Background Noise

Your E-Commerce Strategy in a Recession

As I write this, we are just days from kicking off the 2008 holiday shopping season and I know a lot of retailers are holding their collective breaths in hopes that holiday sales aren't TOO flat this year. And while I think that online retailers need to keep their head down and hope for the best over the next 3 weeks or so, the elephant in the room is the state of the economy, and what happens once the holiday season is over. Online retailers clearly need to be thinking about how to run their business in an economy that's not necessarily conducive to consumer spending.

There's already a lot of good content out there to help online merchants over the next several months, but I'd like to throw my two shiny pennies into the mix as well. I had the fortune of starting and running an online business for several years, and grew it into an Internet Retailer Top-100 business. Not every year was a boom for us, and I learned some things about when to grow and when to hunker down. This is obviously going to be a "hunker down" year!

Here are a few things that I think are important to keep in mind over the next 12-18 months:

Cash is King: That line item in your online P&L statement that says "Net Income" or "Operating Income" is your new boss. There are times when you will want to focus on top-line revenue, or customer acquisition, but this ain't one of them. I would strongly rethink any strategy next year if the result isn't increasing the operating margin of your online business. This doesn't mean that you shouldn't spend money or invest in the business; you just have to be smart about it.

Don't Give it Away: One of the most important things you can do to maintain profitability is to protect your gross margin. This will be the hardest thing to do, because the economy is going to put pressure on the consumer to make purchasing decisions based on price more than ever before. Understand your margins in each category, and pay close attention to your competitors. If you can compete on price without cutting into your margin, then focus on other areas to swing the pendulum in your direction.

Dissect Your Market Spend: First off, if you don't know what the cost-to-revenue break even point is on your marketing dollar, stop reading this now and go figure it out. I'll wait....OK, got it? Good! The reason that you need to go through this somewhat painful process, is that otherwise you'll never know which marketing programs have the biggest impact on your bottom line. And those are the programs in which you should look to invest over the next year. Conversely, if you have programs that are barely above your break even line, then consider shifting some of those dollars to more profitable programs.

Invest in Analytics: This is one of those recommendations that makes sense, no matter what the economic conditions. However, when you are trying to squeeze everything you can out of your KPI's (conversion, AOV, margin, etc...), a solid foundation of analytical tools AND people are one of the most important investments you can make in your business. If you've talked to me more than 5 minutes on this subject, you know what my position is: If you have an analytics budget, spend 80% on people. If you don't have an analytics budget, or if it's in danger of getting cut, then go fight for it tooth and nail. If you look at the Top-100 online retailers, and I don't care who's list you use, you will find a common denominator of a strong analytical culture within their business.

Focus on Customer Satisfaction: Note that I didn't say "Focus on Customer Service", because it's not the same thing. When you say the words "Customer Service" in most retail organizations, they immediately think of it as a cost center and a bit of a necessary evil. Customer satisfaction is what will turn a first-time buyer into a loyal customer, and is what will keep a loyal customer coming back and spreading the word to their friends. Empower everyone in your organization to do what they can to help keep your customers happy. You can start by simply providing opportunities to start conversations with your customers on Twitter, GetSatisfaction, or FaceBook. Those conversations will create some transparency between your business and your customers, which will ultimately have a positive impact on customer satisfaction.

These suggestions aren't a silver bullet for surviving the next year or so in one piece, but should be a guideline for your strategy. At some point, someone is going to take a hard look at your P&L, and the easiest path to trimming the bottom line will be to cut people out of the SG&A expense. In the end, you may not be able to prevent this from happening, but a proactive strategy that shows some focus on the bottom line will hopefully make this a last resort.

Lazy Email Marketing

Like anyone else, I get my fair share of newsletters and promotional emails from retailers that I have purchased from in the past. Based on what I have been getting in my inbox, I get the impression that too many online retailers are taking email marketing for granted. It's the "bread and butter" of most marketing budgets. It's cheap. The results are tangible, and most internal creative departments can knock them out fairly easily.

