Tweetables

• >242 million Chinese shop online (6x UK, +75mill than US, 2x Japan) Click to tweet

• 44% of Chinese online buyers check social media to make buying decisions Click to tweet

• The average Chinese online shopper spent $1054 USD in 2012 Click to tweet

• 12% of online purchases in China are made by mobile phone Click to tweet

• 22% of online shoppers in China make more than 40 online purchases per year Click to tweet

• The #1 reason Chinese shop online is lower price, #2 convenience, #3 variety of products Click to tweet

• The #1 reason Chinese don’t shop online is worry about product quality, #2 is worry about e-tailer’s credibility Click to tweet

* Most recent source, via Cnet

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How it works is simple. Amex holders sync their card and Twitter accounts, and follow @AmexSync to watch for deals of the day and corresponding hashtags. @AmexSync will respond with a confirmation hashtag, which the user must retweet within 15 minutes. Product is delivered to the billing address connected to the Amex card.

Amex also has a (previously launched) Offers program, where discounts can be claimed through the same process, and savings can be to purchase at the Offer retailer’s website (so long as the synced Amex is used for payment).

Aside from making impulse buying frictionless, the brilliance is the baked-in social component — all sales through the channel are broadcast through the cardholder’s network. Twitter accounts must be public in order for @AmexSync to read and respond, so every offer claimed and purchase made is a public affair.

Participating brands benefit from the social boost. Upcoming products include Kindle Fire, Donna Karan jewelry, Sony Action Cam and Xbox 360.

What’s most intriguing is it’s not an online retailer that pioneered the convert-by-hashtag. Amazon and eBay could easily have done this syncing saved billing information, perhaps they will “follow.” Any telecom could leverage carrier billing, or any loyalty program to generate excitement and bump up point-churn.

Of course, with all shiny objects, only time will tell if customers care about buying with hashtags. The more exciting aspect is the ability to buy through an independent channel without enduring the traditional checkout process, or even visiting a website.

1. What brand claimed the first online home shopping transaction?

A) Dell
B) Tesco
C) Pizza Hut
D) Amazon

2. What item was the first to sell on eBay?

A) Pez dispenser
B) Star Wars figurine
C) Laser pointer
D) Michael Jackson’s BAD album

3. What online retailer claimed the first in-Facebook sale?

A) Victoria’s Secret
B) 1-800-Flowers
C) Amazon
D) The Gap

4. What of the following was not one of the first 30 tweets ever to be tweeted on Twitter?

A) just setting up my twttr
B) typing my first message
C) wishing I had another sammich
D) inviting my mom

5. What was Amazon’s first sale?

A) the Hitchiker’s Guide to the Galaxy
B) A History of Philosophy, Vol. 1: Greece and Rome From the Pre-Socratics to Plotinus
C) Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought
D) Science of Animal Husbandry (6th Edition)

6. What was the first paid search network called?

A) Goto.com
B) Omniture
C) Double Click
D) Overture

7. Which retailer claims to have developed the first in-store GPS enabled iPhone app?

A) Best Buy
B) Target
C) Macy’s
D) Tesco

8. Which is the first UK fashion online retailer to launch an iPhone app in 2009?

A) ASOS.com
B) Marks and Spencer
C) Oasis
D) Ted Baker

9. What was Groupon’s first deal?

A) Half-off Pizza
B) Half-off Sushi
C) Half-off Dinner
D) 75% off Dessert

10. What was the first commercial web analytics tool?

A) Hitwise
B) Urchin
C) Websidestory
D) Webtrends

11. Michael Aldrich is credited with inventing “online shopping” in what year?

A) 1979
B) 1982
C) 1993
D) 1997

12. Which magazine publisher was first to agree to Apple’s digital subscription plan for iPad?

A) National Geographic
B) Popular Science
C) Time
D) Entertainment Weekly

13. Which online retailer was first to offer free return shipping?

A) ASOS
B) Amazon
C) Zappos
D) Best Buy

ANSWERS:

1B 2C 3B 4D 5C 6A 7C 8C 9A 10D 11A 12B 13C

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The freemium business model is its own marketing campaign. Free apps and games get talked, blogged, Tweeted and Facebooked about. Businesses may need less than 1% of users to pay their way to be profitable, and a popular app could attract behemoth buyers like Google or Facebook. And in the case of in-app virtual goods and add-ons, recurring revenue can exceed any one-time download price.

