The Top 7 Most Important Factors in Building (Better) Ecommerce Companies

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eCommerce has really picked up pace in the last ten years and is on its way to becoming a really serious competitor to classic retail. Needless to say, many companies jump the ecommerce wagon. Some are internet savvy, some are retailers with many years of experience or, in the most fortunate case, both. However, that most fortunate case is usually rare. The internet and the classic commerce are still, for most of us, worlds apart.

ClickNow

The main reason ecommerce is still a pretty damn hard thing to do is it takes a lot of know-how regarding both commerce and the internet. When starting or expanding an ecommerce operation you will be faced with decision regarding management and sales platform, marketing (“do I do Social Media, should I go for Search Marketing or maybe Affiliate marketing?”) but also more real-world issues such as “What are the products I will be selling?”, “How do I store these products?” or “How is my product going to reach my client?”.

While there are many, many variables and data you will be faced with, you still need to keep an overview on the most important factors that will make your ecommerce business successful or not. Here are the most important 7:

  1. Choice of Products and Product Display
  2. Stocks availability
  3. Pricing
  4. Shipping
  5. Customer Care
  6. Search (yes, search)
  7. Innovation

As you notice I have not mentioned marketing. Marketing makes a difference when all those above are working well together. That is not to say marketing is not important. It is. Unfortunately marketing cannot save you when your store isn’t performing its base functions.

Further on, keep in mind that as an eCommerce company you are first and foremost a technology company. If you are a classic retailer this part will be the hardest thing to wrap your head around. You use technology to deliver products at the best price and with the best customer care possible. As such you need to stay constantly focused on market changes (your product market) and technology changes (think how important search engines are for online-first businesses) and adapt those changes to your 7 pillars of ecommerce excellence, as follows:

1. Choosing the Product Range and Product Display

What makes Amazon such a great business? One might argue things like “Wide variety of products”, “Great prices”, “Fast delivery” or “Great customer experience”. All these, and probably more, are true. All these make Amazon the leader in US’ largest online retailers but I would like you to focus on the following screen:

Amazon tracks, stores, analyzes and than recommends based on that recommendation products you are likely to buy.

Amazon tracks, stores, analyzes and than recommends based on that recommendation products you are likely to buy.

What you see there is my recent history on Amazon (I am quite fond of eCommerce, as you’ve probably noticed). Now if you would be Amazon you could basically market anything to anyone (well, almost anything to almost anyone). Why? You can show your customer a version of your product choice based on his or her particular interest,  particular history of browsing and buying.

So with Amazon basically each customer gets his or her own version of the store. 

But you are not Amazon. You don’t have the same product choice, the same data, the same infrastructure. You will need to create a specific product choice and focus on your specific niche.

Ex.: Say customer X wants to buy a computer. Where would he go? Probably to an IT related online store. Say he needs to buy a mouse after he bought the computer. He would, if the first shopping experience was good, go to the same place and make an additional purchase.

If you are not Amazon you will need to make a clear choice regarding your product range. You cannot be a fashion retailer and also deliver groceries. It just doesn’t makes sense. It doesn’t make sense business wise and it doesn’t make any sense for your customer.

After you have chosen your product range you will need to expand it. Say you started by selling clothes. There are a few product categories that would go great with that type of products:

  • shoes
  • accessories
  • bags

Once you got that settled you will notice that there are specific ways you will need to display your product. As a fashion retailer you will need models and show your customers how those clothes would look on them. Such a choice of display won’t make too much sense if you would be selling, say, laptops. No one actually cares how they look when typing, unless they own a Mac and they are typing in a Starbucks.

2. Stocks Availability

Picture this: you are shopping in your favorite brick and mortar store. You’ve just tried on a couple of jackets and you’ve found that one, great looking, discounted, jacket. You have it in your hands. You have the money. You head over to the cash register and take out your credit card. Surprisingly, even though you’ve spent the last 20 minutes searching for it, trying it on and then deciding to purchase it, the item is not actually in stock.

That is not very nice, isn’t it?

Customers feel tricked when they try to purchase something that is not actually in stock. That usually happens when your warehouse stocks system aren’t synced with your ecommerce site. It’s really frustrating and you need to make sure that never happens to your customers.

Key take away: Keep your stocks updated real time.

3.Pricing

Pricing – how do you do it? Do you just go ahead for the smallest price possible? Should you rather adjust your price according to the market and the other competitors?

