Leaving the software to specialists
December 31, 2015 09:59 AM
Stroller maker and retailer Maclaren decided in mid-2014 it was time to outsource its technology-hosting responsibility. The annual cost of hosting and maintaining e-commerce, order management and enterprise resource planning software running on Microsoft Dynamics technology—about $290,000—was a wash compared with the annual fees for the vendor-hosted service it selected, says Jim Ramsey, Maclaren’s head of technology. But that wasn’t the issue.
“Our first goal was to reduce internal staff,” Ramsey says. “It took a big load off IT staff.”
How big? Maclaren eliminated 30 developers and other application support positions as a result of the switch to NetSuite Inc.’s SuiteCommerce software in February 2015. “We got rid of the entire team and rolled it all into the IT department,” he says. “We have four now.”
Maclaren sells directly to consumers online at Maclarenbaby.com, but 80-90% of its revenue comes from sales to roughly 2,100 retailer clients in 50 countries. It now uses SuiteCommerce by NetSuite to power its business-to-business and business-to-consumer e-commerce, inventory management, order management, marketing, warehouse management, manufacturing, customer support and financials.
Previously, Maclaren ran its business on multiple systems, which were costly and time-consuming to maintain and resulted in complex integrations and customizations. That complexity limited growth and prevented the business from keeping up with customer expectations, Ramsey says.
Since implementing SuiteCommerce, Maclaren is now managing warehouses in the United Kingdom, the United States and France, and running country-specific websites for France, Germany, Spain, the United Kingdom and the United States. Maclaren also has a mobile-optimized website and is able to run its business around the world from a single platform, eliminating integrations between separate systems, Ramsey says.
Maclaren is just one of a growing number of converts who have turned to vendor-hosted technology to reduce costs and improve website and business functions. Maclaren is also part of a broader trend in which retailers are replacing software they run in their own data centers with vendor-hosted applications delivered in a software-as-a-service format via the Internet. Software-as-a-service, or SaaS, refers to an application that is “owned, delivered and managed remotely by one more providers,” says Robert Desisto, an analyst with technology advisory and research firm Gartner Inc.
SaaS technology typically means all of a software supplier’s retailer clients are using the same application. There is another form of vendor-hosted technology called cloud computing that is also gaining traction. In that setup, the retailer licenses and owns the software, but server maintenance is outsourced and the cloud provider manages the hardware and operating system.
In terms of cost structure, SaaS is subscription-based and the fee for an e-commerce platform typically ranges from 1-5% of revenue, says Penny Gillespie, director of e-commerce research at Gartner.
Cloud-based software is purchased by the customer, but there are no upfront costs or hardware to maintain. Costs can range from $29 to thousands per month and annual cost savings for retailers can range into the tens of thousands of dollars, experts say.
Retailers are gravitating to vendor-hosted applications, particularly the SaaS model. A recent report from Forrester Research Inc. indicated that 73% of North American and European retailers, wholesalers and manufacturer respondents to a Q4 2013 survey expected to make a full or partial shift to SaaS-based commerce technologies.
The “Forrester Forrsights Software Survey” said that, among 439 respondents, 32% already were using or planned to move to a SaaS e-commerce environment within two years, 28% were using some SaaS tools to complement existing software and 13% planned to complement existing software with SaaS technologies within two years.
And a June technology spending survey by Internet Retailer revealed that of respondents who planned to replace their e-commerce platform within two years, 24.4% said they would opt for a SaaS, multi-tenant platform from a vendor and 14.1% would choose a platform hosted and managed by a vendor. A SaaS multi-tenant platform is a vendor-hosted model in which one application is accessed by multiple customers.
Outdoor sports gear retailer Rock/Creek Outfitters took an unexpected journey to a SaaS-based e-commerce platform in 2015. The retail chain had been running RockCreek.com on a platform by ATG, which Oracle acquired in 2010. Rock/Creek, which sold $10.3 million online in 2014, was not endowed with the support staff or budget to properly maintain the ATG system, says Mark McKnight, e-commerce and marketing director.
“We had to be one of the smallest clients using such a big product,” McKnight says. “We were running it on maybe 10 machines in our data center. There was a lot of complicated code that needed heavy lifting by engineers who needed Java-specific skills. It was difficult for a company our size to keep up with the new releases.”
Rock/Creek wanted to make some major improvements in time for the 2015 holiday season, such as moving to a responsive website, McKnight says. Sites built with responsive design techniques adapt to the smaller screens of smartphones and tablets as well as rendering properly on PCs, which allows a retailer to operate a single site that serves all devices.
To gain new technology, Rock/Creek went to Oracle to add Endeca, a site search technology provider that Oracle acquired in 2011. “They said we should wait for a new product they were working on that would be ready in time for the holiday season,” McKnight says. The product, which Rock/Creek deployed, is Oracle Commerce Cloud. The SaaS platform, which Oracle introduced in May 2015, marks a departure for Oracle from providing licensed software that retailers deploy on their own servers. The hosted, SaaS software is aimed at mid-market retailers with $50 million or less in annual online revenue, Oracle says.