But it’s tricky to do freemium well. You need a killer product, pricing and marketing strategy — and there are many mistakes you can make. Here are a handful you want to avoid:

1. Weak value proposition

Yes, we talk about value propositions a lot. Because they matter.

Just because a product is free doesn’t mean there is no cost to the user. A potential customer must provide an email address, fill in a nasty form (or use the less nasty social sign on), and invest time in building out a profile, entering data, or otherwise exploring your product. There is also risk in investing this time and energy in your product when she could do this with someone else’s instead.

What if someone rocks as good as you? Or better?

2. Poorly defined business model

There are many flavors of freemium, with different end-games. Is your plan to build a large user base to win market share at any cost, with monetization a secondary goal until that objective is realized? Or is your free version a stepping stone to your paid product? Is the real revenue in add-on “virtual products” or services that both free and paid users can consume?

Evernote, for example, expected to convert 1% of users to premium. Despite it’s success at close to 6%, CEO Phil Libin wants to maintain its paying customer base at 5% or less. “If people start converting en masse, ‘that means our free product isn’t good enough,’ he says. ‘And if our free product isn’t good enough, what’s the point of being freemium?‘”

That’s fine and good if you share Libin’s philosophy. His business has mass appeal, not niche. Evernote’s strategy is to hook free users and upgrade them down the path — immediate paid conversion is not the goal. Other businesses have found it incredibly challenging to convert free users to paid.

Niche companies like CrazyEgg and 37 Signals found profitability after removing their free version. Their apps will never get billions of free users, they need paid users.

Your strategy may change over time, but knowing how important paying customers are to your strategy (vs. large user base) in the near term is key, considering the nature of your products and your target market.

3. Pitting free against paid

It’s important to know whether a large base of free users or more paying customers is your goal. But if your organization has separate teams for “free” and “paid” versions of your offering, you create a divide. The free team will push for marketing and site design that cannibalizes your paid product and vice versa (this is especially challenging for A/B testing). If you must have separate teams, make sure they share the same success metrics, and don’t step on each others’ toes to meet their own numbers.

4. Failure to count the cost of large user base

Mo’ users, mo’ problems. Not just for bandwidth, but also support. Some freemium businesses have found free users to be far more demanding than paid.

5. Making the free version too good

There’s a fine line between a free product that delights and retains users, and one that gives too much milk for free. The free version should be “good enough” to provide core functionality, the premium should have useful features that free users care about (and ideally, can’t live without once they’ve sunk their teeth into the free version).

6. Miscommunicating price changes

Remember Qwikster? Users backlash when something free suddenly goes paid, or pricing otherwise changes. And when users get pissed, they turn to social media.

Any impending price or service change should be over-communicated to users over a period of time (don’t just rely on email and Twitter updates – bake it into the app). Warm up your customers and be as transparent as possible. People will assume you are trying to make more money, they may not understand that your service must go paid to survive (if that’s the case).

7. Charging for premium

Apart from the dangers above, charging for your product can be a mistake if it limits your potential revenue. Shazaam was originally a free app that allowed users to tag unlimited songs. It then moved to freemium (grandfathering existing users to premium), limiting free accounts to 5 tags per month.

But the real money for Shazaam isn’t in one-time download fees, it’s in affiliate revenue for song downloads. Unlimited tagging across all users makes sense, as there’s more opportunity to profit from the large free user base. It also gives more word-of-mouth opportunity as tagging is often done in public with friends.

8. Missing recurring revenue opportunities

Even if you have determined monthly or annual subscriptions can cover your operating costs, there’s a lot of money to be earned from add-ons like virtual goods or affiliate referrals (like the Shazaam example above). Get creative, what are some ways you can squeeze dollars out of free users – even if you’re not a gaming app?

9. Poor roadmap planning

There’s customer acquisition, and there’s retention – for both free and paid users. It’s natural to add features as your product grows, but they must be the features users want. You may not lose users by rolling out unwanted features, but you’ll eat your resources and profits in the process.

