eCommerce

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Out Is In

• 03/01/09

WHEN IT DOUBT, FARM IT OUT. This catchy phrase was amantra of the Business Process Outsourcing (BPO) movement of the 1990s-- apush to outsource all superfluous IT applications so that administrators could focuson core competencies to get ahead.

While times have changed, the mantra is back, big-time. As the national economic climate worsens, and college and university endowments, coffers, and funding sources shrink, schools are forced to get the most out of every dollar. That means that administrators are bending over backwards to see that all new investments provide maximum return on investment (ROI) over the long term.

Campus eCommerce is no exception to this trend. Data from a variety of sources indicate that increasing numbers of postsecondary institutions are turning to hosted eCommerce solutions to handle online transactions. While this strategy enables schools to reap the benefits of online sales, it also frees them from having to worry about building, maintaining, and monitoring the hardware and software necessary for credit card transactions over the web.

The fact of the matter is that for higher ed institutions, outsourcing eCommerce is nothing new. As far back as 2005, a Lumina Foundation for Education report revealed that 45.7 percent of participating schools had already turned to privatized services in the campus bookstore-- largely where most eCommerce transactions occur.

And there are other data indicating that hosted eCommerce could indeed prove profitable for schools. A breakdown of hosted online sales may not be currently available, but clearly, the time is ripe for such sales to take off on the coattails of campus store online sales in general. The National Association of College Stores estimates AY 2006-2007 online sales at college stores at $499 million or 5.3 percent of all US college store sales-- a number that actually trumps the national average of 3.4 percent of all retail sales taking place online. What's more, the 2008 NACS College Store Industry Financial Report shows a steady rise in median online sales for college stores for the past three years.

Clearly, hosted eCommerce is poised to be the wave of the future for colleges and universities. But that doesn't mean administrators and technologists should limit their thinking to the traditional campus store items only. Take a look at three different perspectives on the theme, the first of which zeroes in on the campus store itself:

The Campus Store Perspective

Divining the future of eCommerce is second nature for the folks at OH-based NACS. Because most higher education eCommerce transactions take place at the campus bookstore, NACS closely tracks trends in this area. Mark Nelson, the organization's digital content strategist, oversees that activity.

Regarding the prevalence of hosted eCommerce setups on US campuses, Nelson notes that among those schools still controlling their campus stores (many have been outsourced to larger companies such as Barnes & Noble or Borders), smaller institutions appear to be opting for hosted eCommerce solutions with much greater frequency than larger ones.

"Many of the larger stores have dedicated IT staffs, most of which focus on their store's website as a key responsibility, while many smaller stores cannot afford dedicated IT people, thus they are likely to outsource such a function," he says. Nelson adds that, for these schools, outsourcing makes sense because eCommerce probably would cost them as much if not more to tackle on their own.

Still, he is careful to point out that there are challenges associated with entrusting a third party to manage monetary transactions. Especially in the area of student privacy (as per the Federal Educational Rights and Privacy Act of 1974), he warns that it's important for a higher education institution to make sure the company it hires to host its eCommerce solution is committed to taking proper care of the student information that passes through its servers.

"Outsourcing is a difficult technology decision in many ways," he says, but notes that with this in mind, at least for the appropriate schools, "the benefits that are likely to come make a counterbusiness case to any concern."

Nelson believes that, down the road, whether colleges and universities decide to outsource eCommerce or handle it on their own, he and his colleagues at NACS will see an uptick in online purchasing on US campuses. In particular, a growing number of campus stores are also experimenting with eTextbooks, and many have realized that online retail outlets make it easier to sell mementos to out-of-state alumni. Even more important, Nelson notes that eCommerce sites generally are less costly than mailing hard-copy catalogs.

"Though most students purchase their textbooks directly from a [brick and mortar campus] store, online purchasing of books and paraphernalia is attractive," he maintains, noting that college stores that offer a "clicks and bricks" option of a website and a physical store are in the best position to serve their customers. "When eCommerce is available, students seem to use it."

Think: Real-World Application

Not all hosted eCommerce applications are campus-bookstore-related. At The University of Alabama, for instance, a new program dubbed "My Football Ticket" allows students to buy and trade for football tickets electronically. The program was launched last fall before the most recent football season, and campus technologists worked with the vendor Blackboard and the folks in the Action Card campus ID card office to pull it off. Almost overnight, the program helped eliminate paper game tickets for students and created a more efficient business operation across the board.