The problem that I see lately, is that marketers aren't reacting to one of the biggest roadblocks between their message and the consumer: image suppression. Over the past two years or so, most ISP's and email clients have made image suppression a default behavior in their fight to ward off spam, spyware and other nefarious tricks that the bad guys employ. Unfortunately, I'm seeing very few cases where marketers are adapting to this change.

A few examples that have recently hit my inbox:

(click on the images to enlarge)

 

In both cases here, the message is totally and utterly lost. At least in the case with the Borders email, there are a few footer links that I could possibly click if I felt compelled to do so. But, it hardly represents the "Big News" that they claim in their subject.

The Sam Ash email at least displays some copy that attempts to convey the promotion, but unfortunately the giant disclaimer in the footer dominates the email. I think I looked at this email 3 times before I noticed that there was indeed a promotion here.

This may be the worst offender that I've seen lately, and I'm surprised because Nike has been in this game long enough to know better.

Finally, I wanted to show an example of someone that understands the challenge:

Note that there are still images contained in the message that are being suppressed, but the message itself has been composed in HTML without relying on images. The message is clear, compelling, and a creative use of HTML to display it.

The "term" lazy might be a bit harsh here, but unfortunately I think it fits. This has been a growing issue in the email marketing world for the past two years, and I can't imagine that these retailers aren't seeing a decline in their open and response rates. In our current economic conditions, squeezing every bit of opportunity out of your marketing budget is paramount, and email marketing should be no different.

Quick Commerce

Over the course of my current career with ATG, I've had the privilege of talking to a lot of companies -big and small - about their eCommerce strategy. One of  the things that continues to amaze me is the number of companies that over-think the execution of their online presence. The concept of eCommerce seems so enourmous to some, and as a result they never leave the starting blocks.

When you distill eCommerce down to it's most basic form, it's pretty simple: You are asking people to pay you for goods or services. Yes, it's important that they find your web site, and whatever your selling needs to be easy to find. But in the end, the weeks and months that you can spend trying to wrap your head around SEO, usability analysis and Google Analytics is a poor excuse for not getting started. Call it "throwing the baby out with the bathwater", or whatever lame analogy you want to use, but it all comes down to lost revenue opportunities.

I was reminded of this recently, when my friends at FormSpring announced their new integrated payment features. For the uneducated, FormSpring simplifies the tedious and often time-consuming process of building online forms. It seems that many of their customers were using their forms as a gateway to an eCommerce transaction with PayPal or Google Checkout. Unfortunately, those services force the user away from the site where the forms are hosted, so FormSpring decided to integrate several different payments types into their product in order to streamline the transaction process.

FormSpring is one of those little gems that can help companies impliment what I call "Quick Commerce", and it's impossible to overthink! You can go from concept to execution in a matter of hours, and begin accepting real transactions immediately. This is not only a great tool for the budding retailer or entrepreneur where time-to-market is critical, but also for larger corporations that need to get a proof-of-concept out the door with limited resources.

Using the right tool for the right job is essential, and marketers shouldn't overlook tools like FormSpring when it comes time to stop thinking about something, and start transacting.

You're Doing It Wrong: The Corporate RFP

As I write this, I'm taking a break from working on a response to a "Request for Proposal", commonly referred to as an RFP or sometimes an RFI. 150 pages of light reading, with probing questions like:

"What quality control processes have you implemented in order to mitigate the frequency and severity of errors in future releases of your software?"

Look, I've been on the other side of the table and I totally get it. This is going to be a very big project for the company in question, with a lot of internal stakeholders, and is not a decision to be made lightly. Making the wrong decision here would seriously compromise their ability to grow their business online. The first reaction when faced with an undertaking like this, is the get out the old fine-tooth comb and start combing.

Unfortunately, most of our prospective customers anchor this process with the corporate albatross of decision making: the RFP. Which is fine...if it was 1982.

The RFP was a necessary evil back in the dark ages, when corporations would only open the kimono when forced to do so through a bidding process. In fact, most RFP's were done as away to force vendors to blindly bid against each other as a way to get the best price. Somehow, the RFP has evolved into a magic document that too many companies think will actually help them make these business critical decisions.

Let's get real about this process for a minute:

- On the corporate side, hundreds of man-hours are spent preparing the RFP.

- Vendors are almost always just going through a copy-and-paste exercise when responding. And they will never - I repeat - never give out their best pricing in an RFP.

