In the beginning portions of 2009, there was seemingly little innovation on the horizon. Since around 2004, online shopping had been done in relatively the same fashion. Consumers typically used different search engines to initiate the purchasing funnel, and many times consumers would find themselves funneled into a comparison shopping engine based experience through paid and natural search listings. Now the patterns are changing, and it’s not the result of any one specific company or development.

The Rise of Amazon

In case anyone had missed it, Amazon has become a Goliath since beginning to sell books. Using a third party selling platform that is second to none, Amazon has single handedly changed the conception of a retail site. When Amazon first began to integrate third party sellers with their own platform, eBay was easily the king of the hill (or queen if you will) of partner selling. Using eBay’s auction format, individual merchants, with barely a keyboard, could easily sell their goods to millions of customers. Amazon however, pursued a slightly different format.

Amazon built a platform that allowed for typical single price transactions instead of time consuming auctions (although Amazon did try to do auctions as well). This platform was tear-jerkingly hard to integrate with, because of endless fields of product information that had to be created and kept updated in addition to orders, to ensure consumers would have a positive experience. Amazon was also keen on eBay’s empowered buyer model based on feedback. So Amazon evolved strict rules to ensure a seller was offering a quality transaction. Even today, if a merchant lowers their guard for 30 days, enough damage can build up to bring down the entire account. This adhesion to quality began to slowly retain costumers looking for a consistently good experience.

As Amazon grew, more third party sellers and greater selection came. Amazon poured resources into making sure products were understood systematically, so that product selection was accurate and comparable. Using the Amazon Unique Product Identifier (ASIN), a product listing could be monitored, controlled, and enhanced. By matching seperate sellers, Amazon could also build out robust product information by having the merchants tell Amazon, not Amazon having to find the information themselves. The overall product catalog grew not only in quantity, but also in detail. Having so much information on purchase activity, allowed Amazon to accumulate extensive merchandising information. Being able predict order volume and profitability, Amazon could now also sell products their merchants were selling and maximize profit. Amazon continues to expand their selection, and by providing lightning quick shipping and guaranteed satisfaction, Amazon has used it’s relationships to enhance the consumer experience to such an extent that Amazon is the default destination for consumers above any other retailer (meaning Amazon sells more online than anyone, end of story).

Covering All The Bases

Just in case the average Joe didn’t know about Amazon, they covered the bases by pressing hard on all fronts. Having an extensive product base, Amazon had a large selection to market, and also knew which products were the most valuable. Amazon aggressively utilized Google AdWords, among other paid inclusion systems, to place listings by related keyword searches. Rarely could you run a search for a certain product or type of product without seeing an Amazon paid listing. Of course, Amazon also had such such an extensive online presence, they also ranked highly for natural listings as well. Confronted on both fronts in paid and natural search, there was another channel of advertising available for Amazon to utilize.

Amazon looked to the shopping engines, and comparison engines running Amazon listings is one of the worst decisions they could have made. The reason is that shopping engine consumers are constantly driven back to Amazon. How many times will a consumer search for a product and hit Amazon, without actually starting at Amazon to begin with? A quick guestimate would be between 3-10 times, but the point is that consumers will just start with Amazon eventually. So using the comparison engines’ own systems, Amazon is slowly draining away market to their site. Brilliant really, except the next part is even better.

I Went To a Fight, and A Sale Broke Out

When two 800 Pound Gorillas meet in the forest, what does it look like? It looks like Amazon and Walmart sizing each other up in 2009. Walmart has been established as the preeminent retailer in the world for a number of years now. Utilizing an industry changing just-in-time inventory system, an extremely aggressive negotiating startegy to lower prices, and a flat out will to win, Walmart is the world leader in physical store sales. However, as many people are becoming aware of, online retail will dwarf physical store sales for nearly all companies, in the very near future. Walmart has it’s eyes set on being the destination for online purchases, and Amazon sees that coming.

