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Boosting Online Commerce Profitability with Akamai


Table of Contents

Retailer Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Web Site Sluggishness Hurts Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Site Downtime Means Lost Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Complex Infrastructure Drains Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Computing the Business Value of Using Akamai . . . . . . . . . . . . . . 3

Increases Revenue from Lower Site Abandonment . . . . . . . . . . . . . . . . . . . . . . 3

Increases Revenue from Greater Site Availability . . . . . . . . . . . . . . . . . . . . . . . . 5

Decreased Call Center Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Decreased Infrastructure Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

About Akamai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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Retailer ChallengesTo thrive in today’s increasingly crowded world of Internet retailing, businesses that conduct commerceonline must continually innovate to engage and enthrall their customers. Consumers have high expectations for Web site performance, and companies must find ways to provide the best possible userexperience while managing an increasingly complex and costly Web infrastructure. Having the right infrastructure solution is no longer simply an “IT issue”—it is a core business decision that has a significant, direct impact on a business’s bottom lines.

Moreover, for multi-channel retailers, Web site performance influences far more than online channel success; several recent studies show that consumers’ online experience with a company directly affectstheir perception of the brand as a whole. A 2006 Gomez survey reports, for example, that 65% of online shoppers would stop or reconsider shopping at a company’s physical store if they had a poor online experience.1

Furthermore, consumers’ expectations for Web site performance are continually rising, as shoppers becomemore Web savvy and broadband penetration increases. In fact, new research conducted by JupiterResearchfinds that one-third of broadband consumers will wait no longer than 4 seconds for a page to load beforeabandoning the site. 2

Unfortunately, such levels of expectation can be difficult to meet given the performance, reliability andscalability limitations of traditional, centralized Web infrastructure. Thus retailers must overcome several key challenges in their site infrastructure in order to maximize site profitability.

Web Site Sluggishness Hurts RevenuesUsers Have High Expectations… But Traditional Web Infrastructure Can’t DeliverThe recent JupiterResearch survey finds that one-third of online consumers cited site slowness as the mainreason for their dissatisfaction with a site, second only to high product prices and shipping costs/issues. Of those who cited speed as a key problem, 74% said they are less likely to buy again from that site, 58% would abandon the site for competitor, and 33% will carry a negative perception of company from the experience.

Figure 1JupiterResearch survey findssite slowness has significantrevenue and brandingimpact for retailers.

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The Jupiter study shows that performance becomes even more important for higher value shoppers (those who spend more than $1500 per year online) and for more experienced shoppers (those who havebeen online for at least two years). While 31% of newer shoppers cite fast page loading as one of the most influential factors in determining their loyalty to a given site, this number rises to 42% among more experienced shoppers and to 55% among the big online spenders.

The Gomez survey finds similar results, with 43% of online consumers and 50% of frequent online consumers revealing that they have abandoned purchases because pages loaded too slowly.

All of these surveys put some hard numbers on the commonly-held knowledge that people simply don’t liketo wait for Web site pages to load—any more than they like to stand in long check out lines at the store.And Internet users have a particularly easy outlet for their impatience, as the Web offers them immediateaccess to many alternative shopping options.

Unfortunately, maintaining high levels of site responsiveness can be difficult with traditional, centralized Web infrastructure, as many performance-related issues are caused by Internet bottlenecks that are outsidethe control of the retailer. Companies need infrastructure solutions that can overcome even these externalInternet problems.

Site Downtime Means Lost SalesCan you imagine a store closing its doors in the middle of a Black Friday spending spree? Or cash registers being shut down while thousands of customers are still standing in line? While unthinkable in the brick-and-mortar world, these are exactly the types of site availability and scalability issues that commonly plague many online retail operations.

Traditional Web infrastructure does not cope efficiently or cost effectively with the highly variable and unpredictable nature of consumer demand; it cannot scale effortlessly or instantaneously. This unfortunatereality can turn the most successful product promotion into a company’s biggest nightmare, as an overwhelmed site infrastructure crumbles under heavy demand, leaving hoards of frustrated and angry customers in its wake.

