Lower commerce TCO

The business value: How to lower your commerce TCO

commercetools speaker image Micheal Scholz
Michael Scholz
VP, Product & Customer Marketing, commercetools
Published 23 January 2024
Estimated reading time minutes

In today’s dynamic economic landscape, the management of technology expenses has become increasingly critical. This imperative is driven by the crucial need for scalability, adaptability and innovation. Businesses are grappling with the complex challenge of optimizing their technology expenditure while simultaneously maintaining a balance that supports continuous innovation. 

This blog explores the evolving world of technology cost management, highlighting essential metrics that extend beyond the conventional total costs of ownership (TCO) framework. Furthermore, it examines how composable commerce emerges as a strategic approach to reduce the costs associated with first-gen SaaS platforms.

Lower commerce TCO

The increasing cost — and importance — of the right tech stack

Navigating tech environments and their associated costs can be quite a challenge, especially post-pandemic and amid ongoing economic shifts and increased competition. But fear not! Tackling these hurdles head-on is essential, as it opens up opportunities for innovation and flexibility — key players in ensuring a business’s survival and profitability. The modernization of tech stacks is now a focal point, demanding a strategic evaluation of costs.

Here's the scoop: It's not merely about slashing costs but rather about optimizing them for maximum business value. This involves enhancing efficiency, adapting to market shifts and driving innovation. Platforms like commercetools, which champion a modular, API-first approach, are at the forefront of this shift. These customizable eCommerce solutions are all about tailoring specific solutions, eliminating unnecessary components and boosting returns. 

TCO and beyond in a modern context

Traditionally, the evaluation of technology investments primarily centered around upfront (or build) and operational (or run) costs. This approach, however, often overlooks the significant expenses associated with the cost of change in developing, scaling and operating. Total cost of ownership (TCO) has evolved to address this gap, now encompassing the full lifecycle of technology solutions and incorporating stages such as Inception, Development, Scale, Operations, and potentially, Replatforming. This expanded view is crucial as it acknowledges the dynamic nature of modern technology environments and offers a more realistic reflection of the costs incurred over time.

As laid out in the eBook, A new approach to TCO for Digital Commerce, supplementary metrics to TCO like total cost of change (TCC) and total spend productivity (TSP) offer a comprehensive view of technology expenditure. 

TCC should be conceptualized not merely as a static, absolute figure, but as a dynamic measure of the effectiveness and efficiency of implementing changes within an organization's technology infrastructure. It serves as a barometer for assessing the agility and responsiveness of a business to adapt to new challenges and opportunities. An optimal TCC is characterized by its ability to minimize waste and redundancy, ensuring that every change, whether it's a minor change or a newly integrated solution, is executed with maximum efficiency.

TSP represents the percentage of TCO that directly contributes to adding business value. It evaluates the effectiveness of each dollar spent in terms of its ability to drive meaningful business outcomes such as revenue growth, improved operational efficiency and enhanced customer satisfaction. This metric helps businesses to not only track their technology spending but to also assess the real-world impact and productivity of these investments. A high TSP indicates that a significant portion of technology expenditure is being effectively converted into tangible business benefits, thereby reflecting a savvy and strategic allocation of resources.

Hidden costs and challenges first-gen SaaS platforms

Many commerce platforms have been around for quite some time, pioneering the shift to a software as a service (SaaS) model. These platforms represent the first generation of SaaS solutions in the commerce space and are therefore known as "first-gen SaaS" platforms. While they marked a significant evolution from traditional on-premises solutions, they come with their own set of challenges.

Characterized by their outdated architecture, these first-gen SaaS platforms are akin to square pegs trying to fit into the round holes of today’s fast-paced and dynamic business environment. They come with a high TCC, notable inflexibility and accrue significant technical debt. Businesses also face scalability issues, talent attrition risks and the often-overlooked end-of-life costs associated with these platforms.

Despite being marketed as headless and, in some cases, composable, first-gen SaaS solutions often fall short of these claims due to inherent limitations. They frequently harbor hidden costs, including complex integration challenges, continuous maintenance requirements, unexpected downtimes and difficulties in scaling. Additionally, organizations often encounter vendor lock-in scenarios, forced upgrades and the substantial costs associated with addressing skill shortages. 

