The Future of eCommerce: Predictions on Mobile, Amazon & More

Future of eCommerce

Jason Goldberg is the Senior Vice-President of eCommerce and Content at Razorfish and has been named a top 50 retail influencer. Over the course of his career, Jason has helped many prominent companies like Levis, T-Mobile, Verizon, and Target with bringing great customer experiences to the masses.

Jason brings a unique perspective to our tribe of independent 6-and-7-figure merchants and shares some takeaways that we can glean from some of those bigger organizations. Here are his insights into the future of eCommerce for mobile, messaging commerce, Amazon and more.


mp3itunesstitcherrss

 

 

(With your host Andrew Youderian of eCommerceFuel.com and Jason Goldberg of RetailGeek.com)

Andrew: Welcome to the eCommerceFuel podcast, the show dedicated to helping high six and seven figure entrepreneurs build amazing online companies and incredible lives. I’m your host and fellow ecommerce entrepreneur, Andrew Youderian.

Hey, guys, it’s Andrew here and welcome to the eCommerceFuel podcast. Thank you so much for joining me on today’s episode. Joining me on the show today is Jason “Retail Geek” Goldberg. He’s a Senior Vice President of ecommerce and content over at Razorfish. He’s named one of the top 50 retail influencers. He’s on the board of Shop.org and has helped a ton of big companies like Levi’s, T-Mobile, Verizon, Target with ecommerce and designing great customer experiences, and a lot of great insights.

Particularly in today’s discussion on the future of ecommerce, we talk about some of the things that retailers are doing today that are really innovative, but also looking down the road what’s going to happen with mobile, what’s going to happen with Amazon. We touch on messaging commerce, which is something that is big in China and we’ve been hearing a little bit about recently. Tons of things like that, so really looking down the road to see what’s coming.

Andrew: Jason’s got a great perspective in that he deals with a lot of larger companies, so he brings a unique perspective to our group, a tribe more of independent six and seven figure merchants, but also talks about some of the takeaways that we can glean from some of those bigger organizations into our own independent shops. So lots of great stuff.

It’s a longer one today. Usually I try to keep these a little bit shorter, around 30 minutes, but we had so much good stuff I couldn’t help myself. So let’s go ahead and get right into today’s discussion with Jason.

A Born Retailer

Andrew: Jason, so you live and breathe retail these days. Does it go back to when you were a teenager and selling computers? Is that where this all started?

Jason: I think so. I may have started in the womb. I’m actually a fourth generation retailer. My family used the farm exemption to get me selling stuff at a very early age.

Andrew: That’s awesome. What were you selling? I had an IBM PC Jr. I don’t know if that’s when you were kind of selling. Were you selling those old machines or something different?

Jason: I’m embarrassed to say I might have started even a tad earlier. I got a Commodore 64 as a bar mitzvah present when I was 13 and ended up working at the Commodore dealership back then as a 14-year-old helping to sell those things to others.

Andrew: Oh, that’s really cool. Were you programming on it or playing games on it?

Jason: All of the above. Back then there was . . . right off the bat there wasn’t a ton of off-the-shelf software. So having cool software sometimes meant you had to invent software, so I did learn to do some programming. In the super early days you could literally buy a book of games that you typed into the computer. Or later, even crazier, if you lived in a tech city, people played games over the radio. The sounds you would hear on a modem, they would broadcast over the radio and you would record them with your cassette tape and then load them into your Commodore 64.

Andrew: That’s crazy. It’s like a modem but not over the phone, over the airwaves.

Jason: Exactly, over the airwaves instead of over a phone line. Hard to explain to people today that that was ever a thing.

Background of Razorfish

Andrew: That’s wild. Jason, you’re part of a firm called Razorfish and can you just describe what the company does?

Jason: Yeah, absolutely. Razorfish is a big digital agency. It was founded by a couple of guys back in 1994 that had this premise that everything that can be digital will. Frankly, today, that sounds like a very uncontroversial statement, but in 1994 that was pretty revolutionary. They said that businesses would need a lot of new services in a world where everything was moving to digital. So Razorfish is this 20-year-old agency that has been helping businesses work their way through digital disruption.

So today we do stuff like we’re the social media team for big brands like Mercedes. We build a lot of websites and help people with campaigns and digital advertising. In the practice I’m responsible for helps people sell stuff. We build a lot of ecommerce sites and help people operate their ecommerce businesses and drive traffic to them and improve conversion and all the good things that you talk about every day.

Andrew: That’s one of the reasons I’m so excited to have you on this. You’ve got this really unique perspective, especially from a larger, more macro and also bigger brand perspective. Given Razorfish’s focus on digital, everything’s going over to digital, what kind of groundbreaking or interesting marketing or merchandising campaigns have you seen recently? Ecommerce is definitely in play in terms of strictly ecommerce, but maybe even also I’d be especially interested to hear what kind of stuff you’ve seen with people blending in store, brick and mortar showrooming with the digital aspect of things.

