Online Retail: Getting the Right Product in Front of Your Customers
BY Vijay Chittoor
A few technologies that impact online retail have recently gained wider adoption, and will help consumers find the right products online more easily in the coming decade.
After surviving the bust at the end of the '90s, online retail has done quite well in the first decade of the new millennium. From being just 0.6 percent of all retail in early 2000,online commerce has now grown to account for nearly 4 percent of all retail in the United States. In this article, we review some technology trends that are likely to further accelerate this trend. Our focus will be around looking at technologies that help consumers find the right product easily as well as help retailers put the right merchandise in front of customers.
While most of these technologies trends apply to a wide spectrum of applications, their impact on online commerce deserves a special mention. Many of these technologies have been around for a while, but it's only now that they are gaining wide adoption.
Semantic Web and structured data
The semantic Web and structured data will make product search dramatically better. Last year, Google made two subtle announcements that have the potential of completely transforming how users search for products. The first affected Google's organic (or unpaid) results, when the company launched what it called rich snippets, using microformats and Resource Description Frameworka (RDFa) standards. Google was late to the game, as Yahoo had already announced similar support a year ago. The second change applied to Adwords, Google's paid search program, when the search engine started listing richer product listing ads from retail advertisers, displaying an image of the product, the price, and many other attributes. These ads will be priced on a "cost per action" basis, as opposed to the standard "cost per click" model that's offered for all other Adwords advertisers.
It is interesting that Google's rich snippets were first rolled out only for 2 applications, one of which is closely related to online commerce:
• Providing a summary of reviews, when searching for products or services. • Distinguishing between people with similar names, when searching for a person. Similarly, Google's CPA program was also rolled out only for product searches.
Search-engines are already a very important tool for online shoppers, and a Nielsen study had found that more than one third of shoppers use search engines. Richer snippets and richer ads will make search engines even more important to shoppers, and consequently to retailers. According to Yahoo, "enhanced search results" drive 15 percent more clickthroughs for many websites. With results like that, it's no wonder that adoption is picking up among websites. In the same blog post, Yahoo reported an increase of more than 400% in the RDFs structured data driven by Search Monkey. Best Buy recently released their entire product catalog in RDFa, perhaps becoming the first Fortune-500 company to join this trend, and has reportedly seen strong results.
Recommendations and personalization engines
Recommendations and personalization engines are now available as plug and play components. Outside of search, one of the most important ways for shoppers to discover products has been through recommendation engines. Personalization and recommendation engines have been around for a while and have been a strong driver of sales. For example, Amazon's recommendation system was said to account for up to 35 percent of sales in 2006. Recently, the adoption of recommendation engines has increased substantially because of the emergence of third party services that are easy to plug into your ecommerce store. For instance Urban Outfitters has seen a triple digit percentage increase in sale by using a solution offered by Baynote. Other companies like Mybuys and Certona also deliver hosted solutions for personalization.
Creating APIs that distribute products across the Web is easier. Over the last few years, the Web is increasingly becoming a collection of Web services that can be accessed through APIs. Retailers like Ebay and Amazon have for a long time used APIs to expose their data to the external world, primarily to affiliates and partners who then sell these products at other places on the Web. Now many traditional retailers are jumping into the fray, utilizing services that make it easier to create and manage APIs. For instance, Best Buy recently launched Best Buy Remix powered by API management infrastructure from Mashery.
In addition to these, in one of my previous columns I had written about how the real time Web is becoming an increasingly important tool, and how companies like Dell are using it to increase their online retail sales.
The increasing adoption of these technologies sets up online commerce for an exciting new decade, for shoppers as well as for retailers.
Vijay Chittoor is a co-founder of Six Times Seven. He was previously director of product management at Kosmix. A former McKinsey consultant, Chittoor is a graduate of Harvard Business School and the Indian Institute of Technology, Bombay. He shares his thoughts on technology at his blog.