(Remember the rules of digital disruption. Find the adjacent possible, or the next thing that users want). Keep your paid customers satisfied and excited about your product, re-engage inactive users, and create reasons to market to your existing free users.

Despite the hype, freemium can be a tough business model to make work. Build a great product, plan your offering carefully. Don’t be afraid to tweak your strategy if you need to.

But recurring revenue models have broken the traditional retail “shopping cart.” More complex than simple one-time transactions, ongoing payment streams for membership, subscription and freemium products and services require subscription billing platforms to handle serial and variable invoicing, while managing entitlement (access permissions) to files and services in real-time.

A look at recurring revenue models

Book clubs

For example, the Discover a New Love ebook club allows members to select one DRM-free romance novel from a selection of 4 titles each month. Membership is $9.99, prepaid for 6 months. Each month, the system must recognize the user’s membership as valid and identify if the month’s book allowance has been used or not.

Members can buy additional books from its Store at steep discounts. The system must recognize the member’s eligibility to receive the discount for each incremental transaction.

Streaming media

Music subscription service Rdio offers 3 service tiers including a family pack that allows 2 to 3 users on one account, and offers credit card and mobile carrier billing. If a payment is declined, the system must suspend service to all users on the account.

Listeners may stream unlimited and can purchase individual tracks for download which may be billed mid-month or combined with the monthly subscription payment (at Rdio’s discretion). If a user decides to upgrade or downgrade a service tier mid-month, Rdio must determine how to pro-rate billing accordingly.

Virtual worlds

Virtual worlds like World of Warcraft and Farmville may be “freemium” (free to play with revenues coming from add-ons and virtual products) or premium (one-time or monthly fee). The big revenue comes from incremental purchases like avatar customizations, special skills, virtual goods and power levels. 35% of gamers bought virtual goods to enhance game play, with an average spend of $64 per player in 2011. The industry for in-app virtual goods is expected to hit $6 Billion next year.

Players may buy credits in bulk to redeem for goods or accumulate points equivalent to real money, or pay with a combination of points and money. Credits may also be gifted to a friend. In some cases, points can come from physical purchases. Skylanders sells toys that sit on a gaming console that unlock powers (an alternative would be to enter a serial number from the product).

Billing systems need to handle both real and virtual currencies, paid in advanced and earned or gifted through gameplay. They need to work with the game to identify when “consumables” are churned or expire, and to recognize what parts of the game a user is entitled to based on his player stats or account balance.

For subscription commerce, billing is a business model, and the ecommerce platform must be built around the intricacies of the transactions involved over the lifespan of the customer relationship.

Elastic Path is excited to announce our partnership with Aria Systems to deliver the functionality of Aria’s best-of-breed Subscription Billing Platform with the Elastic Path Digital Commerce Engine.

1. The ‘Internet of Things’ comes of age

While we haven’t neared the point where all of our appliances, cars and houses are connected up to the Internet (the so-called ‘Internet of Things‘ coined by tech pioneer Kevin Ashton), we made steady progress in that direction in 2011.

Last year saw the launch of the innovative (though glitchy) Jawbone Up health-tracking wristband and the LG Smart Fridge that lets shoppers receive inventory updates on their mobile devices. Meanwhile, Ford introduced the cloud-connected Evos concept car at the Frankfurt Motor Show.

As cloud-based services proliferate and demand for anytime anywhere access grows, look for web-connected appliances to come into their own in 2012.

2. Wearable computers make a fashion statement

In late 2011 WIMM Labs introduced a tiny wearable Android watch packed with ‘micro apps’ that turn it into a health monitor, mobile payment device, or remote. But that’s just the start of a trend that will hit its stride in 2012.

According to the New York Times, Apple is rumored to be testing bracelet-style wearable iPods. Giving Google Goggles a whole new meaning, the internet behemoth is developing augmented reality glasses that show virtual content on top of your real-world view. As you walk down the street, information pops up and displays ‘Terminator-style’ based on your preferences, location and Google’s information. Google’s glasses would be tied directly to their cloud-based services so you can leave your smartphone at home.