Jason: Yeah, great question, Andrew. There’s a lot out there and new stuff comes across my desk every week. Some recent things that have caught my attention, there’s an interesting physical store start up in Palo Alto, very near Stanford, called “b8ta”. They spell it funny. They spell it B-8-T-A. Their notion is that, man, digital marketing has gotten really good and we have all these new merchandising techniques online, but 93% of stuff still gets bought in stores and stores aren’t very digital.

These are a bunch of ex-Nest guys that got acquired by Google and they left Nest to start a retail concept. Instead of having paper signs and traditional shelving units and all those sorts of things, they designed this entire physical space to be digital so they can update all the pricing, update all the messages, control all of that with sort of a digital content management system for the store. In the store they’re selling a pretty cool category. They’re selling Internet of Things devices. So they’re selling lots of drones and smart appliances and things that people tend to need to see or need to have an experience with before they make their final purchase decision.

A/B Tests in the Real World

Andrew: A brick and mortar retailer can experiment with all sorts of things like where do you put certain displays and your signage and things like that but it’s fairly manual and I’m guessing gathering data is a little bit harder, so are they also thinking with something that’s completely digital they can kind of almost A/B split test in the real world with putting up different types of signs and flipping it on different days or different weeks. Is that part of the concept as well?

Jason: Absolutely. You have the dynamic messaging aspect, so you can change those messages so you can test it for messages against each other that are date-parted or calendar-parted, but also those messages can be unique and context sensitive to each shopper. So it can be much more personalized, which is obviously a common tactic that we use online, but much harder to have different experiences for different shoppers inside of a retail store.

Then you kind of alluded to the second half. They also are able to generate much more analytics about the physical environment than brick and mortar retailers have traditionally used. These days it’s pretty easy to have these camera-based traffic systems so you can know how many customers walk by each display, and then because the displays are digital, you can understand what percentage of those customers stopped and engaged with it. So you can have a conversion rate for each display in the store and you can measure your add to cart rate in a physical store and sort of apply all of these best practices in commerce analytics that we do almost second nature online, you can start doing in the store, which is really powerful because, frankly, a lot of traditional brick and mortar retail is still done via intuition.

The Future is Very High-Tech

Andrew: I feel like I’ve heard rumors – I don’t know if these are rumors or just a story I read awhile back – you mentioned customizing based on actually who is in front of the product. Are there sensors and cameras and tech sophisticated enough to be able to say, for example, “Oh, here comes a male who’s in his early-30s,” versus, “Here comes maybe a female who’s in her mid-60s,” and be able to automatically detect the demographic of the person who’s coming and looking at something? Or is that still a little ways out?

Jason: I think the real answer is kind of. There’s definitely the technology available to do all that and it works to varying degrees of success. The best systems are actually really good at determining gender so that maybe they have a 95% accuracy rate. They’re far less perfect at determining things like age. Most of the systems are allegedly capable of even doing things like determining ethnicity, but almost no vendor wants to mess around with that. I think wisely and I’m somewhat grateful, they haven’t devolved into that, but the technology does absolutely exist and there are digital signage systems out there that retailers use that will vary content depending on the gender of an anonymous user in front of it.

With any of these things, online or in store, there is this fine line between cool and creepy. That is an experience that you can imagine . . . some customers would find it really useful if you’re the man shopping with your girlfriend and you’re used to awkwardly sitting in the man chair in the middle of this women’s apparel store and having nothing for you, you might greatly appreciate having some male content and having the football game get turned on while you’re sitting in that man chair. But by the flip token, you may also suddenly get creeped out when you realize that Big Brother is watching you and has figured out what your interests are and is programming to your specific interests, in the same way that many of us freaked out the first time the jeans we looked at on the Levi’s site suddenly showed up next to our emails in Yahoo! or Gmail or those kinds of things.

Andrew: Yeah, or the retargeting when retargeting first showed up and you visited a site and it followed you all over.

Jason: Exactly, as those jeans started stalking you all across the Internet.

Andrew: And now it’s commonplace. People don’t even think about it.

Jason: Yeah, conventions do change and what was creepy become accepted over time in some cases.

Andrew: I want to shift gears a little bit and talk about Amazon.

Jason: Who are they again?

Andrew: Amazon? They’re a small tech startup out of Seattle, I think.

Jason: Oh, got you. Those kids in Tacoma. Got it.

Andrew: Yeah, there’s like four or five of them there selling books I think. At least that’s the last I heard five or six years ago. Maybe things have changed.

Jason: I like to read.

How Big Can Amazon Really Get?

Andrew: Obviously Amazon’s just grown up from those five to six-person team days and just decimating ecommerce. Not decimating but dominating. They’re doing a great job. It’s funny, even for our market, kind of independent, smaller six and seven figure store owners, it’s funny because, I won’t say for everyone, but for most people, most people are competing with Amazon, or at least people selling on Amazon, at least a large percentage of people are. There’s definitely some angst with Amazon getting into the market and taking market share. But there’s also a lot of respect there because they have done such a good job of building such a massive successful business and doing it in a way where customers love it.