The impact of site availability can be quite costly. A February 2006 survey of over 2500 online consumersconducted by market research group TNS shows that 70% of those planning to make a Valentine’s Day purchase online would try a site at most two times before giving up—either purchasing with a competitor or not buying online at all. 3

Figure 2JupiterResearch survey finds Web site crashes andunavailability have damag-ing sales and brandingimpacts for retailers.

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In addition to the immediate lost sales, companies incur many other costs when their site goes down,including lost productivity, damaged brand reputation, and future sales losses—both on- and off-line. The Jupiter study finds that more than three-quarters of consumers who experienced a crashed or frozenWeb site are less likely to buy online from that retailer again—and almost a quarter stated they were less likely to even buy from that retailer off-line. Furthermore, a 2006 Harris Interactive survey finds that91%of shoppers who run into any Web site glitches will question a company’s ability to keep their privatedata secure—and security is top of mind for consumers when determining where to transact online.4

Complex Infrastructure Drains ResourcesHighly variable levels of Web site usage are common in online retail sales, as seasonal sales, promotions,and high profile product launches often drive demands to levels that are 5 to 50 times higher than normal.These erratic demands cause significant headaches for IT staff dealing with traditional infrastructure capacity planning, and companies face a lose-lose scenario: Either overprovision to meet peak demands,resulting in costly, underutilized infrastructure, or provision for less-than-peak demand and suffer the business consequences of not reaching customers during periods of highest demand.

Furthermore, Web infrastructure grows increasingly costly to maintain as companies scale. In addition toescalating hardware, software, and connectivity costs and management overhead, companies’ needs forload-balancing, redundancy, monitoring and security become more complicated as their Web sites grow.Mirroring and other traditional approaches to increasing performance and availability can increase com-plexity by orders of magnitude, yet still provide relatively limited performance benefits. To support theirdynamic businesses, retail companies need infrastructure solutions that offer greater flexibility, availabilityand performance while minimizing maintenance headaches and costs.

Computing the Business Value of Using AkamaiAkamai enables companies to overcome the speed, availability and scalability challenges presented by traditional Web infrastructure, allowing online retail sites to dramatically and cost effectively improve Web site performance, and—as a direct consequence—business performance. With Akamai, online retailers are able to provide their global customer base with levels of site responsiveness and reliability that are unattainable with traditional Web infrastructure.

As the numerous studies cited here have shown, this performance boost results in more online purchases,greater average purchase size, fewer support calls, stronger customer loyalty, better brand reputation, and more repeat sales. While many of these benefits are difficult to quantify, in the next sections wedemonstrate how to calculate the following specific components of Akamai’s impact on business value:

• Revenue Impact of improved performance on site abandonment • Revenue Impact of improved availability • Cost Impact of improved performance on call center expenses• Cost Impact of offloading infrastructure

Increased Revenue from Lower Site AbandonmentWhat Happened to the 8-Second Rule?

In 1999, a Zona Research report popularized the often-quoted “8-second rule” for Web page downloadtimes, estimating that as much as $4.35 billion in U.S e-commerce sales was being lost to site abandon-ment due to unacceptable site performance.4 That was in the era of dial-up connections, with online commerce still in relative infancy. Today, high rates of broadband penetration and savvy Internet shoppers’ expectations have cut the 8-second rule in half.

JupiterResearch now recommends that retailers now keep page download times to under 4 seconds, asone-third of broadband consumers will wait no longer than this for a page to load before abandoning thesite. Online customers have ample reason to be fickle: they have easy, instant accessibility to hundreds ofonline retail destinations at the click of a mouse.

“ So many of today’s consumers are on broad-band connections, and theyexpect pages to load in three seconds or less.”

—Terry Mathies, VP of Information Technology, Ross-Simons

Decreasing Web Site Abandonment with Akamai

With Akamai, retailers enjoy consistently high performance across their Web site, enhancing the customerexperience and decreasing the likelihood of abandonment. The business value of decreased site abandon-ment can be measured as an increase in site conversion rate as well as an increase in overall site revenues.

Consider the following histograms in Figure 3 below, which are based on Keynote performance measurements of a three-step transaction at a major retailer’s Web site.