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With ever vigilant devices handing us the information we need to facilitate daily interactions, we won’t have to remember as much. Will we become more effective and knowledgeable or ‘dumb terminals’ incapable of rational thought? Too early to call.

3. Digital content consumption explodes

Tied closely to our first few predictions, watch for a content explosion in 2012. Last year smartphone shipments eclipsed PCs and laptops for the first time while tablet shipments breached 60 million. This ever-growing pile of connected devices is fueling consumer desire for on-the-go access to news, books, video, and music. New devices, industry players, distribution channels, and access models will emerge as consumers find themselves ready to spend real money on digital content.

We’ll be downloading and streaming more than ever – whether we’re listening to Spotify or watching movies on Netflix or through new online digital library UltraViolet (despite getting off to an inauspicious start). With Kindle sales topping 1 million per week in December, ebooks will thrive, majorly impacting bricks and mortar retailers. And, through its own publishing imprints, self-publishing platform and rumored upcoming “Netflix for books” subscription offering, Amazon will continue to kick legacy publishers’ butts and have a fantastic 2012.

4. Ecommerce quashes traditional retail

In a recent interview with Cnet, Silicon Valley visionary Marc Andreessen predicted that physical retail stores are going to take even more of a beating in 2012. Not much of a surprise given that ecommerce sales were expected to be up 13.5% for the 2011 holiday shopping season vs. a meager 2.8% increase for traditional retailers.

Starting this year, retail stores could begin a transformation into simple showrooms where shoppers scan the QR codes of items they want with their mobile devices and then have them delivered or prepared for immediate pick-up. Witness how Tesco supermarket is facilitating click-and-deliver in Korea through subway billboards featuring products accompanied by QR codes. And, looking at the success of the Starbucks Card Mobile app, mobile payment could emerge as a self-checkout option to help customers shorten wait times in-store.

5. Bring your own device gains momentum

The concept of “bring your own device” (BYOD) is a growing trend. While IT departments everywhere struggle to support and secure the new smartphones and tablets employees receive this holiday season, consumer businesses are gradually adapting to BYOD.

For example, last May American Airlines teamed up with GoGo to offer in-flight streaming video to passengers on their own laptops. Other airlines getting in on the act in 2012 are Virgin America and Southwest Airlines. Some schools are now experimenting with BYOD too to give students anytime anywhere access to educational resources and stretch shrinking budgets.

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6. Voice recognition takes off

Voice commands peaked our interest in 2001: A Space Odyssey, went mainstream with Microsoft Kinect, and evolved with Apple’s Siri for the iPhone 4S. Next, according to marketing communications firm JWT, the spoken word may control everything from thermostats to televisions. Apple’s rumored TV is said to include voice recognition, and Samsung, LG and Sharp are among those planning voice-enabled TV sets and related products, perhaps making remote controls obsolete.

Has the time finally come for computers and humans to talk to one another? Look out for lots of ‘cultural’ misunderstandings in 2012 and beyond.

Have a trend you’d like to share? Leave a reply below.

But with digital disruption becoming more entrenched in consumers’ lives, product strategists and creative retailers alike are starting to recognize the limitations of this mindset as they seek new ways of generating and capturing revenue. Taking a page from online gaming, many are shifting away from existing channels in favor of developing new and disruptive product experiences first, and then working backwards from there to create custom monetization methods that fit them.

In this upside-down paradigm, conversions and transactions become subordinate to the quality of the digital relationship and the overall experience of interacting with a brand over time. A winning product experience is so delightful, entertaining, or genuinely useful to consumers that many will convert and spend almost automatically when presented with the right offer, in the right context, at the right time, using the right monetization method. The goal for merchants shifts from maximizing the value of individual transactions to boosting customer lifetime value over the course of a perpetual relationship. Since this can only be achieved by monetizing frequently over time, the most fundamental metrics are no longer conversion rate and average order value, but engagement frequency, duration, and quality.

In his report The Disruptor’s Handbook, Dr. James McQuivey of Forrester Research writes:

Obsess about minutes of engagement. In your Customer Intelligence efforts, resist the temptation to focus solely on traditional metrics like number of transactions, page views, or average revenue per user. Instead, use the same metric that digital disruptors shoot for; Facebook was explicit at its recent F8 conference that it was overhauling its bridge to the consumer in order to increase a crucial metric called minutes per day. Even an additional 5 minutes per day can deepen your relationship with the customer, generating more data, creating new revenue opportunities, and, ultimately, giving you more prominence in the mind of your customer.

