Marketplace concept has been fairly common with online retailers such as Amazon.com and buy.com. However, it seems that multi-channel retailers are also joining the bandwagon. Sears and Walmart have both opened up their online platforms to allow third party sellers to list and sell their merchandise. This definitely opens up an alternative source of revenue for retailers and in these trying times, who doesn’t want to have additional revenue sources.

Actually, I am glad that multi channel retailers are opening up their “walled gardens” and thinking more and more from customer’s point of view. A marketplace concept helps fill the gaps in retailer’s product assortment so that the customers can find the products they are looking for. In addition, the retailer makes money from the marketplace sellers for every marketplace order that gets placed on their platform. This is a good first step. However, every time I hear that whistling sound from my sub, I get more and more convinced that the multi-channel retailers are leaving a significant opportunity on the table – an opportunity that can give them a sustainable advantage over pure-play online retailers.

If we take a step back and think about advantages that a multi-channel retailer can offer to their customers – we wouldn’t have to think hard before coming up with following:

1. Ease of buying online, and picking up at a physical store (Easy Product Discovery & research online, Save shipping costs, Pick up the product same day from a local store)
2. Ease of researching in a physical store and then later buying online. (Touch & Feel the product before buying, avoid a second trip to the store by buying online)
3. Ease of returns (Peace of mind – I can return my online purchase to my local store anytime).

So why are the multi-channel retailers not offering the above benefits when it comes to marketplace purchases? For example, I would love to shop a marketplace item on Bestbuy.com if I had the option to return that item to the Bestbuy store which is 4 miles from my house. This would certainly give Bestbuy an edge over other online players who are selling the same marketplace item, probably at the same price but require the customers to ship the item back to the marketplace supplier (potentially at additional cost to customer). I am sure there are few logistics issues to be overcome in handling third party returns at a brick and mortar store. However in today’s day and age, these issues can easily be solved by technology and some innovation in distribution network. The bigger problem is that a lot of times, companies give up because they focus on traditional retailing constraints vs. focusing on what is right for their customer. Several online retailers are now picking up the cost of return shipping because they recognize that ease of return is a very important factor in customer’s mind when it comes to online shopping (Did I mention my Sub?).

Breaking the multi-channel boundaries

Now let’s take this one step further. In today’s connected world, what is stopping a retailer such as Sears, Walmart or Bestbuy in offering this “Return” service to their online competitors? In other words, accepting returns for merchandise purchased at other online retailers such as Amazon. Sounds a little odd because why would a retailer offer such a service to their competitors? Well, the concept is no different than marketplace. It follows the same logic – retailers are opening their online platform to marketplace sellers so that they can list the merchandise for a fee. In a free market economy, companies shouldn’t think about internalizing their assets – they should focus on how to maximize the rents by opening up what they do best to other companies who want to use such services. Retailers like Sears, Bestbuy and Walmart have thousands of stores across the country – why shouldn’t they monetize this asset by offering merchandise return services to online retailers? If the multi-channel retailers begin to offer the return service to their competitors for a fee – it would create a win win situation for everyone. Let’s illustrate this with an example –

Let’s say Bestbuy partners with Amazon and allows all merchandise that is purchased at Amazon.com to be returned at any Bestbuy store. Let’s leave the logistics/issues aside (we will get to them in a minute) and think from a customer’s point of view first. I hope we can all agree that this would offer a huge benefit to the customers because now they don’t have to worry about the hassle of returning the merchandise back to Amazon in case of any issues. They can just drive to the nearest Bestbuy store, present their return authorization from Amazon, return the merchandise and get immediate refund. Here is a tactical blueprint of how some of these logistical issues can be overcome–

1. Customer decides to return an Amazon.com purchase to a Bestbuy store
2. Customer logs on to Amazon, prints the return authorization.
3. Amazon transfers the return authorization information along with the item details to Bestbuy Return Management systems.
4. Customer takes the return authorization to a Bestbuy store.
5. The store associate pulls the information from their POS system, inspects the merchandise and issues a Bestbuy Merchandise credit/ gift card to the customer.
6. Bestbuy leverages the already existing distribution channel to return the consignment of returned merchandise back to the online retailer, or to a liquidator depending upon the arrangement.

Win for Multi-Channel Retailers

So how does Bestbuy benefit from all of this? A few subtle things happen in above example –

1. Bestbuy issues a Bestbuy Merchandise Credit for the refund amount. This will ensure that the money will be spent at Bestbuy in future – easy way to “lock in” the future spend.
2. Retailer spend a lot of marketing dollars in today’s environment to drive traffic to their stores. In this arrangement, Bestbuy will get unsolicited traffic to their store – with no marketing spend. More importantly, every customer in this category just returned an item, and has been issued a Bestbuy gift card – perhaps there is a high probability that they will shop at Bestbuy before they leave?
3. Finally, Bestbuy could charge some sort of transaction fee to Amazon for providing this type of service. After all, Amazon’s operational costs associated with return shipping and handling merchandise returns would significantly drop because of this arrangement.