Although the retailer had a relatively responsive site before using Akamai, a significant number of transactions still fell close to or above JupiterResearch’s 4 second abandonment threshold (the three-stepmeasurements above use a 12 second threshold).

With Akamai, almost all transactions now fall comfortably beneath the abandonment threshold.

Thus by simply measuring site performance with and without Akamai, we can conservatively estimateAkamai’s potential impact on the site conversion rate as follows:

Impact = Reduction in % of Transactions Above Threshold X Performance Impact Rate,

where the Performance Impact Rate is the percentage of customers who are likely to abandon a transaction if it takes longer than the Abandonment Threshold. The JupiterResearch report, Gomez study, and other consumer surveys indicate Performance Impact Rate is somewhere in the 30% to 50% range, depending onthe demographics of the site visitors. In other words, research shows that 30% to 50% of transactions thatfall above the threshold are likely to be abandoned specifically because of performance.

With Akamai, a significant portion of the slow (above the Abandonment Threshold) transactions on a Website are sped up so that they now lie safely within acceptable performance limits, thus increasing abandon-ment rates.

In other words, if 40% of a site’s transactions fall above the Abandonment Threshold without Akamai, but only 10% fall above it with Akamai, then Akamai’s potential impact on the site’s conversion rate is:

= Reduction in % of Transactions Above Threshold X Performance Impact Rate

= (40% - 10%) X (30% to 50% range) = 9% to 15%.

For this example, decreasing the number of abandoned transactions, Akamai can improve the site’s conversion rate—and therefore overall site revenues—by anywhere from 9 to 15 percent.

For a retailer with $300 million in annual sales, this equates to at least $27 million to $45 million in additionalrevenue. In addition, our customers have seen that the improved site performance generally translates intosignificantly greater numbers of site visitors as well, so Akamai’s performance-based impact on revenues islikely to be even higher.

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Figure 3Akamai greatly reduces the number of transactionslikely to be abandoned dueto slow performance bypushing transaction timesbelow the AbandonmentThreshold.

“ So many of today’s consumers are on broad-band connections, and theyexpect pages to load in three seconds or less.”

—Terry Mathies, VP of Information Technology, Ross-Simons

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Increased Revenue from Greater Site AvailabilityAlthough many top retail sites strive for somewhere between two to three 9’s of availability in their Webinfrastructure—that is, between 99% and 99.9% of uptime, translating into roughly between 9 hours and3.5 days of unplanned downtime)—in reality, the rate of availability to end users is still somewhat lower.

Both Keynote and Gomez, Inc. publish frequently-updated benchmark indices measuring the site availabili-ty of the top retail Web sites. These benchmarks indicate that even the top 20 to 30 retail sites currentlyachieve only about a 98% availability rate on average. 6,7 This amount of unplanned downtime means significant potential revenue is being lost as consumers try to access retail sites that are unavailable.

By improving a Web site’s availability to end users, Akamai effectively enables retailers to increase overallsales. We can conservatively estimate this business impact as follows:

Impact = Average Revenue Per Hour X Number of Uptime Hours Gained,

where the Average Revenue Per Hour is the calculated from the site’s total annual sales, divided by (365 X 24), and Number of Uptime Hours Gained can be estimated from the total number of unplanneddowntime hours a company currently experiences. Thus a company with $300 million in online sales gaining 3 days of additional availability with Akamai stands to increase revenues by:

= Average Revenue Per Hour X Number of Uptime Hours Gained

= $300 million / (365 X 24) X 72 = $2.7 million.

