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TheStreet Open House

Demandware Announces Research That Reveals TCO Analysis Of ECommerce Solutions Often Fail To Expose True Costs

Demandware®, Inc. (NYSE: DWRE), a leader in on-demand ecommerce, today released the results of a new study examining how online retailers evaluate specific cost considerations when comparing cloud-based and on-premise ecommerce solutions. In a study commissioned by Demandware, Forrester Consulting surveyed 156 retail CIO and business executives across the U.S. and Europe and found that 81 percent of online retailers use a home-grown or a licensed on-premise ecommerce platform. The study shows that retailers spend an average of seven percent of total online revenue to support their ecommerce platforms. Despite this level of investment, 74 percent of respondents report immediate concerns that their current solutions will not scale to support the growth plans of the business. The findings are summarized in the study “Understanding TCO When Evaluating eCommerce Solutions,” by Forrester Consulting, November 2012.

TCO Higher Than Predicted for Many Retailers

The study reveals that the total cost of ownership for ecommerce solutions is greater than expected for many retailers and restrictive contracts tend to amplify the high costs. The majority of retailers noted that the contract terms for their on-premise platforms require the purchase of additional licenses in order to scale their online businesses, as well as restrict the use of the platform to support strategic growth initiatives, such as international and multichannel expansion.

  • 43 percent of online retailers found that actual cost of ownership was higher than their projections.
  • 67 percent of retailers using a licensed on-premise solution report that they are contractually obligated to acquire additional licenses when reaching a certain threshold of online traffic.
  • 78 percent of retailers report that the vendor contract they have in place restricts them from using the technology to expand into new markets.
  • 72 percent of retailers surveyed have concerns about the ability of their current ecommerce platform to meet multichannel requirements in supporting future growth initiatives.

Retailers Are Distracted by Complex Upgrades and Risk Falling Behind

The research also shows that retailers are distracted trying to keep up with the complexity of platform upgrades and risk falling behind competitors in the rollout of basic online functionality and user experience enhancements. “Given the strategic importance of the online channel…eCommerce leaders can ill afford to get left behind; they need regular access to innovative new capabilities from the vendor community. The problem with upgrading on-premise solutions this frequently is the opportunistic cost. This constant and never-ending cycle of upgrades means that valuable development resources are being utilized in a tactical manner to keep up with the competition, rather than being used to develop innovative feature sets that differentiate in the marketplace,” the study states.

  • 39 percent of retailers upgrade their ecommerce platform to the latest version only once every two to three years
  • 76 percent of the ecommerce leaders surveyed report that each upgrade takes more than a month to complete

Retailers Embracing Cloud-Based Solutions

Though TCO models are customary, the research found that the process lacks rigor and can be misleading. The study states: “As eCommerce and technology leaders factor in costs to their TCO model, they leave many stones unturned, which leads to a situation – intentionally or not – where the model can favor on-premise solutions versus those from the cloud. …Perceptions that cloud-based revenue share models are more costly than owning and operating ecommerce technology in-house are often misguided.”

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