1. Crowdsourcing taps into the collective intelligence of online communities to complete business-related tasks that a company would normally either perform itself or outsource to a third-party provider.
2. There are several opportunities to leverage the wisdom of crowd in performing activities at a significantly lower cost, comparing to hiring a third party agency to perform those activities.
3. Some of the very interesting opportunities that I really like are
   1. Naming your business (Squadhelp.com) – you can get 30-40 domain name suggestions for as low as $10.
   2. Designing a logo or design (99designs.com) –great designs submitted from designers across the globe.
   3. Testing – uTest.com or usertesting.com for functional and usability testing.

In today’s world, it is extremely important to maximize the return from every investment and I believe crowdsourcing offers a significant opportunity in reducing the risk and maximizing the quality of your online business offering.

You are probably thinking it sounds cool, but does it have any practical or commercial uses in the retail and eCommerce space? Several retailers are already testing ideas with this concept. Although none have been widely successful so far, I see too major catalysts that could help take this technology mainstream.

First, the latest generation of mobile phones such as iPhone and Droid have all the necessary ingredients to help take this technology mainstream -  a compass and GPS to plot position, 3G mobile internet access and high resolution cameras. Second, the much anticipated launch of Microsoft’s project Natal can take this technology into the households. If you haven’t read about Project Natal, you must watch this video.

This is all good you say, but what about retail and eCommerce? I think this opens up several opportunities for multi-channel as well as online retailers. This technology has the potential to bridge the gap between the offline and digital world in a way that was not possible before. Ability to touch & feel products in the online context or the ability to see digital content such as product reviews in a physical store are all possibilities that are very real with this technology. Here are 6 use cases, along with some examples that would help visualize some of these opportunities:

1. Touch & Feel products while shopping online

One of the key deterrents to online shopping is the concern that users are not able to touch and feel the products. This is a concern especially for apparel items where looks or fit play a significant role in a shopping decision. How about a virtual fitting room where shoppers can see the garment on them, without actually trying it on.  The idea is to take some of the mystery out of buying clothes online — will it fit? Will it look good on me? — and let shoppers see how the garment might look on them, albeit on a computer screen.

Tobi has made a decent attempt at a virtual fitting room concept. Although it needs a bit of improvement to be able to see the exact fit and look, this is an excellent start and definitely has good potential for online apparel retailers.

Rayban has also done a good job in applying this technology so users can virtually try different sunglasses in front of their computer, as if the computer screen was a virtual mirror.

The common theme in both of these examples is that you get an online equivalent of taking your friends to the mall to check out some new products, all from the comfort of your own PC. Still not impressed? Here is another video from Cisco for more inspiration around virtual fitting rooms.

2. Bring the product to life in user’s context

Imagine if you are shopping for an item, and you are able see what’s inside the box in a life like 3D view. This is what Lego did in their stores by installing Augmented Reality kiosks. You can hold up a box in front of kiosk and it shows you what the set would be like, assembled. Not all retailers can afford setting up these AR kiosks in their stores, nor do I think the investment would pay off anytime soon, other than generating a coolness factor. However I do think leveraging cellular phones as an alternative to Kiosks could open up significant amount of opportunities that allow customers to “look inside” a box.

If you sell Furniture or Kitchen counter tops, you should take a look at how Ikea is using AR to try virtual furniture within the context of your own room! No more guessing about whether that mocha coffee table will go with that leather couch you already own. See it virtually, in the context of your own room, without leaving your house.

Another AR tool generating buzz right now is the USPS Box Simulator. Of all the examples I mention, this one has the most practical implementation of augmented reality that creates value for users. Basically, it allows consumers to virtually see what size box their shipment will fit in without buying the box

3. Bring digital product content to offline world

You are shopping in a physical store and would like to know about customer reviews, installation videos or other rich content that would help influence your decision. What if you point your iPhone at the product, and you immediately see all the digital content (reviews, videos etc.) layered on top of that object?  Layar recently launched a new Augmented Reality browser for iphone that seems to have significant potential in this space. The camera lens identifies the product, then serves up the contextually relevant digital information layered on top of the physical product.

