By Brian Walters, Senior Director of Solution Engineering, Percona
The COVID-19 pandemic impacted virtually every business.Many companies were affected by physical store closures and stay-at-home orders, and some companies were unable to trade at all. In the US, eMarketer predicted a total US retail spending decline of 10.5%, which is around $4.894 trillion. In response, a significant portion of retail activity switched to online channels instead, and many businesses saw a massive increase in online sales during lockdown.
According to McKinsey, eCommerce market penetration of retail activity grew from just over 15% in 2019 to around 35% in Q1 2020. This represents an estimated ten years' worth of growth in just three months. This will not drop again in the near future – in its Future of eCommerce report for 2021, Shopify found that 79% of respondents would carry on shopping online in six months time.
What does this mean for the eCommerce industry as a whole, and what impact has the change in customer activity had on businesses?
The big changeover
Companies faced with lockdown and a significant increase in online ordering either had to expand their eCommerce services or get their operations online. Shopify saw a 71% increase in new merchants using its platform between Q1 and Q2 of 2020, and that this growth continued later in the year. From an infrastructure perspective, companies used cloud computing to support their business decisions and their growth. As part of this, many companies looked at how they managed their customer and transactional data.
For some companies, the shift to the cloud was a simple decision, as they wanted to get their services up and running quickly, at a time when the prospect of implementing their own hardware was a massive challenge. Cloud services could scale up and down depending on the level of demand, which would also theoretically solve the problem of handling peaks in demand.
For companies with more mature digital footprints, the move to eCommerce was easier from a technical perspective. The main challenge was the huge spike in traffic as eCommerce replaced the lack of in-person access. Some companies saw their online traffic volumes increase as much as ten times, a huge increase on previous levels. Rather than innovating, these companies had to press pause on any new and future projects and focus on how best to scale and improve performance instead.
Alongside this, many firms looked at open source databases as their back-end platforms. These databases could be implemented quickly, either on a cloud instance or using a Database as a Service, and they could run in the cloud.
Looking back and ahead
After a challenging year, companies have continued to embrace eCommerce as a way to reach customers effectively. However, some of the decisions made in the heat of the moment should now be reviewed.
For example, are your initial assumptions about the cloud still holding up, or did they miss the mark? It's very easy to start up in the cloud, but your initial decision may not be the right course to follow a year later. Looking back, you can see if your current approach is still correct or if there are changes that you can make in order to either save on costs or improve performance. Equally, the ability to scale up and down in the cloud can be harder than expected, particularly when larger instance sizes are required.
Similarly, as more people get vaccines and the virus is under control, the future will move to a more hybrid approach. This will lead to customers returning to real world experiences and shopping on the high street again. But, there will also be many customers who want to stay online. This could lead to a drop in cloud expenditure as demand through eCommerce services drops, if you architected your approach correctly at the start. However, while your eCommerce traffic may fall, in some cases those cloud costs may continue at their pandemic levels. This uncertainty makes predicting future IT demand levels more difficult. It is therefore important to examine both your service demand and your cloud expenses to keep costs under control.
Looking closely at your database can help you identify trends and activity levels too. Are you seeing the level of activity around data you originally expected, or has this increased as more customers buy online? If your initial installations and instances are no longer delivering the right level of performance, this can lead to problems. Moving to new tiers of the cloud can be an expensive option, so improving efficiency and optimizing your environment can be a better use of your spend over time.
This will be a wider trend for companies planning their 2021 activities. With cloud operating expenses growing and becoming harder to predict over time, this can be a risk to your business. Unexpected changes in spend levels or additional costs due to data transfer can quickly add up. Similarly, assumptions around what you might need at the start when it comes to cloud storage and compute can add costs over time.
Carefully reviewing this might show that you have to make some changes. In order to take the right path, it is important to understand what future challenges might arise. For example, the spike in traffic and load volumes may not continue, so cutting back on IT operations may be necessary. Similarly, companies may want to continue with their new data approaches so that they can continue to benefit from the insight they get from online transactions. This may be harder in a hybrid retail environment compared to a fully digital one.
Whatever happens to the retail sector, looking carefully at cloud cost management and open source can help companies of all sizes realize the greatest return on their IT spend. While digital operations have helped companies to survive and improve their online performance during the pandemic, the future will be decided through smarter approaches to running IT operations. This will involve a mix of cloud and open source, helping to control costs and to ensure that the company can flex up and down depending on changing social and economic factors. Maintaining a close eye on your eCommerce approach and IT spend allows you to improve efficiency and keep costs under control during an uncertain time.