Webinar Recap: The New Ecommerce Dilemma: Buy, Build, or Leverage?

This post is a recap of today’s webinar: The New Ecommerce Dilemma: Buy, Build, or Leverage? presented by Michael Vax, CTO, Elastic Path Software. Agenda

• Understanding what models are available
• Understanding your ecommerce needs
• Finding the right model for your enterprise

Understanding what models are available

Choose the Model:

Image Copyright ©2009 B2C Partners. All Rights Reserved. Selecting the Right eCommerce Software in Six Weeks or Less

• Custom - Enterprise Software (Buy or Build)
• Console - Software as a Service (Lease Technology)
• Crew - Full Service Providers (3rd Party End to End Solution)
• Catalyst - Small Business Solutions (Starters), less than $5Million in revenue online

Every new market starts from “Build”

• A small number of pioneers started to build ecommerce applications for their internal use
• Web services companies started to develop ecommerce functionality for their clients (shopping cart etc)
• Some started to productize their solution

At first choices were limited to Build vs. Buy decision. With the introduction of SaaS (software as a service) solutions, the decision became more complicated. SaaS (Software as a Service)

“Software-as-a-Service (SaaS) is a software deployment and subscription pricing model in which an enterprise application is delivered and managed as a service by software vendor to meet the needs of multiple customers simultaneously” - THINKStrategies, Inc.

SaaS examples:

• Email marketing
• Payment Gateways
• Shipping services
• Web2 Community Services
• Fraud detection
• Rich media (streaming)

Vendors like Amazon or Demandware offer a complete set of ecommerce services in a hosted solution. SaaS solutions are priced on a subscription basis, often based on the number of users or transactions. Leveraging existing enterprise systems The model you select will have a degree of each of build, buy and leverage. If you're doing SaaS, you'll still need some integration with your existing systems like order management, CRM and others. You most likely will use other 3rd party applications as well - web analytics, customer reviews etc. These may also use the SaaS delivery model. SaaS pros and consPros

• Fast to market
• Lower upfront cost
• Easy to scale with demand
• Continuous enhancements via ongoing updates and upgrades
• No additional hardware and lower internal staffing requirements
• No worries about upgrades

Cons

• Penalized for success (pay more for more traffic, revenue etc)
• Cannot innovate on your own pace, features you want may not be on their roadmap
• Difficult to integrate with internal systems
• Security concerns (Firewall, for example)
• Full dependence on SaaS vendor
• There may be some compliances issues that will prevent you from using SaaS

Buy pros and cons The buy model still requires you to do some custom development and integrate with internal and external systems. Pros

• Feature rich packages
• Continuous investment by vendor into new features and enhancements
• Time to market slower than SaaS but significantly quicker than build
• Some prebuilt integrations may be in place
• Vendor support with operational issues
• There are SI and developers with previous experience
• Robust and well tested and used system

Cons

• Expensive
• You may get more features that you actually need, features you want may not be on their roadmap
• Monolithic solutions that may be difficult to adopt, may be hard to integrate with existing IT systems
• Complex application to learn and manage
• Locked with vendor solution, difficult to switched if not satisfied
• Pace and freedom to innovate are limited
• May not fit your unique requirements

Build pros and consPros

• Build exactly to your needs
• Take the full advantage of internal systems
• Be unique in market place, competitive advantage
• Fully leverage your previous investment in ERP and other internal systems
• More abilities with existing brick & mortal experience

Cons

• Longer to implement than SaaS solution
• Requires knowledgeable IT staff or SI (systems integrators)
• Initial cost is higher than SaaS

What is an ecommerce framework? An ecommerce frameworkis a system providing feature rich ecommerce functionality that can be extended by your internal IT team, system integrators, or vendor.

Pros

• When using an ecommerce framework you can easily select what modules you want to use and take full advantage of existing Enterprise systems like your own order management, CRM (Customer Relationship Management) etc
• You have the advantages of build without starting completely from scratch - it's a good jumpstart
• You can still leverage additional 3rd party SaaS vendors
• Get benefits of buy solution - development, testing, support, upgrades

Cons

• Longer to implement than SaaS
• May require more time building if really innovative feature
• Requires knowledgable it staff/ SI
• Cost initially is higher than SaaS

What is a hosted managed model?Your ecommerce services are hosted and managed by a vendor but with the option to take it in-house at any point. Brings element of SaaS into operational model.