- The result is hundreds of pages of information that has to be processed by multiple people in order to be remotely useful.

I've seen this process in action as an eCommerce executive, and many times over in my current role. Not once have I ever seen anyone make an educated decision to select a vendor based on how they responded to an RFP. Even when RFP's are involved, the decisions are ultimately made by smart people who take the time to talk to each of vendors in detail, research the company and it's products, and more than often they rely on their most valuable asset: their gut.

I wish I had the reach to convince every corporate IT and Project Management office to just stop perpetuating this dinosaur of a process, but obviously I don't. The irony of it all, is that almost every company that drags us through this forced march is telling us that they have two major objectives in mind: increasing their time-to-market and return-on-investment. In both cases, they're starting out behind in the count.

Targeted Marketing FAIL

Just a quick footnote to my previous post on the desperation of online Ad Serving strategies....

I was walking by my 6-year old son yesterday while he was getting ready to play some games on PlayhouseDisney.com, and I thought it was funny enough to grab a screen shot:

Oh, and nice job Disney for serving up advertising meant for an adult on a site meant for a child....

Why Twitter Could Really Be Gone In A Year

OK, I really don't think Twitter will be gone in a year, but I needed a flashy headline to attract some attention. So sue me.

However, I do think the Twitter clock is ticking....

I was having my morning cup of coffee this morning whilst reading the last several hours of my Twitter feed, when I saw one of my Twitter Friends comment on how they thought the Twitter acquisition of Summize might speed up a Google acquisition of Twitter.

While I think that this was an important feature for Twitter to add, I don't think Google is even remotely interested in Twitter. Lest we all forget, Google acquired Jaiku last year. The same Jaiku that was being lauded as a "Twitter Killer" when it was barely out of the gates. Since the acquisition, there's been very little-to-no news on what Google plans to do with the technology. But let's not kid ourselves here: Jaiku is an activity stream service just like Twitter, and it's hard to believe that they would use it for anything else. From the Jaiku/Google FAQ:

Q: Why did Google acquire Jaiku?

A: Activity streams and mobile presence are important areas where we believe Google can add a lot of value for users. Jaiku's technology and talented team are a great addition to Google's current application and mobile teams.

It's no secret that Twitter is battling infrastructure issues, and they are basically trying to repair a 747 while it's in the air. A lot people are bailing on Twitter and trying services like Friendster and Plurk, among others. But what all of these other services are missing is the simplicity of Twitter. There's either just too much "noise" or the interface is too cumbersome to use on a regular basis. The vast majority of people I know are just plugging away on Twitter, and hoping that they get their act together. The Summize acquisition is a step in the right direction, but is it enough?

I have a pretty lousy track record when it comes to my prognostication skills - just ask my bookie. But I think that within six months you will see Google relaunch the Jaiku service in some fashion. My odds are on:

• A simple activity stream
• Integration with a number Google applications & services (gmail, gtalk, gcal, maps...)
• Activity streams that can be shared among a group of users (Jaiku Channels)
• Archive capabilities that will allow users to search dialog streams from Day 1

So, once the Google bomb drops I think we will see a very viable alternative to Twitter. It will certainly be a more reliable and feature rich alternative. And while there will always be loyal Twitter users, Twitter as we know it now probably will be gone, as in acquired, within a year. They simply can't continue to burn money with zero revenue to show for it, regardless of how many users they sign on. Maybe Yahoo! can find a place for them in their left-hand navigation under OMG!

Microsoft's Reality Distortion Field

It was hard to escape the news of Microsoft's Live Search Cashback program yesterday. I gave it some time to soak in, read through the flurry of opinion in the blogosphere - some good, but mostly bad. I even spent quite a bit of time with it this morning, making a purchase through one of their merchant partners.

One thing really stuck out to me as I read through the AP report, and that's this quote by Bill Gates:

"It's exciting. I think years from now you may look back and say, 'Wow, search started to get a fair bit more competitive,' and you can look back to that announcement,"

I'll let that just linger in the air for a minute before I continue....

OK...here's the deal, folks: Microsoft is apparently living in an alternate universe, where they understand consumer behavior on the Internet, and create innovative products to meet their demands.

