Business Week on Social Commerce / Top Takeouts

Business Week recently ran a special edition on “How We Buy” with two articles on social commerce covering reviews (Amazon) and retailing on/with social networks (Facebook Connect).  Top takeouts below, and full articles archived for reference.

Top Takeouts

• The Internet has become the world’s greatest research tool, and consumers hardly buy anything anymore without first getting the skinny online.
• Some 70% of Americans say they consult product reviews or consumer ratings before making a purchase, according to an October 2008 survey by Penn, Schoen & Berland Associates, a research and consulting firm.
• One of the most profound changes in consumer behavior over the past few years is the emergence of information-based shoppers – educated, broadband-enabled, time poor and suspicious of TV ads.
• Information shopping is driven by the convenience and value offered by the Web as frugal shoppers hunt for the best bargains.
• By amassing one of the world’s largest collections of consumer opinions, Amazon has become a leading source of product reviews. And those reviews are a valuable magnet that lures more consumers to its Web site.
• Whilst shoppers may sift through Twitter for opinions, or share lists and get gift ideas on Kaboodle, Facebook, because of its size – 300 million user base – has the best shot at combining retail with social media.
• Facebook Connect allows Facebook users to tap their friend lists for input as they shop, sending a photo and product details to the pages of their friends, who can give it the nod or recommend something else.
• Ethan Beard,Facebook’s director of platform marketing says “Social media and tools like Facebook Connect are making shopping social again.” – the idea is to make e-commerce more like going to the mall with friends.
• One of the barriers to stores on Facebook is an integrated online payment method, which would allow it to collect fees from merchants for transactions performed within the Facebook network.

Top Facts & Stats

• Amazon first started letting customers post reviews of products in 1995.  Since then more than 5 million consumers have posted in excess of have 10 million reviews.
• In 1999, Amazon started letting customers post Wish Lists to allow people to share favorite and desired items.
• In 2005 Amazon launched customer discussion forums for specific products, and in 2006 broadened the offer to discussing product categories.
• In 2009 Amazon upgraded reviews format, to include product attributes. Click on the attribute, and it serves up all the reviews addressing that feature.
• Amazon rolls out 50 community features on its site every year.
• Reviews can go viral.  Nov 08 Brian Govern posted a satirical review of a T-shirt emblazoned with three wolves, that triggered 1,500 copycat reviews and more than 15,000 votes for the original review. The T-shirt became Amazon’s #1 seller.
• Retailers are placing serious bets on friend power. T-shirt seller Threadless shows off a weekly roundup of new shirts to fans on Facebook, which is where it now spends the lion’s share of its ad dollars.

Original Articles

Amazon: Turning Consumer Opinions into Gold

The Web giant’s cache of consumer-generated reviews lures ever-more shoppers, who increasingly research products before buying

October 15, 2009.
By Spencer E. Ante
Archived from http://www.businessweek.com/magazine/content/09_43/b4152047039565.htm

When Amazon.com (AMZN) first began letting customers post reviews of products in 1995, many people thought the Internet retailer had lost its marbles. Letting consumers rant about products in public was a recipe for retail suicide, critics thought. Now, almost 15 years later, customer reviews are as common as hyperlinks, and a retail Web site that does not have feedback loops is considered passé or irrelevant. In fact, more than 5 million consumers have posted tens of millions of reviews on Amazon.com, says the Seattle company.

Amazon’s review program reflects a new reality for the way consumers shop in the Digital Age: The Internet has become the world’s greatest research tool, and consumers hardly buy anything anymore without first getting the skinny online. Some 70% of Americans say they consult product reviews or consumer ratings before making a purchase, according to an October 2008 survey by Penn, Schoen & Berland Associates, a research and consulting firm. Amazon has played a central role in the change in consumer behavior by being the first successful Web retailer to embrace consumers’ views. “What we try to spend our time on is harnessing customer passion,” says Russell Dicker, Amazon.com’s senior manager of community.

TAPPING THE COMMUNITY

Besides its review program, Amazon.com has created scores of community-based features on its Web site that help drive sales. In 1999 it unveiled Wish Lists, allowing people to share their favorite products. Hundreds of thousands of people have publicized millions of items on their lists. In 2005, Amazon.com launched customer discussion areas for specific products. And in 2006 the company created discussion hubs that allow consumers to gab about a wider range of topics, such as video production, Harry Potter, or yoga. All told, Amazon rolls out 50 community features on its site every year. “We spend a lot of time looking at what customers are doing and seeing what they are saying,” says Dicker.

Executives at Amazon currently are focused on increasing the relevance of customer-generated content through software enhancements. One effort is aimed at offering more localized information. So if you are shopping for a TV, a listing for nearby TV installation services might pop up. Another effort is geared to improving the relevance of consumer opinions. One example launched in September: a feature that highlights the ratings of specific product attributes. A review of a digital camera, for example, will now include ratings of key features such as battery life or picture quality. Click on the attribute, and it serves up all the reviews addressing that feature. “We want to make it more and more convenient for people to find the right products,” says Dicker.

For Amazon.com, community is not just a way to tap into consumer desires. It also provides a competitive advantage. By amassing one of the world’s largest collections of consumer opinions, the site has become a leading source of product reviews. And those reviews are a valuable magnet that lures more consumers to its Web site. “You increasingly look at Amazon for reviews,” says Sebastian Thomas, head of U.S. Technology Research at RCM Capital Management, an investment firm with a stake in the company. “It will be hard for someone else to build that scale.”

