E-commerce in Australia: Enter the experts
When setting up an e-commerce function you might want to get some retail therapy from an expert.
E-commerce is both an overused word we're all completely sick of and a business channel that isn't going to go away. Some companies use the term e-commerce to describe the fact they conduct business over e-mail. Others slap a woefully dull site up on the World Wide Web and wait for the throngs to clamour to see it, and call that e-commerce.
But the organisations truly embracing e-commerce are those using a Web presence to generate and secure transactions online and link this to their back office. But it's no mean feat. We're way past the giddy experimentation phase when a company selling gift-wrapped peanuts or something equally ridiculous online could become millionaires overnight. Add to that the amount of stock being sold online and rising customer expectations and you have a very good case for outsourcing.
Under the umbrella of e-commerce comes Web design, branding, domain name registration, Web hosting, publishing on search engines, 2D and 3D animation, logistics, and warehouse fulfillment at the back-end. An outsourcing partner can share warehouse space and resources among other online merchants and companies, and integrate your inventory and planning systems, letting you retain control of the service experience. This is on top of the benefit true of most outsourcing -- the freeing up of your time to concentrate on your core business. After all, how many of us have a spare Web developer lurking on our payroll?
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John Debrincat, CEO of eCorner, an Australian-owned provider of e-business solutions and services, says your organisation may not have the necessary internal capabilities to handle an e-commerce project. "The cost of outsourcing can be significantly less, the IT infrastructure is more dependable, and internally there may be a lack of access to the available bandwidth to run a successful e-commerce site," he says. "The key to e-commerce is availability. To ensure 24 x 7 capabilities requires a level of competence and IT capability that is not necessarily available in-house. Hosting companies generally offer 99 percent availability as a basic part of the package," he adds.
According to Karl Bowen, vice president of outsourcing at Capgemini, there is a lot of "e-commerce money" being spent as companies continue to look to give better access to their customers. "Economies of scale are the main benefit of outsourcing. For example, we've worked in recent months with a consortium of local government councils, building the software application, infrastructure, and support to build Councils Online, which brings the public online to the councils in an electronic format," says Bowen. "These councils would never have been able to afford to develop this individually."
"="" cellspacing="0" border="0" align="center">Debrincat says there is a far better range of competent providers in the marketplace than existed four years ago. But in terms of organisations deploying e-commerce there was never a dotcom boom, he says. "The so-called dotcom boom was all about perceived vendor company market value and not about the value or availability of solutions. The dotcom boom was more about share price than anything else. One problem was that businesses sprung up overnight offering solutions that did not work. Today we have workable e-commerce solutions but we have to get over the so-called dotcom past," he warns.
E-commerce has moved from the nice-to-have to the must-have basket, says Debrincat. "Australia has been a slow adopter but experience from Europe and USA shows that consumers are becoming e-commerce aware. So if you get a customer to your Web site and they cannot buy easily they will go elsewhere. It is kind of like having a shop on George St in Sydney that is permanently closed. That is a waste of space," he says.
Luke Faccini, managing director of Sydney-based graphic design company The Sponge, says nowadays there is more information available about what can be achieved and models that can work more successfully, so business owners and managers know more about what they should spend. "In our experience over the last several months there has been a steady increase in company spending on Web presence and e-commerce, marketing in general, to expand and secure market share," he says.
Faccini says there are three main reasons a company might outsource its e-commerce function. The first is if it has decided to expand its customer base via the Net and has no experience in the area of e-commerce or marketing via the Internet. The second is if it doesn't have a skilled Web developer or designer on staff. Finally, if previous attempts at setting up an e-commerce Web site in-house, or by low level Web developers, have been unsuccessful and failed, a company might be tempted to outsource it.
Debrincat says this is an area in a state of change. "We are seeing the one person design and development companies slowly go away now that e-commerce is a critical part of the business infrastructure," he says. "In our experience different aspects go to different partners. There are organisations that do it all, but the issue is to find the best provider for the job. There is a significant range in pricing depending on the scope of work, with smaller companies more likely to use the one-stop-shop approach," he adds.
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According to Debrincat, at last count there were over 1200 ISPs in Australia, 300 to 400 Web design companies, 100 or more Web developer companies and 10s of e-commerce providers. "The market is messy. The problem with doing bespoke development is that the Web designer or developer may not be there in a year or so and the value of what you have is gone," he warns. "The market is sorting this out as we speak and we are seeing packaged applications replace bespoke development in the e-commerce space and the Web space in general. This was the same phenomenon we saw in the 1980s with the general packaged software market," he adds.