4. Product Finders and Store Finders

At its simplest form, you could use an AR application such as Yelp Monocle from your iphone to find different type of stores around you.  This is a relatively straightforward application of augmented reality. However, imagine if the same concept could be applied to product finders within a store. You are standing inside a Bestbuy store and your iPhone app highlights all top rated products in the store which are currently on sale for more than 40% off.   Basically, the concept is to add a rich context by highlighting only the products that appeal to you. Whether you are shopping for a cocktail dress or looking for top rated toys for your kids, your mobile device  could make this a personalized experience by highlighting the products and the shelves that match your interest.  The below video from Thundre shows some additional product finder opportunities.

5. Interactive Product Catalogs For multi-channel retailers such as Bestbuy or Sears, this could be a significant opportunity in future. Allowing users to see a 3D rendering of the product from a paper catalog could bring this channel much closer to a engaging, digital experience. I would love to see a Sears Wishbook catalog where the toys come to life using this kind of technology:

6. Interactive Marketing

Several retailers and product manufacturers have started testing this concept to enhance the effectiveness of their marketing campaigns. Some of the current use cases are very rudimentary but seeing the examples below would help you imagine the future possibilities in the area of internet marketing.

Toy maker Mattel has added augmented-reality technology into a range of action figures released to tie in with Avatar, the forthcoming 3D film. Each toy will come with an iTag – a small plastic card that children can hold up to their webcam. When the card is recognized by the computer, a three-dimensional digital image is superimposed over the card on the computer screen, giving the child the ability to “manipulate” the character or vehicle on-screen by pushing virtual “buttons”.

BMW Mini tested a marketing campaign late last year using simple black and white print ads that would bring the car to life in a 3D view when held next to a web cam.

It is too early to say what kind of impact this technology would have on our day to day lives. I do think a lot of above examples would lose their appeal in some time once the “shiny” effect of this technology fades off. It is important to think about applications of this technology that minimize any extra work from end user perspective, and provide a utility or value that would otherwise not be possible. Even though above examples may sound too impractical or costly to implement, I do think that the stage is being set for a future that would see game changing and practical implementations of this concept in the retail and eCommerce space. Perhaps, the boundaries between offline and online channel will no longer be as rigid as they are today, giving a new meaning to the phrase multi-channel retailing.

New York, 2010: It is 11:30pm and Sally is looking to buy a new dress for the upcoming Christmas party. She logs on to Looklet.com, picks up a dress and matching shoes and saves the new look in her profile. She gets prompted by Looklet if she would like to get an opinion from her friends. Looklet displays all her online Facebook friends via Facebook connect . Sally sees that her best friends Nancy and Tina are still online and invites them to give an opinion on the new look. They are able to chat and view the products in real time. Both Nancy and Tina love the new dress but aren’t too crazy about the new shoes. Sally is able to find other “Fashion Experts” on Looklet who have favorited the same dress – and she is able to find better shoes based upon recommendations from those experts.

Welcome to a new phenomenon in online retailing – “Social Shopping”. This term has been used more and more in the past few months to describe the future of online shopping. Although the above two examples are not yet real but several pieces of these concepts are already in action at several online retailers. Given all this hype around social shopping, I thought it would be good to talk about some of the practical examples where online retailers can start thinking about implementing some of these concepts on their platforms.

The Progression of Social Web

If we think about the progression of social web, it has significantly evolved over last few years. It started out “Relationship based” where people could just connect with others and stay in touch. Then it evolved into an open medium where the social platforms took the role of an operating system allowing third party applications to enable significantly richer social interactions among people . Now, it has evolved even further where all interactions are context based (think Facebook News Feed) where users only see information and conversations in the context they are interested in. The next logical step in this evolution is to allow sharing of products and services within the social context so that users can turn to their friends and trusted experts for advice on buying products.