In reality, for sites that are not using Akamai, downtime is most likely during periods of peak crowds—such as seasonal shopping or promotional periods—when the Average Revenue Per Hour is much higher.Thus, Akamai’s real impact may be several times what is calculated above, as Akamai enables sites to handle these peak crowds easily, without loss of responsiveness or availability

Customer Results

DYMO Corporation: 85% increase in online salesLeading labelmaker manufacturer DYMO Corporation realized their Web sites were not performing well enough to support their marketing promotions. Sluggish performance and sitedowntime led to lower than normal sales after a major marketing promotion, spurring DYMO to look for a better infrastructure solution. With Akamai, DYMO’s improved site performance has led to:

• 85% increase in online sales

• 12% increase is site conversion rate

• 10-12% increase in average order size

Customer Results

Ross-Simons: $20 million increase in online revenueSuccessful multi-channel jeweler Ross-Simons sought a solution that would allow them to deliver a superior user experience for their luxury products while cost-effectively handling highlyvariable traffic load due to site promotions and seasonal traffic. Their SSL-protected check outpages were especially slow, greatly hampering sales. With Akamai, Ross-Simons saw a 230%improvement in home page response times and saw their online revenues increase from $40 million to $60 million annually.

Decreased Call Center CostsWhen Web sites don’t perform, customers who don’t simply abandon ship will often choose to complete thetransaction over the phone. While this is the more palatable of the two outcomes, the switch to phone sup-port still puts a drag on profitability: phone transactions generally cost companies between $3 and $25 percall, while Web transactions typically run well below $1 per order.

Akamai customers have seen Akamai’s Web site performance and availability benefits translate directly intodecreased support calls and phone orders. This is particularly true during critical periods such as marketingpromotions and other events that drive peak crowds to the retailer’s sites. During these same periods, callcenter costs are likely to be even higher than usual, as overflow staffing is required to handle increased callvolumes, and greater numbers of customers are required to wait for longer lengths of time—resulting infrustrated customers, high long distance expenses, and lost sales. By enabling the Web site to effortlesslyand cost-effectively handle its own peak traffic, enormous pressure is reduced from the call center.

We can conservatively estimate this business impact as follows:

Impact = Decrease in Calls X [Cost per Phone Order - Cost per Web Order]. ,

Assuming a $5 differential between phone and Web per-order costs, a company fielding 20 million callsannually and experiencing a 2% reduction in calls stands to save:

= Decrease in Calls X [Cost per Phone Order - Cost per Web Order]

= 2% of 20 million X $5 = $2 million.

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“ When customers turn to the call center out of frustration with our site, the site is no longer a cost-effective channel.”

—Terry Matthies, Vice Presidentof Information Technology, Ross-Simons

Customer Results

Golden Village Multiplex: 100% site availability, 66% increase in revenuesAkamai enabled Golden Village Multiplex, Singapore’s premier cinema operator, to achieve 90%faster page speeds and 100% uptime for their Web site while meeting highly fluctuating levels of demand. This allowed Golden Village to enjoy a 66% increase online ticket sales by 66%—achieving a more convenient ticketing solution for their customers while moving away frommore costly phone order and in-person ticketing venues.

Customer Results

Cathay Pacific Airways: $1.5 million in annual savingsHong Kong-based airline Cathay Pacific faced the challenge of ensuring a quality user experiencefor its worldwide customer base. They knew a high performance site would increase online book-ings and check-ins, thus decreasing the use of more costly channels. Using Akamai, Cathay Pacificimmediately saw a 65% increase in global site performance, contributing to a 100% increase inonline bookings. The resulting proportional decrease in call center costs saves them an estimated$1.5 million annually.

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Customer Results

InterContinental Hotels Group: 25,000 reduction in call center callsLeading global hotelier InterContinental Hotels Group was the first in its industry to offer online reservations. As an Internet pioneer, IHG views online user experience as paramount tomaintaining its brand and company objectives. The site performance and availability benefitsprovided by Akamai not only provided industry-leading responsiveness to their global customerbase, but also led to significant improvements to IHG’s “look-to-book” conversion rates, with an estimated $8 million increase in online sales over two years. In addition, the site improve-ments have led to an estimated 25,000 fewer calls as increasing numbers of customers chose tobook online instead.

Decreased Infrastructure CostsBecause Akamai is able to deliver a significant portion of retail Web content directly from its network, Akamaigreatly reduces the infrastructure requirements for the origin Web site. This reduces hardware, software,bandwidth, and maintenance costs, and also frees up IT resources. Typically the greatest reductions are foundfor bandwidth and Web servers, but application servers and SSL processing can be reduced as well.