Retail experts say one of the most profound changes in consumer behavior over the past few years is the emergence of such information-based shoppers. Typically, they are educated workers with broadband connections who are strapped for time and suspicious of TV ads. So they increasingly shop online. “The biggest change is the amount of research consumers are doing before they leave their houses,” says Paul Ryder, Amazon.com vice-president of consumer electronics. The surge in online research was originally driven a few years ago by high gas prices. But Ryder says information shopping now has more to do with the convenience and value offered by the Web as frugal shoppers hunt for the best bargains. Another recent shift, Ryder says, is that consumers are doing more research for commodity products, such as cleaning solutions, instead of just big-ticket items such as a car or home.

A JOKE GOES VIRAL

One example of the power of online feedback popped up on Amazon.com in November 2008 when Brian Govern posted a satirical review of a T-shirt emblazoned with three wolves. “This item has wolves on it, which makes it intrinsically sweet and worth five stars by itself, but once I tried it on, that’s when the magic happened,” he wrote. “After checking to ensure that the shirt would properly cover my girth, I walked from my trailer to Wal-Mart with the shirt on and was immediately approached by women.”

No one paid much attention to the review until it appeared on collegehumor.com on May 4, 2009. Then it went viral. To date, there are nearly 1,500 reviews on the Mountain Men’s Three Wolf Moon Short Sleeve Tee, and more than 15,000 people have voted Govern’s original review as “helpful.” Although there were instances in the past where products received thousands of comical reviews, Amazon.com says this was the first time in which the jokes catapulted the item to best-seller status. For several weeks in June and July, the T-shirt was the No. 1 apparel item in the store. “The breadth and depth of reviews are very important to customers,” says Ryder. “We are using them more than what salespeople or our friends tell us.”

Facebook Banks on a Little Help from Its Friends

They’re reaching customers via new tools such as Facebook Connect and pushing the social network toward profitability

October 15, 2009.
By Douglas MacMillan
Archived from http://www.businessweek.com/magazine/content/09_43/b4152048040939.htm

Merrill Squires avoids car salesmen at all costs. So when the 48-year-old marketing executive from Dallas was choosing between a Chevrolet Tahoe and a GMC Yukon Denali recently, he turned to his 600 Facebook friends. Dozens responded, and one old pal—a Denali owner—steered him toward the Tahoe. “I trust his opinion on it, and I would never have thought to pick up the phone and call him,” Squires says.

Social-media networks are starting to influence all kinds of purchases, from cars to movie tickets. Shoppers sift through Twitter posts for opinions about gadgets or running shoes. They turn to Kaboodle, a Web site for sharing shopping lists, to get gift ideas. But Facebook, with 300 million users worldwide, has the best shot at combining retail and social media in bold and lucrative ways, and it’s chipping away at this challenge.

Last year the company rolled out Facebook Connect. When retailers use this service, they get a Facebook log-in window on their Web site. That allows Facebook users to tap their friend lists for input as they shop. Already, 43% of online retailers have signed up, according to researcher e-Tailing Group, and an additional 31% plan to join in the next year.

Facebook Connect does add a twist to the experience of visiting an online store. When shoppers who are logged into Facebook see an item they want to buy, they can press a button, sending a photo and product details to the pages of their friends, who can give it the nod or recommend something else. These comments can pop up months later when mutual friends are looking for similar information. Brian Bateman, 33, uses Connect when he buys concert tickets from Live Nation (LYV) to recruit friends to go with him.

Facebook’s director of platform marketing, Ethan Beard, says the idea is to make e-commerce more like going to the mall with friends. Shopping can be a “social experience, but with the Web it turned into sitting by yourself [at] a monitor,” says Beard. “Social media and tools like Facebook Connect are making shopping social again.”

For five-year-old Facebook, retail may be the path to profits. Advertising currently makes up most of its estimated $500 million in revenues, but online ad growth is slowing. Investors foresee shoppers opting to use Facebook rather than search engines such as Google (GOOG). “That’s the vision. That’s why Facebook is worth so much money,” says Dave McClure, a consultant with Founders Fund, a venture capital firm that backed Facebook in 2006.

POWERFUL COMBINATION

For now, Facebook lacks an online payment method, but it recruited a handful of staffers, including at least one executive, from eBay’s (EBAY) PayPal (EBAY). A payment system would allow it to collect fees from merchants for transactions performed within the Facebook network—a potentially huge revenue source, based on how well retail and social media have been mixing. Fashion designer Diane von Fürstenberg has set up a promotional page on Facebook that has attracted 25,000 fans. And next month she plans to launch a line of sunglasses at the same time that her retail Web site begins offering Facebook Connect.

Others are skeptical that the social circles people develop on Facebook have the power to change the way we shop online. “I don’t know that enough of us have [Facebook] networks large enough that there is overlap in what products we are looking for,” says Sucharita Mulpuru, e-commerce analyst at Forrester Research (FORR). But many retailers are placing serious bets on friend power. T-shirt seller Threadless shows off a weekly roundup of new shirts to fans on Facebook, which is where it now spends the lion’s share of its ad dollars. Says Cam Balzer, marketing vice-president for Threadless: “When you start to see the power of those audiences and the word of mouth … it makes you want to get more out of that same audience.”