For those who think social shopping is just a fad, consider this–What makes a great product recommendation? Is it the number of strangers who recommend something or is it the person who recommends it that matters most? In other words, if you are asked to chose between a book on Amazon that is rated 5 stars by 10 strangers and another book highly recommended by a close friend who has very similar tastes and background as you – which book are you more likely to buy? If the answer is latter, then you believe in the power of social shopping. The only thing needed is a platform which helps you listen to your trusted friend’s and follower’s recommendations in a structured format. Facebook Connect is the first step that would make these interactions possible in a meaningful way. Still not convinced? Let’s hear what our friends from Nielson say –

“Recommendations by personal acquaintances and opinions posted by consumers online are the most trusted forms of advertising globally, according to the latest twice yearly Nielsen Global Online Consumer Survey. The Nielsen survey, the largest of its kind, shows that nine in every ten Internet consumers worldwide (90 percent) trust recommendations from people they know, while seven in every ten (70 percent) trust consumer opinions posted online”

Ok – enough about general ideas and numbers. Let’s look at specific opportunities that are likely to shape up the social shopping landscape in the coming months and years:

Key Opportunities in Social Shopping

Opportunity 1: Product Discovery (Help me find a good product)

This is where most of the action is today. If you think about most of the social shopping sites today such as Kaboodle or Stylehive, they allow users to follow other experts and discover new products every day.

The key tools to make this concept are following:

1. Product Experts – There needs to be a notion of unbiased product experts who have authority in various categories. These experts have ability to share products that others will discover. The key aspect is that these experts need to be recruited by the online community using some sort of unbiased reputation/ point system. This leads to my second point.
2. Reputation Management – Experts earn reputation based upon the quality of their contributions to the online community. This needs to follow a democratic process where users vote for expert’s contribution and based upon pre-determined eligibility criteria, certain users are able to earn an “Expert” or “Guru” status in specific categories.
3. Online Profile – Ability to know about the tastes, preferences and the products currently owned by an individual would allow platforms to better connect individuals with each other based upon their common interests. I think this is a critical step in a successful social shopping platform because it would make all shopping related interactions context sensitive. Imagine logging into Facebook and seeing News feeds from all Facebook users at the same time! Facebook has allowed users to customize the context around their own friends – similarly the social shopping sites should allow the users to customize the context around other “experts” and individuals who have common tastes.

Opportunity 2: Product Selection (Help me pick between the products that I like)

This is the next step of the purchase process. Once the user has discovered a few products, they need to select which one would be the best match for them. Whether it is a dress or a pair of shoes or a gift for a co-worker, a lot of times people look at their trusted advisors or friends to select a product. Technology has now evolved such that social shopping platforms can now enable these interactions. Following are the key components that will act as the technology foundation of this aspect:

1. Facebook Connect – In my mind, in the short history of social shopping, Facebook connect is the most powerful development that will help take the concept of social shopping to mainstream. For those who are not aware what Facebook connect is, it is a powerful set of APIs for developers that lets users bring their identity and connections everywhere

So what’s the big deal? Well, this would allow users to take their friends along with them for shopping. Shopping online, that is. With Facebook connect, the shopping platforms now have the capability to allow interactions across the 300 million users who are currently on Facebook. I have some examples later that illustrate the practical implementations of Facebook connect in a social shopping context.

2. Google Wave

For those who don’t know what Google Wave is – here is a great2 minutes illustration of what it can do.

Now you might think that this looks slick for email communication but what does it have to do with shopping. Well – given that the API is open for developers, the opportunities are endless. For example – an Outdoor apparel retailer could allow customers to connect with each other via Google Wave and share their pictures of favorite Ski Vacations, showcasing all the products purchased at the online retailer. The opportunities are endless – the key thing is that Google Wave is a revolutionary product that opens up new way of communication and collaboration which could be easily applied to social shopping to connect individuals with common tastes and interests.