Win for Online Only Retailers

You are probably thinking why would an online retailer like Amazon want to do this? Especially when there is a potential of some leakage (customers returning an Amazon item might eventually shop at Bestbuy). Again, if we think from a customer’s perspective – the online retailers would now be able to offer thousands of return depots to their customers. This is a significant advantage compared to other online retailers who can’t offer in-store returns. As a customer, if everything else is equal, I would certainly want to shop at an online retailer which gives me much more flexibility and options in returning the merchandise. Ease of Returns has been identified as one of the key factors in online shopping based upon several research studies conducted for last several years. Therefore, the online retailer that offers this option would suddenly get access to a new demographic of customers who are currently not shopping with them due to concerns about hassles in product returns. At the end of the day, the online retailer’s objective should be to offer its customers an end to end experience that is built around what the customer expects, vs. an experience that is built around the internal constraints. Just because the online retailer doesn’t have any physical stores doesn’t mean that they can’t think and operate like a multi-channel retailer by partnering with others.

I realize I am potentially understating the complexity of the integration. However, in a Service oriented world, is there truly a big distinction between integrating systems within the enterprise vs. across the whole value chain? I really hope to see this concept in action sometime in near future – however in the meantime, I am not holding my breath and am off to a UPS store to figure out how to return this whistling device back to the cloud!

There is a perception out there that eCommerce is not really picking up in India and that companies are struggling to scale up their offerings. There is no question that the overall market is still pretty small in terms of numbers. However, we shouldn’t ignore that all factors are slowly moving in favor of eCommerce. Retail is getting more and more organized, availability of global brands is larger than ever, internet penetration is climbing and some internet retailers have started to focus on customer experience as a way to differentiate. Most importantly, and I can personally attest to this one , there are some extremely talented individuals who have recently launched new ventures and are passionate about making a big difference in the eCommerce space in India.

I’ve been thinking about this for a while - despite all this activity happening in the industry, recent startups are not getting a lot of coverage unless they are willing to shell out marketing money to advertise their offerings. Therefore, I have setup an eCommerce Directory that would  showcase all eCommerce related ventures and offerings in India . I think this makes sense -  given that Commercewiki has reached a Million page views , enterpreneurs can use this site as the primary marketing vehicle. Ok, ignore that last sentence because it is slightly exaggerated!! I dont think we are anywhere close to million page views yet but we do have access to the core community that has a strong pulse on eCommerce in India and insights that are based upon real experiences in this space. Quality is better than quantity in this context.

So if you would like to share your venture/ offering, please submit your listing here. It doesnt matter how small or large your venture is. The only requirement is that your business must support the eCommerce eco-system in some way.

I remain highly optimistic about all the eCommerce opportunities that are still out there in Indian market. I am hoping that this showcase would demonstrate all the excitement and energy that is currently going on and would inspire potential entreprenurs who are currently sitting on the fence to join this wave of transformation in online retail.

Update (October 09, 2009): Listings are now live under the eCommerce Showcase section. You can submit your listing here.

I’ve been following the US and India eCommerce industry very closely during the last several years.  I have met quite a few talented individuals who are either in the process of or have already built a good online offering. However, I feel there is still a huge opportunity to take the online shopping to the next level and this may be just the right timing to go after that opportunity.

I have now decided to focus on building a next generation shopping portal for US and India market that combines the power of communities, user content as well as product customization in a game-changing way. I am looking forward to the journey over the next several months and I will be sure to post new learnings and insights in this blog as time goes by. Although I feel confident about the opportunity and the timing, I also believe that any successful venture requires a great team with complementary skills and a passion to win! I am in the early stages of building the team of individuals who will support this venture.

I am thinking of building a small team initially that will eventually expand as the idea scales. So if you are an amazing User Experience/Creative individual or if you are an expert in open source technologies such as Ruby on Rails or if you have strong experience in product/merchandising (especially customizable products) but most importantly, if you have the passion and desire to do something big in the eCommerce space – I would love to hear from you.

Obviously this is not good news for online retailers. Although the US online retail has been hit much harder, there is clear evidence that eCommerce in India is slowing down as well. The question has now shifted from “will the internet economy be affected?” to “how bad will the internet economy be affected?”

There is no question this downturn will be deadly for a considerable number of internet startups. However, some of the victims will not be killed by the recession itself; many would have inevitably failed because they didn’t have a sound, fundamental business case to begin with. A recession that makes it harder to generate revenue and to raise additional capital will simply speed up the dying process.