Pricing should take you in the shortest time to a profitable operation. The pricing operation is mostly an internal decision (the price should first depend on your OWN resources and costs) while still trying to keep up with the market. Here are several things you should consider while looking at your pricing options:

  • You will probably not turn a profit from the start. As such – focus on creating a competitive price that will, at some point help you turn profitable.
  • DO NOT go for the lowest price on the market. Try to earn customers by offering discounts, vouchers, having a great customer care and a great product range. Anything but the lowest price. That is always an unsuccessful choice. Of course – you will get a couple of customers but these are not really the customers you are looking for. Plus a low price usually means a very low profit or loss. It’s better to have a slow but steady increase in customer base than a fast increase that will, in time, bankrupt your business.
  • Keep in mind the operational costs. While most startups focus on technology and marketing costs, they usually overlook many operational costs such as staff, warehousing, shipment and others.
  • Think highest possible price instead lowest possible price. Keep in mind that you are not your marketing. While you may want to be seen as a low pricing company you need to maximize your profit. Find the best balance between profit and managing to stay competitive in the market.

4. Shipping

Here's a box from ASOS. It's branded, easy to use and it usually carries things people love.

Here’s a box from ASOS. It’s branded, easy to use and it usually carries things people love.

Shipping is an important part in your business. Doh! It is, for best or for worse – the most important physical contact your customer has with your company, unless you also have brick-and-mortar stores. You should make the best of it.

Here are some ways of making a great impression with shipment:

  • Treat the delivery box as the most important part of your visual and physical identity. Because it is. Have a look in the right hand area at this ASOS box. It has a clean, functional design, it’s beautiful and people love receiving it. The experience is close to receiving a gift, as most have already paid for their purchases. Don’t spoil the experience.
  • One size shipping DOES NOT fit all. Adjust your shipping model to your market. If you are delivering groceries people will expect them as soon as possible (usually within 24 hrs) and are willing to pay to get this. If you are a discount shop people are willing to wait a little bit longer as long as they know they get a better deal.
  • If possible – offer free returns. It’s great when trying to build trust. People will think the pros and cons of buying from your web store and a free return is a great incentive.

5.  Customer care

This is one of the most important pieces of building a strong, reliable eCommerce brand and, unfortunately, one of the hardest to manage.

Zappos has turned great customer service from a cost to a competitive advantage

Zappos has turned great customer service from a cost to a competitive advantage

While CRM (customer relationship management) systems and technologies have improved greatly, most of what your customers would call customer care still relies on people answering calls, people delivering merchandise, people in charge of packaging. People, people, people. Customer care is about bringing the right kind of people on board, making sure they understand what makes your company great and making sure they always do their best in handling customer needs.

It’s a hard thing to build. Good customer care is subjective. However, there are a couple of things you can do to improve your chances at keeping your customers happy and returning:

  • Build a culture around your customers. Make sure that anyone involved in your ecommerce operation knows how important it is to keep customers happy. After all, it’s not like jobs depend on it. Oh, wait. They do.
  • Make sure you track your customers purchase history and make this purchase history as clear as possible to your call center operators. You won’t be able to attain a perfect score. Just don’t ruin your best customers’ experience.
  • Don’t judge your customers. There are no “dumb questions”. There are no calls that take too long. After all, if Zappos can handle a 9 hours and 37 minutes phone call, you can spend a few extra minutes with those who buy your products.

In the end customer care is actually treating your customers friendly, polite and helpful. If you can manage that , you will build a great shopping experience.

6. Search

Amazon's search engine, A9.

Amazon’s search engine, A9.

While it could be a little awkward to add search, basically an ubiquitous and often overlooked eCommerce feature, it actually is one of the most important tools in helping your customer reach its desired product as fast as possible, without hassle.

How many items are listed on Amazon? Millions. There are so many products that Amazon decided that it didn’t need just a search engine “feature”, but a search engine program. At launch A9, Amazon’s Search platform,  was rumored to be a competitor to Google but it turns out Amazon just wants to guide its customers as efficient as possible to the products they are looking for.

Don’t underestimate the importance of search. We live in a search-engine era where we need to find what we are looking for in matters of seconds. If your search feature doesn’t do that, maybe its time to work a little bit more on that.

7. Innovation

kindle dx

The Kindle DX

Remember: as an eCommerce company, you are a technology company. I will say it again. You are a technology company. Get used to it. Now – as any technology company, you need not only keep up with market developments such as mobile commerce or social commerce, you need to lead the way.

The largest eCommerce companies lead by innovation. Weather it is Amazon’s Kindle, Ebay’s Market Place or even AliBaba.com’s online payment system, Alipay – they all innovated their way to the top and continue to develop to stay there.

