Outsourcing Options: Turning to the Web Masters

• 05/19/1999

What do you do when you have a great idea about harnessing the power of the Internet to drive your business, but you don’t know how to make it happen?

You could train someone in-house and delay implementation for a few months, or you could bring experienced help on board. But will they be able to handle the job as well as their resumes claim. There is another option.

You could take the same path Mark Schneider did: Write a check and outsource the whole project. Schneider, the bureau chief and host of Vancouver-based Digital Desk, a daily business news and information show that appears on the city’s CTV News 1, wanted to add an interactive e-mail feature to his show’s format. His plan was to have viewers communicate interactively with questions and comments during airtime. "We really wanted Digital Desk to be able to respond to audience questions," Schneider explains. "We were looking to be a broker between people who have questions and people who have answers."

Convinced that the show didn’t have the technological capabilities on hand, Schneider and his staff turned to The Electric Mail Co., also based in Vancouver. The Internet contractor quickly stepped up to the plate with AKA, an e-mail alias service. AKA is a Unix-based routing system that allows companies to create, modify and delete addresses without having to rely on an ISP. The software enabled Digital Desk to use one domain name for all its employees and allowed the company to activate and deactivate account activity at will. Staffers now routinely add and delete news bites and contest questions from show to show. "The software allows us to have very powerful administrative control without having to be technicians," Schneider adds. "That’s what our outsourcing deal does for us."

According to International Data Corp. (IDC, www.idc.com), the U.S. market for discrete network management and monitoring services contracts was valued at $2.4 billion in 1998. That figure is expected to rise to $4.7 billion by 2002, IDC reports.

Companies anxious to link their networks to the Internet are on the hunt for middlemen to do the job. Some want to establish a Web-based supply chain connecting them with all their suppliers. Others want an outsourcer to host and support their applications via the Web. All seemingly want to climb aboard the e-commerce express and are convinced they can’t do so without help. "We’re seeing clients who want some or all of their Web functions outsourced," notes Andre Chartier, director of e-commerce at DMR Consulting Group (www.dmr.com), which handles Internet systems integration tasks for companies worldwide. "Some may want to hang on to their legacy systems, but they don’t want to tie their Internet activities to their legacy systems. They’re scared of security issues and would prefer a professional [Internet company] to handle that. But they all want a piece of the e-commerce pie and they’re willing to pay to get it."

At San Francisco-based Gateway Learning Corp., managers recently signed on with Nexchange Corp. (www.nexchange.com) to provide the educational company with a host of "Hooked on Phonics – Learn to Read" on-line books for its Web site. The e-commerce pact will allow Gateway to build and operate its "Hooked on Phonics" virtual storefront. Nexchange will handle all the back office transaction processes and provide tech support for the Gateway Web site. "Even on the Internet, it all comes down to location, location, location," explains Chip Adams, chief executive officer at Gateway. "Nexchange offers us fully functional stores on many of the best locations online. We couldn’t have accomplished that on our own."

Many vendors point to Microsoft Corp. as a Web outsourcing pioneer, particularly on the e-commerce and Web applications sides. "We’ve been offering Web outsourcing services for years," observes Gideon Rosenblatt, group manager for e-commerce services at Microsoft. "We learned early on that smaller companies depend on Web-technology vendors to handle a lot of their tasks. Ultimately, these businesses have made the financial decision that the benefits outweigh the costs of farming out some Web work. It’s their money and they’re very pragmatic, but most companies are outsourcing their Web functions because they can’t afford not to."

Rosenblatt points to Microsoft’s highly successful MSN CarPoint program (http://carpoint.msn.com). For a fee, auto dealers nationwide can access the Microsoft site to bid on and sell new and used vehicles. "Car dealers are notoriously frugal about spending money, but we’re winning them over," Rosenblatt says. "We were able to convince the dealers that if they resorted to selling cars the old fashioned way, it still left too much time for people to change their minds. We were able to quantify that if they relied on faxes and such to close deals, the process usually took 48 hours or so. At that juncture, closing rates were only about eight percent. But by selling over the Web, they could close deals within 24 hours, where the closing rate is about 33 percent. When sales started soaring to about 20 or 30 cars per month at participating dealers, we knew we had their attention."

With CarPoint, Microsoft gets the dealers’ information services managers involved early. The program created a way to show dealer inventories online at no cost to the consumer. The Web application software that made it all hum, called Console, was installed at sites with the help of the dealers’ IS staff. "When you’re outsourcing something new to clients, it’s vital that you get in early and build relationships with the technology people at the site," Rosenblatt explains. He adds, "With CarPoint, we were able to work as a team with the dealers’ IS people who, in many cases, actually helped us install the software. But they were more than willing to help in order to get access to more customers via the Web."

