May 12, 2009

Gartner: Use open source to cut 35% from e-commerce costs

Analysts advise IT to reduce in-house application development for basic e-commerce functions

By Juan Carlos Perez and Siobhan Chapman

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E-commerce teams within IT departments must do more with less, so they need to maximize their resources through shrewd and clever management, according to Gartner.

Although IT budgets are shrinking anywhere between 5 to 25 percent, IT e-commerce organisations are expected to sharpen the online shopping experiences of their companies' customers.

A big reason for the heightened expectations is that sites like YouTube, Amazon, eBay, Flickr and Facebook continue to push the envelope in terms of new features and the online experience in general, said Gene Alvarez, Gartner's vice president of e-commerce and CRM research.

"That's the real big challenge here for e-commerce organisations: The bar keeps rising despite the economy," he said. "Whether in business-to-consumer or business-to-business e-commerce, as customers are exposed to new capabilities, they expect those at all other websites."

E-commerce firms should turn to 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 licence costs, Gartner advised in its report "Cost Cutting in E-Commerce, 2009".

The report identified five tips in which IT leaders in charge of e-commerce operations.

In particular, IT departments shouldn't invest on creating their own applications for basic e-commerce functions, since those can be implemented at a lower cost through commercial "off the shelf" software.

In the case of rich Internet applications (RIAs), the custom development work should be limited to those applications that will generate high sales conversion rates.

Gartner recommended that organisation focus rich internet application tool development on sales efforts with higher conversion rates, and leverage established community websites, rather than building communities in the site.

"You waste money if you have developers supporting commodity capabilities," Alvarez said. A company's e-commerce developers should be focused on building the types of made-to-measure applications that will give the company an edge over its competition.

The analyst firm also advised that businesses use these savings toward functions likely to have an impact on differentiating customers' online experience, such as search engine optimisation.

Gartner has provided associated savings estimates for large businesses with e-commerce budgets of more than $1 million for software and services, and for small businesses with budgets of less than $1 million.

The report also advised e-commerce firms to extract more return on investment (ROI) from technology they already have deployed. Such a move could decrease costs of service, sales, and marketing by 15 percent for large businesses and 10 percent for small businesses in 2009 and 10 percent in subsequent years, according to the report.

At the negotiation table, IT departments should be merciless when dealing with their e-commerce software vendors and aim to lower their 2009 license fees between 20 percent to 50 percent.

Finally, IT managers need to take stock of their e-commerce staff to see if there are employees elsewhere doing the same tasks, such as separate marketing people for online and offline operations, in which case the work can be consolidated and personnel reduced, according to Gartner.

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