Conclusion

These are the top 7 most important factors that make or brake eCommerce companies. Focus and improve each one of them but remember that commerce has always been about a) delivering products, b) at a great price, c) before and better than anyone else. It still is. We’ve just added a layer of technology on top of it.

5 Reasons Customers Will Shop Online (Other than Price)

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When it comes to online retail conventional wisdom states that customers will choose the virtual over brick-and-mortar store mainly because of the price. While this may be true , it’s only partially true. Price is a big factor and probably the most rational factor when it comes to shopping online. However, choosing online shopping takes more than the rational.

why people buy online graph

According to this PWC study, while still being important, price is not the only factor favoring the decision to purchase online

Above you can see a chart on a recent study by PWC, that shows some of the reasons driving customers to shop online. Lower prices and better offers is the second most important reason people will buy online followed by the speed factor and things like better variety and better product information.

So – if you are managing, owning or part of an online retail operation, you should know your customers motivations.

Here are the top 5 reasons, other than price, that drive people to buy online:

1. Shopping online is convenient for anyone, anytime.

The usual trouble with business hours is that they are the same for pretty much everyone. Both shoppers and retailers. While movies portrait people as care-free, on-the-go individuals, the reality is that much of the time people are either stuck in an office, stuck in traffic or just at home, spending time with the family. Say customer X remembers he needs to buy a new pair of shoes at 2 PM, while still at work. Will it be possible for him to drive to the closest store? Will he just go online and buy his favorite pair of shoes, from a wide selection of brands and offers. Of course it’s the latter which brings us to …

2. Shopping online is easier and less stressing

Think about shopping centers. Picture the people, the crowd, the options. Hear the noise. Now think about looking for a parking space, walking to the mall, walking some more from store to store. Trying on. Maybe going home empty handed.

Now picture doing all that in front of the computer, listening to your favorite music, comparing the best deals, without anyone trying to convince you what is the perfect fit. Shopping online is just easier. Customers choose it because it’s stress-free, it’s rational and you can get the best deal without spending a whole afternoon looking for a pair of pants.

3. Shopping for products unavailable in the near area

Not longer than 10 years ago, most shoppers would have had to choose between the products available in the nearest store or not buy anything at all. There was no “shopping for that special bottle of wine I saw last year in Paris”. If the local wine store was not selling it, well … it simply wasn’t worth the hassle to look for it anymore. Now consumers can just “google” a particular brand or product and someone, somewhere, will be ready to sell it and ship it.

4. It’s easier to compare offers

To be fair, this one has a lot to do with price but than again comparison and especially easy comparison is a matter of convenience rather than pricing. Comparing prices online is way easier than any of the options offline stores have.

5. It’s just so much better to talk about

Remember the last time you talked about visiting a store while chatting with your best friend? Probably a long time ago. Truth is conventional retail stores are just so … available to anyone. Uninteresting. Common. You cannot brag about a new, indie, never before heard store that still offers a lot of products. Shopping online is just much more conversation-worthy.

Conclusion: if you are selling online – please don’t focus solely on price. It is so yesterday.

Bridging the gap in multichannel shopping

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Online retail is the wonder kid of retail – it is young, energetic, it is growing fast yet it is still in its infancy. Based on 2010 estimates online retail amounted for no more than 7% of total retail purchases, as seen below.

Evolution of online rtail share

Evolution of online retail share

The figure may not be exact as it amounts for purchases that happen exclusively online. Users tend to mix retail channels in their quest for a better shopping experience. They might know the brick-and-mortar store brand and order online because it is more convenient. They might also discover the online store, find the product best suited and than “feel” it in the physical store.

Multichannel tracking has not changed that much since the days consumers would receive coupons in magazines and advertisers would track these coupons to get a better view on what’s efficient and what is not in their marketing efforts.

What is Multichannel Shopping?

First and foremost – what is Multichannel Shopping? As you probably have noticed or done so yourself, shoppers tend to use multiple ways of combining online and offline activities. Here are the most important:

  1. Shopping across multiple channels (brick-and-mortar stores, online shops, mobile apps, phone order etc.). Consumers will try to use the best channel available at the time. Say you are a avid online shopper but this evening your brother celebrates his anniversary and you forgot to buy him a present. You will rush over to the closest store and buy something from there, after you have searched for that store and the gift online.
  2. Using more channels to purchase goods from a single retailer. Users that are accustomed to a certain brand will try to buy as often as possible from that particular brand. They will mix offline and online purchases, depending on the specific occasion, while staying loyal that brand.
  3. Using multiple channels to complete a purchase. Users will use multiple channels sometimes, to get the best deal / the easiest way to get the goods. They might browse the online store, order the product on the phone and purchase / pay for it in the brick and mortar store.

