Last week, L2 released in partnership with Demandware a report on e-commerce agility that looks at brand presence on three types of platforms: Cloud, In-House, and On-Premise. The study finds the type of platform brands choose to invest correlates with their ability to implement changes efficiently, which in turn correlates with earnings. In this Q&A, L2 Research Lead Jane Thornleeson explains the meaning of Agility, and why platform choice matters.
How would you define agility? Why is it important for brands?
From the consumer standpoint, the Internet is limitless. And additional browsing of the Internet – apart from the initial setup fee – is free. From a retailer perspective, all of this comes at a cost, with expenses as concrete as those of the brick-and-mortar economy. E-commerce teams must create sites as complex as living organisms, and these complex structures need ongoing care and feeding. In this study, we look at agility in the context of e-commerce platforms. It’s the ability to (1) sufficiently run and scale the IT function on-demand, and (2) rapidly respond to changing conditions or opportunities in the marketplace – capabilities adopted by the best-in-breed.
An agile platform is flexible. It allows a brand to (1) seamlessly implement new ideas (e.g., new site features, functionalities, capabilities) to keep up with changing consumer expectations, (2) rapidly scale the business, and (3) quickly expand into new regions with relatively little upfront investment (compared to on-premise and in-house solutions).
Are in-house platforms passé? From reading the report, it seems that many brands with this type of platform (Gucci, J.Crew among others) are experiencing a decline in site experience.
It’s not that in-house platforms are inherently bad, they’re expensive. The metaphor we use in the study is a Formula One race car, which is superior to almost any other car if you have the extra $7 million to spend on it. But for many people the $150K Porsche with 90% of the speed is a more affordable alternative. Not only are the initial costs lower, the Porsche is easier to maintain and has more fluid upgrade cycles. In-house platforms are the Formula One car and cloud is the Porsche that offers flexibility.
In the early days of e-commerce, many organizations made speculative bets in developing homegrown e-commerce platforms. Now they are locked into expensive, highly customized deployment cycles. While a select number of well-capitalized retailers have the cash flow to maintain a successful in-house build, the air at that altitude is becoming increasingly thin. More and more third-party solutions are accessing the financial markets to fund robust strategic plans. It remains to be seen whether the Walmarts of the world will continue to have he human and financial capital to maintain their lead.
What brands do you consider “agility role models”?
Kate Spade has steadily risen to the forefront of the digital curve since moving to the cloud in 2010, from the 72nd percentile of Fashion brand sites in 2011 to the 95th in 2014. Cloud technology has helped Kate Spade avoid many of the growing pains of a young brand expanding quickly – enabling it to consistently adopt new site features over the past five years – seamlessly integrating social media, branded content videos, and live chat.
Nordstrom upped its site ranking from the 55th percentile to the 93rd with stronger navigational features after a 2011 relaunch. In the intervening years, Nordstrom’s in-house platform responded to changing consumer tastes as focus shifted to providing an omnichannel experience and rapid, robust fulfillment. As an early adopter – specifically, one of the first to roll out real-time in-store inventory to its site in 2010 – Nordstrom was able to leverage its custom platform to enable systems integrations at a time when few retailers were demanding this type of inventory transparency from vendors and platform providers.
Cole Haan migrated to the cloud in 2012. The platform switch activated a string of site improvements, driving the brand’s site ranking up from the 52nd percentile to the 96th percentile. After adding a persistent cart to its site in 2012, the brand added a slew of functionalities in 2013 and 2014 such as the ability to autocomplete a search, get store directions without leaving the site, make in-cart modifications, and check out with PayPal.
In addition to agility, what are some other factors that are likely to contribute to a brand’s digital success in the next few years?
While platform plays a key role in implementing change, changes are typically fueled by a brand’s strategic goals and financial capability. Concentrated efforts on e-commerce initiatives and strategic changes in operations (e.g., rolling out omnichannel capabilities, mobile POS, tablet checkout within stores) are all likely to enhance online sales and increase store productivity.