Overstock.com Overcomes Overloads

By Duff Mcdonald  |  Posted 05-05-2005

Overstock.com Overcomes Overloads

Overstock.com calls itself the earth's greatest discounter. And the company, which sells an Amazon.com-like potpourri of excess inventory that it has taken off the hands of flat-footed manufacturers, distributors and retailers, isn't kidding around: It has actually copyrighted the phrase.

If its sales performance is to be believed, it might actually be right: The company's 2004 revenues of $495 million were up more than five-fold from 2002 levels, and gross profits have nearly quadrupled, climbing from $18.3 million to $65.8 million.

Although the company has yet to make an annual profit, it has been narrowing its losses fairly consistently, and did make it into the black in the fourth quarter of 2004, earning $2.5 million.

Company execs say they've succeeded by operating on a shoestring budget, passing all savings on to their customers. While that's good news for customers, it's hardly music to an IT department's ears—especially one that's been told to plan for a doubling of business each and every year.

The business continues to double, says Stephen Tryon, a vice president at the Salt Lake City-based discounter, because of a simple business plan: Overstock.com offers a low-price guarantee; the company takes slow-moving merchandise off other retailers' hands and squeezes out its own profits by handling product more efficiently than anyone else.

Tryon says the company's original technology investments got it through the first four years of its growth, up to the end of 2003.

Then the IT team realized that if things continued along their current trajectory, sales in the fourth quarter of 2004 would approach $250 million.

That meant the company's IT infrastructure had to be the equivalent of that of a $1 billion company. And yes, they had to build it on the cheap.

That was the job offered to Shawn Schwegman, vice president of technology at Overstock.com, when he joined the company in 2000.

As Overstock.com looks back on its best holiday season yet—one that brought in some $221 million in sales and went off without an IT hitch—it's clear Schwegman has done what he was asked.

Like many companies whose livelihood depends on 24/7 availability of electronic data and transaction capabilities, Overstock.com decided in 2004 that it would build a colocation facility to house the company's vital customer and transaction information, in addition to a "fail over" facility already in a second location. Until last year, says Tryon, "all the company's information eggs were in one basket."

To wit: In the past, when the volume of traffic put stresses on the infrastructure, the company actually resorted to shutting down internal applications, such as a desktop "executive dashboard" that showed real-time sales, in order to protect the customer's Web site experience. But with the scary projections for 2004, the IT team decided it was time for redundancy.

Overstock.com purchased two networked storage systems from EMC Corp. to ensure the Web site's availability and continuity.

ZIFFPAGE TITLEKeeping up With Growth

Keeping up With Growth

After many all-nighters with the EMC team testing the new system at a colocation facility, the company moved its production database over to the new facility at the end of the third quarter.

"We talk about building the Ark during the first three quarters of every year," says Tryon. "And last year was the first year we weren't still hammering boards onto the side as the rain started to come down."

At the same time as Overstock's IT people were building redundancy into the system, they were also enhancing the company's database storage architecture to stay in front of customer demand.

The company built a storage area network to handle the expected increase in customer data, while also moving to a database clustering technology to provide fault tolerance and increase scalability.

The company went with an Oracle 9i database for its online storefront, and ultimately Oracle 10g for a new auction business, aimed squarely at eBay customers, that the company launched in September 2004.

By this time, Overstock.com execs realized they had so many customers that a vigorous analysis of data could open up myriad new selling opportunities.

So they built a data warehouse to capture, mine and analyze those terabytes of customer data—a task for which it recently partnered with data warehousing industry leader Teradata.

"We'd like to perform more sophisticated analysis on our customer base than we're currently capable of doing," says Tryon, who thinks Overstock.com will ultimately be able to use that analysis to ensure it doesn't lose its best customers. Beyond a deeper understanding of pricing, he sees any number of ways to put the information to use, including e-mail promotions and enhanced customer service. "We'll use it as a customer retention tool," he says.

Just as important as the company's data safety and analysis, says Tryon, is managing the growth of the human element.

The number of Overstock.com employees has more than doubled, to 427, since the end of 2002, and IT personnel now number 49, up from just 13 two years ago.

"We have to plan on some installation time for people as well as hardware and software," Tryon says. By pairing new employees up with veterans, everyone gets a leg up from day one. And while incentives such as cash bonuses are handy motivators, Overstock tries to make sure it hires people who are motivated by the challenge of the job itself.

The latest example: In mid-November, the company came across the opportunity to add a design-your-own-jewelry component to the site. But to make the effort worthwhile, they needed it ready for Valentine's Day. That left the IT department just three months to add the feature to the site.

The employee responsible for shouldering most of the burden spent several nights sleeping in the office to make sure it happened on time. He was unavailable to comment about his experience at press time, as he was in the middle of a two-week vacation he had earned for his efforts.