How can we track Multichannel Shoppers?

As retailers increasingly look for new ways of tracking consumers and increasing sales they use a combination of old(er) and new(er) strategies, such as:

  1. Multichannel loyalty programs – this programs are usually extended CRM programs, using identifiers such as member cards, phone numbers, unique ID’s or others. Consumers are encouraged through loyalty points incentives to use their ID’s on the different channels
  2. Multichannel consumer life cycle - tracking the consumer through different channels by combining online and offline purchase steps (Ex.:buy online, pay offline, support on the phone)
  3. Track users through wi-fi and mobile use – a rather cutting edge yet extremely promising strategy of trading free on-location internet (everybody wants some), combining it with personal online data (such as Facebook user accounts) and seeking trends in collected data, in order to increase sales and understand the consumer life-cycle better.

What is your take on multichannel shopping?

Predictive Analytics and Why Companies Are Stalking Their Customers

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Tomorrow is all about Big Data and how best can you handle it. See, companies don’t need more data. Most medium to large companies either have the data or ways to get it easily available. The problem is – most of them don’t know how to handle it.

Here comes the boom: Predictive Analytics is *the thing* nowadays. Long gone are the days when merely registering data, processing it and acting upon the findings in the next fiscal year was enough. Right now the fastest growing companies register data, analyze it and respond to it in real time.

Predictive analytics and predictive personalization – how do they work?

Hunch Recommendation

Hunch, now part of ebay, offers personalized recommendations based on personal infromation

We all leave trails behind. Our shopping habits, our marital status, our social groups, the shows we watch and gadgets we buy – all these and much more are trails and they are in some database, somewhere. Using this data, or whatever is available at any given moment, predictive analytics software can determine our future actions through two types of programmed responses (it’s a little bit more complicated than that, but you’ll get the picture):

1. Rules Based Personalization – “If this than that”. Basic personalization. Ex.: Customers click on an ad, enter our website and we can determine they are from New York. Let’s show them our stores in New York first. They click on our product catalog, select the high-priced products. Bang! We now know they have a medium to high income. This kind of responsive personalization does not really make use of any kind of predictive analytics. It just reacts to actions. It does not try to predict them. This is a job for…

2. Predictive Personalization – this is something we, humans, can do easily. Machines, not so much. Let’s say our sports store has a sales person with a decent IQ who’s at least a little bit interested in the customers checking out the merchandise. He notices customer X has tried on at least a dozen of sports shoes in the last hour. He walks to the customer and asks him “Hey, can I interest you in this brand new snowmobile? It’s 10% off“. Oh, wait that is stupid. That just what old-time ads would do. He would actually ask the customer if he can help him find some shoes that fit and look good. That’s basically what Predictive Personalization is all about: 1. Analyzing the data real time / 2. Using context to pinpoint the best potential recommendation and 3. Personalize the output.

In case you were wondering – yes, there’s a little bit more science to it but the previous example shows what the buzzword stands for. If you are interested in the subject or you’re a future Predictive Analytics Expert you can have a look at “Personalized Recommendation on Dynamic Content Using Predictive Bilinear Models”, on how Wei Chu and Seung-Taek Park of Yahoo Labs used Predictive analytics to recommend better content on Yahoo’s front page.

Why companies use Predictive Analytics to stalk their customers?

You know why Facebook stalking is so easy? Because people want other people to know about their interests. The Millennials, the digital natives, generation Y – they are today’s youth and they are born and living online. They offer their info, they share their interests, they make their photos public. No more mass message. Each and everyone expects to be treated as an individual.

Companies that do not “stalk” their customers are going to be left behind: Amazon is personal, Facebook is personal, Google is personal. Most of the top online retailers are personal and they make customers’ shopping experience unique.

How about offline? Yes, 5 years ago we couldn’t have had any kind of Predictive Analytics or Personalization offline but the iPhone changed that. Now smartphones fill the gap between the data stored online and offline activities. Companies are now tracking consumer behavior through mobile activity and make use of predictive analytics to address individuals needs and wants … well .. individually.

Acting on data is not enough anymore. It’s acting on data NOW that’s important.

F-Commerce And Why Facebook Can’t Get It Up

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facebook logoLess than a couple of years ago Facebook Commerce seemed to be inevitable. It just seemed one of those things that are just waiting to happen. Yet it didn’t. After a promising start, e-Commerce’s wonder child just stopped being interesting.

