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COMMENTARY

The Price Of Doing
E-Commerce Business, Part 2


By Jeff Bloom & Rob Kay

In the last column we discussed what it takes to build a competitive  E-commerce site.   We looked at the questions every business must ask before launching into this endeavor and the complex technologies that must be harnessed for an e-commerce siteto flourish.

The subject for this column is perhaps a bit more straightforward:  What is it going to cost you to build an E-commerce site? 


The Bottom Line

To answer this question we spoke to several top-notch, local consultants about the cost of building a competitive E-commerce site. Basically, we wanted to know what amount of resources a company has to expend to get a decent E-commerce component.

Not surprisingly what we found is that the measure and capacity of any project can vary.  One important factor is that the price of skilled personnel to do the web work is very high.  Other considerations include the scale of the site and the type of back office support a company will need.  Running a full-bore E-commerce site may entail hiring new people to concentrate exclusively at this task.  We’ll let our experts provide you with the answers…


What The Pros Say

The first person we spoke to was Mike Meyer, the founder of Honolulu-based Wave Internet, an E-commerce consultant and the former technical whiz behind Oceanic Cable.

It’s Mike’s contention that the costs of a true E-commerce site is not simply the “parts” such as the shopping cart, the credit card processing technology, etc. According to Meyer a “small to medium business can build a dynamic, database driven E-commerce site for $25,000-$100,000”.  The real cost, he told us is the back office web integration, which is “dependent on the level of digitalization and business process integration”.  That, he explained, will cost $50,000 and $500,000 “to start”.  He said that the national average for E-commerce site development costs are about $1.5 million and they are expected to increase by around 20% per year for the next five years. “The increases,” said Meyer, “are because about 75-80% of this cost is labor for the development team and skilled operational staff. On-going costs include an average full time staff of 15-20 to maintain a working e-commerce site with full operational integration.”

Robin Tijoe, the local rep for Zland.com, a mainland company that helps small to mid-sized business build e-commerce sites, told us that it was quite hard to quote a price. “For an E-commerce site provided by a company that also provides consultation and ongoing support, you should expect to spend no less than $2000-$2500 to set it up,” said Tijoe.  “It would be safe to say,” she said, “that, in this business, you get what you pay for.”  Thus if it seems too good to be true, there's a reason why.  ZLand.com, she explained, provides free initial consultation to companies formulating their web site strategies.

Peter Kay, the founder of Cybercom (www.cyber-hawaii.com), is one of the pre-eminent E-commerce gurus in town. His response was that the cost of setting up an effective E-business site really depended upon the “feature set” that is being used.  Whereas Amazon and Yahoo, he told us, will let you build a decent E-commerce site for “next to nothing”, companies like Broadvision will charge $250,000. The price range is incredibly wide and Cybercom, he told us, has provided E-commerce solutions for as low as $6,000.00 and as high as $250,000.00.


Some key features that have a large effect on price include:

Pricing structure of goods sold—Is your site hawking simple sales  such as coffee mugs or t-shirts, or does it entail complex products such as hotel rooms which have variable costs based on time of year?  The more complex your products, the more that will go into site.

Back-end integration---Here, Peter Kay echoed Mike Meyer’s earlier comments about back office integration. How deeply does the new E-commerce component integrate with your existing business systems, if at all?  Do you have to re-enter online orders into your in-house system? How do inventory changes get processed to/from the Web site?  You need to clearly answer these kinds of questions when integrating your front end (web site) with the back-office.

Customer service—Customer service, as we’ve heard before can be the Achilles heel of online commerce. One of the primary issues is the ability of a customer to get order status and history online. For example, Amazon lets you know (via e-mail) what you’ve purchased in the past and will inform what’s going on at every step of the process by providing an e-mail that lets you know your order has been processed, your gift has been mailed etc. These types of procedures must be integrated into the system.

Marketing--What kind of performance reports do you get?  Does the Web site tell you which products are hot and which are not?  How easy/hard is it to get analysis of customer patterns and send out a targeted promotion email?  Does the site have the power to do automated suggestive selling?

Scalability--How many simultaneous users can your site handle?  Can the site grow to handle more users as business increases?

“These factors among others”, said Kay, “will have a dramatic effect on potential cost.”

In the next column we’ll look at another key questions when considering an e-commerce site:  Do you go with local talent or have your site developed on the mainland?


Rob Kay is a Honolulu-based public relations practitioner who works with technology companies in Hawaii and Silicon Valley. He can be reached at rkay@pactechcom.com or 539-3627. Jeff Bloom is the founder of Computer Training Academy/Network Resource Center, a computer education/consulting firm based in Honolulu. His contact is jeffb@cta.net or 839-1200. You can read past columns at http://www.cta.net/news/. Suggestions for column topics are welcomed.

Pacific Business News - August 4, 2000

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