So what are some of the retailers doing in the collaboration and product selection space? Here are some real life examples where the concept of social shopping is already advancing to the next level:

1. My Zappos: Users are able to add items to their closet, and can then invite their friends from Facebook or Twitter to help select the best product. After registering, you can get introduced to groups with similar interests, such as Zappos Golf, Zappos Beauty, etc. Consumers can create shopping lists of items they want, have or like. Friends can tell them what they think and/or suggest new “stuff” for them. In the past when you shopped online, it was a lonely experience. With My.Zappos, consumers can shop together and have their “best friends” give them feedback.

2. Jansport has done something similar where prospective customers invite friends from Facebook (using Facebook Connect) to shop with them; then share comments and ratings conveniently—without a need to leave Jansport.com. Shoppers are able to converse freely with those whose opinions matter the most: their friends and family. Purchase validation can be achieved without interruption.

3. Apparel retailer Charlotte Russe has also implemented a “Shop Together” concept. Users can invite their friends to simultaneously shop the latest styles. Friends can view, compare, chat about and create a “favorites’ list of items together. This allows online customers to share synchronized shopping sessions with friends and family.

4. Vans.com has taken the concept of social shopping to customizable products. Shoppers can now invite friends to help design their customized sneakers. The collaborative-shopping technology allows consumers building custom shoes online to chat with friends in real time about the product design. Click on a link saying, “Invite friends to design with you,” and access friends through AIM, e-mail or any other service a link can be sent through. Assuming the friend is also at a computer, she can join a chat on the Vans site to give a thumbs up or down on the design, as well as make her own suggestions.

Opportunity 3: From Affiliate marketing to Social Marketing

The concept of Affiliate marketing has been quite successful for online retailers to drive sales to their portals. I think affiliate marketing will continue to be one of the important marketing channels – but we shouldn’t underestimate the potential of Word of mouth marketing that is possible at social platforms such as Facebook and Twitter. Out of 300 million users on Facebook, approximately half of them log in to their account every day – according to Facebook more than 6 billion minutes are spent on Facebook everyday. If these users are able to recommend products to their friends, resulting in a sale at an online retailer, this opens up a new marketing opportunity – some people call this social affiliate marketing. If the retailers are able to figure out an incentive structure to reward individuals who share products with their friends that eventually lead to a sale, the opportunities are limitless. Keep in mind there is a fine ethical line between sharing “authentic recommendations” with friends, vs. paying individuals to become social advertisers. In addition, FTC has issued guidelines (albeit vague) that would require users to disclose the association with a retailer if they are getting paid for driving sales. As marketers continue to over-do influencer outreach – trying to capture the attention of influencers like mom bloggers and food bloggers such that they authentically talk about products – we can expect to see some simpler and more direct solutions to transparently engage those influencers as affiliate marketers. The benefit back to them is a percentage of sales – all very transparent, of course. The same concept could be applied to users on Facebook and Twitter. However, the incentives don’t always have to be monetary – they could also mean earning a better status/ reputation on the retailer’s online platform.

Although the scope of social shopping is fairly small today, the opportunities are significant. The opportunities are even greater for multi-channel retailers such as Target, Walmart and Sears in engaging the customers at stores and helping them connect with their online friends who can “virtually” shop with them in the store. I think it is time to start thinking about retailing in the context of people vs. products. At the end of the day, it is the social interactions and conversations that help drive a purchase decision. Therefore, the online retailers need to start thinking about opening up their platforms to allow people to have these types of two way interactions vs. focusing on one-way merchandising aspects of retailing.

