Describe the major issues surrounding the decisions to build and/or host your own e-commerce Web site or to outsource some aspects of site development. Include the advantages and disadvantages of each decision

Question

What will be an ideal response?

Answer 1

If you decide to build an e-commerce Web site in-house, you will need a multiskilled staff including programmers, graphic artists, Web designers, and project managers. You will also have to select and purchase software and hardware. Building a site from scratch involves a great deal of risk, and the costs can be high because many of the required elements of an e-commerce site such as shopping carts, credit card authentication and processing, inventory management, and order processing are quite complex. Specialized firms have already perfected these tools and your staff will often have to learn to build all of these features themselves. The advantage is that you and your staff may be able to build a site that exactly suits the specific needs of your company. Another advantage is that you will be developing a skilled staff and consequently acquiring an invaluable supply of in-house knowledge that will enable your firm to change the site if necessary due to the rapidly changing business environment.

If, on the other hand, you decide to purchase an expensive site-building package, you will have to evaluate different packages to decide which one will be best suited to your firm's needs. This can be a lengthy process and some packages may have to be modified. Additional vendors may have to be hired to execute the modifications, and this can cause the costs to mount rapidly.

You can also purchase less expensive, prebuilt templates, but you will be limited to the functionality already built into the template. You can choose templates from merchant-solution vendors such as Amazon Stores, or use the templates from a site-building tool such as WordPress. Brick-and-mortar retailers can generally design a site themselves because they have a skilled staff in place and have made large investments in information technology, such as databases and telecommunications. They will usually use outside vendors to build the e-commerce applications for the site. Medium-size startups will often purchase a prepackaged site-building tool and make modifications as necessary. Small startups that only require a simple virtual storefront will usually use a template.

The hosting decision is independent from the building decision, but the two are usually considered at the same time. Most businesses choose to outsource hosting because it is generally less expensive than it would be for them to purchase all of the hardware and the physical space, lease the communications lines, and hire the staff. Large hosting firms can build the telecommunication links and emergency power supplies and achieve economies of scale by establishing huge "server farms" in strategic locations around the country. If you host your own site you must also build the security and backup capabilities yourself.

Another option is co-location in which a firm purchases or leases a Web server and has total control over its operation, but the server is located in the vendor's physical facility. In a co-location agreement, the vendor maintains the facility, the machinery, and the communication lines. Small ISPs may not be able to provide service that is as reliable as the large providers. The disadvantage of outsourcing hosting is that as your business grows, you may need more power or services than the hosting company can provide. This is the main reason that firms will decide to host their own sites, but the costs will almost always be higher than if they had chosen an outsourcing firm.