Pros

• A middle ground between SaaS and custom build solution - custom built for you, not shared across other customers
• You have an option to move solution in house at later date
• More freedom to innovate
• Less load on internal IT organization
• Does not require internal IT skills
• No operational risk or overhead
• You can do a combo between build & buy
• Easy to scale with demand

Cons

• Still limited control
• Not as easy to integrate with internal systems as with in house hosted solution
• Security risks

Understanding your ecommerce needs

Assessing your requirements and resources

ComplexityConsider how your ecommerce needs may change over time (at least 3-5 years ahead).

• Do you have single or multiple ecommerce initiatives?
• What does your organization sell? -- Single catalog or many different types of products and services?
• How will you deliver the ecommerce experience?
• What type of ecommerce? B2C, B2B, Both?
• Evaluate your ecommerce ecosystem. Do you plan to provide ecommerce services to your vendors, partners, customers, or resellers?
• How different are those offerings from your own?
•  

Uniqueness

• Do you have a unique business model, selling channel, or product?
• Are you creating an innovation to stay ahead of your competitors?

Integration

• Internal
  • ERP (Orders, pricing, catalog)
  • Content management systems
  • Customer relationship management

• External
  • Analytics
  • Tax calculation
  • Product reviews

Urgency

• Do you have a current solution?
• How much time to you have to develop a new solution?
• Will this ecommerce solution be rolled out to one or more business units all at once or one at a time?

Strategic importance

• How strategic is ecommerce to your success?
• Is time to market critical to your success?
• How fast will your ecommerce needs evolve?
• Are you taking a global or local approach?

IT budget

• Do you have enough budget (i.e., capital and recurring expenses)?
• Will this cost be shared amongst different departments?

IT skills

• Do you have an experienced IT team that can drive ecommerce initiatives?
• What are your IT policies on in-house development?
• Do you have trusted SI or partners that you can rely on?

Your ecommerce expertise

• Have you managed online stores before?
• What is your organization’s experience in online marketing, site optimization, customer support?
• Will you need to coordinate online and offline channels?
• Are you aware of ecommerce regulations
• Do you have experience using Web 2.0 social networking?

Finding the right model for your enterprise

When to use a hosting solution (SaaS)When your competitive advantage is not your unique ecommerce features but your unique brand, merchandising, and marketing.

Example: Snowboard retailer + Power ReviewsCustomer leveraged PowerReviews’ AnswerBox solution to supplement its existing content and successfully answer a wide array of customer questions that hadn’t been adequately addressed by their standard descriptions. They selected a SaaS model because:

• It got them light years ahead of where they were (urgency high)
• All the heavy lifting was with the SaaS vendor (IT skills low)
• PowerReviews provided guidance for best practices (expertise low)

When to buy

Example: Apparel retail chain + ecommerce platform The apparel retailer had multiple brands and had never sold anything online. Ecommerce was another way to serve customers and capture any lost revenue from out of stock items in bricks-and-mortar stores. The buy model worked for them because there was low complexity and the ability to be unique. When to build

Example: Travel booking site + ecommerce solution The client was a travel agent with 20,000 users daily. They needed a web interface for their clients to search, book trips easily while advertising trips based on particular trip requirements. And back-end systems to manage deals and other business-related data. They also needed an interface for suppliers’ to fill in their offers. The solution was a custom build using J2EE, Oracle 10g, and Solaris technologies. The build solution allowed them to fulfill many complex and unique requirements. Build was the best choice because:

• The subject of sale is compound (e.g. package consist of multiple components like hotel reservation, airline tickets, car rentals) and these components need to match each other by multiple factors (time, price, destination etc)
• System has many external dependencies (registration systems like ITA, SABRE, PEGASUS) which change and require performance tuning – often means deep refactoring
• Multiple different pricing systems that reflect individual agreements with hotels, airlines etc
• Specific Cache of requests – the system is caching individual items (e.g. registration in certain hotel) and operates with cached or original items depending on business flows