Thinking about them, they’re just on such a tear recently, in the last decade, what do you see being the end game with them? The next two, three, four years, do you think they start raising prices and finally start monetizing this in the next couple years? Do you think they continue to push off profitability and just continue to do what they’ve done for so long, which is just to plow profits back into customer experience and backend infrastructure? Do you eventually Wall Street gets sick of the fact that they’re not making any money and the honeymoon with their crazy high share price and the fact that they don’t have to meet the evaluation standards of other companies on Wall Street, do you think that finally kicks in and they have a massive cut in their share price?

What do you think is going to happen in the next couple years with Amazon?

Jason: The truth is if I knew the answer to that, I probably wouldn’t bother doing podcasts at this point.

Andrew: You’d be outrageously wealthy?

Jason: Exactly. Or I would at least anticipate being outrageously wealthy in two to three years when it all played out. But as you sort of aptly describe, they are the ultimate frenemy and they both enable a lot of opportunities for all of us in the ecommerce space. They’re a terrifying competitor that we all have a lot of respect for. I guess I take a slightly different view. I don’t look at them and say, “Oh my gosh, they’re just a lot sweeter pricing and they’re trying to put everyone out of business by having the lowest prices and once everyone else is gone they’ll comfortably raise prices.”

I really don’t think that is their model. They historically haven’t been profitable, but recently they’ve had several profitable quarters. In fact, they just had their earnings report last week and it was their most profitable quarter to date. It was kind of ironic, they did not hit their guidance but it was their most profitable quarter ever. A lot of the headlines were like, “Amazon Sets Record Profits, Stock Price Plummets,” because the stock went down 8% because they missed the guidance.

So there are a lot of people that are kind of gleefully saying, “Hey, maybe the Wall Street honeymoon’s over. Maybe the investors are going to start holding Amazon accountable to the same profitability standards that they do everyone else. Maybe we’re starting to see the end of that crazy ride for Amazon.”

I look at it slightly different. I think they’re very strategic about their pricing and I think, obviously they use a lot of dynamic pricing. I think we’ve seen them raise prices or command higher margins strategically on products and categories where it makes sense for them. I think they continue to be really aggressive on the super price-sensitive categories and products and the high visibility products. I think they stick with that.

I think they’ll go through investment periods where they plow a lot of those profits back into investment and sometimes that takes all the oxygen out of the room when they’re investing billions of dollars in fulfillment centers and no one else has the capital or the low cost of capital that they have to sort of match them on the fulfillment center side. It does feel like they’re hitting a critical mass on fulfillment centers.

So now they may take a couple quarters of profit and then we might start seeing them pour money into distribution in that last mile. There have been a lot of signals this quarter. They leased a bunch of airplanes. They now have a fleet of 747s and they bought a delivery company in France. They registered as a freight forwarder in China. They’re doing all these things that would indicate that, hey, maybe they’re building their own internal version of UPS.

Frankly, if you look at all of Amazon’s other infrastructure, when they build a really competitive service like that, they also tend to monetize that service by selling it to other people. That’s what they do with AWS, with their web services platform. That’s what they do with their fulfillment platform through FBA. A lot of people are betting that the next big service we see from Amazon that could be the next big investment that they pour all those profits into could be that last mile of delivery. There could be a day in the future when you have an option to pay Amazon to deliver your goods to your consumer.

Andrew: Interesting. Asking you to play a fortuneteller again here or predict the future, but do you think through all big tech companies throughout history, all big companies in general know Microsoft kind of got pushed aside by Apple. Apple’s starting to slow down a little bit, although it’s still very much, I think you would say, at the zenith of tech. Even looking at Google, some people would argue its heyday has passed a little bit too as Amazon is starting to give them a pretty good run for their money in terms of product search and Google doesn’t have a great answer to that quite yet.

So if you had to predict one, especially you get a deal with a lot of big companies that are competing head to head with Amazon and looking at their strengths, their infrastructure. If you had to pick one potential disrupter or headwind for Amazon that would make it, when we look at them 5 or 10 years down the road, say, “This is what really kind of knocked them off their perch,” what do you think that would be?

Jason: A couple of theories. When you look at all of those big companies that were once at the top of the ecosystem and then got supplanted by someone else, usually it’s because something fundamentally changed in the market. I hate the buzzwords but there was some sort of paradigm shift in the market.

The classic example is there’s all these guys that made a fortune shipping off icebergs and towing ice to big populations. Then those ice harvesters were smart enough to open ice factories and ice factories eventually put all the ice harvesters out of business, and none of those ice factories were smart enough to build personal ice makers for homes, so all the ice factories got put out of business by the home ice business.

So you start asking yourself, “What’s that shift for Amazon?” The two best theories that we’ve come up with is, number one, this shift to what I call “implicit commerce”. So far in commerce we’ve always had to buy stuff on purpose. We’ve usually had to dedicate a particular time and a particular place and we went to a store and we bought something, or we go to a particular website when we’re in a shopping mode and we follow this behavior that we’ve learned since birth, where we go hunting and gathering and we put stuff in the cart and we check out and we pay for it.