In the real world, they are chasing their tale. Here's why Cashback probably won't amount to anything of consequence:

Where's the Innovation?: The MS Cashback site is really nothing more than a glorified affiliate program, where they pass their commission through to the consumer. Fatwallet has been doing this for quite some time. Upromise lets you take your cash reward and help fund your kid's college fund. iGive uses the same model, except they take the commission and donate it to any number of charitable causes. (I probably don't need to tell you how much more responsible the latter two examples are, as opposed to having a couple of bucks hit your PayPal account.)

It Will Change the Landscape of....: Comparison shopping on the Internet. Not search, and certainly not how marketers pay for search. I honestly can't see Google shaking in their shoes over this. Now, PriceGrabber,  Shopping.com or NexTag? They should be very afraid.

Consumer Behavior Will Prevail: Think about how you use search. Do you compartmentalize searching for something that you want to buy online differently than you do for other types of content? I'm guessing not....sure, you may end up at a product comparison site like the ones listed above, but there are good odds that you got there from a search engine link in the first place. How long until we see Google AdWords for Cashback links just like you do with every other shopping comparison site?

I have to make a slight disclaimer here: I work for a company that sells eCommerce software that competes (sort of) with Microsoft. I'm not Microsoft-bashing here for any other reason than I think they simply don't understand how they fit in the Internet space. I honestly can't think of a single instance in which they have truly innovated in years, and I wouldn't count Internet Explorer because we all know how it got it's initial market share. I will agree with most of what has been written so far, in that this smells really desperate.

Ad Serving Run Amok!

I bought a nice shiny new MacBook yesterday. I'm not sure how many Macs I've owned in my lifetime, but I think this might push the number into double digits. Anyway, it's my first Intel-based Mac and I've giving it a pretty good road test over the last 24-hours.

I've been thinking about writing a post on the current state of ad serving lately, so out of curiosity I decided to take a peek at my cookies in Firefox this morning. Holy crap! I've owned this computer for less than 24-hours. I installed Firefox maybe an hour after unboxing, and I'm guessing that I have 3-4 solid hours of browsing time logged so far.

Total number of cookies: 168
Number of cookies from ad serving networks: 71

It's not the sheer number that freaked me out....ok, the number did kinda freak me out a little bit...it's the fact that online marketing professionals are still buying into this as a viable way to spend their precious marketing dollars, and apparently there's a LOT of it going on.

If you're reading this right now, then I'll make the broad assumption that you've purchased something from the Internet before. Most likely, you've purchased a lot of things online. Now, when the last time you saw a banner-type ad somewhere, clicked-through and actually bought something as a result? Exactly...

Most of the ad networks today tend to dress up their services by calling it  "behavioral" or "contextual"  targeting, but it's far from being transparent or effective.

Example: I have a nice  canister vacuum from one of the high-end U.S. manufacturers. I realized that I hadn't changed the filter recently, and went to the manufacturers site to buy one. (I have no interest in going to Sears or Target in hopes that I could find a 3rd-party filter that might fit. I imagine it would be a lot like going to OfficeMax and trying to figure out what kind of ink jet cartridge I need for my printer.) Anyway, I don't see a filter for the model I have, so I find the nearest store and leave the site. About a day or so later, I notice that I keep seeing banner ads for a fancy new upright vacuum from the same company. And then I start seeing that same banner ad EVERYWHERE. I'm not the smartest guy in the world, but I realized what's happening here: The ad serving network saw that I abandoned their clients site, so obviously I have exhibited the target behavior for displaying their ad. Never mind the fact that I already own one of these ridiculously expensive vacuums. Or that I was explicitly searching a new filter. What the heck...throw that ad up there anyway. Maybe I need a second one so I won't have to carry the other one up the stairs all the time.

You get the point. To make matter worse, the pricing model for most of these networks is just ponderous. In my previous life, I sat in a room with a couple of sales guys from a very large network. The dialog went something like this:

Big Ad Network: We will monitor people that come to your site and then drop a cookie on those that exhibit certain behavior (i.e., they don't buy anything). Then, we'll serve up an ad to those same people as they traverse the Internet. If that same person returns to buy from your site, you'll pay us a small percentage of the revenue.