When to use an ecommerce framework

Example: Aeroplan + Elastic PathOne of the most successful airline loyalty rewards program in the world, Aeroplan wanted to expand their loyalty program and promote non-air rewards. Aeroplan selected an ecommerce framework because it had complex and unique requirements:

• Dealing with redeeming Aeroplan mile points (as opposed to dollars) for non-air rewards
• For the non-air rewards they had to amalgamate hundreds of partner products into a single catalog
• French and English

When to use a hosted managed solution

Example: Vancouver 2010 Olympic Store + Elastic PathElastic Path won exclusive rights to the Vancouver 2010 Olympic and Paralympics Winter Games online retail program. We are running the Vancouver 2010 online store under a hosted managed model:

• Created the online store with the Elastic Path framework
• Did front end work (design)
• Purchasing
• Merchandising
• Marketing
• Customer Service

Questions

Talking to IT budgets/pricing, are there some estimate budget ranges between models? You can only compare relatively - can't talk in absolute numbers because it depends on your requirements. SaaS is typically for lower budgets, then buy, then build the most expensive. Can you elaborate on the hosted managed model? Hosted / managed is where you buy the system or license the software, operated by vendor with dedicated hardware and also can be modified for you. For example, Elastic Path does the Vancouver 2010 Olympic store. The Olympic Committee decided to go with the hosted/managed model because they didn't have the IT or marketing/merchandising/operations staff to carry the project. In your opinion, what business model will be most prevalent in 2009? There are many different customers looking for ecommerce solutions - so it really depends whether you are enterprise or middle market - there are 2 different trends. Smaller retailers / mid-market in this economy are going toward SaaS and enterprise with complex needs they'll use a build from scratch or framework to build on top of to meet the needs that SaaS can't address out-of-the-box. Can you think of any risks going with a SaaS offering? Do you see SaaS offering sufficient flexibility for ecommerce projects in the future? SaaS vendors are working hard to increase flexibility of their offering but the limitation of the model is the majority of their customers may not need/want the innovation. You don't want to disrupt the happy situation of customers by building things they will never use but their service fees pay for the development of. Another risk is that your SaaS vendor may face financial trouble and if they go out of business, you have no option to quickly take in house. You're dependent on your vendor. Does Elastic Path have a European presence? Yes, we have a UK office to serve the EU. How do you determine ROI for ecommerce projects? How strategically important is this decision for you? Are you looking for a solution that will help you grow your business? Ecommerce is still in early stages of growth so many companies look to new markets/new offerings and ecommerce allows them to do it. Your ROI depends on many factors. The time to recoup the money you invested and see ROI also depends on how complex your solution was. What are the technical aspects of open source and Elastic Path? EP is built with best of breed open source components (Java based). Your developers don't need rare skills to work with it. In general, Bill Mirabito in Selecting the Right eCommerce Software in Six Weeks or Lessclassified open source as "Catalyst" - you can use open source if you really need to have a simple solution and faster time to market.

Next Webinar

Deliver Successful Enterprise Ecommerce Projects A successful ecommerce project is a beautiful thing. It can raise revenue, reduce cost, and strengthen a brand. Unfortunately, the visibility of ecommerce and the breadth of stakeholders can amplify the usual project risks—availability of IT skills, understanding of business needs, scope control, accurate estimating, and so on. So whether you are replacing your platform or just adding a new recommendations engine, how do you make sure your ecommerce project succeeds? We sifted through the results (and in some cases, debris) of ecommerce projects over the last 10 years to bring you this “on the ground” view of what to do to turn the odds in your favor. In this one hour webinar, Elastic Path COO, Gordon Janzen, and Atul Jain, HCL Technologies Associate General Manager, will help you answer the critical questions for delivering a successful ecommerce project: • How are ecommerce projects different from other IT and marketing projects? • What business and project management elements are especially important in ecommerce projects? • What technical elements predispose an ecommerce project for success? • What are the Top 10 things to do before project kickoff? Presenters: Gordon Janzen, Chief Operating Officer, Elastic Path Software Atul Jain, Associate General Manager, HCL Technologies Thu, Apr 30, 2009 9:00 AM - 10:00 AM PDT Sign up today for Deliver Successful Enterprise Ecommerce Projects