But we’re starting to see a lot of those behaviors change. Frankly, Amazon’s at the forefront of changing some of those behaviors. When you can just talk in your house and say, “I need more paper towels,” and your Amazon Echo hears that and puts it on your shopping list, or you can push the dash button on your washing machine and order more laundry detergent, or now your Brother printer can notice that you’re low on ink and proactively order ink for you without you doing something. All of the commerce activities that used to be explicit are becoming implicit.

While Amazon is being kind of clever and being on the front lines of that shift, when that shift really comes into full swing, you have to start asking yourself how much value is Amazon adding as a middleman? When your printer can order ink, what’s the benefit of ordering that ink from a company like Amazon that happens to have 400 million other products in their catalog, versus ordering that ink from the manufacturer directly?

So we’re seeing this other trend of blurring the lines between retailer and manufacturer. If that continues and manufacturers all get good at selling their goods direct to consumer, and a bunch of replenishment shopping experiences become implicit, you can imagine it becomes real easy for the consumer to say, “Hey, I’m going to take this API that was pointing at Amazon and I’m going to point it at Brother and I’m going to get a better supply chain for my ink.” You can imagine that that paradigm shift creates some challenges for Amazon. That’s not going to happen in two or three years, but that could certainly be a big enough shift in customer behavior that someone else could figure out a way to do it better and you could see Amazon start to decline.

But the other, more controversial theory I’ve heard is that, as all of us probably listening to this podcast know, retail is very difficult. It’s a low margin, challenging business. Frankly, Amazon’s having a lot of success with their non-retail businesses. The AWS services are, on a unit basis, much more profitable than their retail business appears to be. If they become the world’s greatest shipping company, they could probably operate that profitably. If they become the world’s greatest drone company and drones start playing a huge role in society, that could be a real profitable business for them.

It’s easy to imagine that they’re so successful at all these other things, that eventually they don’t need this big low-margin, high revenue business in the middle of their portfolio of retail, and that they start deemphasizing that as they start more aggressively start chasing some of these other potentially more lucrative businesses. There are those that think that Amazon will just grow out of retail.

Andrew: Interesting. I haven’t heard that. AWS, they’re kind of cloud infrastructure business, it makes up an incredibly large portion of their profits. It’s close to half, isn’t it?

Jason: Yeah. It contributes about – you’re right – 50% of their profits on a much smaller revenue number. So it’s much higher margin. It’s also growing way faster, like 160% versus 30%. While 80% of the people in the US shop online and 50% have shopped from Amazon, the world has only scratched the surface on cloud services. You could imagine that that business is going to grow a lot.

When we look across all the companies that reported their earnings this year, the biggest common denominator, the most exciting news out of Microsoft was that Azure is growing really fast. The most exciting news out of Alibaba’s reporting is that their version of AWS is growing really fast. That does look like a big, exciting, lucrative space, as long as you’re not one of the early legacy technology companies like the HPs and the IBMs that probably thought that you were going to own that space before crazy retailers like Amazon got into them.

The Manufacturers Dilemma

Andrew: You kind of touched on the fact that, especially as the Internet of Things expands, Amazon is just a middleman. They’re just a reseller. Why do you need to go through them, especially if the whole process is automated and seamless? Extending that a little bit further into the fact that manufacturers ultimately, the best deal, the best business to be in is kind of one like Apple, where you control the entire supply chain all the way up from creating and manufacturing the product to getting it to the end consumer. You keep 100% of the margin.

As ecommerce in the earlier days was a completely different business than manufacturing. It still is but it’s getting easier. That distribution part has gotten so much easier, so do you think looking down the road in 10, 15 years we’re going to live in a world where maybe not all but the vast majority of manufacturers are selling direct to consumer?

Jason: I do. I think that’s a transition that we’re absolutely seeing. We’re seeing almost all manufacturers shift to sell direct in addition to selling through wholesale, and you’re seeing all retailers start owning a bigger piece of their product line. So we’re seeing tons of private label manufacturing. Private label manufacturing used to mean less expensive knockoffs of other brands, but for some retailers, it’s starting to be more innovative.

Amazon private labels baby wipes and they do much more environmentally-friendly, sustainably sourced products than most of the big national brands you’d be familiar with. They’re not just making “me too” products, they’re making products that are designed to appeal to segments of the market more than the traditional national brands. So I absolutely think we’re seeing this shift to where retailers are going to start looking a lot more like branded manufacturers and branded manufacturers are going to start looking a lot more like retailers and it’s going to be a real gray area to use one label or another.

You mentioned Apple. Apple is a product manufacturer. They overwhelmingly make their revenue manufacturing and selling of products, but they also happen to be a best in class retailer that generate more revenue per square foot than almost any other retail concept.

The Mobile Conversion Gap for 2016

Andrew: One of the predictions you had in one of your recent episodes, your predictions for 2016 that I thought was most interesting was on mobile, and you were predicting that the mobile conversion gap is going to significantly decrease here. Even more specifically, you mentioned that a number of retailers are going to see at least half of their revenue come from mobile versus desktop this year.