At Elastic Path, we’ve abandoned traditional diagrams that depict user scenarios in the context of a funnel or cycle because they don’t capture the nuances of how consumers actually engage with the full spectrum of touchpoints, nor do they accurately represent the importance of time and duration in a digital relationship. Instead, we map customer activities onto a continuous timeline:

This schematic shows a hypothetical digital relationship for a mobile gaming company, and in it you can clearly see that there’s no real urgency to convert customers quickly, as there might be in a traditional sales funnel. While the first monetization event (marked in red) doesn’t occur until well into the conversation, once it does, the quality and desirability of the experience itself stimulates continued engagement and consumption.

Let’s look at a few real-world examples.

In our 7 Dimensions of Facebook Commerce post, we mentioned that Zynga sells over 38,000 virtual items each second across its range of social games. Yet the strength behind this impressive statistic is a robust foundation of engagement KPIs – numbers that show Zynga players averaging 8 sessions per day at 5-7 minutes per period, and so-called “whales” playing for over two hours daily. That’s a lot of opportunities to sell them coins and farm animals.

In a similar vein, the 300 million minutes per day that consumers around the world engage with various iterations of Angry Birds affords Rovio tremendous opportunities to trigger transactions using a broad range of monetization methods – including paid apps such as the original iOS title, advertising revenue from the free Android edition, or in-game downloads like the Mighty Eagle.

In both of these examples, the most important principle is that monetization methods were built or chosen to enhance and complement engagement with a compelling product experience, not the other way around. It’s an easy enough concept to envision for gaming, but what about in other verticals?

In the case of Gilt Groupe’s recent joint project with mobile news and social aggregator Flipboard, it is quite clear that the quality and duration of readers’ interactions with the content will have the greatest impact on the success of this venture. Although conversion rates and order values are still important metrics here, it is the engagement indicators – a measure of how compelling the experience is to users – that will ultimately dictate how much demand can be generated.

Finally, the Starbucks Coffee app is a wonderful example of a compelling digital product experience from a very unlikely vertical, as well as a good illustration that minutes are not the only measure of engagement. For over a million users, it’s not only a seamless extension of the Starbucks brand, but also a perpetual in-store companion thanks to its genuine utility. By making it the fastest payment method, and then adding good account management features, rapid reloading, and a loyalty program that shares many characteristics with the best social games (I admit that I was thrilled to “level up” and achieve Gold status recently), Starbucks ensures that its best customers will keep coming back to its app again and again. Each ‘touch’ may not last long, but like a Zynga game, these digital interactions and monetization opportunities occur both frequently and predictably.

Based on their Q3 2011 earnings call, Starbucks’ approach is clearly working. To date, over 26 million payments worth $110M have been processed through the app, and over $50M is currently loaded onto over a million mobile devices. Word on the street is also that it also drives more frequent store visits, as well as increasing brand loyalty among users.

Each of these examples illustrates how starting with a deep understanding of engagement, then creating a compelling product experience around it, and finally building or selecting appropriate monetization methods to fit that experience, is the most effective way to implement a disruptive digital commerce strategy.

Looking for help with digital commerce?

A new report from Forrester Research examines the technology behind successful digital commerce, provides tactics for selecting a digital commerce solution, and looks at the digital commerce platforms available on the market today. Get your complimentary copy of Market Overview – Digital Commerce Solutions 2011 here.

Indeed, some would even say that viable innovations must come from outsider organizations rather than incumbents. Clay Christensen, author of “The Innovator’s Dilemma” and “The Innovator’s Solution“, being a case in point.

As digital content becomes more prevalent, traditional ‘physical goods’ business models like individual unit sales are no longer going to suffice. To successfully build ongoing strategic relationships with customers, providing an array of flexible business models – e.g. subscriptions, rentals, metered access – is important to meet the needs of various types of online buyers. In the digital world, one size definitely does not fit all.

