Yesterday morning I attended MITX's "What's Next For E-Commerce" Panel
at Microsoft in Cambridge. Flybridge Capital's Jeff Bussgang
moderated a panel that included Shoebuy.com CEO Scott Savitz, CSN CEO Niraj Shah, Mall Networks CEO Tom Beecher,and Avenue 100 Media Solutions CEO Brian Eberman.
The session was well-attended and the panelists didn't disappoint. Across the board they provided a consistent cross-section of the sophistication and energy that characterizes life 2 SDs the right on the ecommerce success curve.
My notes and observations follow. But first, courtesy of Jeff, a quiz (answers at the end of the post):
1. Name the person, company, and city that originated the web-based shopping cart and secure payment process?
2. Name the person, company, and city that originated affiliate marketing on the web?
3. Name the largest email marketing firm in the world, and the city where it's headquartered?
Jeff opened by asking each of the panelists to talk about how they drive traffic, and how they try to distinguish themselves in doing so.
Brian described (my version) what his firm does as "performance marketing in the long tail", historically for education-sector customers (for- and non-profit) but now beyond that category. What that means is that they manage bidding and creative for 2 million less-popular keywords across all the major search engines for their customers. Their business is entirely automated and uses sophisticated models to predict when a customer should be willing to pay price X and use creative Y for keyword Z to reel in a likely-profitable order. The idea is that the boom in SEM demand has driven prices way up for popular keywords, but that there are still efficient marketing deals to be mined in the "long tail" of keyword popularity (e.g.,structured collaboration").
Niraj noted that there's an increasing returns dynamic in the SEM channel that raises entry barriers for upstarts and helps firms like CSN preserve and expand their position. Namely, as firms like his get more sophisticated about conversion through scale and experience, they can afford to pay higher prices for a given keyword than smaller competitors can, and can reinvest in extending their SEM capabilities. CSN now has a 10-person search marketing team within its total staff of 500. Since SEM is, to some degree, a jump-starter for firms that don't yet have a web presence sufficient to drive traffic organically, this edge is a powerful competitive weapon. CSN is up to $200 million in annual revenues, and now manages the online furniture stores for folks like Walmart.
Scott sounded a different note, with similar results. Shoebuy has focused more on cultivating its relationship with its existing customers and on Lifetime Value -- including referrals. This focus has had a salutary effect on SEO, allowing them to rely less on SEM as it gets pricier. Last year Shoebuy experienced double-digit top line growth and hit 8M uniques for December's shopping season, while realizing its lowest marketing expense as a percentage of sales since 2002. They've continued to plow the savings into a better overall customer experience. One way Shoebuy guides this reinvestment is through extensive use of Net Promoter-based surveys. They keep the surveys brutally simple: 1)"Were you satisfied?" 2)"Whould you shop with us again?" 3)"Would you recommend us?". Then they calculate the resulting NP scores to different things they try in their marketing mix, to give them a more nuanced insight than the binary outcome of an order can provide.
Tom described how while Mall Networks' traffic is "free" -- it all comes from their loyalty program partners' sites (e.g. Delta Skymiles website awards redemption page) -- they still have to jockey for Mall Networks' placement on those pages. (Though Tom was too polite to say so, the processes for deciding who goes where on popular pages is often a blood sport and ripe in most organizations for a more structured, rational approach.)
Former Molecular founder and CEO Ralph Folz asked about display -- is that making a comeback? Brian indicated the lack of performance and the lack of placement control through ad networks made that a highly negative experience. He did note that they are now experimenting with participation in real-time-bidding through ad exchanges for inventory that ad networks make available, sometimes for time windows only a hundred milliseconds long. Jeff reinforced the emergence of "RTB" and mentioned MIT Prof. Ed Crawley's Cambridge-based DataXu (which Flybridge has invested in) as a leader in the field.
Affiliate marketing came up next. Tom explained the basics (in response to a question): each of the 600 stores in Mall Networks stable pays Mall Networks, say for example, a 10% commission on orders that come through Mall Networks. Mall Networks gives a chunk to the members of various loyalty programs that shop through it -- say 3-5% of the value of the order; some goes to the loyalty programs themselves, as partial inducements for sending traffic to Mall Networks, and the rest goes to Mall Networks to cover costs and yield profits.
All the other panelists include affiliates in their marketing mix, and all appeared satisfied to have them play a healthy role. Niraj specifically mentioned the ShareASale and Google Affiliate networks. Jeff asked about everyone's frenemy Amazon; the answers were uniformly respectful: "they're a tough competitor, but they build general confidence and familiarity with the ecommerce channel, and that's good for everyone." Niraj noted the 800 lb. gorilla nature of their category dominance: "They're at $20m and NewEgg is the next biggest pure play at $2B. They're a fact of life. We just have to be better at what we focus on."
