Time for E-Commerce 2.0

Not much has changed in e-tailing in the past 10 years. Here are five ways to make online shopping fun and easy

Every time I check my e-mail, there's another one: "ONE DAY ONLY!!! Save an EXTRA 50%"

"First time ever! TRIPLE INCIRCLE POINTS + Free gift wrap + Free online shipping at any price."

That's a sampling of the missives I get multiple times a day from Neiman Marcus, whose online store I use so infrequently that I have no idea what "Triple Incircle Points" are. The all-caps and exclamation points make me wonder whether a teenage girl is writing the copy. How long before smiley faces?

But as frenetic and frequent as the e-mails become, they're not getting me—or many other consumers—to do more online shopping. In the 12 months through October, e-commerce grew a meager 1%, compared with 20% a year earlier, according to ComScore (SCOR).

Game Stopped Changing

And don't blame it all on the recession. More than a decade after the Internet revolutionized how we shop, innovation in e-commerce has hit a wall. Make no mistake: Online shopping is still amazingly convenient and the best way to comparison shop. Who doesn't like buying gadgets in their underwear?

Yet somewhere along the line the big players just stopped changing the online shopping game. Think about it: Is your experience shopping online any different now than it was 10 years ago? Same old user interface, same promotions on the home page, same shopping cart, same too-long checkout process.

E-commerce is at a crossroads. The industry can delude itself that growth will pick up once the economy rebounds, or innovate its way to higher sales. Public companies aren't the best innovators, so I'm betting that it will be scrappy entrepreneurs who use the downturn to start a new e-commerce upheaval.

Amazon Continues to Innovate

I'm not alone in my wagering. Danny Rimer, of London-based Index Ventures, has already made a fortune by betting early on promising companies, including Skype, which was bought by eBay (EBAY), and MySQL, now owned by Sun Microsystems (JAVA). He says Amazon.com (AMZN) is among the few e-commerce companies that have been pushing the innovation envelope, a view shared lately by several analysts and investors.

But e-commerce has a long way to go, Rimer says. "It's one of those areas that's underpenetrated and needs to be reinvented," he says. And now, he's putting his money where his mouth is, scouting for niche sites that do a good job of selecting just the right items. He recently funded a women's jewelry site called Astley Clarke, saying that there's a big untapped market in luxury brands—a category that has traditionally eschewed the Internet. Astley Clarke, he says, is "razor-focused on making it easy and enjoyable to shop online."

I'm no rock-star venture capitalist. But I do love to shop via the Web. And here are five ways I say online retailers could get me to do a whole lot more of it.

• Checkout: It is still way too hard to buy something online. On some sites, as many as 80% of shoppers abandon carts midway through the checkout process, research shows. Even sites that wisely use e-mail newsletters, microblogging tools, or online advertising to lure you still make you whip out a credit card and spend 15 minutes to complete a transaction. By the fourth page of checkout, spontaneous shoppers start to wonder, "Why did I need this new dress again?" Force me to sign up for a user name and password to check out and you better have one-of-a-kind inventory, because we're beyond password fatigue.

A few sites get the checkout religion. One is Amazon, with Amazon Prime, a loyalty program that offers free shipping and one-click purchasing. Sure, it requires a user name and password, but it also provides great benefit. With its purchase of PayPal, eBay has also taken a small step toward making checkout easier. As part of its attempt to make buying easier, Google (GOOG) created Google Checkout, which is easier to use than PayPal and has fewer fees. But few sites use it yet.

• Do unto others: It is the Christmas season, so remember the Golden Rule. Platforms such as blogs, social networks, and user-review sites make it easy for consumers to broadcast dissatisfaction quickly. Little wonder Web 2.0 sites overcommunicate any changes to their users and over-apologize for anything that goes awry. Such coddling is one reason devotees love these sites so much.

But e-commerce was born during the Web 1.0 era and in general has approached users with the attitude of, "We're giving you a bargain and convenience and that's enough." It's far too hard to handle such tasks as returning an item or—heaven forbid—contacting customer service.

Not so at Zappos, which sells clothes, accessories, and a handful of other product types and focuses keenly on customer experience. With surprise upgrades to free overnight shipping, a U.S. call center with highly paid employees, and free and easy return policies, Zappos has created thousands of loyal users. But perks don't come cheap. Zappos is barely at breakeven despite $1 billion in gross merchandise sales. Still, CEO Tony Hsieh isn't done building his vision yet. Think of it as a brand investment that no amount of advertising—not even multimillion-dollar Super Bowl commercials—could equal.

Make it social: Charlene Li, of market research firm Altimeter Group, is one of those special kind of geeks who wakes up at 6 a.m. the day after Thanksgiving to wait in line at RadioShack (RSH). "It's where my fellow geeks are," she told me in a recent interview for Yahoo's (YHOO) Tech Ticker. And it's not so much to buy whatever gadget she's eyeing as it is the experience of standing in the cold, holding warm coffee, and finding out what everyone else is buying.

Increasingly, online shoppers want interaction, too. They use social sites like Yelp, Twitter, Facebook, or blogs to replicate social aspects of online shopping. But there's no reason the e-commerce sites themselves can't participate. Build a Twitter feed into your page, or let your users install an application or widget that lets them buy from you even when they're on another site.

Li suggests that e-tailers watch a person's shopping habits and then tailor the experience. If someone always abandons a shopping cart when they're asked to enter a user name and password, give them an opt-out option, or an extra incentive of free shipping at that point.

• Concentrate on concierges: When Red Envelope filed for bankruptcy earlier this year, I had one panicked thought: How am I ever going to come up with gift ideas for my parents and in-laws? Red Envelope got the concept of a concierge, adding that extra touch of service. The company kept selection limited to a browsable amount of eclectic gifts and wrapped its signature red boxes in elegant white bows. My impossible-to-shop-for father-in-law loved the cuff links made from wood from the bleachers at Dodger Stadium; I wouldn't have found them if not for the Red Envelope concierge service. And no, I don't care about the extra shipping fees, or even the comparatively higher cost of some of the gifts. That's because Red Envelope wasn't just making a sale, it was solving a problem.

• Delve into discovery: Think of discovery as telepathic search. Instead of you knowing what you want and entering it into Google, the Web studies your surfing habits to show you what it thinks you might like. Mediocre discovery doesn't do anything but annoy people. But done right, discovery delights customers, fosters loyalty, and gets people to spend more. To date, Amazon has done this better than anyone, although Netflix (NFLX) is a close second.

The perfect candidate for rolling out a discovery-based user interface is eBay. Its search is horrific and the sheer total of its inventory makes browsing nearly impossible. And eBay bought StumbleUpon, one of the first Web 2.0 companies to build a business off discovery, by showing users Web sites, videos, or photos they might like, based on what they've previously shown an interest in and what comparable users have liked. But last I talked to StumbleUpon founder Garrett Camp, there was no intention of applying its technology to eBay's larger UI.

That's too bad for eBay, because undoubtedly a smart startup will.

For that matter, newcomers are likely to come up with a host of innovations that turn e-commerce on its ear in the coming years. And as someone who loves to shop, I can't wait.

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