Online retailers looking to cut costs during a recession while still improving the online customer experience are advised to switch their e-commerce software to non-customized platforms and funnel the savings into functions such as search engine optimization (SEO), according to research released today by Gartner.
E-commerce firms should consider commercial, off-the-shelf, or open source software as a replacement for current custom Web development initiatives to save up to 35 per cent of their ongoing maintenance and license costs, according to the report “Cost Cutting in E-Commerce, 2009” by Gartner.
These savings can then be used to direct custom development efforts toward functions likely to have an impact on differentiating customers’ online experience, such as SEO,” says Gene Alvarez, research vice president at Gartner.
“Except for market leaders, such as Amazon and eBay, custom development is likely to be a waste of effort and money because it supports functions that do not enable a differentiated online customer experience. For example, a developer who supports a commodity function, such as shopping cart management, would be better to develop rich Internet shopping capabilities or improve site design for search engine optimization so that the site can rank higher in a Google-based search,” Alvarez said in a statement.
The report comes out at a time when other research groups are showing e-commerce sales are leveling off while e-tailers struggle with smaller budgets as they try to retain customersand improve the online shopping experience.
IT organizations responsible for e-commerce are challenged in 2009 to improve online customer experiences to make up for closed locations and lost sales personnel, while cutting IT expenditures by five to 25 percent, according to Gartner.
To that end, Gartner identified five tips for meeting that challenge for IT leaders in charge of e-commerce operations in the current souring economy. The report also outlines associated savings estimates for large enterprises with e-commerce budgets of more than $1 million for software and services, and for small enterprises with budgets of less than $1 million.
First on the list of suggestions is to use off-the-shelf products that are not custom developed for commodity functions, such as shopping cart management, search, product merchandising and management and to replace these with commercial or open-source e-commerce applications.
Gartner estimates that large enterprises can save 35 percent of ongoing maintenance and license costs, and small enterprises can save 25 percent of these costs in 2009, and 20 percent in the future. The one-time cost to implement this strategy is $250,000 to $350,000 in software, on average, with a one-time cost for implementation services, according to Garnter.
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Second, the report says e-commerce firms need to extract more return on investment (ROI) from technology they already have deployed. Enterprises that seek to extract more ROI with technologies that are owned by the IT organization could decrease costs of service, sales, and marketing by 15 percent for large enterprises and 10 percent for small enterprises in 2009 and 10 percent in subsequent years, according to the report.
Gartner estimates that one-time costs to implement this recommendation are less than 5 percent, because they require only established resources to tune the use. Organizations should consider eliminating any established technology that does not achieve a use rate of more than 95 percent.
Next, e-tailers should focus rich Internet application tool development on sales efforts with higher conversion rates, and leverage established community Web sites, rather than building communities in their organization’s site.
IT organizations experimenting with rich Internet application (RIA) Web 2.0 sales tools, usually developed in Ajax, can scale back their development efforts to only those tools that will lead to higher conversion rates. Gartner estimates that this strategy will save around 10 percent for large enterprises and about 5 percent for small enterprises in 2009, and 5 percent in future years. One-time development costs will be paid in full by reductions in other projects.
It would also be prudent to be aggressive in any negotiations with e-commerce software vendors, the report suggests.
“If an IT organization is seeking to purchase or already owns e-commerce software, then tough negotiation with vendors is an absolute imperative. Skilled negotiators can save 20 percent to 50 percent on license fees in 2009, and an additional 3 percent to 4 percent long term. No additional expenses are required to make this happen,” states the report.
Gartner predicts that vendors will cling to prices during 2009, as they seek to preserve margins, but will offer big discounts to make up for longer sales cycles and increased competition.
Finally, online merchants should make organizational changes to eliminate redundancy in job functions.
“In some enterprises, personnel perform the same job tasks on different sides of the business. For example, an enterprise may have one marketing person for online operations and another for the bricks-and-mortar side of the business. It may be possible to combine these roles and produce savings in HR. This one-time saving may represent 10 percent to 15 percent of e-commerce HR expenses in 2009 and 5 percent in subsequent years, with little upfront costs required for training,” according to the report.
