A study by Forrester Consulting asked 156 retail CIO and business executives across Europe and the US how they evaluate the total cost of ownership, or TCO, of ecommerce platforms – looking at everything from acquisition, implementation and maintenance, to the often hidden costs associated with growth and necessary platform upgrades to keep pace with rapid innovation.
The research found that 43% of retailers routinely under-estimate the cost of owning an ecommerce platform – conversely, just 3% reported that the actual cost of ownership was lower than expected.
This failure to accurately predict TCO is at least partially caused by a failure to include critical cost factors – for instance only 28% include the cost of platform upgrades in their TCO models. But, perhaps more worrying, only 21% of retailers’ TCO models take account of costs associated with scaling their businesses, even though such costs are commonplace. For instance:
- 78% of retailers must purchase additional licenses to enter new markets
- 54% must purchase licenses in order to launch additional sites – including micro-sites or sites for other brands.
While these issues have clear implications for financial planning and the overall cost base, common problems associated with retailers’ existing ecommerce platforms also impact on their capacity for online growth and innovation:
- 74% of respondents report immediate concerns that their current solutions will not scale to support the growth plans of the business
- 80% have immediate concerns that their current solution is affecting the pace at which they can roll out new features to consumers.
Such retailers face a real competitive disadvantage, given the rapid pace of innovation in digital commerce. Retailers are constantly seeking opportunities to expand their online businesses into additional channels and geographies, but it is the ability to do so quickly and efficiency that will increasingly set the winners apart.
All in all, in order to realize the advantages that come with speed and agility, many retailers must throw off the shackles of legacy platforms with their associated licensing costs and platform limitations. In fact, 65% of the surveyed retailers plan to re-platform in the next 48 months.
The big question, then, is where they will go next – how they will respond to the obvious shortcomings of homegrown and licensed on-premise solutions.
Increasingly, retailers will consider a cloud-based ecommerce solution during their next re-platforming program process. Given that 81% of online retailers currently use either a homegrown ecommerce solution or a licensed on-premise solution from a software vendor, that is quite a shift.
We should not, however, be entirely surprised that retailers are considering the cloud, since cloud-based ecommerce platforms can directly address these big issues around growth, innovation and TCO.
First, according to Forrester the cost of owning a cloud platform (3.5% of online revenue) is less than half that associated with on-premise platforms (7.6%).
Second, and perhaps more importantly, it appears leading retailers are becoming more comfortable with cloud solutions because the infrastructure resources can scale as-needed to support growth and innovation – and without the need to invest in additional licenses.
Imagine, for instance, that a retailer’s leadership team makes a decision to launch an online presence in a new territory. In the on-premise world, delivering it is likely to take longer and cost more – acquiring new licenses, standing up additional hardware, connecting new bandwidth, and so on all add costs and take time.
For retailers on a cloud platform, however, it is a different story. Quite simply, the capabilities and infrastructure required are already in place, and there are no additional license requirements. The site can be launched on demand.
For instance, adidas Group drew on the efficiency and scalability of the Demandware cloud-based ecommerce platform to power rapid international expansion – in little over a year, launching a more than a dozen ecommerce sites across Europe, Russia, Canada and South America.
So cloud based ecommerce platforms offer not one, but two silver linings. They offer a predictable TCO that is less than half of on-premise solutions, and they offer the agility and speed required to keep pace with the breakneck pace of retail – enabling retail brands to move faster and grow faster.
For more information on the Forrester Consulting Survey, download the report today: Understanding TCO When Evaluating eCommerce Solutions