How did that happen? After all – so many were jumping the wagon and everyone was just eager to tap into Facebook’s social market. Well … Facebook’s IPO happened. Its market cap dropped. It got dizzy and greedy. All of a sudden Facebook stopped being a revolutionary product. It stopped valuing its users, be them companies interacting with customers or users (sometimes) willing to have a virtual conversation with a company.

Facebook got greedy and careless

Mark ZuckerbergIn may 2012 Facebook introduced “Promoted Posts”, marketed as another way for page owners to advertise their pages. It slowly, but surely, grew into a steady source of income and a few months later the company allowed page owners to promote pages not only to fans but also friends of fans.

It didn’t stop here. Sponsored stories were introduced in august 2012 and suddenly Facebook Walls stopped being ad-free.

Meanwhile, the Big Daddy of all social networks thought … “hey, there’s a lot of spam out there and people kind wanna spam each other on Facebook too. What if … ”.

5 minutes and absolutely no second thoughts later, Facebook introduces … get ready … the option to send unsolicited messages to complete strangers. If paid. Wait a minute … isn’t this spam? Oh, yes it is.

While allowing advertisers to post ads on walls of people completely unconnected to their page, send messages to anyone on Facebook, whether they opted in or not, and generally ignoring the concept of privacy, the company still has the nerve to say … “The problem we face with the news feed is that people come to Facebook everyday, but people don’t have enough time to check out absolutely everything that’s going on“ (Will Cathcart, Facebook’s News Feed Product Manager).

Really, Will? Really? So basically I, a Facebook user, don’t have the time to check everything. Unless it’s paid for and then I have the time to check it, even if I never subscribed, liked, opted-in or even thought about that particular piece of content.

Facebook has very long term strategy and short term tactics. How about something in between?

Given this approach, where Facebook showed absolutely no consideration for either users or advertisers, it was of no surprise companies were going to pull back a little bit on their Facebook spending. Facebook Commerce, potentially one of the greatest streams of revenue the company could have tapped into, given the rise and rise of online commerce, was badly affected.

Payvement, a company providing retailers with access to F-Commerce features, just announced it will shutdown Payvement and its partner website Lish.com. The market reacted quickly to the news. Media’s backlash focused on Facebook Commerce but the bottom line is not just about commerce. It’s about Facebook’s vision. We know Mark Zuckerberg  wants his company to usher in a connected world, with no communication restraints and no privacy. We also know that those who invested in the company early on are now pushing for financial results. What  we do not know, and probably Facebook’s management doesn’t either is – what is Facebook all about? Now.

In order to address F-Commerce issues the company may need to take into account a different perspective on its product and market. It has to address some issues such as:

1. Pages should reach their full audience. Free.

Right now the usual Facebook page post reaches approximately 7% of all fan base. Let’s say a Social Media Manager has the audacity to wish for its message to reach all of its fans. Remember – these are people that willingly pressed the “Like” button, knowing that means they will receive updates.

In the mean time – Facebook decides reaching the audience is unethical if unpaid for. Yet if you are a brand and you are willing to pay you can reach your audience easily. And their connections. And their inboxes. And soon enough – their mobile phones.

What is wrong about this is that Facebook never mentioned anything about promoted posts or limiting reach when the companies were developing their Facebook pages through ads, Facebook contests, Facebook content and others that were directly beneficial to the social network.

If you were a large retailer you would think twice before moving your ecommerce operations to a company that neither cares for your business nor does it have any clear development strategy.

2. Facebook.com is just a tool.

The social network concept is out there. Facebook is not innovating anymore. At least nothing useful and visible. Soon enough it will be replicated by a company with a better vision and greater care for its users and advertisers. It is not the first social network and it certainly won’t be the last. Judging by current events Twitter and maybe MySpace (the new one is just amazing) might actually stand a chance at Facebook if they keep on this way.

3. How about thinking before rolling in the changes?

Facebook is an engineers company. Trial and error was fun back in the day and it probably worked when there weren’t 1 billion users actively using it. If you think about it, Apple is also an engineers company but it evolved a human approach. They listen to their customers, even when they are not speaking. Unlike Apple’s, Facebook’s customers, the advertisers, are not really glad about their purchase.

How about the company puts a little more effort into improving its user and customer experience and less into imposing new features that usually help no one?

Bottomline

Facebook needs to think a little bit more on its overall strategy. It really has to figure out what the “F” in F-Commerce stands for. Mark, you gathered 1 billion people, you got this far, don’t “F” it up!

Top 5 Largest Online Retailers – Who Are These Companies And How Did They Make It To The Top?