The bottom line for dealers is seeing a tangible return. Rosenblatt adds, "If there’s one phrase that sticks in my mind, it’s one dealer screaming, 'Get me customers! I don’t care how, just get me customers!' That’s what the Web is all about."

Everyone wants to rush online and "get customers." But what Web functions are at the top of the list to be outsourced?

According to Rebekka Kumar, product manager for commerce marketing at Microsoft, direct selling service and corporate purchasing sites are hot, as are electronic bill payment functions and graphics content. "People usually start small at first, but eventually they’re eager to outsource just about everything," she says. One exception is systems integration, which Kumar says most companies want to handle themselves. But everything else is up for grabs. "We’re seeing customers move from the incremental approach to the full package fairly quickly." While Microsoft is loath to talk about costs and fee structures, Kumar adds that users are saving "a lot of money" by outsourcing their Web tasks. "People, especially small business people, could never afford to reach the audience we’re giving them access to on the Web. When it comes to business-to-business, people can’t afford not to be on the Web."

Web vendors are quick to defend their pricing platforms, emphasizing that the return on investment far outweighs costs. "We’ve seen $12,000 investments turn into $300,000 returns," says David Dunn, president of Visionary Corporate Computing Concepts (VC3, www.mosaic-comp.com) an Internet solutions integrator. "Costs are always going to be a big deal, but not only are you making a smart financial move you're also ridding yourself of some real headaches in managing these tasks as well."

Even so, there’s still a lot of handholding needed for traditionally minded, Web-shy companies. "There’s a big fear of what going online really means to companies, says Anish Dhanda, president of NetNumina Solutions Inc. (www.netnumina.com), a Web application development firm. "One home appraisal company that we helped get on line with an e-commerce package wasn’t sure if they wanted an e-commerce or e-business site. They didn’t understand the distinction. They also weren’t sure whether or not they should leverage their own existing systems or not. There’s no shortage of anxiety out there."

To help assuage customers’ Web fears, NetNumina includes a blueprint and a 10-day assessment period when it starts out on an outsourcing project. "That’s the relationship part," Dhanda says. "Both parties should know where they’re going and how they’re going to get there – together." Dhanda says that the most legitimate concern on the part of clients is the possibility of getting stuck with a Web vendor they don’t like. "That’s why we take things so slowly at first – being tied to a vendor they don’t care for is a huge concern to companies with limited budgets." Even with the 10-day period, Dhanda says that all of his company’s clients are up and running at full capacity within 30 to 90 days.

While fears about Internet security or skepticism about online commerce may hamper some companies from committing to a wholesale Web outsourcing campaign, there are plenty of companies that are happy to grab the whole enchilada and outsource everything.

Take the City of Conyers, Ga., for example. The city recently decided to overhaul all of its computer systems with an eye on getting online. With the help of VC3, the City of Conyers is installing a new Windows NT network, Y2K compliance for all of the city’s desktop computers, a new e-mail messaging system, a helpdesk and an Internet connection. The new system was demonstrated last January to rave reviews. "We’ve been able to tremendously improve our internal communications," says Rebecca Woolcot, city manager and a key player in handing the work over to VC3. "We’re heading toward a virtual government system, allowing the public to pay traffic violations, taxes and bills and to request city services 24 hours a day via the World Wide Web. And we were able to do that on time and under budget."

Many outsourcing vendors, once they’ve installed a new Web page or application, will provide customized software solutions that allow clients to manage the new Web networks themselves. That doesn’t mean the vendors go away after a Web site goes up. "Far from it," says Marc Goodman, senior marketing director at F5 Networks Inc. (www.f5.com), an Internet quality control firm. "Most companies will tell you that they're understaffed in the IT area in the first place, so you can’t just plug them into a new Web system and walk away. That said, you do want to leave them some room to customize their applications to suit their particular needs. So we’ll document the entire process and put it in a handy report that addresses critical network issues. That way everyone is on the same page."

F5 Networks believes that clients need to be treated fairly and charged a fair price. "That’s important to customers who seek outsourcing help," Goodman says. "They would have preferred to handle things on the inside, but with staffing shortages and rapid technology advancements, that’s not as realistic anymore. We’ll come in and talk to management, get a picture of what’s needed and then start in on collecting data and customizing that data for the customer. We’ll check out the CPU utilization and review the Local Area Network and make sure everything will click. We don’t see a lot of flack for fees, I think we’re pretty cheap. It would cost clients about $4,000 alone just to get the tools in house that we already have.

"That’s why outsourcing is such a good deal," Goodman adds. "Customers get someone who has the tools, knows the issues and will get results. You can’t beat that."