Dion Wiggins, vice president and research director Asia-Pacific at research company Gartner, says the real changes are happening around Web services and collaboration. He uses the example of the Kinko's office and printer centres in the US. "It's a Linux operation and through Web services is offering something quite amazing," says Wiggins. "You download an application for your PC from Kinko's which allows you to select and print, for example, a presentation and order it, via FedEx, to be waiting for you bound, stapled, whatever, at your nearest Kinko's or even sent to your hotel room and charged to your hotel room bill," he says. "It's tying together different businesses and creating a new business model, without changing very much. It's no longer plain old Web sites, we are reinventing new processes," says Wiggins.
All companies great and small
According to Debrincat, all kinds of companies outsource their e-commerce function, and he says it is less usual for an organisation to host a Web site internally than to outsource. "It all comes down to economies of scale. Even hosting companies outsource and there are many that use resources that are obtained from larger IT resource providers," he says.
Debrincat says it is more likely that in-house solutions are run by larger organisations with internal infrastructure and IT experience. "Hosting solutions are available from as little as AU$100 per month and dedicated hosted server solutions from as little as AU$299 per month," he says.
Bowen says SMEs would see a big benefit from outsourcing e-commerce, as they usually can't afford the depth of skill needed. "It is critical to keep the content management of some of these Web sites up to date, and it's a hard job requiring a very different skill set than other areas of e-commerce. It takes some marketing background and knowledge of how people will use a site and what makes people comfortable," says Bowen. "You can build a great Web site which is technically brilliant, but if customers don't like the look or feel of it and it doesn't hit their marketing needs, you're in trouble."
The Sponge's Faccini has worked with businesses ranging from sole traders who have decided to sell their wares online, through to large distribution companies who have switched their ordering through an online gateway.
Some organisations have gone through insourcing and outsourcing cycles in recent years, says Steve Baty, senior analyst at Red Square. Red Square offers services ranging from the strategic and consulting end through to the design and development of Web sites, Web applications and hosting for clients including Panasonic and Youth Hostel Australia.
"For example Telstra has gone through the cycle three or four times over the last seven years, taking on internal programmers and development staff then slowly decreasing that, or cutting out the whole function internally," he says. "Qantas was a very good large customer of ours for five years but went through a major platform upgrade and kept staff in-house to take over the e-commerce function, but then when they launched Jetstar that was outsourced. In some cases outsourcing e-commerce makes sense and some it doesn't," says Baty.
"="" cellspacing="0" border="0" align="center">The return on investment on e-commerce projects can come from really simple things, according to Baty. "We've tried to form long term partnerships with clients rather than the engagement-type approach," says Baty. "A new banner advert on Telstra's Big Pond recently caused an immediate impact on sales rather than just an increase in click-throughs," he says. "We recently changed the booking process on the Harvey World Travel Web site and saw a 1400 percent increase in sales over a two-month period. And the ROI for Youth Hostels Australia has been in excess of 18 times their investment," he adds.
According to Debrincat, you can measure ROI by the typical approach of asking "what can I save by implementing a more automated system and therefore what is the effect on the bottom line?" But unfortunately, he says, e-commerce does not typically lend itself to standard approaches.
"The reality is that the percentage of people doing business over the Web is growing between 20 and 40 percent a year depending on whose statistics you look at. At the same time e-commerce spend per capita is growing 50 percent plus per year," he says. "There is a significant take-up of broadband access that drives the time individuals stay online to increase. So the issue is one of competitive advantage as much as ROI. We have examples of a 100 percent return on investment within five weeks with a new e-commerce site. But the total ROI calculation needs to include the marketing cost to drive activity to the e-commerce site," he adds.
The Sponge's Faccini says ROI depends on the cost of the project and where the ROI value is measured. "If an e-commerce project costs AU$30,000 to produce and it contains a focused online branding and marketing program, if it can return AU$30,000 of value through a combination of online sales and brand recognition it is a worthy exercise," he says.
In recent times Baty says customers have been looking more for a development or Web partner, a company that can do more than develop just a one off project for them. "Clients are looking for a company that will be around for a long time, that will develop e-commerce as a business function within their company, offer advice and direction and assistance based on it's own experience," says Baty. "We've been around for nine and a half years, but it's not just us who are seeing this, other development companies we speak to are also being asked to get involved in a wider range of activities and there is a growing reliance on specialised services," he adds.
Baty says that in the last two years clients have demanded a greater knowledge of information architecture, usability, and user sensitive design when it comes to e-commerce projects. "It's been around for a while but its becoming a much more expected service that we can offer clients," he says. Baty says the biggest expectation from outsourcing e-commerce that customers have, or should have, is to get a better product for around the same cost as if they do the implementation in-house. "There are a few other expectations, such as the fact that the customer will not wear the same risk as having an internal team," says Baty. "Web development is a fast moving industry with a rapid growth in technical expertise, so there is a great deal of risk in having internal staff," he adds. "For a company like us working across different industries, we can wear that risk a whole lot better than an internal department."