What do you see driving that going forward? Because traditionally obviously mobile conversion rates are atrocious relative to desktop. We’ve got things like the Apple Pay and browser coming in that have made it a little bit of impact in making it easier, but it’s still really hard to finalize that purchase for most people on mobile. So what do you see driving that?

Jason: A couple of things. I have to be honest, I actually think that’s one of my safest predictions. I guess I’ll double down on that one and maybe you can have me on at the end of 2016 and see whether I’m an idiot or not. I think there’s a couple trends.

First of all, what we call the “mobile gap” is already eroding. So when I say “mobile gap”, what I mean is that a year ago, mobile conversion rates tended to be about 25% of what desktop conversion rates were. So you had to get four times as many customers to sell the same amount of goods. This year, across my customer bases, that gap has narrowed a little bit, so it’s about three to one right now. But at certain times of the year when people have really high buying intent, like around holiday, for many of my clients, it already was two to one over a holiday.

What that tells me is that mobile shopping is starting to become a convention, that there is a bunch of friction in buying something on your mobile phone versus buying it on your desktop. It’s just unpleasant. Most checkouts on desktop or mobile have about 23 fields of information you have to fill in to buy something. So you’re literally filling out this 23-field form and, frankly, we hate filling out forms.

When we fill out forms, we think we’re starting a new relationship with a dentist or filling out the report for the car accident we were just in and submitting an insurance claim. Filling out those forms on that mobile phone sucks even more than filling them out on a desktop. I like to joke it takes three hands to buy something on a mobile phone. You need one hand to hold the phone, one hand to hold your credit card and a third hand to type the credit card number into the phone. Unfortunately, most of us aren’t born with three hands.

I think all of that friction has caused people to say, “Oh, I might do some shopping on my mobile phone, but when it comes times to buy, I’ll fill out those 23 forms on my desktop browser because it’s easier.” And because desktop browsers have plugins that mobile browsers don’t have, I might have a plugin on my desktop browser that helps me fill out those forms. So there have been a bunch of reasons that it would be more convenient to make that final purchase on a desktop browser.

Well, a bunch of good things are happening. Number one, mobile browsers now have plugins, and so we can start to have some of the same form filling utilities on the mobile browser that we’ve traditionally had on the desktop browser, and designers are getting better at designing checkout processes that don’t require so many fields. We’ve designed a checkout process we call the five-field checkout and it literally only takes five fields to conduct a complete transaction for physical goods that are going to get shipped to a consumer. A lot more consumers are willing to fill out five fields on a mobile phone than are willing to fill out 23 fields on a mobile phone.

I think all of those changes are making customers more likely to buy on mobile and then we’ve got two other big shifts. You mentioned Apple Pay. I’m actually not super bullish on Apple Pay, but I am bullish on digital wallets in general. It seems stupid that we have to type our credit card information into our own personal device every single time we want to buy something. Frankly, Microsoft figured this out. In 1994 they launched a product called “Passport” and Passport never caught on and none of the subsequent ones have caught on to a great enough degree.

This seems like such an easy technical thing to solve that I ought to be able to store my ID in a safe wallet in the cloud and I ought to be able to permission individual vendors to get one-time access to that information to conduct a transaction. In the US, the versions of that that we’re most familiar with is you’re probably familiar with PayPal and they’re now 20-25% of all ecommerce transactions.

Amazon has a very competitive version of that digital wallet. Visa and MasterCard MasterPass have each launched versions of those products. There’s a wealth of digital wallets, one of which is Apple’s. I think each of them has either a technical or a business flaw at the moment, but I’m certain it’s just a matter of time before one solves all its problems and becomes dominant in the marketplace.

In a bunch of other markets like China with Alipay and with Tencent, we’ve seen that multiple vendors have solved the mobile wallet problem, and once you have a mobile wallet, the doors come off on mobile commerce. We have way more mobile commerce in China and the main reason is it’s a heck of a lot easier to pay on your mobile phone in China.

I think you combine all of those and then this one last fact that across my customers, I’m starting to see more and more shoppers that are exclusively mobile. A couple years ago we’d look at mobile shoppers and we’d say, “Hey, that same shopper is coming to us on a desktop browser and a mobile browser. But we now have a significant cohort of shoppers that never go to a retailer site on a desktop browser and they’re exclusively using their mobile browser. Until recently, we only saw that in developing economies in countries where people just didn’t own computers.

But now we’re seeing generation Z consumers come onto the market that are like, “Why do I need a laptop? I grew up with this smartphone device and it does everything I need,” and that’s the only device they use. Obviously they have a much higher average conversion rate than a boomer that’s used to browsing on a phone and buying on a desktop. Add all those things up and I am pretty confident that that mobile gap is going to close.