Someone in the audience raised email. All of the panelists use it, with lists ranging from millions to hundreds of millions of recipients in size. They noted that this traditional pillar of online marketing has now gotten very sophisticated. In their world, they look well beyond top line metrics like open- and clickthrough rates to root-cause analysis of segment-based performance. Re-targeting came up, and Niraj noted that for them, email and re-targeting weren't substitutes (as some have seen them) but in fact played complementary roles in their mix. (Jeff explained re-targeting for the audience: using an ad network to cookie visitors to your site, and then serving them "please come back!" ads on other sites in the network they go to after they've abandoned a shopping cart or otherwise left your site. A twist: serving ads inviting them to *your* site after they've abandoned one of your competitors' sites. Hey, all's fair in love, war, and ecommerce...). A common theme: unlike most of the rest of the world, email teams at these leading firms are tightly integrated with other channels' operators to better integrate the overall experience, even to the point of shared metrics.
What about social? Scott: "Building community is key for us. We run contests -- "What are you hoping will be under your tree this Christmas?" -- to stimulate input from our customers. And, while we have social media coordinators, many people here participate in channels like Twitter in support of our efforts." Niraj: "Our PR team came up with a 'Living Room Rescue' contest which we did in partnership with [a popular] HGTV host [whose name escaped me -- C.B.]. We got six thousand entries; we used a panel of professional decorators to narrow the list to a hundred, and then used social voting to choose a winner. We publicized the contest, and it took on a life of its own, as local papers tried to drum up support for their local [slobs -- my word, not Niraj's]. While we couldn't / didn't measure conversion directly from this campaign, our indirect assessment was that it had a great ROI." Jeff observed that social's potential seems greater when the object of the buzz is newsworthy.
It was a short leap from this to a question about attribution analysis, the simultaneous-dream-and-nightmare-du-jour for web analytics geeks out there. Brian was surprisingly dismissive. In his experience (if I understood correctly), he's seeing only up to 20%, and usually only 5-10% of order-placing customers touch two or more properties they source clicks from, across the broad landscape they cover, across a time frame ranging from a day to a month long. "In the end, only a couple of dollars would shift from one channel to another if we did attribution analysis, so in general it's not worth it." We chatted briefly after the panel about this; there are large ticket, high-margin exceptions to this rule (cars). I need to learn about this one some more, it surprised me.
Mobile! Is it finally here? Scott reports that 6-9 months ago *customers* finally began asking for it (as opposed to having it pushed by vendors), so now they have a Shoebuy.com iPhone app. Jeff noted that customers are rolling their own mobile strategies -- some folks are now going into (say) Best Buy, having a look at products in the flesh, then checking Amazon for the items and buying them through their iPhone if the price is right. So, your store is now Amazon's showroom. If you can't find something, or didn't even know you wanted it, but happen to stray near a store carrying it, location-based services will push offers at you -- and the offers may come from competitors. (Gratuitous told-you-so here.) Niraj: "Say you're in Home Depot. You want a mailbox. Their selection is 'limited' [his description was more colorful]. We have 300 to choose from. Wouldn't you want to know that?" Jeff: Soon we'll also see the death of the checkout line: you'll take a picture of the barcode on the object of your desire, your smartphone will tell the store's POS system about it, and the POS system will send back a digital receipt you can show someone (or in the future, something) on your way out of the store.
With all these channels in use, I asked how often they make decisions to reallocate investments across (as opposed to within) them -- say from search to email, as opposed to from keyword to keyword. Brian: "Every day, each morning. Some things -- like affiliate relationships -- may take 3-4 days to unwind. But the optimization is basically non-stop." Later we talked about the parallels with Wall Street trading floors. For him, the analogy is apt. Effectively he's a market-maker, only the securities are clicks, not stocks. It's now reflected in their recruiting: many recent hires are former Wall Street quants.
A final note: The cultures in these shops are intensely customer-focused, flat, and data-driven. Scott reads *every one* of the hundreds of thousands (yes you read right) of customer survey responses Shoebuy gets each year. He also described the enthusiasm with which their customer service team embraced having all company communications to customers end with an invitation to email senior management with any concerns. Niraj described CSN's floor plan: 500 people, no offices. Everyone in the company takes a regular turn in customer service. Everyone has access to the firm's data warehouse. Brian told us about a digital display they have up in their offices showing hour-by-hour, source-by-source performance. They also recently ran a "Query Day" in which everyone in the company -- including sales, finance, HR -- got training in how to use their databases to answer business questions. Tom described that they “watch the
cash register every minute, hour, day during the Christmas shopping season.”
This was a terrific session, and I've only captured half of it here. Further comments / corrections / observations very welcome.
1. MIT Prof. David K. Gifford, Open Market, Cambridge
2. Tom Gerace, BeFree, Cambridge
3. Constant Contact, Waltham