The Costs and Benefits of an Ecommerce Solution

Suppose you’ve made a tradable good and now you want to sell it in the marketplace. Traditionally, that may have meant building a physical storefront or wholesaling to other merchants.

However, if you focus your time on deciding how and where you are going to sell it, there is a good chance you would neglect further product development. Now imagine that many of your customers speak a different language than you and carry only foreign currencies. Your ability to sell to customers just became much more complex.

Nowadays, many of the products we build and the environment in which we sell them are electronic. Though the tools of trade have changed, the principles have not. It simply means that instead of building a storefront, software companies have to establish an ecommerce environment.  That means deciding between an in-house or outsourced ecommerce solution─ or the classic build versus buy decision.

How can a company know whether it is in their best interest to build their own ecommerce solution versus outsourcing it? This is a constant dilemma for many businesses. In order to make the best possible decision, they must measure the costs and benefits of their ecommerce solution. This means building a business case by calculating the total cost of ownership of the solution and the potential return on investment it brings.

Many start-ups begin by building in-house solutions. It allows them to customize features according to their own specifications, maintain control of development and ensure security standards are met. This can often be a viable option in the short-term. However, in time, companies may find that their in-house solution has not kept pace with the complexities of the ecommerce world. After all, a company’s core competency typically centers around the product they sell, not necessarily the ecommerce used to sell it. What happens when in-house ecommerce starts to hinder business growth?

In building one’s own solution, either in-house or through free open source software, there are many pieces to consider:

  • Domain names to purchase
  • Hosting space to rent
  • Merchant accounts to open
  • Payment options to acquire
  • Front and back-end developers to hire
  • Analytics to measure
  • Affiliate programs to join
  • OEMs to partner with
  • Fraudsters to defend against
  • Customers to serve

Forrester Research offers this diagram to show the complexity involved in building an in-house solution.

In-house E-commerce Solution
Source: Forrester Research

When it comes to penetrating global markets, things become even more complicated as webpages, payments options and currencies must all be localized. The benefit of partnering with an outsourced solution is that they handle all of these activities on your behalf. This frees up many resources for product development that would have been otherwise occupied in ecommerce activities.

This is not to say there are no risks associated with outsourcing your ecommerce solution and companies must proceed with eyes wide open.

What if the investment in a full featured solution proves to be greater than expected? How much leeway can your software company afford? What if your partnership does not meet revenue expectations?

Keystone

 Deciding whether to outsource ecommerce is a dilemma for many organizations. Concerns about cost, control and quality often cause companies to select the in-house option. What if the right ecommerce partner could eliminate those concerns?

Visit our resources page to evaluate the costs and benefits of outsourcing to an ecommerce provider.

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2 Comments

  1. Mike

    Hi Elan,

    Thanks for the article – very insightful. What is the name of the Forrester report referencing the complexity involved in building an in-house solution?

    Thanks,
    Mike

    1. Craig Vodnik

      Hi Mike,

      That graphic is from an upcoming report titled “Market Overview Subscriptions And Recurring Billing Solutions”. You can search the Forrester site for it’s general availability soon:

      http://www.forrester.com/home#/search?tmtxt=Market%20Overview%20Subscriptions%20And%20Recurring%20Billing%20Solutions

      Peter is using this graphic and another to demonstrate how complex it can be to develop an in-house solution.

      I hope that this helps!

      cheers,

      craig.

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