As e-commerce matures, can retailers gain an edge by developing their own web site, or are they better off with a service provider? Joanna Perry reports

In the early days of e-commerce, e-tailers had little choice but to build their own web site platforms. For some, the strategy proved startlingly successful. But for every Amazon there’s a Boo.com, where no amount of technical sophistication can make up for a flawed business model.

Fast-forward a decade and retailers now have more options when it comes to online. They can still embark on completely bespoke software development, or build a web platform that combines packaged technologies with some bespoke development and integration. The other option is to outsource – creating a site on a platform that is developed, hosted and managed by a service provider.

Fashion retailer Ted Baker has run its e-commerce operation on both a managed hosted platform and more recently on a bespoke-built one. The company’s head of e-commerce – who agreed to be interviewed for this article on the condition that he was not named – believes retailers need greater control of their web platform once their online businesses reach a certain stage.

“Managed platforms have their place. For the right size of business there are economies of scale to benefit from. The issue is that as retailers’ web businesses become more important, they don’t want to share their platform with someone else,” he says. “They also need the ability to add features and functionality that tie in with their own development roadmap, as opposed to being constrained by the development plans of the provider.”

Ted Baker head of e-commerce says that the online market has now matured to the point where best practice has developed in terms of the type and mixture of internet technologies that retailers are using to build their platforms. “Retailers have driven best practice over the past few years. They have a sound understanding of the kind of experience their customers expect,” he says.

One criticism often squared at e-commerce platform suppliers is that their development priorities haven’t always matched those of their customers. As a result, retailers have had to wait for functionality to appear on platforms, whereas sites could have been developed more quickly if they had been created in-house.

Venda chief executive and chairman Dan Wagner admits that the platform provider’s customers had to wait in line in the past. However, he says that customer attrition rates are now less than 5 per cent, adding that Venda doesn’t typically lose customers because of performance issues.

Wagner also admits that while smaller customers are more dependent on Venda because it is their sole source of e-commerce resource, larger customers are not. “The Venda platform has an open architecture,” he says. “Customers such as Focus DIY and Wickes don’t rely on us, as all the core functionality is exposed to them.”


HOME ADVANTAGE?
Wagner strongly believes that there is no competitive advantage to be gained from a retailer developing its own e-commerce platform. He compares the issue to outsourcing the printing of catalogues, rather than buying a printing machine to do it yourself. And he points out that no one cares whether a printing firm also produces competitors’ catalogues.

Fresca business development director Justin Lord says that Wagner has a point. He agrees that it is difficult for a retailer to have functionality on a site that remains unique to them for any length of time. However, he adds: “You can get competitive advantage through other areas, such as the design of the site. That’s why some online retailers are more successful than others.”

Zavvi, which is being rebranded from Virgin Megastores after a management buy-out this month, brought responsibility for the development and running of its web site back in-house earlier this year. Virgin Retail e-commerce director Steve Kincaid told Retail Week at the time that Virgin wanted flexibility and the ability to change things fast, given the speed of developments in the market.

However, Venda and Fresca stress that both platform providers are constantly adding more functionality to their platforms.

Wagner says that recent developments include improved guided navigation, banded prices and “significantly enhanced” affiliate marketing tools. An express checkout facility via PayPal is due to go live on the Venda platform in the next couple of months.

Lord says: “It is cost-prohibitive for retailers to keep their own platform up to date. That is why service providers are inundated with new opportunities. We are not simply responding to retailers’ requirements, we are constantly evolving the platform.”

Lord says that this is in stark contrast to some retailers that launch sites and then leave them unchanged, so they “look tired within a year, and within two years are redundant”.

However, Venda and Fresca also have their differences. Fresca’s model is different from Venda’s in that each retailer runs a different version of the platform, known as an “instance”. So any upgrades are implemented on a retailer by retailer basis, rather than the platform being upgraded once for all customers.

Some developments, such as new promotional capabilities, appear within the Venda platform automatically. However, retailers must make changes to web pages for some other developments, such as Venda’s recently enhanced wedding list tool.

Wagner goes so far as to say that the model Venda deploys is the new way of doing things. “The old-fashioned way is to build platforms one by one. IBM and Microsoft are changing their models to software-as-a-service, so then we will have competition,” he says.

BT Expedite e-commerce expert Chris Irish has worked on BT’s own sites in the past. He says that within BT, the strategy is to use the right platform for the right site. For instance, it built its broadband ordering site, which went live this summer, in-house; meanwhile its Shop.bt.com site is now hosted by online IT retailer Dabs, which BT owns.

Irish says that it is not as simple as deciding upon a platform based on the size of the retailer.

Conchango head of retail consulting Lynne Davidson agrees, saying that even retailers that are new to e-commerce should consider all the options. “If you want to be a follower, taking a fairly low risk because you are benefiting from the general incline in online sales, then a hosted managed platform is great, she says.”

However, she adds: “If you are looking for a multi-channel proposition that will inspire customers, break you into new customer groups and take your existing customers with you, you need to build.”

But Lord doesn’t share that view. He claims Fresca’s platform is not just for retailers that are new to e-commerce. “We have worked with those going transactional for the first time, such as Coast and Karen Millen, but also Warehouse, which was transactional in the late 1990s but has still been able to dramatically increase sales,” he explains.

Ted Baker’s head of e-commerce adds that whether you choose a managed platform or build your own, there will still be work to do to get the site up and running, especially in a multichannel business. “Everyone talks about out-of-the-box, but it always needs a fair amount of modification and integration.”

For example, Irish says that Mothercare has done some integration work so that customers can place an order and pay in-store and then have that processed via the Amazon web platform. Marks & Spencer, whose site is also based on the Amazon platform, is believed to have spent a considerable amount of time integrating the platform with its back-office systems.

Lord explains that integration mechanisms mean the Fresca platform can link to a retailer’s existing core system, for instance, to allow better online merchandising and the management of promotions. “We have standard XML integration interfaces, so a retailer can have stock visibility across channels, or allow store pick-up or returns to stores. The stumbling block is normally the retailer’s legacy systems.”

Ted Baker’s head of e-commerce says that people, rather than technology, are what the online retail industry is short of right now. “Finding and retaining people with the relevant breadth of skills is challenging. There are a lot of people in marketing roles who have search engine optimisation skills, but they don’t have rounded e-commerce experience. If you ask them to review a web site from a customer point of view they are unable to clarify what the customer experience should be. In addition, the growth in the market makes employee retention more challenging.

“This challenge can be tied back to your selection of a platform. If you don’t know what you need in terms of customer experiences, how do you know you are getting the right features in the first place?” he concludes.