What is truly brilliant, is how Walmart and Amazon used a dull, drained economy to fuel more growth. As consumers had their pocket books squeezed, consumers began to search for better deals. Walmart and Amazon had already become leading destinations for cost conscious shoppers, but in case anyone had missed the point, a price war developed between the 2 retail giants and played out in the media. Just the advertising from a typical sale can drum up sales, but exposure of having the press cover your sale, and essentially label both Walmart and Amazon as the destinations of price sensitive shoppers, that was priceless attention. Wonderfully orchestrated, whether completely planned or not.

Google Labs Get Cooking

2009 also saw the emergence, or perhaps reemergence of Google. The economic tail spin that was 2008 shook up a lot of people, including the folks at Google. Plans were changed, office expansions put on hold, workers moved around, etc. One other thing that happened, is the Googineers (a nod to Google’s engineer focused culture) looked at their presence in the retail area and began to pull together a new direction. Google Product Search had been in beta for a long time, but didn’t get huge amounts of traffic. That began to change within the last couple of years, especially with increased placement on the search results page. Google began to take products from Google Product Search (aka GoogleBase), and insert these offers with natural listings, as a type of search result supplement, known as the Google OneBox. The listings included picture, title, and price, store name and condition. Simple and efficient, Google began to absorb the comparison engine style listing into their results creating large amounts of traffics for retailers. Anyone see where this is going?

Google fluctuated the placement of these listings throughout 2009, but more and more consumers began to use them. It must of been such a clearly good idea, that someone decided these enhanced product listings should be part of the Google AdWords program as well. However, how do you do that?

Google had experimented in the past with the idea of a drop down box, known for a while as the Plus Box, and now known as Extension Ads. Essentially, product listings funneled from Google Product Search could be dropped down in some cases from the paid search listing, with a click of a “+” sign. It’s still a good idea, but for now the product listing choice quality is sporadic in relation to the keyword search, and a relatively small percentage of consumers click through the box currently. However, there is a more overt way to display the listings: just throw them out there like the OneBox. However, Google had gotten creative with the sauce again. Just like the auction platform of AdWords was a new step, Google went away from the PPC model. Instead, as is widely reported and seen in product search results, Google Product Listing Ads are now populating the upper right menu bar and driven by commissioned sales.

It’s pure speculation, but the sucess of Amazon, eBay, and and the rise of Microsoft’s Cashback program must have convinced Google that there was an opportunity in commission based selling that needed to be captured. With Google Checkout proving to be difficult to expand, Google went in a new direction. By leveraging the Google Affiliate Network and Google Product Listing Ads, which can be easily integrated with the Google Product Search feed and tracking code installation, Google could now be a part of the retail business without shipping a single item. PPC based ads are nice, but instead, for a merchant to simply pay a commission from each sale is a great business model. The wizardry is taken out of the accounting department, because ROI is easy to control and measure. Simply set a commission rate, and then balance that against your sales revenue and find the sweet spot. In the end, Google is served and so is the consumer, by having an easy time finding what they are looking for. Hey, finding what people are looking for is what Google specializes in, right?

What About CSEs?

All this leads up to a simple conclusion, it’s time for comparison shopping engines to change, or disappear.

That sounds drastic, but lets take a holistic view. Already through the course of 2008 and 2009, there has been tremendous pressure on the shopping engines to deliver high quality, high ROI traffic to merchants. Since the economy was contracting, and the consumer’s pie was shrinking, shopping engines became increasingly focused on delivering high quality traffic to ensure a sale, not just funneling part of the increasing avalanche of internet based revenue. This refinement process has already resulted in financial pressure on shopping engines that have not been able to keep up in the smaller, tighter pond. The stresses from other sources has made this pressure even greater.

By Amazon and Walmart increasingly becoming the default destinations for budget minded shoppers, this has begun to squeeze precious traffic away form comparison engines. The motivated shopper who is looking for the best deal is no longer starting at a shopping engine, but that motivated shopper is now going to Walmart and Amazon.