We can conservatively estimate this business impact as follows:

Impact = Bandwidth Offload X Bandwidth Costs

+ Web Server Offload X Fully Loaded Web Server Costs

+ Application Server Offload X Fully Loaded Application Server Costs,

where Web server and application server costs include hardware, software, overhead, maintenance and personnel costs.

In addition, many of our customers see enormous infrastructure savings from the ability to avoid complexinfrastructure build out and failover solutions such as site mirroring.

Even more importantly, Akamai’s infrastructure offloading enables companies to focus on their core businessstrengths rather than spending cycles worrying about their infrastructure capacity. With Akamai, companiesenjoy on-demand scalability that allows them to handle flash crowds as well as rapid site growth withoutincurring additional infrastructure and operational overhead, and IT can spend its resources focused on otherstrategic initiatives rather than wasting time constantly trying to plan, estimate and overprovision for peak crowds.

Customer Results

Redcats: 90% reduction in bandwidth, reduced operational costsRedcats USA, the third-largest U.S. catalog retailer, needed an infrastructure solution that wouldsupport its exponential Web site growth—delivering a superior online user experience, whilereducing infrastructure costs and simplifying management. The Akamai solution enables Redcatsto offload 90% of its bandwidth usage while supporting marketing campaigns, catalog dropsand traffic growth without additional operational costs.

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SummaryFor companies with online commerce operations, Akamai not only allows organizations to improve siteresponse times and scalability for seasonal traffic but also provides business value to retailers in each of the following areas:

About AkamaiAkamai® is the leading global service provider for accelerating content and business processes online.Thousands of organizations have formed trusted relationships with Akamai, improving their revenue andreducing costs by maximizing the performance of their online businesses. Leveraging the AkamaiEdgePlatform, these organizations gain business advantage today, and have the foundation for the emerging Web solutions of tomorrow. Akamai is “The Trusted Choice for Online Business.”

Akamai Technologies, Inc.U.S. Headquarters8 Cambridge Center, Cambridge, MA 02142Tel 617.444.3000Fax 617.444.3001U.S. toll-free 877.4AKAMAI(877.425.2624)

Akamai Technologies GmbHPark Village, Betastrasse 10 b D-85774 Unterföhring, GermanyTel +49 89 94006.0

www.akamai.com

©2007 Akamai Technologies, Inc. All Rights Reserved. Reproduction in whole or in part in any form or medium without express writtenpermission is prohibited. Akamai, the Akamai wave logo, EdgeSuite, and EdgeComputing are registered trademarks.Other trademarks contained herein are the property of their respective owners. Akamai believes that the information in this publication is accurate as of itspublication date; such information is subject to change without notice.

AKAMWP-ECOMM-0207

1. Gomez, Inc. “Online Shopping Experience Report.” September 2006.

2. JupiterResearch. “Retail Web Site Performance: Consumer Reaction to a Poor Online Shopping Experience.” June 2006. Survey commissioned by Akamai Technologies.

3. TNS. February 2006. http://www.alertsite.com/articles-yahoo_feb92006.shtml

4. Harris Interactive. “A Study About Online Transactions.” September 2006.

5. Zona Research. “The Economic Impacts of Unacceptable Web-Site Download Speeds.” April 1999.

6. Keynote. Keynote Online Retail Transaction Indices. 2006 (updated weekly). http://www.ecommercetimes.com/ectpi/

7. Gomez, Inc. Retail Product Order Benchmark. 2006 (updated monthly). http://www.gomez.com/Performance_Strategies/benchmarking/benchmark_retail.html

Customer Results

Ross-Simons: $300K in infrastructure savings, increased marketing flexibilityTo support their marketing promotions, leading jeweler Ross-Simons had been undertaking costly “over-sizing” of their Web infrastructure, and, even so, their marketing department had to stagger delivery of email promotions to try to avoid overburdening the site.

With Akamai, Ross-Simons delivers a high-performance experience for users no matter what theload, and the company saves tremendous time and resources previously spent managing and estimating capacity. In addition, reduced server and bandwidth expenses has saved them $300Kin annual infrastructure costs while handling their processing-intensive transactions even faster.

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