However, I am an optimist. I think there are plenty of reasons to believe that many entrepreneurs and smaller businesses may emerge from the coming downturn in just as good, if not better, shape than they went in. After all, many of today’s most successful companies began in tough times and many others have emerged out of previous downturns stronger than ever before. These are the times that will separate the wheat from the chaff.

Some people would argue that online shopping mainly involves products that classify as “discretionary spending”. Cellular phones, DVDs, LCD TVs are all example of items that might classify as discretionary, and therefore by definition, these are the products that are first to be cut from consumer’s shopping list in case of an economic downturn. Therefore, even if the online retailers have a strong business model, these times require extreme focus on cash flows and managing expenses. On the other hand, it is likely that the cost of software development and other spending categories is cheaper now than in boom times. Therefore, it is a good time to review spending categories such as Online Ad Spending, CPM, consulting partnerships etc. , because chances are that prices would have fallen in most of these spending categories.

Here are some tips on how to improve the chances of survival and emerge stronger out of the recession:

Think Nimble and Flexible

I am a strong believer of trends and cycles. Nothing stays the same way forever, and for the bold entrepreneurs these times may be just right to embark on something big. My only advise would be to build a lean and nimble venture that can quickly respond to the changing dynamics of the industry and economy. For example, instead of going on a hiring spree, consider partnering with services companies, who can probably provide as good, if not better talent in addition to much more flexibility around the financial commitment.

Focus on Value:

This is a high value market, buyers will be looking for and finding extreme deals, and if you have products that can be used to create those deals, or can use them as incentives to get sales, now is the time to be creative. Now is not the time to spend marketing dollars on artificial measures of success – such as increase user registrations, increase page views etc. Instead, this is the time to focus the marketing spend on categories which will add a direct value to consumers. Whether it is kick-back programs (e.g. buy XX now, and get YY Gift card for your next purchase) or aggressive product offers, the focus on direct and measurable results from marketing spend should be highest than ever.

Leveraging Social Networks

The other day I received an email from Sears which offered $5 Sears Gift Card just for signing up as a Sears Fan in Facebook. I immediately thought to myself – was Sears trying to buy friends on Facebook? Is that ethical? As I was thinking through this strategy, I became quite impressed with the potential outcome. On one hand, a $5 gift card would result in a guaranteed spend at Sears (in most cases for a higher order size – albeit at lower margins). On the other hand, Sears suddenly had tens of thousands of so called “fans” who were in a way promoting this store to their own friends and connections! All of this, with no immediate cash outlay because the discount would only be offered when Gift card is redeemed. Overall, I thought this was a great strategy.

Now I am not suggesting that this strategy would work for everyone. However, different variants of this strategy can generate solid results, with minimal upfront investment. It’s definitely possible to execute many of these activities by tapping into your staff’s talent to provide the right content.

Improving On-Page Conversions

The effective use of landing pages and video content has been shown to improve conversion rates on both service and product-related websites. Proven by case studies far and wide, and according to MarketingSherpa’s Search Marketing Benchmark Guide 2008, testing landing page elements improves conversion rates anywhere from 5% to 50%. In November 2007, eMarketer cited a study showing online shopping conversions increasing 35% with the aid of rich media, including video. Of course, succeeding at improving on-page conversions requires the proper analytics coupled with methodical testing.

How well do you track your competitors?

The basic business requirement of gathering competitive intelligence often gets pushed aside by many companies. Competitive intelligence is particularly critical in the online marketing space, since campaign management strategies constantly change and evolve due to the dynamic bidding process. Good intelligence gathering will reduce the probability of wasted advertising dollars. To establish what intelligence should be gathered, successful marketers need internal reports with specific campaign optimization recommendations, along with data on your competition, such as upstream and downstream traffic, advertising sources, and keyword volumes.

In this kind of climate, several companies will be forced to make decisions about their spending and business focus. Survival mode will kick in, and a lot of times, this will result in companies walking away from potential profitable market share – just because it may not be their “core business”.

When this process is occurring, there is often no better time to make a move. If you’re a startup on solid footing, exploit the situation to strengthen your business at the expense of vulnerable competitors.

If you’re an entrepreneur who doesn’t need a venture capital subsidy, put your own resources to work to build a company while those who can’t do the same sit on the sidelines and go back to their day jobs.

This is certainly not a good time to start a venture if you are just “testing the waters” or if you have a half baked business plan – without a clear knowledge of where the revenue will come from. However, if you have the conviction, a great team and a fundamentally sound business plan, this might just be the right time for you to jump in and build something that might get written up as a success story during the next cycle when markets go into another recession.

I, for one, have decided to begin a new journey in the world of entrepreneurship. I have started an eCommerce consulting firm – LeapMatrix and will be focusing my efforts in helping other startups and existing companies maximize their opportunities in these difficult times.

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.