The next part of the crunch happens in finding shoppers who are in browse mode, and perhaps don’t care for Walmart or Amazon. That shopper is primarily doing searches on Google.com. When searching, the consumer is still bombarded with Amazon and Walmart listings, but they now have image enabled ads which easily catch the eye. Remember that web based shopping is all visual: you need to see the screen first before you mentally process the information. Having image enabled advertising on Google search result page is no small change. Increasingly these image based Product Ad Listings, Google Product Search Results, and Ad Extensions are pulling traffic right to the merchant without any help from comparison engines.

Remember the question from before, “do you see where this going”? There is where: Google has now begun to move beyond traditionally formatted text based results, and into more of a virtual result. Whether video, images, text, or now actual products, Google has taken shopping engine structure and begun to integrate this with their typical search results. Increasingly this provides less incentive for a consumer to bother going through another shopping engine, when they are essentially already using one in Google.com.

David vs. Goliath

Malcolm Gladwell rocks. Gladwell as an author is brilliant in his ability to draw connections and seek patterns in data which at first are not apparent, if not completely contrary to conventional wisdom. One of his articles focuses on the David vs. Goliath situation. This occurs when two parties face-off, and one party is seemingly over matched by the other’s strength. This situation occurs constantly, whether old Microsoft vs. old IBM, or new Microsoft vs. Google. Goliaths such as Walmart, Amazon, and Google are pursuing strategic goals which do not leave much room for traditional shopping engines. When considering rumors that Google is looking to limit the shopping engines’ ability to advertise using AdWords, the urgency level picks up a couple of notches. The key for the seemingly weaker David figure, is to change the battle ground and change the way of engagement. In this sense, the shopping engines need to change they way they do things, aka, use their apparent disadvantages as strengths. Being smaller, shopping engines can more easily evolve and maneuver.

Put simply, to change the tide, shopping engines need to become innovative again. At one time they were cutting edge in their ability to deliver multiple offers, additional merchant information and consumer feedback. Literally the CSE worked as a complete resource, aggregating purchasing data which helped merchants target consumers, and in turn which helped the consumer’s purchasing decision. Shopping engines need to find some of that creativity again. Whether this is done through dynamic social engagement, iPhone enabled scanning devices, or many other options is irrelevant. The point is that another large e-commerce shift is occurring, and if the shopping engines don’t get out in front of that change, then shopping engines face the prospect of becoming e-commerce relics of a by-gone area. That, would be too bad.

What is the Amazon Buy Box?

The Amazon Buy Box is the way Amazon compares like products. Instead of a product listing page with rows of matching results as you would see on a typical CSE, Amazon creates a master product page which incorporates all information known to Amazon, as passed on my eligible sellers of that product. Next, Amazon displays the competitive offers from merchants in the upper right hand portion of the page. The buy box contains a single offer and frames the now classic Amazon ‘Add to Shopping Cart’ button which has been duplicated by webmasters around the world. Below this section, Amazon delivers up the consumer a quick review of competing merchant offers.

What Does It Mean to ‘Win the Buy Box’?

All offers are not created equal, and Amazon has developed a system to lead the consumer to the desired offer. Amazon has constructed a tiered offer sheet, where the most desirable listing is located at top and is directly connected to the main shopping cart button. In order to buy from other merchants selling the same item, the consumer needs to examine the much smaller and less obvious product offers below the buy box and then click on the much smaller “Add to Cart” buttons.  Because Amazon sees one offer as superior, Amazon attempts to drive the consumer to the winner of the buy box, and thus receive the majority of sales. Compared to the winner, sales significantly drop off for other merchants underneath the buy box. Remember every site design study you have seen, where consumers are drawn to bold calls-to-action, and you understand why winning the buy box is so important.

Can you sell items when not winning the buy box? Sure, of course you can. However, if you want to sell a reasonable amount outside of the buy box, you better have a very enticing offer (that means the cheapest price). So,that leads to the final question…

How Does A Merchant Win the Buy Box?

