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Insights / Blog / Agility & Organisation

E-Commerce retailers turn to DIY teams for software development

September 29, 2015
Steven BaileySteven BaileyChief Strategy Officer

The German E-Commerce retailers are heading down a path of controlling their mission-critical online business solutions – something I was made acutely aware of again at the K5 Conference, recently held in Munich.

Many companies can no longer sustain success solely with pure E-Commerce solutions, having industry standard products in place. Businesses are becoming more “cross-over”: as elsewhere in our lives, all things are mingling, and many of these disrupt – starting as a little seed in the crowd. The German E-Commerce retailers also need to broaden their knowledge base in order to thrive. Probably the best-known example of this trend is Amazon.

However, there is more to it than simply adding new product lines to the portfolio or expanding into web services along the lines of Amazon Web Services.

Following a different strategy, German online retailers such as Zalando or Mister Spex have begun building their own development teams. And this trend is not restricted to E-Commerce companies alone. Supermarket chains Rewe and Tengelmann have picked this up, too, by building online sites and increasing technical know-how.

What’s the motivation?

At first glance, building software development expertise appears to be exclusively for in-house use. And, to begin with, this might be the case. Online retailers are simply reacting to increased online traffic as well as to challenges to the performance of their technical infrastructure. It isn’t unheard of that a web platform has to handle 5,000 peaks per second or 500 concurrent users at the checkout. Auto-scaling is another topic to be dealt with.

These issues and many more must be addressed and there are advantages to having in-house experts. Internally, one might have a much better understanding of the company’s business case: product-, market- and customer-wise, as well as the changing target of adapting the go-to-market strategy.

Another reason the larger companies are turning to in-house DIY software development might be the lack of viable alternatives in the market. There is a lack of qualified providers of Enterprise solutions who are capable of developing and operating E-Commerce platforms on this scale. A “cross-over” business has a very detailed market complexity – not many providers are capable or willing to drill down as deeply as needed). In addition, retailers might actually think they can react better and more quickly to their needs than an external vendor.

So why not do it yourself?

Best of breed vs. Jack of all trades

The real danger for the online retailer is that the company’s skill set becomes diluted. Rather than following a best-of-breed approach by focusing on their core business, these companies are trying their hand at complex technical issues. It will mean keeping track of all innovative trends in IT, frameworks, technical tools, etc. As AOE is one of the leading Open Source companies, it is for sure challenging to keep track and have teams to pick up new innovative technology trends – and these challenges will grow exponentially in the future.

So why do it yourself?

What these companies are doing is disrupting their business. This is only natural, as perpetual disruption  is a constant in today’s economy. In the case of Zalando this disruption was best exemplified by their tagline: “Scream when thrilled” (“Schrei vor Glück”). Not only were they disrupting their own business, they were also disrupting the entire fashion industry – in particular shoe retailing. To this day, Zalando continues to disrupt its business.

The challenge posed by perpetual disruption applies both to these online retailers as well as to those web solution integrators who provide external E-Commerce services such as developing and implementing large-scale online solutions, among others.

All system integrators: “Scream for disruption!”

There are many complex businesses that are in desperate need of challenging “cross-over” web solutions.