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An eCommerce Management Primer
Build Versus Buy Decision
An eCommerce Management Primer (Part 5) eCommerce Build Versus Buy Decisions Over the last few years, eCommerce has become the buzzword of the business and the finance communities. As a result, more and more companies are jumping into the Internet and eCommerce for fear of being left behind. Boards are directing CEOs to get eCommerce initiatives going and to get them going fast! The problem is that in a lot of cases the managers responsible do not have a clear understanding of what eCommerce is or can be, and how it is different from the traditional bricks and mortar commerce. This is the fifth of a series of articles that attempt to provide a basic technical overview of the elements of eCommerce and to detail some of the differences these systems have over traditional commerce. Part five focuses on the factors that should be considered in the "build versus buy" decision. While the decision to implement an eCommerce solution can be based on a high level strategic decision, the actual method of implementation can vary. The implementation choices can be broken down into two basic approaches: build versus buy. The areas of influence that can influence this decision are as with any software project: functionality requirements, scalability desires, resource allocations, and standard/brand requirements. Once all of these areas have been reviewed, the options for buying and building will be compared and a decision made. Functionality: Generally the most critical factor in the decision as to whether to build or buy an eCommerce solution is the functionality. As with any software project, the first step in coming to a decision should be the determination of the software requirements and the categorization of the requirements in to three categories: must have, nice to have, and frills. For eCommerce sites (depending on the type), the requirements will generally be chosen from the following: - shopping cart
As a general rule of thumb, a solution that provides for all must have requirements and 80 percent of the other requirements is considered a good fit to the functionality. If functionality is critical and specific, then an eCommerce solution will likely lean towards a build solution due to the flexibility offered in this approach. Of course, functionality needed today is not the only concern in choosing between building and buying. In addition, the future requirements or scalability/robustness of the system needs to be considered. Scalability: While functionality determines what an eCommerce site will do, scalability determines the ability of the system to handle increases in the amount of use as well as the ability to modify/maintain the system over the course of time. The scalability factor is a basic determination as to how much growth and change is anticipated by project for the life of the project. [Note: An issue not addressed here is the concept that eventually software, like any technology, needs to be end-of-lifed. This is a concept that will be discussed in some future article.] The critical issues for scalability in terms of usage are short term growth/peaks in usage as well as long term growth. A particular solution must be robust enough to provide for short term spikes in usage. A typical example of this would be a cyclical solution such as an online toy store. Since toys are particularly popular around Christmas, these types of solutions must be able to handle the expected increase in the Christmas seasons. In the 1999 Christmas season, a number of online toy stores experienced failures in handling the two to three times increase in traffic. The result was late gifts and unhappy customers. In terms of long term growth, eCommerce sites must estimate the level of growth that a site will experience over the medium to long term, which in Internet terms is usually the 1-3 year timeframe. Since eCommerce growth is often 100-200 percent a year (at this stage), the ability to meet growth can be very critical. In addition to growth, eCommerce solutions will need to be evaluated in terms of future functionality and maintainability. In this area, scalability will include the ability for a site owner to maintain and change the site over the course of time. This factor will reflect the long term expectations for the site. The eCommerce solution will need to be evaluated in terms of the need to change and upgrade the site functionality over time. If the site planners feel that the functionality will be constant for the medium to long term then scalability will not be a major issue in the build versus buy decision. However, if the site will change rapidly, then the scalability issue will often push towards a build solution as it will generally provide a greater level of control and flexibility. Resources: In addition to the scalability, an eCommerce solution will need to be evaluated in terms of the resources an organization has to dedicate to the project. The resources relevant to the discussion of build versus buy are money and in house technical expertise. In terms of costs for eCommerce solutions, the general rule should be that to buy an equivalently functional solution should be less expensive than a custom built solution. While this is not always the case, the reason for it is that a bought solution will be generally less flexible and will have the costs of development spread over multiple clients. In addition, custom solutions will often have less certain costs, as estimates are based on the requirements which can (and often do) change over time. As a result, eCommerce solutions that are particularly sensitive to costs or have fixed budgets should probably seriously consider the buy options. In addition to the resources need to build or buy a solution, a company must consider the resources needed to maintain and administer the technology. Since both built and bought solutions will have these needs, the real question here will be whether or not a particular build or buy solution is based on technology that company has internal support for or can acquire externally. Since the buy options are generally limited in the technological choices, internal resources may eliminate some particular solutions as options. The build option has infinite flexibility, and while the actual technology choices will be affected, the choice to build will not. Standards and Brands: The final area that needs to be considered in the eCommerce build versus buy decision is that of technological standards support and brands. These areas will often add another dimension of constraints to the solution chosen, and in some ways may be competing concepts. Standards support by a particular solution will help to ensure that the solution is not tied directly to one vendor, or that the solution will inter-operate with other standardized approaches. Areas of standardization can include development language, data transmission, HTML level (for browser compatibility) and transaction processing. Since both built and bought solutions can support a variety of standards, this factor will generally only be used to eliminate specific build / buy options. In addition to comparing build / buy options for standards support, organizations may also have a marketing or strategic partnership need to choose a solution that utilizes a particular brand of technology. While the top brands in each area of technology can have distinct advantages in terms of support and public perception, the technological impact may be not be as large. As a result, the real issue is whether or not a particular build / buy decision supports the business choice of technology brand. If the technology brand issue is not important, then this fact need not be included in the build versus buy decision. Lately there has been a real buzz about Application Service Providers (ASPs). This concept provides a client with a solution that is provided standard by the vendor and hosted and maintained by the vendor. The eCommerce version of this solution is paid for though monthly fees and/or per unit fees. While some people may view this as a third possible option, in reality the rental option is really not a lot different then the buy option. The main difference will be in the upfront costs level (lower) versus the monthly costs (higher). Still for a cost sensitive eCommerce solution this route may change the build versus buy decision. The first step in determining the eCommerce solution for a company is the evaluation of the four main areas to determine which of the available build versus buy options are most appropriate. After selecting options that meet a minimum set of functionality, the factors of future scalability, available resources (both monetary and human) and the corporate standards and brand loyalties should be applied to eliminate options. The result will be an overall approach that either recommends a build or buy/rent solution. In the event of a buy/rent solution, the technology chosen for the solution will generally be determined by the provider. For a build solution, the decision as to what technology to use may still need further evaluation. In the next article, we will review some of the technology that is used to build eCommerce sites and discuss some of the pros and cons of the available choices.
By: Leon Salvail
© Copyright 2001. Galt Western Personnel Ltd. Unless otherwise specified, you may reprint this article, quote from it, use it in research or projects, duplicate it or distribute it. Credit of authorship and source MUST be given to galtglobalreview.com. Ownership of Copyright remains with Galt Western Personnel Ltd.
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