Fast forward 5 years – enter the connected world! I recently visited MySears.com and was amazed at the community involvement! Even though you see customers occasionally venting about product issues and their experiences, what is really impressive is that Sears has taken a bold step to let it all out in the open. They have provided an online platform where Customers are free to post their experiences. This is bold because it demonstrates leadership as well as compassion that Sears not only cares about listening to their customers, they are also not afraid of letting customers openly talk about their experiences online, however negative they might be. Interestingly, there is a group “Sears Cares” that addresses the customer service issues posted on the website. I think this strategy will definitely pay off in the long run, as long as the customer issues are addressed in a timely fashion and there is a feedback loop where customers are then able to share how their issues were resolved. In today’s world when there are so many forums and discussion boards where customers can vent about their experience – why not invite them to your own backyard and address the issues head on! MySears also has a section for customers to submit new ideas, and vote on other submitted ideas. Although this level of transparency will definitely improve the level of trust across Sears’ customers, the question is – is this enough?

Multi-channel retailers such as Sears or Walgreens have been focusing on traditional retail for more than 100 years. Although I think it is impressive that retailers such as Sears are able to leverage the online channel to win back one customer at a time, this approach is still reactive. What is more critical is to change the mindset of every single employee in how they think about leveraging the online channel. In today’s world, retailers need to stop thinking about a one-way means to push messages and product assortment to the customers. No company can outsmart or beat the collective intelligence of millions of users even if they spend millions of dollars every month. The online channel offers means to harness this collective intelligence that can help in making the right decisions for the target customers. Everyone talks about it, and yet, when it comes to making decisions, those decisions are generally supported by internal executives’ intuition vs. objective data that is collected from the customers. All the money that is spent by the retailers in marketing campaigns, assortment planning, merchandise planning, product design, store signage – how many of these decisions are based upon real customer feedback at the ground level?

Perhaps it is time to reinvest some of these dollars in platforms where customers can help make these decisions. Perhaps it is time to put the customers in charge – if they matter the most, shouldn’t they be the ones helping make strategic decisions? Why are retailers not investing in building an online portal where customers can collaborate on what assortment to carry in the store? Where customers can vote on what kind of promotions to run in the store? Where customers can rate the performance of the store associates that they interacted with? Where customers can not only help design the marketing campaigns, they can also become part of driving these marketing campaigns? Where customers can participate in designing cool apparel outfits or voting on the designs submitted by others?

I can go on and on but at a broader level, I think there is a significant need and opportunity for retailers to start outsourcing (or “crowdsourcing”) their internal decision-making to their own customers. The concept of Crowdsourcing has been around for few years now and yet only a few businesses have been able to take true advantage of the power of online communities. Multi-channel retailers stand to gain most from the power and wisdom of communities – learning from the customers using the online channels, and applying those ideas in the stores. Yes, it will require some sort of incentive to get the customers to participate in these kinds of communities. It is, however, amazing to see how eager customers are to participate and collaborate as long as their voice is heard and as long as they are able to achieve some sort of reputation/ expert status in the online community.

There are several retailers who make sure every new corporate employee in the company spends few days in a store when they start. I think the companies should also make sure that every corporate employee spends one week understanding the customer analytics that are being collected from the online channel. Every decision should be supported by some objective information that was collected by the online channel. I am not promoting the online channel just because I am biased. In this day and age, especially in a struggling economy, every single dollar that is leaving the company should be based upon a true customer insight – and the online channel offers a perfect means to not only capture those insights but also engage the customers in testing the ideas at a significantly cheaper cost.

An excellent example of leveraging the community in product design is Threadless.com – a web-based startup launched in 2000, which has become a poster child for how customers can actually create a company. Threadless sells t-shirts, but it does not design them. That’s up to its customers, who submit designs and stand to win small prizes if their submissions end up on a product. Then there is Polyvore, where people can combine fashion pieces into outfits they call “sets.” The interesting thing about fashion is that no item really stands alone — they are always combined into outfits. So instead of selling individual articles of clothing and accessories as most retailers do, combine them into outfits. And better yet, let customers do the creative work and then decide which outfits are most popular. The concept of crowdsourcing is now slowly being adopted by traditional companies. Whether it is My Starbucks Idea or Dell’s IdeaStorm or P&G’s Collect and Develop or Campbell’s Ideas for innovation, they all have one thing in common – they believe in the value of customer involvement in product design, and they have begun using the online channel to collect insights that would have been almost impossible to collect in the past.

