Online Retailers deserve better!
What you should know about how e-commerce is evolving
In the spring of 2001 I got back in touch with Dan Wagner, an English serial entrepreneur and once the youngest CEO of a public company in the UK. Soon after the dotcom bubble burst, Dan stepped down and took the e-commerce pet project private.
A small group of trusted people met at Dan’s house where he explained his vision. Online Retailers back then were spending millions in consultants and large e-commerce projects; it made no sense or whatsoever! The idea was to make it a breeze to set up and run an Online Store, fully managed, integrated and hosted. Back then we used terms such as “On Demand” and “Grid”; the words SaaS and Cloud were not coined yet.
I did not hear back for a little while, Dan was too busy fundraising and setting up the new company, Venda. One morning in July, I was going out to post a signed job offer with an established Internet company, when Dan called me asking to join Venda as founding member and CTO. Everything was sorted out that day, I cancelled a romantic holiday in a beautiful Greek island, and Venda started operating on the 1st Aug 2001 at an office in Soho Square, London. The e-commerce market was going to be disrupted by the first SaaS commerce mover.
It was a fairly difficult challenge and I looked for inspiration from other industries because IT was too immature in areas such as multi-tenancy, mass-customisation etc… I came across the Toyota Production System and the Lean movement. Instead of closing ourselves into a room for months building an “awesome” product, we devised a simple process for building the ship while sailing, that was deploying a new version of the embryonic platform every two weeks, which is still going on after a decade. I knew it was going to be a long journey; adapting and satisfying the market demand was key. We also built a “production line” for building sites. The client roster are testament of a good vision and execution: Tesco, TK-Max, BBC, BooHoo, Urban Outfitters and many more.
In the late 90s and early 2000 most of the fast growing online retailers were building their own e-commerce platforms; they had no choice.
Let’s fast forward and things have changed considerably. The e-commerce platform market is split into two: SaaS and Hosted, I call it DIY.
SaaS
Venda led the way and later players such as Demandware, Hybris and Shopify have successfully cemented a key and growing trend. No doubt that SaaS is here to stay and grow, because it provides immediate and predictable ROI, and makes running an e-commerce business much easier. All the complexity related to hosting, payments, scalability, security, platform, software upgrades etc… is all taken care of. The Online Retailer can work ON the business, move from CapEx to OpEx and the Total Cost is usually much lower than doing it in-house. However, the Online Retailer does not own the platform and although SaaS provides highly configurable best of breed solutions, it is not completely flexible.
DIY
SaaS makes so much sense right? Who doesn’t use Salesforce? The fact is that in e-commerce there is an ocean of Online Retailers going for the self-managed approach. This has been the case especially with the raise of Open Source platforms such as Magento, with over 210,000 customers and rising. The like of PrestaShop, OpenCart and Spree Commerce are interesting up and coming contenders.
High street retailers have been the quickest and the most inclined at adopting SaaS, probably because they lacked the e-commerce expertise. Pure Online Retailers instead prefer to own the platform, have complete freedom to do things the way they want to, and being in charge of the own destiny. Online is their only channel and the platform is regarded as a competitive advantage. However, freedom and ownership come with a price tag and unpredictable ROI; often they become victim of their own choice and the complexity associated with the DIY approach, which in some cases can be fatal, especially at early stages.
Many fall into the trap that because Open Source is free, it must be cheaper, and fail to understand the true Total Cost and Value returned. Having an in-house Tech Team, contractors or an agency delivering a solution soon becomes very expensive and sometimes disappointing. Outsourcing off-shore due to low cost labour, also ends-up in disappointment and wasting precious time. Making these platforms work at scale is a major and costly challenge.
The net result is that money and resources are spent on managing complexity and reinventing the wheel, which often comes out oval. That’s expensive and the opportunity cost is even worse, which put the brakes on growth. Once the investment is made it becomes difficult to write it off and increasingly more expensive to make progress; welcome to the vicious circle where technology doesn’t pay off and becomes an hindrance.