These challenges, though they may not be immediately apparent, accumulate over time. They ultimately affect an organization’s competitiveness and operational efficiency, undermining the perceived benefits of adopting such solutions.

So, what's the solution?

The emergence of composable commerce has redefined how businesses can optimize  technology expenditure. Composable commerce, exemplified by platforms like commercetools with its core product commercetools Composable Commerce, embodies a paradigm shift by offering a modular, API-driven approach that profoundly impacts TCO. In fact, renowned analyst Gartner predicts a 50% reduction in IT costs related to software operations by 2024 due to the adoption of composable application architectures.

At its core, composable commerce champions a revolutionary principle: The ability for merchants, marketers and developers to architect unique, tailored brand experiences through an extensive, customizable API portfolio. 

This API-first model empowers businesses to adapt, enhance and optimize specific facets of their commerce experiences. Instead of the traditional one-size-fits-all approach, composable commerce allows for methodical mixing and matching of native and third-party applications, enabling companies to precisely craft solutions that align with their evolving needs.

Truly composable commerce platforms are characterized by their architecture, which consists of independent, cloud-native, and technology-agnostic components, ensuring unparalleled flexibility, scalability, and sourcing of skilled resources.

How composable commerce lowers TCO

Let's bust a common myth together. There's this idea floating around that composable commerce comes with a TCO, but we're here to set the record straight. 

At first glance, it may appear that composable commerce, with its need for multiple solutions, would be more expensive. However, in reality, many businesses find that their existing all-in-one platforms lack sufficient features, necessitating additional solutions. This leads to a challenging situation where businesses face difficulties in integration and maintenance, not to mention paying for duplicate capabilities..

Some of the ways TCO is optimized with a composable architecture: 

  • Lower license costs: Compared like-for-like, composable solutions typically offer lower licensing costs than traditional platforms.

  • Lower integration & maintenance expenditures: Composable platforms provide higher degree of flexibility and scalability, leading to a lower cost of change and higher degree of productivity. This also results in reduced operating expenses, as these platforms are easier to change, integrate and maintain.

  • Future-proofing: While the initial investment in a composable solution might be higher compared to current systems, it's vital to assess the long-term benefits. A key question is the future-readiness of your current solution and its capability to adapt and innovate in a competitive market.

As evidence of the cost savings brought about by composability, businesses that have transitioned to commercetools Composable Commerce have seen substantial financial benefits:

  • The Salling Group achieved a remarkable 75% reduction in operating costs.

  • APG & Co. experienced a 35% decrease in operating costs and a 60% reduction in technical support time.

  • Cargo Crew reduced 700,000 AUD in raw development costs, surpassing the total investment made in the eCommerce platform.

Conclusion: Embracing the future with composable commerce

The shift to composable commerce is not just a technological trend; it's a vital strategic choice for businesses aiming for agility and growth. 

And guess what? The industry is giving them a big thumbs up! Well-respected analysts, coupled with success stories from the customers over at commercetools, shine a spotlight on how these solutions are transforming the game. They're not just cutting TCO; they're empowering businesses to thrive in a dynamic marketplace. 

This approach offers reduced license and maintenance costs, and future-proofs digital commerce strategies. By enabling precise customization to meet evolving needs, composable commerce is key to operational efficiency and competitive edge. As businesses adapt to market demands, those embracing composable commerce will find themselves well-positioned for sustained success.

In essence, composable commerce is more than a cost-saving measure; it's a pathway to innovation and market leadership in the rapidly evolving digital domain.

Are you interested in reducing the TCO of your eCommerce platform? Then reach out to us today.

commercetools speaker image Micheal Scholz
Michael Scholz
VP, Product & Customer Marketing, commercetools

Michael Scholz is the VP of Product & Customer Marketing for commercetools. With two decades of experience in retail & software at SAP, Hybris, SuccessFactors and Sift, he has been leading software development, presales, consulting, marketing & strategic alliances.

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