Internet outsourcing increasingly popular
October 11, 1999
by Carol Sliwa
(IDG) -- A growing number of companies -- from Victoria's Secret to Barnesandnoble.com and Reader's Digest Association Inc. -- are outsourcing or considering off-loading pieces of their e-commerce operations, particularly Web server hosting.
Earlier this week, Barnesandnoble.com LLC CEO Jonathan Bulkeley told a Fall Internet World audience:"We're not going to be in the server business. I want to run the interface, the content, the user experience. But I don't want to have to power it myself." After his speech, he said he expects the transition to outsourcing to take seven to 10 years. And this morning, eBay Inc. said it will be outsourcing its back-end Internet technology.
Frost & Sullivan Inc., a Mountain View, Calif., marketing consulting company, expects the U.S. Web hosting service market to soar to $4.04 billion this year -- a 256% increase over the $1.13 billion collected last year.
"The demands that are posed by e-commerce on lots of firms will force them to outsource to get the technical expertise as well as the physical and network resources that they need," said Jeanne Schaaf, an analyst at Forrester Research Inc. in Cambridge, Mass.
But Schaaf cautioned that the Web outsourcing market is immature. "Users don't always know where to go because the Web hosting companies aren't always clear what they're about," Schaaf said.
Outsourcing may not make sense for every company, particularly those that need to keep a tight rein over mission-critical technology. But companies that have outsourced pieces of their Web operations say they've benefited, gaining technical expertise, eliminating technology upkeep and shortening time to market.
Victoria's Secret outsources its Web servers to IBM, hoping to reap the benefits of Big Blue's experience with large-scale operations such as the Olympics. The women's lingerie company taxed those IBM servers when it drew 1.5 million visitors for a fashion show webcast earlier this year. But Jon Ricker, president of the technology company that services Victoria's Secret and The Limited Inc., claims the site will be better able to handle the traffic spikes for a similar event planned next year.
Ricker said he considers Web server operations to be a commodity issue. He prefers to devote ITstaff time to "competitive systems," where the company can build an advantage that improves revenue and market share. So Limited staffers did the deep integration work necessary to link the Web store with the back-office systems that operate Victoria's Secret's catalog and fulfillment operations. Now inventory and pricing is checked in real time.
"Our whole outsourcing strategy, whether it's the Web or anything else, is that we're going to build world-class capability in core competencies. Where we can't, we'll partner," Ricker said.
Fingerhut Cos. also leverages the fulfillment and order-capture and marketing systems of its successful catalog operation.
But the Minnetonka, Minn.-based company outsourced Web site development and design work because internal staffers didn't have the necessary skill sets. "We want to get it done as quickly and inexpensively with as much creativity and flexibility as we can have," said Andrew Johnson, president of e-commerce at Fingerhut, which has a network of 16 Web sites.
One reason that Reader's Digest -- which has 20 sites, including Readersdigest.com and the just-launched Gifts.com -- outsources some Web work is to stay abreast of the latest technologies, said Keith Fox, director of new media.
The Gifts.com site outsourced work to five vendors:two for design and engineering, one for the database, another for Web hosting and a fifth for customer service and fulfillment. "Our entire project came together in under five months," Fox said. "The only way to do that is staff it with strong internal people and outsource to agencies that have the experience."
But some companies don't have that luxury. Redwood City, Calif.-based iPrint.com has complicated technology that lets customers set up business cards and other printed materials online. CEO Royal Farros said it would be too difficult to outsource. The company does, however, off-load its print jobs to third parties.
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