In my last article in this series, I outlined four frameworks you should use to maximize your ecommerce presence. These include: making your site “sticky” with user-sourced content; executing well on customer service; security and other business fundamentals. Finally, brand-appropriate design and well-structured navigation are the key merchandising ingredients to create a compelling online shopping experience. While these frameworks might be considered somewhat rudimentary by e-commerce veterans, they remain fundamental to any ecommerce strategy.
I will now address the enormous market potential that still lies ahead as companies develop and exploit emerging technologies to maximize their e-commerce performance.
How Large Is the Opportunity?
Today, global ecommerce represents only 6.5% of the overall retail vertical - making it a particularly attractive space for investment in the next decade. According to a recent eMarketer report, global ecommerce sales topped $1 trillion in 2012 and are expected to grow by another $1.2 trillion in the next five years. To put this in perspective, if we consider ecommerce to be a sector, it is the only $1 trillion-dollar sector that is expected to grow at a double-digit growth rate. Even historically fast growth industries like pharma and oil and gas are growing by only 4% and 7.5% respectively, while other large trillion dollar industries are growing by 1-2%.
The Amazon Phenomenon
Amazon accounts for roughly 25-35 percent of all online commerce. Their success is largely attributed to their technology advantage. As a result of their investment in technology and infrastructure, Amazon has the most advanced capabilities of any player when it comes to customer targeting, price optimization, website personalization, ease of checkout, low-cost, fast shipping and range of product selection.
Amazon spends roughly 3.3 percent of total revenue on technology, which equated to $2.0 billion in 2012. If every ecommerce player invests in information systems at the same rate as Amazon, global ecommerce technology spend would reach $86 billion by 2016. This is a staggering number in and of itself, but it is even more impressive when you consider that significant aspects of commerce technology remain unsolved.
3 Main Technology Growth Drivers
While enormous strides have been made in developing and integrating retail channels, many technology-related challenges and opportunities still exist. These include:
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Optimization of multichannel supply and fulfillment chains.
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Streamlining of shipping and returns.
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Better demand forecasting across networks and regional distribution centers.
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Reduction in the cost of data and images.
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Management of international sites and personalization across countries.
Second, we are in an era of unprecedented shifts in consumer behavior, which will continue to drive innovation. Examples include the growth of mobile as a discovery and commerce channel, the rise of social as a consumer behavior that has yet to be fully harnessed by ecommerce players in a scalable way, the changing nature of payments and loyalty programs, and the intersection of offline and online and how multichannel players can effectively leverage the strengths of both.
Third, as I mentioned in my first article in this series, the definition of ecommerce is getting broader. It includes systems and processes to ensure the security of business transactions. For example, one priority for online merchants is improving their fraud protection capabilities. Newly affordable tools enable small retailers to automate fraud protection and assign a risk score to transactions based on multiple criteria, such as IP address, mailing address and bank verifications - greatly reducing the time and expense required to monitor transactions manually.
In my next article, I will take up the trends that will shape ecommerce and the importance of aligning your technology and systems with rapidly evolving demands in the marketplace.
About the Author
Jennifer brings to Newport over 10 years of C-level experience. She has demonstrated an ability to take strategy from conception to execution, achieving excellent results for family businesses and private equity-owned companies. Contact or learn more about Jennifer here.
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