As stated, Amazon looks to show the most desirable offer. Amazon uses many different variables to calculate the buy box winner. Ultimately this can be divided into 2 types of variables. On one hand, Amazon is looking to give the best value to the consumer, and then Amazon is looking to determine how likely it is the merchant will provide the product in a satisfying manner.

Factors for the buy box:

Be eligible: First, you need to be eligible. This means being an Amazon Gold Level merchant or higher. (Essentially, this means Amazon trusts you)

Price: The most important aspect. This includes the selling price of the item plus shipping. The lowest combined price gets the most relevancy.

Availability: This includes how many of the items are available and how quickly the item will ship. Pay more attention to shipping time, or fulfillment latency. The quicker an item can be shipped, the better.

Volume: This refers to how many of these products are being sold. So the more products sold by a merchant, the higher the relevancy.

Refunds: This refers to the amount of refunds given based on merchant error. The more refunds a merchant dishes, that is the more the merchant backs out of the sale, the worse the relevancy.

Costumer Feedback: Just like eBay once was, feedback can be king. If a merchant can not maintain minimum levels of feedback (determined by category), then a merchant may be blocked from being eligible for the buy box.

A-to-Z Guarantee Claims: This refers to returns, and is another component of measuring costumer satisfaction.

When all of these factors are combined together, this results in a combined value which is then measured against other sellers of the item. The most relevant, or the highest value offer then wins the buy box.

What we know – Looking back at 2008

At this point, it’s well documented what type of economy we ran into at the end of 2008. Consistency compared with the Great Depression, global wealth shrunk significantly and according to the latest jobs report, the US has not seen job shrinkage like this since 1945 (and that drop was created artificially by the end of World War II).

The fallout left some major players in bad situations, with bankruptcy filings by Circuit City, K-B Toys, iFloor, Lenox, and others (see Internet Retailer). The lone good news was the falling of gas prices, but with gas supplies being cut back by OPEC,  gas prices are slowly increasing and should rise back up steadily throughout 2009.

In looking at e-commerce, web sales were flat year over year (see Internet Retailer). In reviewing Q4 2008 sales, according to comScore Networks, there was some peaking, like the day after Thanksgiving (Black Friday) through December 1st, up 13% since 2007. Total web sales rose 7% the following week (Dec 1-7), then fell 2% the next week (Dec 8-14).
Looking at the entire period, from October 1 – December 28, total web sales were down 4%, which marks the first time this has happened since comScore began tracking web sales in 2001 (see Internet Retailer).

So, in the midst of the floor falling out of the retail season, did anyone do better? The answer is ‘yes’.  According to a survey by Shop.org and Forrester Research Inc., 63% of 84 retailers surveyed, reported a year-over-year rise in sales Nov. 1 through Dec. 21.  The best growth in the group surveyed was said to be among mid size and multi channel retailers (see Internet Retailer).

Outside of sales, we can say that traffic was also up at some major sites. Sites experiencing significant gains were Amazon, Apple and Wal-Mart. However, some major brands found their traffic was down significantly like eBay, Best Buy and Overstock.com. (see Internet Retailer)

What we think we know: 2009 e-commerce predictions

Now that we are done with the 2008 data, the executive question then emerges, ’so what?’.

First, let’s talk about all the data just reviewed. It’s pretty obvious web sales were hit, just like all of retail sales were, including brick and mortar, catalog, etc. Consumer spending was down to such a low point, the momentum of the previous years in ecommerce growth were brought to a sudden halt. However, consumer behavior is still shifting to online shopping and research. Conversion rates were down as shoppers had a long list and short budget, but for some, free shipping and heavy discounts helped greatly. In looking at the high traffic sites, these were sites known for discounts (Walmart), or simply on a wave of popularity (Apple). Sites left out were either suffering from other issues (eBay), or hurt from a lack of luxury based shopping (heavy consumer electronics retailer Best Buy). In fact, from my reading, Best Buy is currently in 2009 experiencing a surge in traffic since Circuit City is struggling for life, but still not seeing high revenue as purchases are hard to come by.

