this equipment that you're not utilizing. Cloud hosting allows us to pay for what we use; we can ramp up and scale back based on the traffic we are getting."
Peace of mind
Some web retailers do host their own sites in-house, but that requires an investment in hardware and software, and in staff to maintain it. That has costs and benefits, says Josh Shanas, an e-commerce analyst with e-commerce consulting firm FitForCommerce.
"With hosting in-house, you have control over when you do software updates and what software is on the server," Shanas adds. "But that requires that you have staff with the knowledge to run this stuff."
For Deckers Outdoor Corp., which owns several outdoor footwear and clothing brands and operates such e-commerce sites as UggAustralia.com and Teva.com, hosting in-house worked when it first began selling online, says vice president of consumer direct John Kalinich. For several years, the retailer operated a custom-built e-commerce platform and used its own servers and I.T. staff to host the sites from its headquarters in California.
But as Deckers expanded in recent years and looked to grow internationally, it became a bigger job to monitor multiple e-commerce sites. That led to the decision to switch to an e-commerce platform and web-hosting agreement with Demandware Inc.
The shift has given Deckers peace of mind in knowing that its I.T. staff can focus on tasks that grow the business, like adding product recommendations from vendor MyBuys Inc. or increasing its web marketplace presence with ChannelAdvisor Corp., as opposed to maintaining servers. "We wanted to start growing internationally and get out of the software development and maintaining business," Kalinich says. "Now Demandware is maintaining just about everything for us. If our traffic all of a sudden triples over the course of six months, they are making sure there is enough hardware to handle that."
It's not worth cutting corners on web hosting, says Shrater of Minimus. An e-commerce site that goes down or operates slowly can cost a retailer dearly in lost sales and a damaged reputation. That was illustrated last fall when Target Corp. relaunched Target.com on its own platform, after years of using Amazon.com Inc. to host its site. Some highly publicized early promotions led to a series of embarrassing site outages last fall; Target has declined to discuss what caused them.
Target.com is by no means the only e-commerce site that has experienced outages or slowdowns. And many retailers want to know there's an expert to call when something goes wrong. "If there is a problem—and invariably there are—and you can't get someone to fix it, and fix it fast, you're in trouble," Shrater says. "The down time you might face will put you worse off than the savings you might have made with a lower-budget firm, or hosting it yourself."
As in many areas of e-commerce, the decision comes down to balancing cost with features and performance. In the case of web hosting, the options are many and changing rapidly, making it especially important to find a service provider that will keep a web retailer happy for years to come.