What Sears has done is a good starting point – and is certainly more than what other “successful” retailers have done so far. Case in point – Target which still believes that the online channel is just another channel to drive sales therefore they don’t see any downside in outsourcing their entire online channel to Amazon. Wait a minute – did I just read that Target announced to end its pact with Amazon and build its own online presence? There are signs everywhere that multi-channel retailers are now seeing the online channel as something more strategic than just a revenue opportunity. However, I am rooting for the under-dogs like Sears who have recognized the strategic value of online channels and taken initial steps in directly engaging their customers. The true winners will however be the retailers who implement practical means to collect meaningful insights directly from their customers and then reform their internal processes to make and evaluate all tactical and strategic decisions based upon these insights.

So what are some of these ideas? Well, before discussing the specific ideas, I want to start with some of the key traits of these business models. Most of the ideas that I will discuss have one common theme – low cost of initial acquisition and high switching costs. These ideas involve offering innovative, easy to plug-in, value added services to online retailers at such a low price point that retailers have no reason to look any further. So what does one gain by this charitable gesture, you ask? Well, the key is to cut so deep into the core business processes of the online retailers, that it becomes progressively difficult for them to switch to a different provider over time.

Nothing better than starting with an example – so here goes. Power Reviews is a service provider which provides technology to online retailers in US to capture and display customer/product reviews on the site. It goes one step beyond the traditional customer reviews, and offers unique capabilities to aggregate the ratings across multiple product dimensions. The great thing about Power Reviews is that it is can be fully integrated into a website within few days. Even better, the entire offering is available for no cost to online retailers! So what is the catch, you ask? Power Reviews also maintains another online property called Buzzillions.com. The only thing they ask online retailers in return for their sophisticated Reviews technology is that the reviews collected on the retailer’s web site are syndicated and aggregated on the Buzzillions website. This is a great model – on one hand, Power Reviews is offering a significant value to the online retailers, and on the other hand, they are building a great destination site for customers with aggregated reviews from all participating retailers – a win/win scenario for power reviews, online retailers and the end customers.

Internet technology is moving more and more towards a widget based, plug and play based approach and niches are being carved out from various aspects of online shopping experience. There is no reason for online retailers to build all capabilities from scratch – instead, it is much more cost effective to power components of the shopping experience using these best in class, niche technologies which are maturing every day. Whether you are an online retailer or a service provider, the opportunities are limitless. The key is to build win-win partnership models where the sum of being part of a value chain is greater than the individual parts. For the Indian market, where eCommerce is still in its early stage of evolution, this opens up a lot of uncontested space. Here are some ideas:

