When commerce businesses are considering investments in key technologies, the terms TCO (Total Cost of Ownership) and ROI (Return on Investment) are often used to determine the economic rationale of the investment.
Currently, the economic value that businesses are seeking from their investments is getting a closer look with inflation reaching double digits, consumer demand subsiding substantially and the dreaded "R" (recession) word becoming a real possibility. However, misconceptions often dominate the evaluation of TCO and ROI and many components in calculating these metrics are misunderstood.
In the following series of blogs, we will shed light on the TCO and ROI of commerce investments and how commercetools is built to drive value by impacting both.
First, a quick primer on commercetools Composable Commerce
commercetools Composable Commerce is first product in the market that serves as the engine for world-class businesses to run their digital commerce operations. One of the core principles of composable commerce is that merchants, marketers and developers can “compose” a unique brand or customer experience with an extensive and customizable API portfolio.
This API-first model allows businesses to adjust, enhance and optimize specific and targeted areas of their commerce experience, and methodically mix and match native and third-party best-of-breed applications to find what works for them.
Capturing the “total” in total cost of ownership
The common misconception of composable commerce is that it has a higher TCO. Between the upfront implementation costs, the ongoing subscription fees, infrastructure and hosting, and costs to maintain compliance and security, the impression is that composable commerce comes with a hefty price tag. Especially businesses with limited time, IT bandwidth and budgets close the door on composable commerce as they fear costs and fees will spiral out of control.
We contend that many of the misconceptions around the high TCO for composable commerce are based on a myopic view. Instead of looking at the costs incurred at Year 0 or Year 1, commercetools is built on the premise that the future of commerce is unpredictable; consequently, many non-composable solutions become outdated and irrelevant in a very short amount of time.
In other words, as your business is always evolving and non-composable platforms are unable to keep up with changing market conditions in a cost-effective way, the gap between what you need to deliver and what you can deliver becomes wider over time.
When it comes to TCO, we recommend customers take a longer-term view to capture the “Total” in Total Cost of Ownership. You need to include everything! Not only what it costs now but also what it will cost in the future. Below are some key cost drivers that often get overlooked in a TCO evaluation of commerce systems.
The cost of inflexibility
What are the persistent challenges you need to correct to unlock a tremendous amount of value for your shoppers and your commerce business? Chances are, you already have a good idea. Inversely, you may also know if something is working just as it should, and in cases like that, you don’t want to disturb it.
The commercetools composable architecture enables merchants, marketers and developers to be selective, so they can methodically target specific areas of their business that need attention, while leaving alone the areas that are working just fine. The flexibility of choosing the appropriate API to work on is a key tenet of composable commerce — and it contrasts significantly with inflexible, non-composable platforms.
Inflexibility has a hidden cost for your business: When you cannot build commerce experiences that resonate with customers, have to deal with mounting technical debt and increased integration costs, your all-in-one platform doesn’t feel like a bargain any longer.
Analysts like Gartner agree that composable commerce is a key driver in reducing TCO, as the analyst predicts that by 2023 prices for B2C digital commerce platforms will be 30% less than in 2019. In addition, IT costs of managing SaaS operations are expected to be halved as a result of the adoption of composable application architectures by 2024.
The cost of employee attrition
commercetools believes that enabling your internal teams with modern tools to work with has a direct impact on how the team collaborates and gets motivated. After all, nobody likes to just focus on fixing bugs or rising issues.
It’s easy to imagine a high employee turnover when they get outdated technologies that leave little room for innovation with prescribed out-of-the-box features and tooling that they are not used to.
As your commerce business becomes more digital and technology-enabled, your developers are just as critical as your merchandisers and marketers, and employee attrition can have a devastating impact not only on team morale, but your bottom line. Remember there’s a cost to replacing good employees, too. Instead, give your team more fun and relevant challenges, so you can hire and retain talent like never before.
The cost of legacy maintenance
An undesirable byproduct of having inflexible systems that forces businesses to undergo a complete tech stack replatform is the accumulation of unused and outdated technologies. As we mentioned earlier, commerce moves and evolves at a fast pace and technologies become outdated quickly.
Suppose that technology is part of a vendor’s locked-in ecosystem. In that case many organizations may be forced to allocate resources to maintain a platform in which they only use a fraction of the services.
Unlike a composable model, you can focus your budget and resources on a specific area of your business, a monolith platform is a sledgehammer that removes a lot of the precision businesses need to optimize cost across their business.
Have we piqued your interest? To learn more about the business value of composable commerce, watch our webinar.Unlock the Business Value of commercetools