In case you have not seen the writing on the wall, or perhaps you are nowhere near building a 2009 budget, this year will be the year of monetization (see William Flaiz’s piece, among other predictions, on SearchEngineWatch). Budget’s will be tightly controlled, and in many cases reduced quite a bit. From a macro viewpoint, there will be a strain on Web 2.0 standouts and will bring pressure to begin to bring in money. Twitter which has yet to put together a plan to make money, and social networks like Facebook and MySpace, which so far sell banners with notoriously low click through rates, will be put under pressure. New technologies and entrepreneurs should build a strategy where either imminent monetization is present, or a source of funding is already in place (i.e., get some friends together now). With only 6 venture backed companies going public in 2008 and the credit crunch still taking it’s toll, VC outfits are not lining up right now to help out and won’t be for some time.

What can typical retailers expect? I’ve seen some growth estimates in the 4% range (see emarketer), however, I’m not sure how realistic this. For a sobering report on just what the odds are, I strongly suggest taking a look at Seqouia Capital’s PowerPoint from October 2008. This presentation started the lock down cycle for a number of VC backed companies, and rightfully so. The ‘death spiral’ shown here, where a company’s expenses quickly break off from revenue, is a perfect example of why 2009 should be about not just site optimization, but complete business optimization.

So, the economic retooling has begun. The great thing is, if you want a green economy, an economy not structured on borrowed money and consumer debt, an economy to operate on new principles…well, that should be an easy choice now.
On a company level, take the growth you saw year over year in Q4 2008, and that is close to what you should expect over the next 6 months. This is very much survival time in the sense of working to make a profit. I have seen some companies cutting budgets regardless, and this machete approach makes no sense if the program is making money. A set 50% reduction will do no good, but if a program or programs are under performing for the past 4 months or more, then try to put things on hold. Also, work with partner companies. Everyone is under the same pressure, so keep in mind there are no free rides but people do understand the need to stay in business. I would expect to see more casualties in Q1 and Q2 2009, but things start looking brighter after that. Current trends point to a turn around beginning in Q3 2009. If you can make it that far profitably, indications are an explosion in growth beginning at then. Things won’t turn around immediately, but if government and private organizations continue to accurately and responsibly work on issues instead of borrowing to ignore them, then the end of 2009 looks promising and 2010 may just begin something special.

Forgive me for waxing poetic, but this season has been a particularly intriguing (and busy) one. For this first post in over a month, there are too many things to talk about all at once, but at least I can start building some momentum again with what is going on right now.

The most interesting question to me is how this week will end. This year I expect to see more of a pronounced late run in sales than in years past. Of course it has been documented quite well that sales have been hit by the economic conditions and per capita spending is down. However, ecommerce is still driving hard as has been the case for the past several years. I expect this will lead to some significant changes in strategy early next year for many companies, but let’s save that for a future post.

For now, there are several factors at play which should keep retailers on guard until at least Monday, 12/22. Historically the busy season is on it’s way down at this point, however there are 3 things I believe will keep this week busy:

1) The shortened holiday season initiated by the late Thanksgiving (5 days shorter than last year)
2) The early hand wringing over the economy leading to pent up demand
3) The latest news that consumers are doing last minute shopping online this year instead of rushing through malls

All of this should lead to a better late trend in holiday shopping for 2008. I advise everyone before completely letting your guard down by the end of this week, to see what the weekend brings.  Also, get to work thinking and planning about post Christmas sales. Since many people won’t get the same barrage of presents this year, expect some demand in the last days of 2008.

The first CSE on the list is Amazon Product Ads. As has been mentioned before, Product Ads is the CPC equivalent to Amazon’s commission and shopping cart based format. This knowledge is key because the Product Ads network must make some key alterations to fit into the existing Amazon format.