“Oracle took the code for its existing platform and put it into the cloud,” McKnight says. “That meant no more heavy lifting for us. Now I can go into the system as a marketer with little technical knowledge, and create a landing page. That never would have happened before.”
Rock/Creek also shed both the services and associated costs of an unnamed hosting company and no longer needs to worry about the system infrastructure because it’s maintained by Oracle, McKnight says. In addition, the retailer cut ties with external site search and content delivery network providers, because those tools are part of the Oracle product. As a bonus, being an early adopter gives Rock/Creek an opportunity to play a part in developing the product “road map” as the vendor tests new functions, he says.
Cost savings for Rock/Creek, from reducing the number of vendors and running a more intuitive system will be big. “We did the math and in two years we’re going to save well over $1 million in costs,” McKnight says. “When you think of that going to the bottom line it’s just huge savings for us.”
Shoe and accessories retailer Elaine Turner Designs LLC, purchasing a new e-commerce platform was more about gaining technology tools to expand its online business than about cost savings, says Carrie Leader, the retailer’s director of e-commerce. The merchant has 10 stores in Texas and launched its website, ElaineTurner.com, about five years ago. The company’s goal is to grow e-commerce’s share of the company’s revenue from 10% to 20% by 2017, but doing so will require much more functionality than its vendor-hosted e-commerce platform could deliver, Leader says.
“Our old system was very static—there were no upgrades, no new features and functions,” Leader says. “In this day and age that’s not an option for a retailer who relies so heavily on the e-commerce channel.” Plus, Elaine Turner has only a five-person e-commerce team, and the company doesn’t have the IT resources needed to maintain its own e-commerce software.
Seeking new functions such as responsive design and other functionality, the company began exploring new e-commerce platform options and ending its relationship with the unnamed former provider. “We spent about a year and a half in our search,” Leader says. “We considered three, and all three would have been on premises.” One option was Oracle, but the version the retailer would license and host was too expensive so “we decided to squeeze all we could out of our old provider,” she says. About that same time Oracle was ready to roll out its Commerce Cloud platform, opening the door to new technology for Elaine Turner—without the upkeep.
Elaine Turner invested 10-15% of its undisclosed yearly e-commerce revenue to move to Oracle’s web-based e-commerce platform. The e-retailer expects to recoup its investment within a couple of years, Leader says. Fees for the new platform went up “pretty dramatically,” she says. “We were paying $600 a month, but now it’s based on the number of site visitors. We will see those costs rise, but we did a cost analysis and we will be able to afford it as we grow.” As of mid-November, about a month after deploying the new platform, Elaine Turner already had seen “some significant growth,” Leader says, plus her team has gained training in how to take advantage of other functions.
A fully responsive website now enables easier access for consumers on mobile devices, and built-in search engine optimization tools drove a 200-300% lift in site traffic. “Our challenge now is to get them converted,” Leader says.
is especially appealing to small and midsize retailers like Elaine Turner, but larger merchants with substantial long-term investments in their in-house technology and IT staff tend to stick with the status quo. For example, the world’s largest retailer, Wal-Mart Stores Inc., for the past few years has been reworking elements of its e-commerce technology as part of a project it calls Pangea. That includes its June 2015 introduction of a new online checkout system, the company says.
Pangea, which is the retailer’s homegrown platform for all web, mobile and store technologies, is designed to help the retailer create a common e-commerce technology base for its websites in the United States, United Kingdom, Canada, China, Argentina, Brazil, Chile, Japan and Mexico. Wal-Mart expected to spend $194 million to $291 million on e-commerce investments in its 2016 fiscal year, which ends this month.
Another major retailer, Toys R Us Inc., announced in July 2015 it would take the e-commerce platform reins and deploy Oracle’s e-retail software, ending an e-commerce outsourcing agreement in place since 2006 with the predecessor company to eBay Enterprise.
For some retailers data security is a worry when it comes to vendor-hosted data. At Rock/Creek it’s more of a benefit than a drawback, McKnight says. “Data security is definitely something we think about when selecting a vendor, but in general we’re using vendors who have far more resources to dedicate to security than we do as a retailer, so in many ways we’re actually upgrading security versus having the data in-house at our physical locations,” he says.
Maclaren’s Ramsey echoes that thought and notes that the company has stored company data externally for more than seven years. “Back in 2007-2008 we migrated to what was essentially a private cloud at Rackspace. The cost savings and up-time outweighed the risk of someone hacking into the system. We do a very good job and to date are not aware of any successful hacks,” he says. “We had many discussions with each of the ERP vendors we were looking at regarding their security protocols, backup procedures, etc.”
Ramsey sees a more prominent security issue closer to home. “In general, there is a larger threat to company data from the inside than the outside. All too often you see employees who are looking to leave the company download customer lists and price lists to take with them to the competition. We do our best to block this type of activity and monitor who is doing what with the data.”