The Friction-Free Future of E-Commerce 3.0

The Friction-Free Future of E-Commerce 3.0

2010 was the year of social media: Mark Zuckerberg was named Time's Person of the Year, "The Social Network" seemed poised for Oscar glory, and Facebook exceeded Google's(Nasdaq: GOOG) daily traffic. Certainly there were hiccups along the way -- privacy settings, ease-of-use and the Google Buzz debacle -- but no serious commentator currently considers the social Web to be anything but an established part of the media universe.

For all that, monetization of the social Web has been a story of extremes. While Zyngascored more than US$1 billion in sales of virtual farm machinery, the vast majority of social Web entrepreneurs struggled to find the right technology to create a viable business model. Survey after survey found that larger organizations used the social Web for creating buzz, rather than sourcing customers, and that consumers directed to products via social recommendations were much more likely to try the product, but were no more likely to purchase than those who stumbled through the door from paid search ads.

The broadcast effect of social media platforms creates the buzz but the narrowcast of known and trusted connections is what makes sales. In other words, presence on Facebook (through fan pages, "Like" campaigns and advertising, etc.) does great things for bringing a product into global awareness, but the actual selling process demands a more e-commerce-like, demographically tuned and personalized approach.

Delta Airlines, for example, discovered that, while the buzz of using social media for advertising purposes generated positive effects, the company could create real, measurable results by deploying a ticket reservations app that was embedded within the Facebook experience.

Connected E-Commerce

Perhaps more importantly, we have discovered the value of connectedness throughout the e-commerce world. Internet marketers, often known as "affiliate marketers," are at their most formidable when they coalesce into informal social networks, each promoting one another's product releases over a period of time. This sharing of prospect lists and demographically homogenous audiences ensures that the right consumers are being offered the right product at the right time and that the marketers involved are able to generate an ongoing revenue stream that feeds their business.

Similarly, we see the emergence of peer-to-peer rewards programs that develop social recommendations into actual marketing programs. Organizations such as TipFrom.Me make it easy for buyers to recommend the things they buy to their friends and associates and to receive a bounty each time a friend actually buys. In this way, the social recommendation now has a bi-directional value, and encourages consumers to participate more actively.

This will be the year that vendors create their narrowcast strategies within the social Web, Internet marketers leverage their informal social networks to drive sales growth, and consumers narrowcast their social media channels to reach new, highly qualified prospects. In other words, we are entering the era of connected e-commerce, where the adage that it's not what you know but who you know becomes a defining characteristic of the successful online merchant.

The reality of today's online shopping experience is that consumers are still consistently finding that websites are not equipped to service customers after they drive them to their site. A recent Harris Interactive(Nasdaq: HPOL) poll found that 90 percent of consumers experience problems when conducting online transactions and that number has not improved in the past three years. Studies show that large numbers of consumers are abandoning their online shopping carts, with the percentages ranging from 49 percent to over 75 percent, depending on the study. Consumers are looking for simplicity -- and some of the leading e-commerce sites have already broken into the new paradigms necessary to really monetize business and make the online shopping and purchasing process easier for the consumer. But these were incremental steps and the basic purchase transaction process has not changed much.

Frictionless Buying

It was the Apple (Nasdaq: AAPL) online App Store that captured the consumer's imagination and is revolutionizing the industry with its simplicity, ease of use and true one-click purchase experiences. It is seamless from start to finish -- frictionless. This has ushered in the era of online commerce that one might call "e-commerce 3.0."

Leveraged by the social Web, in part the App Store market place concept is not new. But what Apple has done well is create a platform that does an outstanding job of two very basic requirements for online retailing: seamlessly collect consumer credit card information and shopper personal information and put the two together. It has created a platform that through sheer ease of use convinces users to purchase products through Apple time and time again using information previously gathered.

The credit card is transparent -- the only vital information a shopper needs to supply is their Apple password. This revolutionized the "card holder not present" payment and marketing industry for online sales, even though the environment is a walled garden -- closed to any business model other than that defined by Apple.

Broad to Narrow

As the old saw goes, all politics is local, and ultimately all e-commerce, however global in scope, comes down to persuading individual users at the retail level to invest their limited cash on specific products or services. What this means is that there are fundamentally two stages involved in taking the wide world of Internet users and turning them into customers:

  1. Aggregate the largest number of customers possible into a single, addressable location.
  2. Qualify the huge pool into a subset that is truly addressed by your value proposition and market directly to them.

Put another way, the broadcast paradigm of the big-time social network can bring a huge mass of people into a single locale; it is then the task of the merchant to narrowcast their message to some defined subset of that crowd.

Take, for example, a game (that doesn't yet exist, as far as I know) based on a romantic comedy movie: participants choose the part of either male or female protagonist and must then collect badges and items to "woo" the other. These items can be earned by playing puzzle games, or purchased through the swapping of real money for game currency. Facebook is an ideal platform to release the game on, as then anyone who wants it can get at it; but the publisher must do something more narrowcast to attract the interest of the subset of that total audience who would want to play (and pay to play!) the game. Simply slapping a game onto Facebook and advertising broadly is a recipe for failure. Instead one must narrowcast the message to the consumers who are likely to qualify as prospects and then capture, earn and retain their interest.

Impact on Current E-Merchants

The online world, is becoming more reliant upon connections and narrowcasting messages to just the right audience demographic in order to deliver superior revenue growth. While there is danger in this turn of events, there is clearly great opportunity for those merchants able to go with the flow.

To most effectively leverage this emerging era of connected e-commerce, merchants should

  1. Execute a social network strategy: Employ the broadcast capabilities of the social network platform to distribute knowledge (i.e. create fan pages, use advertising etc.), then narrowcast the message to the ideal demographic. Identify thought leaders and bring them "inside the tent" and ensure ongoing dialog with the prospects most likely to impact market perception of the product catalog.
  2. Build informal networks to leverage the list: Connect with related Internet marketers, as well as publishers of complementary products, to deepen the catalog, gain access to partners' lists and generate greater return from one's own list. Drive excitement and movement by having fresh new offerings to the list on a regular basis.
  3. Convert customers to micro-affiliates: Implement a micro-affiliate program within the business encouraging consumers to become marketing outlets for the product. Focus on the best products in the catalog, knowing that new browsers only buy when the product is genuinely well-presented and well targeted.

Merchants who build a more connected business can leverage direct relationships with consumers, indirect relationships via partner list holders and extended relationships via social recommendation. In the new social market of the emerging second decade of the 21st century, these relationships will define the winners and the losers.

Simon Jones is vice president of strategic solutions at Plimus.

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