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E-retailers rev up outsourcing

E-retailers rev up outsourcing

Jonathan Bulkeley, chief executive officer of Barnesandnoble.com LLC, has seen the future of e-commerce infrastructure. For him, it's outsourcing.

"We're not going to be in the server business," Bulkeley last week declared to a Fall Internet World audience. "I want to run the interface, the content, the user experience. But I don't want to have to power it myself."eBay agrees. On Friday, the Internet auction site took steps to beef up reliability. The California company, which has suffered some highly publicised outages, announced plans to expand its Web infrastructure outsourcing with Exodus Communications and a new partner, AboveNet Communications.

Barnesandnoble.com may be seven to 10 years from its outsourcing vision, but a growing number of companies - from Victoria's Secret to Reader's Digest Association - are outsourcing or considering off-loading pieces of their e-commerce operations, especially Web server hosting.

In fact, Frost & Sullivan, a California marketing consulting company, expects the US Web hosting service market to soar to $US4.04 billion this year - a 256 per cent increase over the $1.13 billion collected last year.

"The demands 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.

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.

Web 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 say they have 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 company taxed those IBM servers when it drew 1.5 million visitors for a fashion show Webcast.

Jon Ricker, president of the technology company that services Victoria's Secret and The Limited, said he considers Web server operation to be a commodity issue. He prefers to devote information technology staff time to"competitive systems", where the company can build an advantage that improves revenue and market share. So staffers did the deep integration work necessary to link the Web store with the back-office systems that operate the catalogue and fulfilment operations. Inventory and pricing are checked in real time.

"Our whole outsourcing strategy 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 fulfilment and order-capture systems and marketing systems of its catalogue operation. But the Minnesota company outsourced Web site development and design work because internal staffers didn't have the necessary skills.

"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 technology, said Keith Fox, director of new media.

To bring the site up in less than five months, Gifts.com 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 fulfilment.


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