Taking E-Commerce to the Next Level

Coming soon: Improved recommendations and personalized pitches that actually work. But how much of this will shoppers stand for?

This summer, Chester Yeum was watching Tom Cruise's sci-fi thriller Minority Report, set in the year 2054, when he realized he was helping make an element of it a reality today. The epiphany came as Cruise strode through a shopping concourse and impromptu, personalized advertising pitches buffeted him from all sides -- just the kind of location-based marketing Yeum is trying to bring to market.

Yeum's first step to a 2054-like world is SpotMeeting.com, a location-based online dating service, which launched its beta version in Toronto on Aug. 25. Romance seekers are linked to others near them through software that identifies their location. Today the site maps each members Internet address, but an upcoming version will use global positioning technology to locate members on the go.

Eventually, Yuem hopes to sign up retailers to send his customers pitches via their cell phones or handheld computers that will entice them into a store they're approaching, perhaps using a 10%-off coupon. Or maybe send them an e-mail reminding them that an outfit they abandoned in an online shopping cart is available in the store to try on.


  "I don't believe the mainstream market is ready for that right now," says Yeum, who thinks people first have to get comfortable disclosing their location and personal information -- something they might be willing to do now for a chance at romance. Once his site establishes itself in dating, he says, "we will stream in supplemental applications that will plug right into e-commerce."

It's back to the future for e-commerce, now that some of the technologies envisioned years ago are finally ready for prime time. With so many e-tailers profitable, they're finally ready to move ahead with adding new technologies that can take online shopping to the next level.

For shoppers, the next level means more interactivity, better visuals, and improved search results with more product information. It also means being watched more closely by sites and receiving personalized pitches based on past browsing behavior -- which can be a little creepy. For retailers, this next phase presents an opportunity to generate more sales volume, but it also requires treading carefully so as not to anger customers by invading their privacy.


  "I find I'm having a lot of conversations these days about the possibilities of online retailing that I first had back in 2000," says retail analyst Patti Freeman Evans of Jupiter Research. Web applications that were sidelined are back, she says, "And now they're better and cheaper to implement." She warns e-tailers not to be overly intrusive, however. "Customers don't want to feel they're being watched too closely."

Web designers' widespread adoption of "meta data" and XML (extensible markup language), both standards for tagging data on Web pages, are making the transition easier. With such tagging in place, developers can create applications that manipulate information in new ways. Not only has this technology allowed for higher levels of interactivity but it has also triggered great advances in the ability to track customer behavior on e-commerce sites. That's rapidly leading to more personalization and smarter merchandising.

Vastly improved search and site navigation probably represent the most important sales drivers for cutting-edge e-commerce sites today. One such company, Atomz, which hosts the Web applications it designs, has software that trawls a retailer's site gathering product information and creating advanced search functions. At Pacific Sunwear's site, customers can drill down from seeing all shirts, to just, say, girls' t-shirts in red. The retailer has some control over results, too, so higher-price items can be displayed first, says Atomz Chief Executive Officer Steve Kusmer.


  Atomz also can drive sales by allowing businesses to highlight special promotions tied to searches on their sites, like handheld maker PalmOne (PLMO ) does with a "noteworthy" box that appears along with search results. On PalmOne's site, type "Zire" into its search engine and up pops a box recommending the Zire 72, which comes with photo, video, and MP3 capabilities. The addition of a promotion box above the search results has increased the number of searchers converted to buyers by up to 60%, says Kusmer.

Cutting-edge Web sites aren't just serving better information to customers, they're also tracking buyers' behavior much more closely. Web analytics companies Coremetrics and Omniture are thriving on new demand for their products, which analyze customer behavior. These are often sold as a hosted service for fees ranging from $30,000 to $100,000 a year, depending on the volume of traffic and the extent of the site analyzed, says Freeman Evans.

Web analytics allows retailers to predict what customers might want to buy next by looking at their past purchasing history, as well as data generated from other shoppers. It also helps companies make important improvements in how easy their sites are to navigate and use. Sportsline.com announced in a May press release that it used Omniture's SiteCatalyst to identify when customers dropped out of signing up for its fantasy football league, allowing Sportsline to improve its process and increase the number of paying customers.


  With so much data available at their fingertips, more retailers will be using Web analytics to personalize e-mail. For example, customers might get an e-mail letting them know that a sweater they perused but never bought is now available for 10% off. In retailing lingo this is called "remarketing."

DoubleClick (DCLK ) recently launched a new version of its analytic tool called Site Advance, which interacts with its DARTMail product to send remarketing messages to customers. DoubleClick Senior Vice-President Court Cunningham says the company's research has found an eight-times better response rate with remarketing than a standard e-mail campaign.

Also important, if less whizzy, retailers' Web sites are finally achieving long-promised levels of interactivity using improved visual technologies. Home-furnishing stores are now offering "configurators," which give customers the ability to change the floor covering or paint on the walls of model rooms. HomeDepot.com (HD ) recently added a new application created by Laszlo Systems for Behr Paints, which allows customers to preview color selections on an assortment of sample walls.


  Retailers say higher-quality, interactive images are driving sales, too. Lamps Plus, for one, is using rich-media software from Scene7 that allows customers to manipulate high-resolution photos, zooming in to see the texture of fabric, spin products around for a 360-degree view, or sample color swatches. Lamps Plus says the software has helped increase sales on its Web site and from in-store kiosks because customers can get a more realistic idea of a broad range of products.

Creating a richer, more realistic online shopping experience is just one way retailers are getting customers to buy more. They're also employing so-called smart-pricing technology to optimize how much they charge for items on their sites. Plus, they're learning they can generate more sales by adding more information, such as customer ratings and reviews. "Online shoppers want more information around a product purchase," says Cunningham. DoubleClick's research finds that the number of pages customers view before a purchase has increased from 9 to 11 in the past year.

Forrester research highlights HSN's message boards, Circuit City's (CC ) buying guides, and eBags' customer reviews as examples of the increase in information provided. The main difference between such features today and in the past: "Integration," writes Forrester e-commerce analyst Carrie Johnson in an August report. "Retailers will now integrate customer comments from message boards and buying guide checklists right onto the product detail page." Of course, Amazon (AMZN ) and eBay (EBAY ) are the kings at creating communities of shoppers and mining customer data to give users a richer experience and generate more sales.


  Too much computer-driven personalization can backfire, though, as Tom Cruise's character learned in the Big Brother-style world of Minority Report. "Retailers have to be careful to make sure shoppers don't feel they're being watched a little too closely," says Freeman Evans.

That's why SpotMeeting's Yeum is happy to take a slow and steady pace in bringing his brand of e-commerce to the next level. Your favorite clothing retailer won't be broadcasting a personalized message to you as you walk by for a while yet. But Yeum, for one, is confident that'll happen sooner than you might think.

By Amey Stone in New York

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