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Impact of Cloud Service Models on eCommerce

Impact of Cloud Service Models on eCommerce
Atul Jain - | September 28, 2010

Though Cloud Computing is gaining significant momentum, its usage for eCommerce is still debatable. In order to understand the pros and cons of cloud computing for eCommerce, we have looked closely into the demands of modern eCommerce systems and how cloud computing models are able to address them.

Customer expectations from eCommerce systems have evolved significantly over a period of time. Today customers are expecting better and faster online experience that closely matches the in-store experience. They want to utilize different channels (Web, Mobile, Kiosks, TV, In-Store and Customer Support etc.) seamlessly to complete their purchase transactions. Customers have access to several social networking mediums, which they want to utilize to get more information and opinions on the products to make their decisions.

Businesses are facing a tough task in matching these increasing consumer demands. It is not only important for businesses to have an online presence but also to keep the online presence updated with the latest technology and business trends.

Cloud computing through its different service models, addresses many technical and business challenges in building and managing modern eCommerce systems. In fact many of the eCommerce businesses are already using some form of IaaS, PaaS, or SaaS.

Software-as-a-Service (SaaS) - In this model, the complete eCommerce site can be provided as-a-service. The site is created with merchant specific branding and customizations in defined areas, and the merchant is charged on subscription and/or usage basis. Many providers already offer SaaS or hosted/managed offerings — and those that do not are likely to add these options.

Besides this, several specialized solutions required in modern eCommerce systems, are provided as SaaS offering. These solutions provide seamless web-tier level integration with the eCommerce system. These solutions include Rich Media Management Platform, Reviews and Ratings, Product recommendations, Social media solutions, Click to call/chat, Loyalty systems.

Platform-as-a-Service (PaaS) – Some vendors provide online tools and hosted eCommerce platforms to quickly create and launch customized branded eCommerce sites and perform ongoing management and merchandising operations such as pricing, promotions etc. This model is especially useful for SMB segment that has IT and cost constraints but wants to have web presence to grow their business.

Infrastructure-as-a-Service (IaaS) – In this model eCommerce sites and specialized solutions are hosted in private, hybrid or public cloud environment - leveraging the on-demand infrastructure (Network, Servers, Storage). The flexibility of IaaS can be particularly appealing for eCommerce companies that experience seasonal shifts in sales activity.

As per Gartner report -- By 2013, 40% of eCommerce deployments will use a complete SaaS eCommerce solution, and 90% of eCommerce sites will subscribe to at least one SaaS-based service, such as product reviews, product recommendations or social sales capabilities

The following table summarizes the impact of using cloud service model on the requirements of modern eCommerce systems:

Requirement of eCommerce System Cloud Advantages Cloud Concerns / Threats
Intuitive User Experience
  • Matured SaaS / PaaS vendors provide templates, tools, widgets and several advance features to create rich and interactive user experience and also handle customer support operations.
  • Limited site uniqueness – as the same code base / site instance with limited customizations serves many customers
Integration with disparate internal / external systems
  • Access to applications with advance capabilities and latest business and technology trends
  • Light weight web integration within the web-tire (mash-ups) using RESTful APIs
  • Low maintenance overheads and up-front investments
  • Provide anytime, anywhere access that can be consumed through multi-device clients – helps in implementing multi-channel support
  • Due to absence of standards there is lack of interoperability between the APIs provided by SaaS vendors. This impacts the flexibility to integrate/switch over to different competing SaaS solutions without much IT overhead
  • Challenge in providing real time integration with legacy / back-office / on-premises applications such as such as CRM, ERP, Merchandising, Fulfillment etc
  • Cloud service providers working under strict SLA ensure the agreed level of performance
  • SaaS solutions serving customers of multiple organizations might create performance bottlenecks unless the solutions are architected well to support the traffic bursts
  • On demand Scalability / Elasticity to support large number of customers, especially during the holidays/events
  • It can be challenging for the Cloud service provider to provide on-demand scalability during the holiday/event as the same will be required by other customers
  • Cloud service providers working under strict SLA ensure the agreed level of availability
  • Lack of accessibility of data critical to effective management and control, such as event logs
Security and Compliance
  • Cloud service providers working under strict SLA ensure the agreed level of security
  • Security and ownership of merchant and customer data, especially when using the public cloud
  • There are laws around customer data and financial data, which cannot reside outside of the country in some cases, and has to comply with certain security standard.
  • Application need significant re-architecting to support higher level of security and data separation between different merchants and their customers
IT Support and Dependency
  • Low IT Overheads and TCO
  • Free up organization resources to focus on their core business
  • Low skills requirements for customization of the site
  • Integrations with back-end/legacy systems and their maintenance does not relieve organizations from dependencies on IT resources.
Time to Market
  • SaaS and PaaS models provide flexibility in developing new sites with considerable reduction in time to go-live
  • Once the site is up and running, it is difficult to roll-out a quick change into the site. Merchants loose flexibility to accommodate the changing needs of his sales and marketing staff
Total Cost of Ownership (TCO)
  • No IT infrastructure and upfront CAPAX for network, servers, database, storage and backup.
  • Limited to No IT resources to support Client facing systems environment
  • Managed Application Operations provides predictable expense structure
  • In some instances the cost of migration to the cloud and ongoing OPAX can be higher than expected.
  • Cloud offering charging on transaction volume, impacts the merchants’ margins that are already squeezed on the margins on payment transactions and other costs.

Though cloud computing service models promise many benefits to business critical eCommerce systems, it comes with many concerns and threats that require careful considerations. There has to be a strong business case justifying the use/ migration to cloud computing. A few things to consider are – value of shifting IT, performance, security and availability risks to cloud service provider in-lieu of on-demand scalability, cost and time-to-market advantages. Organizations should spend time to perform thorough evaluation of the cloud service providers against technical and operations aspects. The cloud server provider should be ready to work under strict SLAs to ensure the security of customer data, performance and scalability.

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