Me: You mean that I'll pay you if the user actually clicks-through from the ad that you're serving up, and then buys something, right?

Big Ad Network: No...we feel that we are influencing the user's behavior by simply showing the ad. If they return to buy, it's most likely because we "re-exposed" your brand to them.

At this point, I just smiled and nodded and thought about what I was going to have for lunch that day. This is just wrong on so many fundamental levels:

1. The vast majority of consumers don't generally buy on the first visit to a site. They research. They read reviews. They look for a better price. They bookmark the site with the intention of returning later. Do you really want to pay someone 5-10% off your margin for what is fairly common behavior?


2. On average, consumers click on 4 paid marketing campaigns before they make a purchase. Given the above behavior, why artificially inflate your customer acquisition cost?

Unfortunately, this wreaks of desperation marketing at a time when there is an abundance of tools for marketers to truly understand what the return is for their marketing spend. Stop the madness, people!

Twitter: The Mobile Worker's Best Friend

Up until about a year ago, I have spent just about every day working in an office of some sort.  I now work in the field for ATG, and when I am not on the road (which is about 40% of the time) I work out of my home office. It was a pretty big adjustment, and my biggest hurdle centered around managing my time and staying focused in an environment where there can be a lot of distractions.

I think I've made the transition fairly well, and while there's a ton of upside to working from home, I felt like there was something missing. When I was at home for more than a week, I found that I had to leave the house and go work at a coffee shop just to be around people. I probably wasn't horribly productive on those days, but I needed the interaction to break up the solitude.

I was at our user conference last week, and ran into some fellow Tweeters (is that the right expression? Sounds better than Twitterers). We started talking about how great Twitter was for the mobile worker, and then it dawned on me what I think I missed most about working in an office. It's the little hallway conversations about mostly trivial subjects: movies, last night's episode of "Lost", sports, etc. With Twitter, you can "kinda" have those conversations in almost real time.....it's not the same, but it's pretty darn close.

In some ways, it might even be better - when I need to put my head down and knock something out, I just shut down my Twitter client. Try doing that in your office when you have a deadline, but "fantasy football guy" stops by your desk and wants to chat for 25 minutes about the implications of Brett Favre retiring.

What's the value of social networking?

Yesterday, I published a post that questioned the amount of time we put into social networking and whether or not we're actually getting anything out of it.

Shortly after I posted, a friend sent me a message on Twitter, with a link to a very similar thought process, "Are Social Networks just another MMO Grind?"

I don't think I would have come up with this analogy in a million-years, primarily because I never really played MMO games, but I know exactly what he's talking about. There's a lot about social networking that feels like you are just working to get to the next level. And then when you get to that next level, you have to work harder.....to get to the next level. Wash, rinse, repeat.

Brilliant...I couldn't have said it better! Which leads me to my original point: Where's the true value in social networking for the vast majority of people who aren't on the grinding away on the treadmill?

I would suggest that we haven't really seen the "killer app" for social networking yet. It still feels like we are building out the infrastructure a bit, but waiting for someone to get it right. I'm showing my age here a bit, but I can remember when the Internet had very little value except for the power-users that knew how to navigate it...and then along came e-mail and all of a sudden the infrastructure become indispensable.

There are already a few applications that I think might give us a glimpse into what that killer app will look like:

ChaCha: These guys have taken some heat in the Web 2.0 world for their original model of human-powered search on the web, but they have recently embraced the mobile application and I expect big things. They still use the notion of "guides" right now, but I would expect that this might evolve as well.

GetSatisfaction.com: This is simply a great application of exposing the social infrastructure for something truly valuable: customer service. If you have a problem using  a product or service, who would you rather reach out to: a) someone being paid $10/hour to answer the phone, or b) other consumers of that same product or service who are willing to collaborate to help solve your problem? This is currently the customer support model for Twitter, and you can see several other companies getting on board.

The common thread here is that these applications are starting to show us how to leverage the wisdom of crowds in a valuable and productive way. Hopefully, we'll see more attention given to these types of applications in the Web 2.0 world as the infrastructure starts to plateau.