According to Gina Johnson, UA's associate VP for auxiliary services, the system also has enabled students to utilize the campus portal to transfer to others those tickets they can't use-- a vast improvement over the old-fashioned method of meeting up to exchange paper tickets. "We set up the new system because demand for tickets exceeded supply, and we wanted to do something about it," she says. "It sounds like a big undertaking, but we're outsourcing all of it."

Here's how the system works: Before the season starts, 15,000 of the school's 27,000 students are given the privilege to buy special student-section tickets based on their enrollment standing (whether or not they've paid their tuition bills for the semester). To purchase the tickets, students log on to a secure website hosted on the Blackboard Community System; they pay with money they store in individual online deposit accounts. Once a student has purchased the tickets, a ticket credit is added to his or her Blackboard account.

On game days, students swipe their Action Cards (known on campus as "ActCards") at the stadium gate. Instantly, a magnetic-stripe scanner at the gate checks each student's account to make sure he or she has purchased a ticket. If the credit for a ticket registers, the gate opens. If the ticket credit isn't there, access is denied. In the event that a student cannot attend a game, he or she can log on to the same secure website and forward the ticket credit to a friend. There's even a message board where students can post notes when they are seeking tickets, and connect with others who are interested in selling or giving theirs away. The site has a section where students can donate tickets, too. And another plus: Students can use the system to "upgrade" allotted tickets and pay the difference to exchange their special-rate student-section tickets for full-price seats that would suit moms, dads, and friends from other schools.

Jeanine Brooks, director of the school's Action Card program, says these transfers are free of charge, but notes that the convenience factor for students has been ROI enough. "With this system, students are buying or trading tickets at 2 or 3 in the morning-- times they could never buy tickets when they had to stand in line." She discloses that during this past football season, the system saw 14,000 ticket transfers, 3,000 donations, and more than 130,000 hits to the hosted eCommerce website, overall. "We had no idea it would work so well!" she declares.

While Brooks and Johnson decline to reveal how much revenue this particular component of the application has generated, they are already excited about next year-- and not for the revenue alone. Says Johnson: "Ultimately, the hope is to get more students into each game."

‘Communal' Commerce

In the spring of 2008, a new hosted eCommerce solution burst onto the higher education scene: an open source tool called Magento. The software, which competes with osCommerce, is implemented via a network of solution providers who work with the vendor, Varien, to provide eCommerce services. A number of schools have signed on, including the University of California, Davis, and Leeds Metropolitan University in the UK.

The benefits are numerous. On the surface, Magento provides colleges and universities with the freedom to customize the solution, tailor it to their business model, and expand on it for years to come. The solution also allows schools to incorporate user-generated content such as ratings, reviews, and tags, as well as the opportunity to integrate more tightly with social networks and alumni networks, to stimulate further sales.

Behind the scenes, Varien CEO Roy Rubin maintains that outsourcing eCommerce with open source can lead to even greater ROI. "Outsourcing eCommerce allows managers to focus on merchandising and marketing products, while leveraging vendors' core competency in technology," he explains. "Outsourcing the implementation of an eCommerce platform also benefits the clients, since the focus of the project can be on designing and integrating the platform with any existing back-office software."

Still, Rubin notes that hosted open source eCommerce solutions aren't for everybody. Because of the communal nature of product improvement, the technology needs frequent updates-- a process that can become tedious, even when a school is relying on third parties to take control. Another issue: the persistent misperception that open source solutions are free. As with any software, Magento comes with implementation costs, and also involves a number of (frequently unforeseen) running costs such as the purchase of SSL certificates, which are necessary to protect credit card transactions.

Yet Rubin insists these costs are a minor price to pay for the flexibility his solution provides. Nicole Engelbert, lead analyst with market research firm Datamonitor, agrees. Though she describes herself as "skeptical" about the general enthusiasm for open source, Engelbert is intrigued by the notion of schools farming out eCommerce via this kind of model, especially because of what she sees as the increased safety inherent in hiring a third party to handle sensitive issues like security.

"Any time you talk about eCommerce, you're talking about identify theft, fraud, and a host of problems that could be introduced at the transaction level," she says. "Few institutions [of higher education] have done a super good job of managing that on their own; outsourcing it takes the headache and the risk off of their plate pretty quickly."

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