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When looking for an outsourcing partner, Baty recommends you put stability at the top of the list of criteria. "Look for a company that is established and has been around and is going to continue to be around for a long time, as well as one that has been doing work for similar-sized or larger clients and that can offer advice over and above the project specifics," he says. "It shouldn't just be a case of 'we'll do that project because you asked us to' but asking 'what is the best project to start with, what is the best way to phase the project and the correct direction?'".
Stability is key, and not just of the company but the people as well, says Baty. "In a standard partnership of two or three years, customers want to see the same people within that company working on their project so there must be a stable management group, senior developers, and consultants. In advertising agencies, staff turnover tends to be high," says Baty. "When it comes to developing software, continuity of staff leads to an easier maintenance regime, a faster understanding of needs and requirements, and the ability to anticipate and identify potential problems coming into the market. You can't do any of this if your staff keeps leaving," he adds.
In seeking a partner, Bowen recommends looking at a company's track record as a key differentiator. "There is a big element of trust in an outsourcing relationship. People don't outsource to you unless they know you," he says. "And even though the outsourcing market has matured, a lot of relationships have soured. I came back from Europe after eight years to find some really bad contracts in the market here," he adds.
The biggest mistake Bowen says he has seen in the e-commerce sector is people in organisations making decisions and structuring agreements when they don't really have the skills do so in a market that is still relatively new.
"For example, if I've bought a couple of houses in the past I don't bypass the real estate agent and consider myself an expert," says Bowen. "There are very few people in this sector who have done this 10 or 20 times, but there are companies in the market who have, and from whom you can get advice on how to structure things, choose clients, because too many mistakes are often made," he says. "For bigger companies its fine but mid-tier companies and SMEs should always look to the market to get some assistance on this."
If you use an agency like The Sponge, you can have all these services and activities co-ordinated by a single consultant and design team, says Faccini. "This offers you a consistent and focused image at each client touch point, building a clear brand in the consumers mind. Some companies offer individual services, but we feel it can get a little disjointed," he says.
Faccini recommends that you always discuss your requirements with your consultant beforehand. "There are always options for outsourcing distribution, card payment facilities, stock control and legacy system integration, customer support, server types, remote locations, and monitoring," he says. "Customers are aware that there is a plethora of off-the-shelf options available to them now. We like to find out what our clients requirements are, then inform them of a range of e-commerce models that can work for their business and where necessary we can design a custom solution tailored to their needs," he adds.
"="" cellspacing="0" border="0" align="center">As far as the cost of outsourcing an e-commerce project goes, Baty believes companies shouldn't expect to save money initially, although long-term benefits may produce savings. "It might cost, say, quarter of a million dollars to implement but the ROI might be 500 percent rather than 150 percent if done in-house," says Baty. "Customers are dealing with a professional management team with a great deal of experience and who can work as a cohesive unit and should be able to produce a better result than an in-house team," he adds.
Debrincat says typically an e-commerce site which is well constructed and based on good back office systems will cost "from AU$10,000 and up." "If it is hosted, or outsourced, it might be as little as AU$150 per month all up," he says. "The cost is based on the expected traffic, the type of systems, the infrastructure and number of products that might be available. A good e-commerce solution provides not just a store front and shopping cart. It has to provide capability to handle inventory, product management, shipping, order management, customer management, purchase management, restocking and stock control, financial transaction management," he adds.
The Sponge's Faccini says that a project can range from AU$5000 for an entry-level site with secure shopping cart functionality, to AU$50,000 sites with full e-commerce facilities and combined marketing campaign. "They can quite easily reach into six figures when you have to integrate with legacy systems and incorporate online advertising campaigns," he says.
Integrating with stock control systems has been the biggest headache for The Sponge, says Faccini. "We've got some companies we partner with for that," he says. "Stock control has been the biggest dilemma as far as we're concerned, if it's a shared ordering system it goes hand in hand with phone sales and warehouse levels and you need to make sure you prevent overselling -- this is the toughest problem," he warns. The Sponge works with stock control specialists to offer a seamless service to the customer.
"If you compare the cost of contracting an expert designer or developer short term or full time you will be looking at a lot of money. You also are limited to the skill set of that one employee," he adds. "When you use a design company you are contracting an experienced design team. The money spent can often seem like a lot in the outset, but compared to a designer's salary it is no question."
Bowen says for successful dotcommers, the lessons have been learnt, the share prices are back up, and successful business models are in place. The biggest challenge is taking place in the boardrooms, he says. "There is still a healthy cynicism, with board members making sure there is a business case and ROI as they can't afford to be throwing millions at e-commerce anymore," he says.
This article was first published in Technology & Business magazine.
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