Andrew: I think about sometimes what peak mobile would be because I’m sure most retailers listening will have noticed over the last three or four years you’ve just watched desktop traffic erode and give way to mobile traffic and your conversion rate is you’ve just got this erosion of conversion rate unless you’re doing a really good job on the mobile side. I think wistfully I look at the world and would like to think, hey, yeah, I can see why mobile traffic’s exploded, but just about everybody now, a huge percentage of the population a mobile phone.

I’m in front of a desktop all day as a very plugged in tech guy and so maybe we’ll see that start to plateau and peak off and that mobile growth will peak off, that 60-70%, but it sounds like you think that’s . . . do you think it’ll do that temporarily or do you think in 10 years it’s going to be 90% of the traffic to ecommerce sites is going to be mobile?

Jason: Yeah, I don’t know if it’ll be 90% but I think an absolute majority of traffic will be mobile and I think eventually you’ll have conversion parity. I think all the extra friction that we have on mobile today eventually has to go away.

Messaging in eCommerce

Andrew: Messaging in ecommerce is something I’d love to get your take on. It’s something I’ve started hearing about in the last maybe just two or three months, and over in China, I think it’s WeChat is what they call it. It’s pretty big where people use messaging services, almost kind of like text messaging to do everything from buying products to communicating with people, of course.

To be honest, I don’t know a lot about it. Obviously it’s not prevalent here in the States. To me, it sounds like that’s something that sounds kind of nice, sounds like an interesting, innovative thing that could come over and people could talk about taking over the US ecommerce market. But it seems to me kind of farfetched for it really to be that disruptive here in terms of people ordering that way. Your thoughts on it in terms of if you think it actually will come to the US and if you think it’s something that will impact ecommerce?

Jason: Yeah, so I do think it’s coming. I think the form it takes is still somewhat up in the air. You mentioned China, you go to China and there’s this super popular mobile app called “WeChat”. I have an office in China and my coworkers in the China office only use email to communicate with the West. They only use email as a courtesy to me to communicate with me. They conduct all of their personal and work business in this WeChat platform. They send messages to each other, they chat with each other.

Their mobile wallet is pre-integrated into WeChat so when they want to call an Uber, they call it through WeChat and Uber collects payment from the WeChat platform. Then when they want to book a barber appointment, they book it in WeChat and they pay the barber through WeChat. When they need to get an RMA to return a device, they send a text message to Nike or whomever the bought the product from and that manufacturer provides customer service via chat, does suggestive selling, tries to upsell them and can sell them something right in that chat dialog, or at least provide customer service.

You look at that and to a slightly less extent you go to South Korea and there’s a platform called Kakao chat that’s very similar. There’s LINE in Japan that has some similarities. You look across all these markets and you say, “Man, that’s the dominant behavior. Why wouldn’t that be the dominant behavior here in the West?” The prevailing theory has been because all of those technologies evolved simultaneously in these Eastern countries.

In China, they’ve got social media and chat and mobile wallets and ecommerce all on the same day. In the US, we evolved each of those things separately. We got the Internet, then we got Amazon, and then we got Facebook and then we got WhatsApp or whatever, right? As a result, we learned to do all those things separately, whereas they learned to use them all as an integrated unit in China.

If that is fundamentally true, if that’s the big difference between those two markets, then you say, “Hey, young people that are born today as a two-year-old get handed a smartphone that has all those technologies in it and they grow up just like their peers in China grow up and likely those cultural differences start to erode over time. I do think that is a good predictor to the fact that some flavor of business chat is coming to the US. I also think it solves a bunch of problems.

Businesses have tried to do a lot of their mobile business through apps and I actually think apps are a royal pain in the neck and are a foolish investment for most businesses because they’re super expensive to develop and they’re almost impossible to get your customer to download, and they’re even more impossible to get your customer to use regularly. If you’re not one of the 6 or 10 dominant apps in the ecosystem, your usage metrics and your customer retention on apps just totally suck.

I think solving this problem server-side by having these chat bots and these intelligent agents that you can kind of send a natural language message to and they can respond and provide service to makes a lot of sense. We’re seeing Google now and Siri and Alexa and Cortana, and all these new technologies and Watson that all enable these better interactions with server-side agents.

So it seems really clear to me that businesses are going to have to figure out how to talk to their customer through these chat platforms. I’m less convinced that that’ll be the dominant way that customers actually buy and conduct the transaction because I think chat commerce will have the same problem as mobile commerce. It really can’t take off unless there’s a universal ubiquitous mobile wallet and at the moment, the best mobile wallets in the US have 20-30% penetration.

Yeah, customer service for sure, chat commerce, maybe.

Andrew: How does that, just so I can wrap my head around, I’m trying to think how you call an Uber with a text message. Do you send keywords to a number via text and then it just interprets those and calls your Uber, or is there somebody on the line that is monitoring the inbox, so to speak, of all these messages and it says, hey, okay, Jason, he sent me an Uber, please, and I can see attached to his text message, here’s his GPS coordinates and all go ahead and manually do that. Is it all very manual or is there a large human element? How does that work?

Jason: Yeah, both systems exist in the world but the dominant ones are the automated systems. The big enabler of all these chat bots are better and better natural language processors. Watson from IBM being one of the most famous natural language processors, as the technology gets better at that sort of thing, that’s the only way to provide these services at scale.