This information (and more) was shared in our November webinar, Digital Disruption Is Happening. Content & Online Service Providers Must be Ready to Adapt. Available on-demand and recapped here.

Business leaders looking to make money from their catalog of digital content, software, or online services must find ecommerce solutions that allow flexibility to trial these alternative business models. A recently released Forrester report provides tactics for selecting the right vendor. Get your free copy of Market Overview – Digital Commerce Solutions 2011 here.

Digital commerce Q&A

Questions asked during the webinar are answered below by special guest, Forrester Research, Inc. Senior Analyst Peter Sheldon. Additional questions? Fire away in the comments!

What type of technology solution do you need to sell digital goods?

Content providers need to find ecommerce solutions that can support emerging business models. Rather than a typical ecommerce platform that only supports the sale of SKUs, look for a platform that can support sophisticated subscriptions, time-based access, and entitlements that are tied to the content management system (CMS) hosting and delivering the content.

Do I need to host the technology in-house, or can I outsource?

It really depends on your business. Global presence is one factor to look at. For firms that only have a U.S. operation but that need to sell globally, outsourcing to a partner with existing global infrastructure that can operate on your behalf can be very attractive. For larger enterprises that already have that global footprint – with legal entities in various markets around the world like China and Japan – managing ecommerce in-house may be less of an issue because they already have distribution and customer support outside the U.S. They may see efficiencies of scale by operating in-house. If digital commerce is of strategic importance, with high revenue potential, then ecommerce should probably be in-house as well. Another factor is internal IT sophistication. You can’t make an in-house solution work without a highly capable IT team.

How do you evaluate and select a digital commerce vendor?

There is a still a place for the traditional request for proposal (RFP) but, at Forrester, we encourage firms to look at an alternative called scenario-based evaluation. It still requires a request for information (RFI) to create a shortlist of vendors who meet your criteria in terms of capabilities, features, cultural fit, and operational model. Then you use real-world scenarios to whittle down that list to one or two vendors. You ask vendors to come in to give you a mini proof of concept where they demonstrate their capabilities and map them to the scenarios that you’ve given them.

The scenarios could be customer-facing or internal day-to-day tasks. Examples are how you upload new content or manage promotions, pricing, merchandising etc. These types of scenarios allow you to take a deep look, not only at the technology, but also at the business user tools. Using scenarios, you can get a sense of how easy the platform is to use and how flexible it is.

In traditional ecommerce, success is generally defined by average order value, conversion rate, and traffic. How do you measure success in the digital world?

Typical ecommerce metrics are based around cart abandonment. But in the digital world, there really is no cart. Instead, what we are selling is access to content or a service. So service adoption – or sign ups – is important to measure. But what is more important is the conversion rate of free trials to paid subscriptions, and then tracking the lifetime value of that customer. How many subscription renewals are there? What is the uplift in subscription spend over time? These types of metrics have much in common with telecommunications operators who measure average revenue per user (ARPU).

How does a content provider build direct-to-consumer relationships, yet happily co-exist with so-called ‘walled gardens’ such as the Apple App Store?

It’s certainly a challenge. We’re seeing publishers building a hybrid strategy. They are offering subscriptions on their own sites so they can own the customer relationship and have access to the CRM data, but at the same time they are open to new customers coming from channels like Apple and Google.

Closed wall ecosystems do make it hard for content providers to build close relationships directly with consumers. For example, the Apple App Store is very closed but you must have a presence there. On the other hand, Android is a lot more open. You have to fight for the data from the third party distributors and look for creative ways to capture customer information so you can monetize it over time. We’re seeing digital content firms pushing for better terms with Apple. And those terms are becoming a little more amenable than they were a year ago.

As we move from selling individual products or SKUs to selling access to content, how does the product catalog work?

In a traditional retail environment, the catalog is typically very large with tens of thousands of unique SKUs. But in the digital world, the number of SKUs or products is often very small, sometimes even as small as a single product with variations like subscription length (e.g. 1, 2 or 3-year) or access to advanced features. Some channels might have slightly different pricing as well.