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Here are 5 companies whose combined online sales  in 2011 amount to almost $75 Billion, US and Canada only. Let’s also have a look at their background and how did they manage to reach the top 5. The winner is one of the fastest growing companies in the world, a company born and raised online and probably the future of global retail. Let’s first have a look at the runners up:

5. Dell Inc.

Online sales: $4,609,728,000
2011 Growth: – 4%

dell logoDell is the only company in this top to have a negative growth.  The decrease in sales is a direct result of global PC sales contraction in 2011.  If your company is not named Apple and your business has something  to do with PC’s, than 2011 was probably one of the worst years for you. In fact Dell’s PC’s shipments declined 8% throughout the year so that makes dell.com’s sales 200% better than the overall company performance.

Dell was one of the first companies to integrate ecommerce in their sales process. Its e-commerce operation started off as a static page in 1994, integrated online sales features and soon enough they were selling more than $1 million a year, which as you might remember, was $1 million more than most of the companies.

Dell’s innovative approach to online commerce (customize and buy) was a result of:

  1. its business model that allowed companies and individuals to order customized computers via mail orders pre-internet era
  2. an increase in losses due to aggressive competition from its arch-nemesis – Compaq. Dell recorded losses of nearly $100 million in 1994, before launching Dell.com.

Following the launch Dell expanded its online operations in Europe and Asia and by 2000 it was already the market leader in PC sales worldwide. It stayed in the pole-position until 2006, when HP reclaimed the throne. Not bad.

4. Walmart.com

Online sales: $4,900,000,000
2011 Growth: + 19.70%

walmart logoWalmart is big. Really big. It operates more than 10.000 retail units in 27 countries. It’s net sales in 2012 increased 5.9% to 443.9 billion dollars. Big as it might be, Walmart did miss the start and that’s one of the reasons it’s “only” no.4 on our list. But worry not – the company expands it’s operations online as aggressively as it does with it’s brick and mortar stores and soon it will be fighting for the top position.

Jeremy King Walmart

Jeremy King – Walmart’s CTO

The company, whose first store opened in 1962, had launched Walmart.com in 2000, after it incorporated it as a separate company, based in Silicon Valley. Accel Ventures had a minority stake in the company at the time but the two agreed to disagree and in 2001 Walmart bought back Accel’s share.

As of that moment Walmart.com worked as a subsidiary of Wal-mart Stores, Inc. and it slowly started its development. CEO Mike Duke, an alumni of Georgia’s Institute of Technology, showed he meant e-business when it turned the company from a rigid, unambitious company to one of the biggest challengers to Amazon’s ecommerce reign.

Walmart started @WalmartLabs, and brought aboard the ship hundreds of talented engineers and business people, all focused on retail, social media and mobile. Yup, they do have all the buzzwords they need and as of 2011 they also have Jeremy King, one of the leading engineers at eBay, back in the day.

In 2011, Walmart agreed to purchase Kosmix, a social media startup founded by Venky Harinarayan and Anand Rajaraman in 2005. It’s worth to mention this just to get a glimpse in the kind of people and technology the company is now bringing aboard:

  • Mr. Harinarayan and Mr. Rajaraman previously founded and sold Junglee to Amazon for a reported $250 million
  • The two were angel investors in Facebook
  • Kosmix was funded by Lightspeed Venture Partners, Accel Partners, Dag Ventures and … wait for it … Jeff Bezos’ personal investment company Bezos Expeditions

Walmart is now acting as a Silicon Valley start-up when it comes to ecommerce – it’s lean, it values technology talent and it has a vision and a strategy.

3. Apple Inc.

Online Sales: $6,660,000,000
2011 Growth: 27.40%

apple logoAs I am writing this post Exxon surpassed Apple to become, once again, the largest company in the world. However, Apple is still valued at $413 billion and it is still the coolest thing in technology. The company started its online sales operations in in november 1997, an year after acquiring NeXT Computers and bringing back Steve Jobs.

The whole online store was based at that moment on NeXT’s WebObject’s technology. This allowed fast implementation (1 year was needed to implement the whole online store) and a great online experience. As Steve Jobs declared at the time, $12 million worth of sales were generated using the online store, in the first month.

One of the cornerstones of Apple’s development for both offline and online sales was the Apple Store – the physical, brick and mortar, beautifully designed, concept store. When the first Apple Store was opened in 2001, Jobs wanted an experience rather than a shopping center. The Macs were beautifully designed, they worked better than most PCs but were still compared in terms of specs to PCs, as most consumers were not considering computing an area were design, experience or feeling had anything to do with a purchase decision. That was what the company needed to change.

