Jan 9, 2013

The pros and cons of hosted E-commerce

When a small business owner makes the decision to enter into the world of E-commerce, the first decision that confronts them is usually whether they need to build a stand-alone E-commerce web site or sign-on with a hosted application provider like Magento or BigCommerce.

Each approach has its advantages and disadvantages. What the small business owner has to decide is which method of online selling will provide the most value and return on investment. Today I’ll take a closer look at the plus and minus columns for online storefronts based on hosted applications.

The immediate advantage: Easy startup

Likely the first thing that will get you to take a closer look at a hosted E-commerce solution is the initial cost to get started. Typically, hosted E-commerce that’s aimed at the small business market will have a fairly low startup cost compared to the expense of developing a custom E-commerce web site.

Depending on the provider (and the cost), the startup fee will either give you access to a set of design templates that you can roughly customize through some sort of setup ‘wizard’ or it may buy you some time (usually a few hours) to work with an account specialist who can customize the store template for you.

Additional elements of the setup (including product entry) are typically wizard-driven, which means you don’t need any specialized knowledge of development languages like HTML in order to get your store running. You may need some patience to work step-by-step through multiple setup routines, but otherwise there’s no rocket science involved.

Hosted applications also offer simpler and less expensive payment options. Most of them will process payments for you, which means you don’t have to purchase a security certificate or sign up for a payment gateway account. In some cases you may not even need a merchant banking account.

The monthly bill

Of course, those payment services aren’t free. Hosted application providers charge a higher monthly fee than you’ll pay for almost any stand-alone hosting. Your essentially renting an E-commerce engine and a payment platform. Also be aware that some providers charge you a small percentage of your store sales in addition to their monthly fee, while others may have an escalating fee structure that’s based on either your sales volume or the scope of your store inventory.

It’s a moderate plus that your store is automatically updated with the newest features as the provider develops them – although the flip side is that you have no choice to opt-out of application upgrades that you think may not benefit your business.

Although it’s largely an aesthetic issue, the heavily template-driven nature of hosted applications makes your site design difficult (if not impossible) to customize in any large measure. That’s not to say all stores based on a specific application look alike, but if you want a unique design or specific ‘look’ then hosted E-commerce may not be the best solution.

Competitive disadvantages

To my way of thinking, the biggest disadvantage is that hosted E-commerce applications don’t provide you with all of the tools you need to give your site a competitive edge in the very crowded Internet marketplace.

Most hosted applications provide search visibility that’s mediocre at best, and they don’t give you many options for enhancing the site’s search optimization. In some cases you may be able to pay the application provider (or a skilled developer) for additional search engine optimization – but a good stand-alone E-commerce engine should have a lot of useful SEO tools built-in that you can make use of yourself.

In addition, hosted applications offer fairly limited sets of marketing tools and are usually difficult to interface with external CRM or marketing software suites. Some offer ‘advanced’ marketing features for an additional fee but – again – these are all features that should be included in the basic functionality of any good stand-alone E-commerce engine. Stand-alone sites that are built around industry-standard SQL databases are typically very open to a variety of data interchanges, while hosted application sites generally use more proprietary data structures that aren’t as open (or aren’t open at all) to advanced development work.

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