While there are some businesses that have human beings trying to take action on all those chats, in China all these high volume apps are all automated systems. They start pretty dumb. A bunch of them, you have to learn the syntax of the service you’re using. You have to know the commands that Uber understands in order to order an Uber, for example.

But as the systems get smarter and smarter, you can use natural language and you can just say, “I need a ride,” and the Echo system knows everything else they need to know. They know where you are right now, they know what your preferred service is, they know how you’re going to pay. So they can sort of implicitly take action on that super simple request where you just text the word “ride” to an Uber account and it answers.

I can tell you, I live in Chicago and I travel almost every week, so one of the banes of my existence has been getting my dry cleaning turned around in time for my next trip. I now have a 24-hour dry cleaner that communicates with me via a chat box. They have a bunch of lockers at a self-service business on my street, I walk up there, I find a locker that’s open. I put my clothes in it, I lock it and then I text the number of that locker to the service and they send me back a text message and say, “Cool, I got your laundry. It’s going to be ready on Tuesday.”

A day later, if I’ve enabled it, they send me another text saying, “Hey, we’ve got your order. Here’s exactly how many pieces of clothes we counted and it’s going to be ready tomorrow.” When it’s ready, I get another text message that said, “Hey, your clothes are ready for pickup in locker 16 and here’s the four-digit code to unlock that locker.” It’s become super convenient.

They taught me the dialog that their system understands, but interestingly, if I use something that their system doesn’t understand, then it goes into a queue and gets sent to a human being. Occasionally I’ve sent some smart aleck remarks at the end of my text and a human answers back and it really freaks you out when you’re used to talking to this bot. Then suddenly the guy responds and the end of his message is, “By the way, go Blackhawks,” because the Chicago Blackhawks are playing in the Stanley Cup that night or whatever.

It’s pretty interesting and after you live with it for a little while, you can definitely see the utility. Will it take over the world? Will it replace traditional websites and apps? I don’t think so. But I do think it’ll have a role and for sure some of the big chat platforms and most notably Facebook Messenger are definitely investing and banking on it becoming more prevalent here.

Ideas to Steal from the Big Boys

Andrew: Interesting. Jason, we were talking at the very top about some of the things that the big retailers are being able to do with smart digital showrooms, a lot of different things. Considering smaller, independent retailers that maybe don’t have the bandwidth to do some of these really sophisticated things, can you give us a sense of maybe one or two things that you’ve learned working with large national brands and retailers that smaller independent guys like myself and a lot of people listening could implement in their own businesses, that smaller businesses, independent businesses may not be doing but aren’t prohibitively expensive to implement and can really make a difference?

Jason: Absolutely. I do think there’s a ton. In irony, a lot of my biggest clients really struggle to be agile. They really struggle to make a decision, and making a decision is sort of an act of Congress. Frankly, even if someone in the organization has a really clever idea of a way to get a competitive advantage, it’s really hard to be a first mover in these big organizations because the whole culture is designed around not changing.

It’s funny, I think there’s a bunch of good ideas inside of these big companies that you actually see small companies embrace and execute with much more aplomb than the big companies are able to do. One that I’m going to get on my soapbox and advocate for is I think a lot of smaller retailers, and particularly ecommerce retailers need to make a slightly bigger investment in analytics.

I’m not talking about even spending thousands of dollars or hiring full-time staff or buying a bunch of shiny tools, all of which there’s some merit involved. But I’m talking about take a class, buy a book, watch some free YouTube videos, understand the tools you have a little bit better and just get a little more robust in making some of your business decisions with data versus intuition.

I’m going to pick on you a little bit and my super specific example is I’m going to get on a plane and fly to your office and we’re going to load your cost of goods data into your Google Analytics. All the tools to do that are already in Google Analytics. It requires just a few steps. It’s totally free. Suddenly you can have this amazing new insight into your business and instead of just knowing what your conversion rate is, you can know what your profitability rate is and you can make smarter investments about when you might want to buy pay-per-click based on the profitability of individual products and much smarter decisions about shipping thresholds and all sorts of other things.

Big companies with the luxury of a dedicated analytics staff have all that data available, but the tools to do it for small businesses have become really accessible and easy. So I’m on a big kick to get small businesses to just understand the capabilities that they get out of the box with an amazing tool like Google Analytics.

Andrew: Interesting. Yeah, you must have heard me talk about how I wish I could do that.

Jason: I did. I heard you on a previous podcast and I was yelling at my phone, “Andrew, we could do this. Just give me half an hour.” You get a couple free variables in Google Analytics and you dedicate one of those to cogs and you just need to make a spreadsheet and upload it and, boom, now all your cogs data is in Google and Google lets you do calculated fields so you can now start doing math based on the cost of goods sold.

Andrew: Oh man.

Jason: Once you see it, you will not be able to go back. I know you’re an analytic guy. I know you like to understand the numbers. Once you have access to the better data, you’re amazed at how it changes your business decisions.