The Apple Store - the greatest showroom an online store can get.

The Apple Store – the greatest showroom an online store can get.

The Apple Store started as a Store-within-Store experience when Steve Jobs stopped retail contracts with most retailers, except CompUSA. In exchange for being the exclusive Apple Dealer, CompUSA agreed to offer Apple a 15% area of all stores, and the right to have its own sales-person on-site.

People would walk in, experience the Apple ecosystem and even if they didn’t buy right then they would still remember the brand and later purchase online.

The Apple Store was a move that greatly helped Apple sell online. It was the most beautiful showroom, before online retailers even thought about having offline stores to increase market share.

The online shopping experience changed when, following 2001′s launch of the iPod, Apple released the iTunes Store in 2003. 5 years later, the iTunes Store was already the largest music vendor in the US and in 2010 it was the largest music vendor in the world. In Q1 2011 Apple’s iTunes Store revenue alone was $1.4 billion.

Along came the iPhone and, just as the company previously revolutionized the music industry with the iPod, the iPhone changed mobile, software and well…basically anything we humans do.

Apple’s retail concept is not just a store, it’s an ecosystem. It’s growing fast and it’s got a solid lock-in on it’s customers. Right now Apple’s online sales can only go up.

2. Staples Inc.

Online Sales: $10,600,000,000
2011 Growth: 3.90%

Staple logoThe first company in this list to cross the $10 billion in online sales threshold is Staples, the largest office supply chain in the world. Staples has more than 2000 stores in 26 countries but it plans to slash its brick and mortar space by 15% and focus on online sales.

The first store was opened in 1986, when the company was funded by certain private equity firms, including Bain Capital, co-founded by Mitt Romney (yeah, that Mitt Romney) who stayed on board for the next 15 years to help with the company strategy.

Staples.com was launched in 1998 and had a steady growth ever since, unlike its offline operations. Although often overlooked as a key competitor in the online retail arena, Staples did beat Apple and Walmart in this top so we should give credit where credit is due.

It’s main online sales channels are Staples.com, StaplesAdvantage.com and Quill.com. The infrastructure is based on IBM hardware and software and the company is ready to heavily invest in developing its online operations. It even started its very own innovation hub called E-Commerce Innovation Center.

Ok, long story short – the early bird catches the worm. Staples may not be the coolest brand in this list, but it was on of the pioneers in this field and it’s making lots of money online and unlike OfficeMax, and Office Depot, its main competitors, it has the best chance to make a shift online when its stores will stop being profitable.

1. Amazon.com Inc.

Online Sales: $48,080,000,000
2011 Growth: 40.60%

amazon logoYes, I know it may come as a shock but Amazon is, indeed, the largest online retailer in the world. It leads the online retailers’ top by a very long margin and it will continue to do so for a very long time, if we are to look at it’s continuous growth, it’s innovative practices and  it’s aggressive expansion.

The company was founded in 1994 by Jeff Bezos and Amazon.com went online in 1995, way before any of the other companies in this list were. Amazon was one of the few companies to exit the 1997-2000 dot-com bubble still intact. It would take another year after that for the company to turn a profit – in 2001 Amazon had it’s first profitable quarter – $5 million in profit on revenues of over $1 billion. Not very much but it proved its model.

kindle dx

The Kindle DX

It got sued by Barnes & Noble and Walmart (you might recognize these companies as some of those most affected by Amazon’s growth), it acquired some great startups (such as Kiva, Zappos, IMDB.com) and in 2007 launched its revolutionary device, the Kindle.

The Kindle was so successful that it changed the way we think of books and overall media. Right now Amazon sells more ebooks than hardcover in the UK. It is the biggest Android app seller in the world and it has access to its customers purchasing intentions through Kindle’s usage stats.

Although there is so much to say about Amazon one thing is clear: it is the top online retailer and it is eating into the large offline retailers’ sales too. Soon enough it might take their place.

I hope you enjoyed this list. Keep in mind that this post is based on Internet Retailer’s top 500 online retailers and features companies in the US and Canada. Figures are based on 2011 sales provided by different sources, usually the companies themselves. I recommend having a look at the full top and, as I will also do, purchase the full guide.

Apple did not invent Planned Obsolescence. It just got great at it.

Standard

Apple Obsolescence“I just love this iPhone I bought three years ago”… said no one ever.

Any Apple user knows that there is no way to keep an iPhone or iPad for more than 2 or 3 years and still be happy about it. If you’ve ever bought an iPhone or iPad you know how it goes: you buy the new product, you fell in love with it (it works just great, it looks awesome and everybody wants to see or touch it) and before you know it someone at Apple unveils the new version.