So, on the face of things, the product catalog is very simple. The challenge is dealing with entitlements to the SKUs. The ecommerce platform is not just responsible for selling items, but must also play a role in provisioning content and services over the lifetime of the customer relationship. It must know when the consumer is able to download the content across multiple touch points like game consoles, smartphones etc. It must also manage the complexities of subscriptions. For example, if the consumer fails to make a monthly payment, it needs to put the subscription on hold.

Thank you, Peter!

Looking for help with digital commerce?

A recently released Forrester report provides tactics for selecting digital ecommerce solutions and looks at some of the key platforms available in the market today. Get your free copy of Market Overview – Digital Commerce Solutions 2011 here.

Looking for help with ecommerce strategy? Contact the Elastic Path Research & Strategy team at consulting@elasticpath.com to learn how our ecommerce strategy services can improve your business results.

Digital disruption started with subscriptions

According to Peter, subscriptions are the backbone of the digital disruption business model:

• Software publishers have long used subscriptions to tie customers into multi-year relationships. But now subscriptions are increasingly important as software publishers like Intuit move to SaaS-based (software as a service) product portfolios.
• Consumers are rushing to embrace alternative video services from the likes of Netflix, Hulu and Amazon, and cutting their cable TV subscriptions.
• From Zune and Rhapsody to Pandora One, subscription music services already have a significant share of the listener’s wallet.
• Amazon’s Prime brings all-you-can-eat to the world of ebooks, emulating the public library. Kindle owners who subscribe to its $79/year Amazon Prime program are now able to download one free ebook a month from a selection of 5,000 titles.

• Digital newspaper and magazine subscriptions are still in their infancy; however, momentum is growing led by Gen Y readers.
• Subscription gaming is also nascent and currently limited to PCs and smartphones.

Now consumers want more access options

However, consumers are increasingly looking for alternative ownership models beyond subscriptions:

• Freemium and trials
  Subscriptions and trials are like Batman and Robin; one rarely goes without the other. Freemium models are increasingly popular across a wide array of service providers like Skype and LinkedIn.

• Time-based access
  Time based business models allow content distributors such as cloud gaming platform OnLive to rent access to content.

• Metered usage
  Pay-as-you-go usage, commonly used by telcos and utilities, can give individual users and small businesses access to enterprise-class features. For example, OpSource Cloud Software offers popular Microsoft and Oracle software offerings and Google’s App Engine provides web application infrastructure on a pay-per-drink basis.
• Marketplaces
  Online marketplaces like Learnable are enabling new business models for the distribution of community created content.

Firms that fail to experiment with these and other innovative digital business models will fail to survive.

Consumers also want a seamless experience across their devices

Today’s connected consumer expects to access content and online services across multiple devices … but they also expect to be able to transact and manage their accounts within the context of the touch point they are currently using. What this means, in effect, is that channels no longer exist.

Commerce APIs are the key to enabling contextual commerce experiences across all of a consumer’s various devices. Mobile and social commerce opportunities are the likely first ways in which these APIs will be leveraged. Ralph Lauren’s solo sponsorship of The New York Times iPad application in September with commerce from Ralph Lauren Magazine is just one example. Tesco’s Homeplus mobile grocery shopping solution for South Korean commuters is another. With commerce APIs and an ever connected consumer, commerce will soon be embedded throughout the web and within products like automobiles, appliances and even pill bottles (for instance, GlowCap) that support auto-replenishment. By providing buying experiences tailored to both the individual consumer and the device they are using, content providers and other businesses can start to build on-going relationships with their customers. The Holy Grail is a compelling, never-ending revenue generating experience.

Looking for help with digital commerce? A recently released Forrester report provides tactics for selecting digital ecommerce solutions and looks at some of the key platforms available in the market today. Get your free copy of Market Overview – Digital Commerce Solutions 2011 here.

Looking for help with ecommerce strategy? Contact the Elastic Path Research & Strategy team at consulting@elasticpath.com to learn how our ecommerce strategy services can improve your business results.

But for those who need a little numerical validation, here are a few stats that make it crystal clear why your brand’s online presence is more important than ever:

1. Online sales are growing faster than offline sales

Consulting firm Deloitte forecasts a 14% increase in non-store sales, driven largely by the web. In contrast, overall holiday sales are expected to increase just 2.5 to 3% over last season. According to the National Retail Federation 2011 Holiday Consumer Intentions and Actions Survey, nearly half of consumers (46.7%) will buy online, up from 43.9% last year.