Product Listings

When submitting listings to Amazon Product Ads, UPC is even more important here than some other channels (a UPC focused post is coming in the the near future, but an old post is at The Future of Shopping Comparison and The Problem with UPC).

The reason UPC is monumental here, is that Product Ads only goes by product title and UPC to list products. So Amazon is sorting through the products being submitted, and trying to match them up appropriately. Without an ASIN, as served up by the Seller Central focused system, product ads will look to UPC and product title as a guide. If a merchant is selling without UPC, then product title is used exclusively, and this is not based on an exact match. This means completely different products can be paired together under a product page for another completely different product. For example, if a merchant is selling several different kinds of ‘black polarized sunglasses’, then all of these could be grouped together, and the only way the consumer can see they are different glasses is to click on each link…driving up CPC costs greatly.

The take away, either come with UPC or make sure product titles are significantly different.

Key Features

Amazon Product Ads allows bidding on the category level. Make sure to use this feature to gain additional exposure. Also, keep an eye on which categories receive bids. Product Ads will place items in categories which are not being assigned by a merchant. For example, toy jewelry can easily be placed in the real jewelry category by Amazon based on its own internal algorithms. Make sure to check this and keep bids at zero for categories which don’t match up to inventory.

Lastly, Amazon features great support for their programs. A merchant can submit written tickets, or request a phone call. There are still some canned answers here and there, but overall this is one of the best support systems in the industry for technical and listing issues, so be sure to use it.

Hope this helps some companies in handling Product Ads, and I am looking forward to talking about the next CSE, Shopping.com.

Summary on eBay – Buy.com Agreement

The main point is that Buy.com has secretely (until now) flooded eBay with approximately 5 million listings. For these listings, eBay has charged no listing fees.

The listing fees have been the traditional barrier (in addtion to an auction style format) that has kept many large retailers off eBay. With fixed priced listings becoming the norm, the next stage was getting a retailer with a large inventory on without nasty listing fees, charged on a per item basis. Apparently, this wall has been breached with the Buy.com deal.

Without going into more detail, this means eBay is quickly and aggressively moving to get fixed priced listings as their main revenue source (already happening) and eBay will be targeting more traditional online businesses for expansion.

Actionable: Medium to Large Businesses Not Using eBay

If you are one of these businesses, this means you should  be paying attention over the next few months. Expect an announcement by eBay to begin recruiting businesses on negotiated agreements like the one with Buy.com, where items can be sold at an unspecified commission rate, and no listing feeds. This will essentially open up eBay as a marketplace. Like all other marketplaces, goods will react differently here. Mainly this would be an excellent place for overstock items and liquidations.

Actionable: Small Businesses Already on eBay

Start getting creative, because your business is about to change. The flood of more traditional retailers with large inventories could be pushing you out the door. Expect your business to decline as eBay changes it’s growth strategy. You will want to explore new marketplaces like perhaps Amazon, Facebook selling platforms, or elsewhere.

This change from eBay signals that the talk about fixed priced listings has begin full swing, and the result has been including merchants who couldn’t compete before. Having the cheapest price will still get you a long way, but as a smaller business, your marketing needs to take a big step up or your merchandising needs to be just plain outstanding.

Expect to hear more on this as the coming months unfold.

Expect to see a follow up piece in a couple of weeks to take a closer look at the strategies behind Amazon Product Ads -

Amazon Seller Central

Shopping.com Cart Program

SHOP.COM

PriceGrabber Storefronts

Buy.com

Jellyfish.com

Google Product Search (when paired with Google Checkout)

Underbid

UBid

BuyersEdge

All of these offer different programs with a different style of marketplace selling. Some are completely enclosed like Amazon Seller Central, and some will relay the order information to the seller such as SHOP.COM to maintain order ownership. Of course, the best offering depends on the merchant using them.