The new version is never something revolutionary. It’s usually just  ”innovative”.It does have some small, incremental upgrades, just enough to call it a “new” product, but there is no actual need to switch over, unless you are one of Apple’s executives. However, next thing you know you start loosing your signal, apps crash, and you’re not feeling so good about your once loved device. But nothing changed. It’s the same device, it has the same specs but all of a sudden – it’s not good enough.

So you go and buy the new one (it’s never cheap) and you feel this is the device you are going to pass on to your children. Buuut… Apple decides to launch another next year and it’s back to the Apple Store.

Well – there is a reason for this cycle to happen. The reason is profit. In order to keep the cash coming Apple, and any other large company for that matter, needs to keep its customers coming back to buy more.  There is no stopping the money-making machines. Profits need to keep coming, people need to keep buying. Otherwise we stumble upon recessions.

Actually, that’s how the term “Planned Obsolescence” got coined. Mr. Bernard London wrote “Ending the Depression through Planned Obsolescence” in 1932 as a method to stop the chaos resulted from overproduction and surpluses. He stated that the Government should impose a certain Planned Obsolescence on products, so customers would keep coming back and buy more, therefore restarting the economy.

The Phoebus Cartel

Although the theory was not the smartest and most popular thing written in that period it was one of the ideas floating in the mainstream. Such an idea was pretty good for a bunch of companies to form the Phoebus Cartel in 1924.

Some of the companies that formed the Phoebus Cartel you probably have heard of: Phillips, Tungsram, Osram, General Electric. What did “Team Light Bulb” stood for? You guessed it. Profits. The companies agreed, among others, to impose  an 1000 hrs lifetime threshold on all light bulbs sold. Those that allowed their light bulbs to run for more than 1000 hrs were fined by the corporation controlling the cartel.

You may recognize this as what we now call “Planned Obsolescence”. Yes, the concept has been incorporated 89 years ago.

Good thing  the Government stepped in and saved the world. Oh wait… it didn’t. The Cartel’s operations were only stopped when WWI started.

Planned Obsolescence makes its cross-industry debut in 1954…

… when industrial designer Brooks Stevens used the term to show that people want the “new thing”, whether it is a newly designed car, or the latest TV. He showed that companies can and should integrate, first and foremost, stylistic upgrades to their products in order to keep their clients coming back to the store and buying more.

You should note that planned obsolescence comes in many forms but the most popular and cost effective is style obsolescence. You can see this in the automotive industry (where companies redefine their stylistic approach every 3-5 years), the fashion industry (yearly cycles of stylistic obsolescence) or the IT industry where Apple seems to be the undisputed champion.

Apple is not the only company using planned obsolescence to sell more. It’s just the best at it.

the iphones

The differences are, of course, startling. Source: PC MAG

All companies that look forward to survival and profit need to have some kind of obsolescence built into their products. The alternative, in the present economic system, is the company’s demise.

Apple understood this early on when Steve Jobs came back to the company with a vision for the connected ecosystem. He thought of a network of devices that would serve the customer’s every day needs for information and connectivity.

With the Apple connected home all of the products work seamlessly with one another. Once the customer has bought the iPod, he will buy the iPhone, than the iPad, than the Macbook. And that is just the hardware. There is an army of developers that use the AppStore to offer the newest apps. iTunes brings the world’s library of music and movies closer. As a result, in time, the customer gets locked-in and has little or no option to move his data or purchase options to the competition.

This was the big innovation Apple brought to planned obsolescence. It usually works within monopolies or at least oligopolies. You need to have very little or no competition to make sure the customers don’t just switch sides when you force them to upgrade their products. Apple has managed to bypass this: it’s not a monopoly, it’s just a monopoly for it’s own customers.

One more thing: Can the world handle planned obsolescence?

There are many reasons this practice isn’t helping anyone in the long run. First off –  it leaves customers/people ever dissatisfied and unhappy. There is now settling for a certain product, and there is no lasting pride or meaning in acquiring so much (in time) useless objects.

Secondly – the environment can’t handle so much waste. Even though some countries have started regulating the disposal of old electronics and home appliances we are a long way from a real solution for the waste our consuming habits leave behind. We keep buying, losing interest and throwing away our old products. We are still decades away from product cycles that plan recycling and reusing as part of the product’s life cycle.

Last but not least we cannot afford to buy so much products. Planned obsolescence is a direct cause of consumer habits we cannot afford. Credit has left present and probably future generations in debt yet most companies still think they can thrive on this fake growth. But for how long?