How to Benefit from Cloud CommerceFast and Sustainably

How to Benefit from Cloud Commerce

Cloud Commerce brings entirely new and previously unknown opportunities – both in terms of technological innovations as well as business processes and investment models. Up until now, organizations with a cloud strategy were mostly focused on improving their agility and reducing costs, but cloud commerce offers so much more. Not only does it reduce risks, it also allows businesses to significantly boost revenue. For example, with the help of new business models, global expansion, shorter innovation cycles, a better customer experience and improved customer satisfaction.

In addition, cloud commerce brings many more of wide-ranging opportunities for IT cost reductions than merely those created by the often-cited scaling effects.

Growing revenue

IT investments typically bring a return of two to one, which makes them more profitable than, say, investments in research and development. This is according to a study by the University of Maryland. Another research finding is that return on investment in IT is primarily due to revenue increases, rather than cost savings. Cloud commerce helps organizations boost revenue in several ways.

 International Expansion

The world is increasingly connected. The McKinsey Global Institute believes that global flow of funds – i.e. international trade – accounts for almost a third of the global economy. More than half of these funds are directed towards knowledge-intensive sectors such as business communication and towards ‘smart’ products. What’s more, these monetary flows grow faster than those for capital or labor-intensive products. Where in the past you would have needed an ocean liner, and later a fax machine, to expand into international markets, today the connected, digital economy relies increasingly on cloud commerce. As an example, just think of the global cooperation in the development of ‘smart’ products, or of e-commerce networks and websites for global distribution and sales – all of these are based on a variety of cloud services such as video and voice over IP, or require the delivery of content via the cloud.

Business agility and accelerated innovation

When it comes to competing on a global scale, time is a critical success factor. Those organizations who can be the first to offer a new product, new product features, new manufacturing processes or new distribution channels, will secure market share and profit.

Businesses must hone and perfect their ability to predict changes in customer demand, macro-economic conditions and their competitors’ behavior, and to react to those changes - fast.

Time-to-market – the time between conceiving an idea and the product launch – is key. Those who go to market first can achieve high margins before their competitors have a chance to start price wars, which can ultimately affect the profitability of a whole sector. Platform-as-a-service models are an important component of strategies that reduce time-to-market for today’s digitalized products and services – from connected wearables such as sneakers with sensors that measure the physical activity of the wearer, to e-commerce websites. Reusing platform components means that organizations can improve quality and at the same time cut the time it takes to bring the new product or service to market.

Time-to-volume, the time between the start of production and large-scale manufacturing, is another critical factor: After all, the competitive advantage created by an early market entry will dwindle fast if potential buyers can’t purchase the products or services at the right price. Thanks to the flexibility of the infrastructure-as-a-service model, organizations can adapt more quickly to unexpected high demand for purely digital services, and scale fast to support the backend of connected products as well as simple order and payment processes for traditional products.

Improved customer experience

Studies have shown that a more interactive user experience goes hand in hand with higher revenues. Indeed, today’s customers expect digital experiences with varied and highly responsive opportunities for interaction. These, in turn, depend greatly on the computing power, storage capacity, architecture and performance of the underlying IT networks. It is important to remember that for frustrated customers dealing with a bad website or web shop, the competition is only one mouse click away.

Infrastructural and operational savings

Cloud commerce can save businesses costs in a variety of ways: For example, the cost of using a cloud commerce provider’s services can often be less than the cost of running and maintaining your own infrastructure. Organizations generally take the view that such providers ‘have’ to be cheaper because of the massive positive scaling effects. In reality, however, it is not that simple.

Whether the cloud provider can indeed offer compute and storage capacity for less depends on the relative cost structure of an organization’s own IT department – its efficiency, the organization’s purchasing power, and other factors such as whether the latest open server designs are used, where the data center is based and whether the data center benefits from tax relief. Sometimes, well-organized IT departments can incur lower internal costs, especially when expenses for sales or administration are taken into consideration. And finally, some complex applications will perform very differently on different physical and virtual infrastructure architectures.

That is why just comparing the price for compute and storage capacity is not enough. It is also important to weigh up the solution’s availability, security and performance against cost. And strategic factors count, too – such as the question whether an organization wants to focus on its core competencies and outsource non-core activities.

When it comes to the total cost of a system, one core factor is the variability of application requirements. When you think of how demand on a system can fluctuate, pay per use models of external cloud commerce providers enable obvious cost savings compared to an internal IT department that will always have to maintain the ability to run the application at maximum capacity – regardless of whether this capacity is always fully used.

A good analogy is how a hire car costs more per day than a leased or financed car. Despite the higher price per day, it will still save costs: The important point is that it is more economical to hire the car for the two days it is needed for, rather than buying it and then getting rid of it after two days.

In the same way that organizations regularly hire cars and rent hotel rooms when their employees travel, instead of buying them, they can also benefit from ‘hiring’ computing capacity in the cloud. Most companies operate with a combination of debt and equity capital, their own company cars and hire cars, leased and hired assets. Similarly, a hybrid IT architecture can offer the best cost/performance ratio.

Minimizing risk

Reduced risk is another key advantage of cloud commerce solutions. Volatile markets and a background of geopolitical tension can cause increased market fluctuations, uncertainty and instability. In addition, in our connected global economy, previously localized financial and economic crises spread as amplified shock waves. On the other hand, the interconnectedness of our world enables opportunities for exponential growth with new services and global product marketing.

Predicting demand for a product has never been an exact science, and today it is even more difficult. Businesses that make mistakes can suffer much more than ever before. Without a cloud commerce platform, unexpected high demand can lead to capacity problems, bottlenecks and negative customer experiences. Surplus capacity, on the other hand, means losses due to opportunity costs.

Cloud commerce offers elasticity. That means, sufficient pay per use resources are always available. Organizations that use cloud commerce can align costs with actual income and minimize any risks.

Conclusion

Cloud commerce solutions offer a new business model for data processing using innovative technologies. More importantly, such solutions positively affect business through higher revenue, access to global markets and improved customer satisfaction – all at reduced cost and lower risk.

Have you watched our Cloud Commerce video yet? --> http://www.intershop.com/cloud-commerce

Tobias Giese

VP Digital Solutions

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