I guess a second sort of related tip, we do a lot of testing a big companies. You mentioned A/B testing, split testing, multi-variant testing, all of those things get used a lot. There are pros and cons to those tools. But I’m a huge fan of simple voice of the customer tools. I’m a particularly big fan of observing users versus asking questions of users.

The big companies, for a long time, they would pay people like Razorfish to do these fancy focus groups. We have these fancy rooms with one-way mirrors and we can record a bunch of people shopping on web browsers and do eye-tracking and do all these things. But the reality is 95% of the cost of those things is just silly smoke and mirrors. There are now all these super cheap services, or in some cases even free services that usertesting.com and others do.

You can, on a Saturday night say, “I want to record five customers trying to a CB radio that fits in their particular vehicle,” and I can write up that mission, send it to usertesting.com and they’ll recruit five users, record them trying to accomplish that on your site and four hours later, you’re watching a video of these five customers talking out loud as they try to figure out how to perform some task on your site. It’s brutally eye-opening. We all still have so much friction in our experience and when we see our experience through the eyes of these average shoppers instead of looking at them through our own eyes where we know what we intended when we designed this site, that’s another big game changer.

Frankly, there’s been some great conversation on the forums this week about whether or not to do guest checkout. I’m a strong proponent of always having a guest checkout. I think there’s very rare circumstances when it makes sense not to have a guest checkout. But for the folks who don’t believe me, I’m just desperate to say, “Man, let’s temporarily turn off your guest checkout. Let’s go.” I’ll pay the $50 to run the user testing test data on it and once you watch those first five shoppers bail your site because they couldn’t figure out how to log in, you will quickly realize how important it is to have a guest checkout.

Andrew: Yeah, usertesting.com, we actually used that a lot when we were planning for our redesign. The vehicle selection wizard that’s on the home page was a direct result of watching tests because something like 80% of people that came, we’ve been in business for six years, never even crossed our mind to do this. Eighty percent of customers who came to our homepage when they were trying to find something for their vehicle, they verbatim were like, “Where’s the wizard? How come I can’t pick from a drop down?” We never would have known that without running those tests.

Jason: Yeah, I just think it’s so smart. Were you surprised by how easy it is to do?

Andrew: Yeah, it was always amazing. I literally sat down, created the experiments, I did maybe two or three different types of tasks to complete, but say for one set of tasks have six people going through. I set up the experiment.

One thing that I thought was amazing was it let you pick people from a sub-demographic. So we said to be part of this test, you have to have a 4×4 vehicle or a truck or something like that. So you can get people that are very closely aligned with your demographic of shoppers or customers.

To set it up took maybe 45 minutes, went to lunch, came back, did a little email and bam, I had six tests ready to watch. It was amazing.

Jason: Yeah, it is amazing. Having been in this industry for a long time, I remember the early days when getting test data like that meant writing letters describing what you wanted to do and putting stamps on them and mailing them to vendors and getting a VHS tape back nine months later that this test was conducted. It was so inconvenient and there was so much latency that the fact that you can do it over lunch now still makes me pinch myself.

Andrew: That’s crazy. If you’re not following Jason on Twitter, head on over to @retailgeek. He shares a lot of great stuff on a weekly basis. I’ve been enjoying listening to his podcast. Again, you can find that on iTunes or over at retailgeek.com where he also blogs on all things ecommerce and retail.

Jason, fantastic discussion. Really appreciate you coming on to share your thoughts. Thank you.

Jason: Hey, thanks for having me, Andrew. It’s been a lot of fun.

Andrew: Want to connect with and learn from other proven eCommerce entrepreneurs? Join us in the eCommerceFuel private community. It’s our tight knit vetted group for store owners with at least a quarter million dollars in annual sales. You can learn more and apply for membership at eCommerceFuel.com.

Thanks so much to our producer Laura Serino for all of her hard work in making this show possible, and to you for tuning in. Thank you for listening. That’ll do it for this week, but looking forward to seeing you again next Friday.

 

What Was Mentioned

 

Photo: Flickr/John McCoy

Post tagged in: Entrepreneur Profiles, News, Podcast

3 Comments

  1. Great interview Andrew,
    One concept that was mentioned is A/B testing in the real world. I think it could really take off with the development of the beacon technology. You essentially have online messages that can be tested and perfected in order to increase your offline sales.

    I would really love to see where this concept is going within the next couple of years.

  2. Highly informative piece about the trends in e-commerce.
    ‘Implicit shopping’ as mentioned in the discussion, reflects the diversification and innovation friendly side of the vendors. One might also say they are eating up competition.
    The manufacturers becoming sellers is a difficult scenario, as it is start-up averse idea due to the high financial and logistical dedication. Small businesses still need third party help.

  3. Awesome interview, Andrew!

    It’s amazing to see how technology is advancing and what that means for eCommerce. I was particularly amazed, and even a bit scared, at the thought of just saying, “I need paper towels”, and Amazon Echo will automatically buy them for you. Crazy stuff!

    Thanks for sharing it with us!