2. The web influences almost half of offline purchases

More shoppers are than ever are checking a store website before heading out to the physical location. Forrester Research predicted in its U.S. Online Retail Forecast, 2009 to 2014 report that the web would influence 48% of 2011 in-store sales.

3. Holiday shoppers research more online in a shaky economy

Consumers use the web to research price and availability of products to purchase both online and in stores. According to the same 2011 NRF holiday survey referenced above, the average holiday shopper plans to do 36% of their shopping online – whether they’re comparing prices, researching products, or actually making a purchase. And data from Experian Hitwise indicates that website traffic increases in a troubled economy because buyers research purchases more carefully online to stretch shopping budgets.

4. Online is a major source of inspiration for gift shoppers

When beginning the hunt for holiday gift ideas this year, our own research – just released Halloween – reveals that 21% of U.S. shoppers browse retailer websites for inspiration while 29% peruse physical stores. And the younger the consumer, the larger the role the web plays. Download a free copy of the full report, Virtual Goods Mean Real Money This Holiday. 5. Consumers planning to spend more on holiday shopping have an affinity for digital channels

Our research also found that shoppers intending to buy digital gifts – ebooks, music downloads, Facebook credits, and the like – are more likely to increase their gift budgets over 2010. While only 15% of all consumers plan to spend more this holiday season, a whopping 30% of digital gift shoppers will do so. Those purchasing digital goods also have bigger budgets—$440 on average, which is 40% more than their non-digital counterparts. The vast majority of digital gift spend will happen online.

And another survey, this time by web marketer Steelhouse, suggests that higher-income consumers are more likely than others to maintain their 2010 levels of holiday shopping, and will do more of it online. While 62% of all consumers plan to spend less this holiday season, 54% of households earning $75,000+ intend to spend as much as last year. 32% of these higher-income consumers say that they will spend more time browsing for gifts online instead of at the mall this year, compared to an average of 28% across all incomes.

Act fast to optimize your ecommerce site

With your site being more important than ever, what’s a multichannel marketer to do as the holiday countdown commences? It’s not too late to act on these tips:

1. Don’t emulate Target and have your website repeatedly crashed by unexpected traffic. Plan for major traffic spikes to ensure your site can handle the load. Simulate peak loads, monitor site responsiveness, and measure application behavior well in advance of Cyber Monday.
2. Speed up your site. Investigate using a content delivery network (CDN) like Akamai to speed up the delivery of rich content, including images and videos, to shoppers.
3. As many holiday shoppers will be researching online and on their smartphones both before and during their trips to the store, integrate the in-store experience with relevant, timely and personalized website and mobile app info.
4. Maximize the findability of your products online. By submitting a feed to Google Product Search, the Internet giant’s online shopping comparison engine, lesser known websites can improve exposure. Consider trying the Amazon Marketplace too. Or use Amazon Product Ads to place pay-per-click ads on category and product pages. Shoppers will see your ads when looking for similar products.
5. Social media has hit the mainstream and, while not a primary channel for discovery, is gaining in importance, particularly to Gen Y shoppers. Add social sharing to product pages to turn customers into sales channels. Resolve customer service issues on Facebook or Twitter to publicly display your customer service chops.
6. With cash-strapped shoppers carefully researching every purchase online before buying, follow the lead of sites like Amazon-owned toy site yoyo.com in making the shopping experience simple, efficient, and fun through gift finders, well-designed navigation, product filters and comparison tools, curated recommendations, and rich product details. At minimum, spruce up the product copy and images of your most popular holiday products, reinforce your value proposition, and make your shipping and return policies clear.
7. Act fast to plug your leaky conversion funnel with simple and low cost website feedback and usability tools like Crazy Egg.
8. Ask for an email address wherever you can, both online and in-store. Then squeeze as much value as you can from each of those email addresses.
9. Implement remarketing campaigns to target shoppers who browse weeks before they buy.

Looking for help with ecommerce site optimization? Contact the Elastic Path consulting team at consulting@elasticpath.com to learn how our conversion optimization services can improve your business results.