1. Customer/Product Reviews: A model such as an Indian version of Power Reviews is not only viable, it is much needed at this time. Most online retailers have built very basic product review capabilities and the review content is moderated very poorly. A lot of times, the reviews listed on product pages are general questions from customers that look more like customer service issues, than product reviews. Having access to a service provider that can not only provide highly sophisticated technology but also provide value added services for review moderation will be a huge success. On the other hand, there still isn’t any destination portal that provides unbiased and extensive product content/ information to help buyers make purchase decisions. The only “somewhat” credible source is mouthshut.com but it is too broad – offering reviews from car dealers to restaurants to products – making it less appealing for someone who is looking specifically for reviews around purchase, along with immediate price comparison information. A Power Reviews like model will help in quickly building up this unbiased destination portal, which could offer a significant value in the Indian context.
2. Content Management: Product content is a fundamental component of the online shopping experience and an essential differentiator for successful online retailers. Several surveys have been done in the mature eCommerce markets where customers rate high quality product content as one of the most important factors to enhance a buyer’s online experience. However, if you look at the product content on most ecommerce sites in India, you don’t have to be really online savvy to come to the conclusion that the content is extremely basic. Whether it is the product images, or the copy or the attributes – most of the content is provided directly by third party sellers who do nothing more than copying and pasting it from another site. Notwithstanding the copyright issues, the content is generally not of much help to customers in helping them make the shopping decision. There is an opportunity for service providers to start building and licensing a rich repository of online content for major categories such as electronics. Content is a critical component for any online retailer and it is an activity that takes up significant resources to keep up with and manage. Having access to a rich repository that is being managed and built by a service provider who does it for a living can be a huge value-add. In addition, we can extend the above example of Power Reviews, and instead of charging significant licensing fees for this content, the service providers can in return, obtain reverse licensing for additional user generated content being generated on the online retailers site. Again, a win-win situation for customers and online retailers.
3. Email & Campaign Management –Email marketing is one of the most cost-effective and quantifiable ways to market an online retailer’s products and services, allowing them to send more personal, precisely targeted messages than other mediums. When used correctly and effectively, permission-based email marketing can also become the number one customer acquisition and retention tool. However, Email marketing has still not evolved as a mature channel for online retailers in India. It is still being done in an adhoc fashion, and there is a need for more mature service providers, who can provide an overall management of email program, including activities such as handling end to end planning, reviews, as well as monitoring Bounce rates, click rates, A/B testing based upon the concepts. Given the highly quantifiable nature of this channel, service providers can look at offering revenue sharing models where the initial cost of using the platform is negligible, but they get paid based upon the performance and effectiveness of these marketing programs.
4. Assisted eCommerce Solutions – One of the reasons eCommerce hasn’t yet reached enough scale in India is because of relatively low Internet penetration, especially in B or C class cities. There are models possible where a combination of technology as well as local presence can help in building virtual hubs in parts of country where internet is not easily available. This will require a larger investment, and a regional sales force – but the pricing advantage or availability of large virtual assortment of products can provide strong reasons for individuals living in this city to consider online channel as a shopping alternative. Service providers can think of a number of categories in this space – from local kiosk solutions to internet café solutions that work on a affiliate/ rev share model so that the online retailers are only paying a percent of the additional demand being aggregated through these channels.
5. Payment Gateways – A large expense that eats into the operating margins of online retailers in India is the transaction cost to payment gateways who act as the interface between online retailers and issuing credit card banks. In today’s environment, not many options are available to online retailers. In some cases, the smaller volume online retailers end up paying 6-7% of their sales as payment gateway fees, wiping out majority of their product margins. CCAvenue – one of the original players in this space, charges 7% transaction fees as part of its “economy plan”. If you are a retailer, selling products in the electronics category, you are probably earning 8-10% gross margin. In this scenario, there is not much scope for online retailers to achieve reasonable profitability. Although I don’t want to undermine the importance of a payment gateway solution, but when I see 7% being charged for a service, that at an overly simplified level involves routing transactions from the retailer to the bank, I do think that this space needs more entry. Payment gateway is the core need of any online retailer, and the market can easily support 8-10 strong players in this space. The initial setup cost to build a payment gateway service offering will certainly be high – but there is a large opportunity to begin offering easily integrated, Plug and play solutions in this category at significantly lower transaction costs.

The list of opportunities is limitless. As I mentioned in one of my previous posts, the ecosystem is slowly evolving which will help improve the maturity level of end to end ecommerce experience. However, if you are interested in offering services in this space, or are already playing in this space, this is the time to think about how you can carve out a niche and a unique business model that can not only provide low acquisition costs for online retailers, but can also create a significant value for your business and the end customers.