Forrester Research Recommends Buying eCommerce Platforms Over Building

02/20/2009

Retailers considering acquiring new technology are always faced with the question of whether or not they should buy instead of build. Brian Walker, a Forrester Research senior analyst, believes that in most cases it is best for them to buy eCommerce platforms instead of build them. His argument is based on the fact that vendors have a lot more to offer now than they ever have in the past.

Another point worth making is that companies almost always underestimate the true costs of creating their own technology in-house. Walker recommends that only the largest of online retailers can truly justify the expense of developing in-house technology. In fact, he goes so far as to recommend it only to companies that have Internet sales of at least $1 billion. To give you an idea of how uncommon that is, only 21 companies in the latest Internet Retailer Top 500 Guide have sales that high.

In a recent poll of online retailers and business-to-business companies taken by Forrester, it was found that roughly 26 percent of their clients are considering moving on to new eCommerce platforms in 2009

New platforms are attractive because they can help companies catch up to competing industry leaders while meeting the high expectations of consumers, stated Walker recently in a report titled B2C eCommerce Platforms, Q1 2009. The expectations of consumers are set by the high standards produced by top of the line sites. Consumers have come to expect every site they shop on to offer the same experience as the better sites

However, moving on to a new eCommerce platform can be expensive, especially for smaller retailers. There is a wide cost range from $100,000 up to the millions depending on factors such as the size of the business and the type of business model selected. The 3 main eCommerce business models include:

• Software-as-a-service/On-demand – The software is hosted by the vendor and used by any number of clients.
• Hosted/Managed – In this model, the vendor hosts the technology and it is customized for each client.
• Traditional Licensed – The retailer licenses the software from the vendor and it is both personalized and supported in-house

While each vendor will have its own specific preference, Walker states there is a trend towards the on-demand and hosted business models. As a result, many vendors who have only offered licensed software in the past are now offering the on-demand and hosted models in order to keep up with this trend.

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