SaaS vs Customizable E-Commerce Platform

When you are picking an enterprise-level eCommerce solution you have two major choices: Software-as-a-Service (SaaS) or a customizable Platform. Each has several pros and cons. And there may be a way to get the best of both worlds!

SaaS eCommerce solutions targeted at the F1000/IR500 include GSI (eBay) and Demandware. Leading Platform solutions targeting the same market are Oracle ATG Commerce (Oracle), Websphere Commerce (IBM), and Hybris (SAP).

 

Benefits

The primary benefits of a SaaS-based eCommerce solution are focused around out-sourcing all of the technical burden of building and running a major eCommerce site and allowing your business to focus on your business, instead of a bunch of IT. By having a standard multi-Tennant storefront application, a SaaS solution can allow you to build and launch your site more quickly and cheaply than building a custom application on a platform. All of the hosting work is covered, including data center selection, server procurement, racking, networking, software installation, configuration, upgrades and updates, monitoring, 24×7 pager coverage, DBAs, sys admins, PCI/security experts, and so on. And many SaaS offerings price based on a percentage of the gross revenue from your eCommerce site. This means that if you are starting out small, and growing, your eCommerce website costs start out small, and grow only as your business grows.</>

Pain Points

There is a lot to like with a SaaS solution. So what are the pain points? First, since you’re using an existing storefront application that’s set up for multi-tenant use, you have very limited options around custom features, integrations, and logic. If you need something that isn’t an available feature on the SaaS platform you are largely out of luck.  So with that quick time to launch, and lower TCO, you also lose a lot of power and flexibility with the website features and integrations. For many smaller sites, this isn’t a big deal, but for larger eCommerce sites and larger companies, it can lead to a great deal of headaches, and a loss of competitiveness with other companies in your market.

Secondly, that multi-tenant shared architecture that gets you the cheaper cost and easier deployment can also lead to performance and stability issues. I believe that all of the major eCommerce SaaS providers have had significant multi-client impacting outages. Unfortunately, these often happen during peak traffic times for multiple clients, like Black Friday, Cyber Monday, and the holiday season at large. So through no fault of your own, you can suffer major downtime due to the shared “cloud” infrastructure.

Thirdly, as you grow, the cost model is based on a percentage of your revenue, which sounded so good when you were smaller, now means you’re paying much MORE than you would be if you’d gone with a Platform option. And that cost just keeps going up as you grow your business.

 

Now let’s talk about Platforms. The benefits are that you get total flexibility and customizability. Even with a great platform, you (or your system integrator) are still going to be writing a lot of custom logic and pages. This means you can have ANY look and feel you want, any checkout flow, any features, any integrations, omni-channel with your POS systems, custom shipping and tax logic, special promo types, custom bundles, anything you like. You want ship-from-store, or in-store-pickup? You can do that!  Do you need to change shipping options and costs based on the contents of the order (volatile perfumes) or the shipping locale?  You can do that.  Do you need to do complex pricing and and bundling for existing customers buying a phone, mobile plan, accessories, data add-ons, all priced based on their long term customer history? You can do that!  You can also make sure you have enough infrastructure to handle your biggest days, so you can control your performance and uptime directly, typically leading to much better results than relying on a shared multi-tenant infrastructure. Also, while the initial costs can be high (more on that below), the ongoing costs are usually relatively fixed and are largely under your control.  This means that as you grow your revenue, your website costs stay the same, increasing your margins!

So what is the cost of all that power and flexibility? Cost is a big one. There’s a large initial investment in purchasing the software, and typically either paying a system integrator to build your initial site or hiring and building an in-house team with the skillset to build it. Then you need to host it. If you host it yourself, or if you have a typical hosting company that provides servers for you, you still need to have a large in-house team of experts to provide 24×7 coverage for application, database, CDN, security, and performance issues.  You need to manage things like backups, PCI compliance, monitoring and alerting systems, server health, two-factor VPNs, mail servers, LDAP servers, IPSEC tunnels, SSL certs, proactively responding to emergent security issues like BEAST, CRIME, and Heartbleed, anti-DDOS measures, disaster recovery (DR), RPO/RTO, and much more. Doing this poorly means performance, availability, and security issues. Doing this well means a large skilled team and a lot of focus on IT.  Aside from the dollars involved, this is a large focus on something that ISN’T your core business. You also have ongoing annual costs related to Platform software maintenance and support, hosting and infrastructure management, and ongoing development. Time to market can also be longer since you’re building a complex custom storefront instead of just loading product data into an existing store front engine.

 

One of the major differences, aside from flexibility and customizability, between SaaS and Platform, approach to eCommerce is cost. With Platform, there’s a high up-front cost and a semi-fixed annual cost. With SaaS, there’s a variable annual cost that grows with your revenue.  So where does SaaS start getting more expensive than Platform?  Obviously, this inflection point depends on your SaaS vendor, your site size, traffic, complexity, and many more factors, so the cost analysis is something you should look at very seriously. However, based on my experience the average ballpark break-even point is probably around $150 million per year of revenue through the online channel. So if you’re that big or bigger, or if you plan to be that big in the next 5 years, you should almost certainly choose a Platform option.  Even below that, the differences in customizability and risks around shared infrastructure may mean that a Platform is a right fit for you. This is borne out by Demandware’s 2013 financials where they reveal they only have 17 clients doing over $100 million in annual revenue out of 820 sites. Their focus is absolutely on sites that do much less than $100 million/year, and those are the sites their future features will target. So if you’re a bigger site, SaaS is probably not the best fit.