In this essay I want to cover the changes to modern e-commerce as we know it today and to have an open discussion on models I think will have a big impact, and why, on e-commerce in the future. To start off I am going highlight an article that Jason Goldberg, the CEO and Founder of FAB, wrote earlier this year on the three major disruptive “waves”, from his perspective, that have occurred in e-commerce.
In it he described the first wave, Commodity Commerce, as bringing commodity products on-line as encapsulated by Amazon.com. This is essentially creating incredible business operations, something that Amazon is still the market leader today, giving the consumer choice, competitive prices and consistency of experience. World leading business operations is of course not the only area that Amazon excels but it was the focus of their early days and is a prime example of Commodity Commerce as defined by Jason.
Jason’s second ‘wave’ is Digital Commerce, defined as the digitization of content; books, music, films etc. This is best demonstrated by companies like Apple, Netflix, Hulu and also Amazon with its big push on new digital products like the Kindle.
The third is Emotional Commerce and is currently based upon aspirational (read: non-essential luxury) products like furniture, fashion, art etc. Jason is obviously referencing Fab.com as the prime example of Emotional Commerce and believes it is governed by three defining principles that when implemented will lead to success:
1) Exciting Merchandise – Creating the wow factor (check out Seth Godin’s book Purple Cow for more on this)
2) Amazing Shopping Experience – To go above and beyond what has now become the standard from the first wave of commodity commerce. Using added services to cover areas like education, social interaction and discoverability to make the shopping experience fun for the customer.
3) Brand Building – The first two points, shopping experience and exciting merchandise, create desirability. Marketing and advertising the product/desirability to as many people as possible builds the brand equity.
Jason’s article goes on to explain the potential market size for that can be covered by Emotional commerce and is well worth reading. I don’t believe the article covers everything that I view as disruptive in e-commerce but it is a great overview.
For me to discuss what is going to be potentially disruptive in the future I want to highlight what has been consistent with each of the disruptive waves that e-commerce has experienced so far. That is simply desirability. More specifically “Sustained Desirability” – a simple concept that presents the most complicated problem for all retail businesses. The key question that all E-Commerce businesses must address is how do you create desirability with your customers above and beyond your category competitors? Jason’s article is fascinating because it provides an insight into how the big disruptive brands have approached this challenge over the last few years. Let us consider the three types of e-commerce that Jason has highlighted and how they have helped to sustain a brands desirability for the consumer.
1) Commodity Commerce – The early days of e-commerce was all about trust, or lack of, people wary to engage with the online brands. The market reacted to this challenge by creating better reliability, delivery options, communications, returns policies, excellent pricing, large merchandise options and security. Early successful e-commerce pioneers like Amazon have now set the standard in this Commodity Commerce (essentially operations). They became more desirable by getting the basics right faster than the competition.
2) Digital Commerce – The size of disruption in this area can’t t be disputed but in essence the change is fairly simple. Digitisation has simply eliminated time of delivery. The age of instant gratification was born. If you desired something, you could have it. Immediately. That is desirable in itself.
3) Emotional Commerce – Commerce “plus”. The best e-commerce sites are no longer expected to be just shops. They are a places to connect to fellow shoppers and compare notes on products via text and videos. A place to learn about the industry/market/trends of the interested area. A place to look for beautiful and find beautiful, never thought of before, merchandise, to buy from the heart not the head. I see this as part of making the customer better and more knowledgeable about things they are interested in, defined by Kathy Sierra as making the customer “badass”! The ultimate engagement as who does not desire to be better! Kathy Sierra describes this brilliant in a talk she did at ‘the business of software’ conference last year. The video can be found HERE and is well worth watching.
Having discussed the impact of Jason’s three ‘waves’ on the consumer, I now want to go on to discuss their impact on E-Commerce more generally. Firstly there is a fast moving war in e-commerce, akin to other technology categories, to identify innovations that will evolve the existing e-commerce business models which inevitably become tomorrow’s standards. Everyone is striving to identify the next disrupting factor that will create the next billion dollar e-commerce giant. Based on my experiences, a sprinkle of imagination and a little bit of guess work I have identified four innovative e-commerce models that could raise consumer desirability and help build the next major e-commerce player.
- Direct Selling Commerce – Supply chain ownership. Having amazing merchandise is hard because you have everyone competing for highly desirable items likely leading to limited exclusivity and low margins. The most effective way to control your supply chain is to manufacture your own goods, giving immediate gains in both cost base and speed of iteration of merchandise design.
- Personalisation Commerce – The amount of e-commerce retailers available and goods on offer means there is a staggering array of variations and options available to the consumer. The majority of options are irrelevant as only a tiny percentage will ever hold any interest for you. We are already seeing aggregators using data and good functional design to intelligently filter goods for each user to remove irrelevant options from the user experience. I see this trend growing significantly as more of our personal information is brought on-line. Social businesses, by leveraging their unparalleled levels of personal data, could take the greatest advantage here by creating a personalised e-commerce channel within their product.
- Solution Commerce – Simplification of the shopping experience by not just presenting solutions but going one step further and solving the problem for the consumer. In retail, consumer choice is the result of trying to solve a problem. An example of this is trying to identify solutions for travelling reasonable distances on a regular basis. You would buy a car or alternative travel mediums and so on and so forth. E-Retailers are generally not good in trying to understand their customer’s problem and create solutions quickly. Traditionally the retailer will simply offer as many merchandise SKU’s as possible and make the customer do all the hard work trying to find the ideal option. Queue lengthy browsing of numerous sub-category pages of e-commerce websites with very little extra information to help. This is in complete contrast to good bricks and mortar stores who have trained individuals trying to help and guide their customers at every opportunity. This simplifies the experience for the customer and more often than not gives two further bonuses. First the customer has likely learned more about the merchandise/category along the way ecoming more ‘badass’ and secondly, they will have more confidence that they have made the right choice, both positively reflecting upon the retail brand.
- Expertise Commerce – Making commerce the secondary function of the website. Getting long-term customer engagement in your store is increasingly difficult as more and more competitors pop up demanding your customer’s attention. This is never more apparent than with email marketing which is fast becoming less and less effective as people are flooded with newsletters, one-time offers and special deals and therefore giving marketers little chance for their own customer traffic drivers to stand out. How do you therefore get people to come back to you time and time again? One option is you become the market expert in the field, when anyone wants advice within that field, they come to you first. Find the solution to their problem and if it involves a retail decision you should be the one to present this to them, either through affiliation links as an aggregator or even creating your own supply chain. To achieve this I believe you have to make the retail aspect secondary, expertise has to be the first thought potential customers associate with your brand, not retail. I personally believe that this area holds the most chance of creating the most disruptive opportunities in the next 5 years.
I certainly know that the next e-commerce venture I start or join will have to include one or more of these ideas. I will let you know if I am right or not 😉
For additional thoughts on the future of e-commerce, from a VC perspective, the following post by Nic Brisbourne of Forward Venture Partners is also worth reading HERE.
Lastly, before anyone lambasts me for not mentioning mobile, I know, I know nothing… But answer this: What does mobile change for e-commerce? It is essentially just changing where the consumer accesses the world wide web. Yes every e-commerce business needs to optimise its product for the different platforms but will mobile give major opportunities to e-commerce innovators with the current technology? The only significant addition mobile gives businesses is instant location data which will undoubtedly be used, but becoming a market game changer? I am not so sure although I’m happy to be proven wrong.