Many Online Retailers are in pain! Although e-commerce is increasing at 14% compound annual growth rate, it is a tough business. It is expensive to acquire customers and difficult to fundraise nowadays; VCs are getting cold feet every time they hear about B2C e-commerce. Furthermore, the sea of Jack of all trades and master of none agencies makes things worse. There are some very good agencies out there, unfortunately they are the minority. The good news is that they are slowly moving away from being “full service” and focus on their strengths instead, which will improve the quality of service.
They are also leaving lots of money on the table. Consider, for instance, that costly DIY solutions often produce slow sites and that 1 second delay in page load can cost around 1 month worth of annual sale every year!
Regardless of what I think of the current state of the affair, the DIY approach is widely used and on the increase.
Cloud
What about cloud? I hear you saying. Cloud provides many benefits and it is mature, with Amazon Web Service (AWS) leading the pack, but it won’t make life any easier. Cloud requires a new set of skills, which is in small supply. However, if Cloud is used to replicate a previous architecture and processes from a traditional dedicated hosting, there won’t be much of a gain. The power of Cloud is not just in the OpeEx model and the elasticity, but in harnessing the “Infrastructure as Code” attribute, that is being able to constantly manage and evolve the infrastructure as if it was code.
Cloud has barely reached adolescence. Currently less than 20% of the businesses adopt cloud, within 10 years over 80% of the business will have adopted cloud. The intersection of the e-commerce and Cloud markets will be worth $9B of spending in 2016. Cloud is not a matter of “if”, not even a matter of “when”, it’s now!
The real question Online Retailers should be asking themselves is, what’s the benefit of the work and distraction required in running the infrastructure? A glance to a typical roadmap and list of challenges faced by a growing Online Retailer would explain why focusing on what matters is so important!
What Online Retailers really want is the “Best of Both”: the freedom of DIY with the hassle-free of SaaS, preferably on Cloud.
PaaS
Platform as a Service does exactly that. It’s a platform for the creation of software, rather than being software delivered over the web (SaaS). It leverages cloud, such as AWS, which allows to manage “Infrastructure as a Code”. PaaS providers can focus on creating and delivering value to Online Retailers by productising the domain expertise and vertically integrating existing solutions.
The most famous PaaS are Heroku, Engine Yard and Google App Engine, because developers can focus on creating innovative applications without getting distracted by platform, deployments or infrastructure operations, where most of the complexity is. Here are the benefits:
- Reduce infrastructure, support and DevOps costs
- Built in rapid scalability
- Choose the region closer to the end-users
- Increase agility and reduce time to market for new projects
- Integrates with development and team collaboration tools, such as GitHub and BitBucket
In the case of Magento, for instance, that would mean having a platform that can be set-up in 30 minutes, assembling all of the AWS, 3rd party and software components, fully tuned and properly integrated, out of the box. The PaaS would take care of performance enhancement, stability, on demand scalability, security, monitoring, alerting etc… How valuable would that be? Below in blue is the part of the Value Chain the PaaS takes care of, leaving the Online Retailers with the freedom of owning the e-commerce platform, customise it the way they want, in order to work ON the business and deliver value to their customers.
This trend has already started in similar industries, such as Content Management System (CMS). In the case of WordPress, companies such as WP Engine and Pressable (formerly known as ZippyKid) have done something similar. In the case of Drupal the best examples are Acquia and Pantheon. Each of these companies has a different background and journey; however, they are all moving toward providing a hassle-free cloud-based platform (notice that I am not using the word “hosting”, because it’s much more!). Pantheon does a good job in explaining how they free-up their clients to “Focus on amazing websites, not system administration”:
Acquia’s clients are happy with their site running on the Acquia Cloud. Unfortunately the same cannot be said in e-commerce, where most of the platforms are “DIY Hosting” and “Managed Hosting”, or SaaS.
The time has come to liberate the Online Retailers. They deserve better!
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By Osvaldo Spadano: Founder & CEO of Elastera — www.elastera.com
Elastera is fundraising, follow us on https://angel.co/elastera and help us make e-commerce enjoyable!
