Understanding the TCO when choosing an eCommerce platform

Understanding the TCO when choosing an eCommerce platform

The emphasis on dynamic multichannel retail solutions and the demands of a constantly evolving marketplace mean that online retail businesses are inevitably compelled to replace their old eCommerce platforms in order to stay competitive. Whether you’re updating an existing platform or starting from scratch, the importance of getting your eCommerce platform right cannot be understated.

In this article we’ll look at the different costs associated with eCommerce platforms, the options currently available on the market – including the cloud – and how to compare these different models. We’ll also give consideration to the importance of TCO (Total Cost of Ownership) when choosing a new eCommerce platform.

It’s advisable to budget for the next five years in such scenarios but all too often planning does not project beyond two or three years. This article will highlight the importance of an effective long-term TCO model when replatforming and help you to develop an effective eCommerce strategy that has the legs to propel your business to the next level.


Why is TCO so important?

The potential for eCommerce costs to spiral far beyond budget is well documented; all too often hidden fees and expensive development costs can seriously derail planning and threaten projected business growth. According to Forrester Research as many as 43% of companies underestimate the cost of their eCommerce platform.

Typically, these oversights are the result of inadequate planning and can be avoided by developing a comprehensive, well thought out TCO model that gives your business the best possible chance of flourishing.

A successful eCommerce TCO model allows you to calculate the true cost of your eCommerce platform over a five-year period, factoring in ongoing maintenance as well as upfront setup costs. Get it right and you should succeed in protecting your business from escalating costs while operating a platform that’s flexible enough to support the sort of ongoing front end enhancements and backend scalability that will be necessary if your business is to remain competitive and foster growth.

A TCO model for evaluating the cost of an eCommerce platform is likely to take the following into account:

  •        Evaluation and selection process
  •        Subscription or licensing costs
  •        Software maintenance costs
  •        Detailed design costs
  •        Configuration and deployment
  •        Data import
  •        Server and storage hardware and maintenance
  •        Hosting costs
  •        Security costs
  •        Partner costs
  •        Initial staff recruitment and training
  •        Ongoing staff training
  •        Future upgrade and scalability costs
  •        Missed revenue by not replatforming


The cost of keeping pace and staying competitive

It’s important to keep in mind the speed of technological change and the need to keep pace to stay competitive. You’ll almost certainly need to update and adapt your platform repeatedly over the course of a five-year plan.

Upgrading can be expensive but it is vital. However, when you buy into a platform you need to take advantage of features your chosen vendor can build for you so you don’t have to do it yourself (an unnecessary cost). This is especially pertinent when it comes to upgrades because if you don’t upgrade, you’re not embracing features you may have already paid for. When you’re trading in the online space you simply cannot afford to get left behind by the competition or worse, by your customers. Having the ability to innovate when you need to is important as it allows businesses to keep up with customer demand. But upgrading so frequently is a significant cost factor. Not only do upgrades take time to complete (about a month on average depending on which platform you have), but upgrades can also drain resources. Staff who might be working on upgrades can no longer work on the more innovative aspects of your platform.

Conversely, online retailers who don’t upgrade their platforms that frequently – perhaps every two or three years – will likely fall short of their competitors’ efforts.


Different eCommerce models and how to compare them

The process of choosing an eCommerce platform begins by identifying the unique needs of your business, both now and going forward. There are no one-size-fits-all off the shelf eCommerce solutions that are certain to meet the needs of every business and in all likelihood a significant degree of customisation will be necessary to develop a platform that fits the brief and integrates satisfactorily with your website and core business systems. Most online retail operations utilise a complicated mix of disparate technologies (typically around 15 according to Gene Alvarez, vice president and information technology analyst at Gartner Inc) so, realistically, an eCommerce platform will have to integrate seamlessly with backend technologies such as ERP and CRM software as well as order management, shipping fulfilment, analytics and optimisation tools.

For large enterprise-level organisations the flexibility afforded by a licensed on-premise eCommerce platform has tended to hold sway over SaaS solutions, but the eCommerce landscape is changing and cloud-hosted platforms are beginning to look like a far more viable option for businesses of all sizes.

Traditionally, the widely held notion that cloud solutions can’t match the levels of customisability offered by on-premise platforms has led enterprise-level businesses to favour licenced platforms, despite the high costs associated with on-premise installation, staffing and ongoing maintenance.

There’s certainly no denying that on-premise solutions are relatively expensive. Retailers can expect to incur significant costs – both setting up and maintaining – if opting for a traditional on-premise platform.

According to a Forrestor report, the average retailer spends 7% of their online revenue on the supporting technology that propels their eCommerce operations, while 88% believed it was important to align ownership costs with online revenue. Furthermore, 67% of online retailers surveyed were using a licensed on-premise solution that they were contractually obligated to acquire additional licenses for whenever traffic reached a predetermined threshold. On top of this, 78% of retailers reported the contract they had in place with their existing vendor was inhibiting their ability to launch into new markets.

While an on-premise solution may appear to front-load costs it’s clear that the cost of ongoing maintenance, infrastructure and the likely necessity of additional licensing can make budgeting difficult over the longer-term. Indeed, it’s common for eCommerce retailers to find themselves shelling out far more than they initially predicted. The true cost of supporting on-premise eCommerce can be substantial, not least because you’ll need a skilled team of developers on hand to build, integrate, maintain and upgrade your platform.

The staffing and maintenance costs that tend to accompany an on-premise eCommerce platform are among the most obvious savings you can make by plumping for a SaaS solution. Because the platform’s IT infrastructure is maintained by the provider, costs are limited to a monthly subscription fee that will almost certainly come in far cheaper than on-premise setup and maintenance. One study by Hurwitz and Associates has estimated that the TCO of SaaS solutions can be nearly 50% less than that of a third-party licenced on-premise platform.


Which begs the question: why would you opt for an on-premise platform when it’s so much more expensive?

The answer, as previously mentioned, has traditionally centred on the perceived customisation and integration limitations inherent in SaaS solutions. It’s true that on-premise platforms have traditionally offered better scope for customisation and integration with existing business systems but this competitive edge is becoming less and less clear as SaaS providers up their game. Vendors are increasingly adept when it comes to striking a balance between advanced customisation and integration and the cost-effective convenience of a cloud-hosted solution.

At Greenlight Commerce we thought there was a way of getting the best of both worlds. So we developed hylight, an exclusive PaaS (Platform as a Service) offering. hylight is emblematic of a new breed of pre-integrated, cloud-hosted eCommerce solutions. Built on the industry leading hybris eCommerce platform, hylight has been painstakingly developed to provide the flexibility, integration and customisation of an on-premise platform with the ‘out of the box’ speed, convenience and cost-effectiveness of a SaaS solution. And because hylight covers all your software, hosting, plugins, support and implementation costs in one monthly fee, costing is considerably less complicated. Furthermore, hylight’s flexible ownership model offers a third-way alternative to traditional SaaS and on-premise models by allowing you to lease your system, meaning you own the platform at the end of the contract and don’t remain tied to your supplier.

Choosing the right eCommerce platform for your business will always be a serious undertaking that calls for in-depth costing and extensive evaluation. However, the traditional assumptions that have led enterprise-level retail businesses to opt for expensive on-premise solutions are being challenged by the emergence of flexible, cloud-based solutions that offer many of the benefits of flexible custom development without the cost and complexity of a licensed on-premise platform.


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