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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.”

Demandware is seeing many leading retailers shifting their businesses to cloud-based ecommerce platforms to benefit from capacity on-demand, seamless upgrades and unconstrained growth possibilities, including Demandware client, Finish Line, a premium retailer of athletic shoes, apparel and accessories. “Our goal is to transform our business, not just maintain it. We want to drive innovation and propel the business. Demandware reduces operational complexity and puts the power in the hands of our users to create world-class brand experiences. It provides customers a better and faster online experience, rather than having technology get in the way,” said Chris Ladd, executive vice president and chief digital officer for Finish Line.

“In the first generation of ecommerce, when CIOs had to build everything from scratch, retailers took on major new costs to develop and operate platforms, which over time became assumed – and sometimes forgotten – in the P&L. We believe the study clearly shows that as retailers move forward into a new digital world, they also need to pause and challenge yesterday’s assumptions regarding the costs of ecommerce. It’s time to think differently,” said Jamus Driscoll, senior VP of marketing for Demandware.

Learn More

Survey Methodology

Demandware commissioned Forrester Consulting to conduct an online survey of 156 ecommerce, IT and marketing leaders across retail, branded manufacturer and consumer products companies in the US, UK and Germany to evaluate the cost considerations of cloud versus on-premise ecommerce solutions. The study, conducted by former Forrester Consulting analyst Brian Walker, began in June 2012 and was completed in September 2012.

About Demandware

Demandware (NYSE: DWRE) is a leading provider of software-as-a-service (SaaS) ecommerce solutions that enable companies to easily design, implement and manage their own customized ecommerce sites, including websites, mobile applications and other digital storefronts. Customers use our highly scalable and integrated Demandware Commerce platform to more easily launch and manage multiple ecommerce sites, initiate marketing campaigns more quickly, and improve ecommerce traffic. For more information about Demandware, visit www.demandware.com, call 1-888-553-9216 or email [email protected].

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Demandware is a registered trademark of Demandware, Inc.

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