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Summary:

Amazon continues to defy gravity deep into its second decade. That’s terrible news for consumers and competitors says Michael Schreck of Zmags. E-commerce needs competition to innovate. But for that to happen, we need to ditch the old e-commerce model, and embrace discovery shopping.

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“If you’re not in first place, then you’re in last.” —Ricky Bobby, “Talladega Nights: The Ballad of Ricky Bobby”

Amazon, the world’s largest Web retailer, is clearly in first place. So who is number two and prepared to challenge Amazon? Struggling to think of an answer? Me too. That is terrible news for consumers and for Amazon’s competitors.

As the president and CEO of Zmags, I’ve thought a lot about how companies can compete with Amazon, and I believe e-commerce needs healthy competition to sustainably innovate. But for that to happen, we need to fundamentally change the old e-commerce model.

Amazon continues to defy gravity deep into its second decade. A $40 billion dollar company trading for 70 times next year’s expected earnings just doesn’t seem right. Its third quarter, 2011 profit margin was 58 basis points. It’s as if Amazon is committed to margins below supermarkets.

Here’s the good news: Amazon’s model is out-dated and, by its very design, anti-social. It is terrific for directed purchases (low margin) and awful for offering engaging shopping experiences (high margin).

Amazon pioneered online directed purchases, training consumers to turn to them first to purchase specific items, guided particularly by price (and later recommendations). It’s undeniably efficient, but it’s almost exclusively transactional. One click and you’re out. Amazon’s anti-shopping model reflects the characteristics of the very people that built it — engineers — who quite frankly are not your typical power shoppers. The fact is that Amazon is just an old mouse trap that doesn’t catch anything but unprofitable mice.

The age of discovery

Thanks to a number of recent developments, the era of discovery shopping is emerging. First, companies like Rue La La and Groupon began offering closed flash sales and special deals, creating a new set of personalized experiences. So far, these remain largely transactional.

Then, the iPad entered the game. The iPad has massively raised consumers’ and marketers’ expectations. To date, most marketers have responded with an app-based strategy. Mobile and web apps provide a rich, flexible canvas for branding, merchandizing and storytelling in a way that is more engaging and less linear than predictable banner ads or other promotional marketing tools. And rather than relying on their IT departments for operational bandwidth, project management and compatibility, marketers have the freedom to use internal or external Web designers.

As tablet ownership grows (projected at 90 million in two years), it is driving the next important shift in e-commerce, what we call “discovery commerce.” Discovery commerce is the antithesis of Amazon’s directed purchase model. It offers today’s more profitable, tablet-toting consumers a highly curated digital shopping experience.

Tablet owners are not looking for a “one click and exit” shopping experience. A recent consumer survey sponsored by Zmags found that 87 percent of tablet owners used their devices for holiday shopping and the size of their total purchases dwarfed traditional PC-based e-commerce.

However, when we looked at the tablet-readiness of the top 100 Internet retailers, we found that less than one-third of these brands have optimized their sites for tablet commerce. The majority are relying on their standard e-commerce websites to deliver an “adequate enough” tablet experience.

Today’s retailers, brands and yes, even Amazon’s third-party sellers, need to be ready for discovery commerce. And they need to focus on the uber-profitable tablet shopper in particular. Here are four important steps to get started:

  1. Focus on your best customers and the experience they want (go where the profits are, not just the volume).
  2. Approach each new channel as if it were a brand new storefront (unleash the creativity).
  3. Curate a story that merchandises your brand (engage the power shopper with compelling content, visuals, etc.)
  4. Refresh and repeat frequently (new content experiences have to be updated often to avoid staleness)

According to our data, brands that have adopted discovery-based commerce have twice as many conversions and five times as many page views. Most importantly, the value of their customers’ orders have increased by up to 40 percent. Let’s look at three of Zmags’ clients that have moved beyond Amazon’s model for e-commerce and are leveraging the potential of tablet, mobile and social commerce.

First, Kenneth Cole. The fashion brand has created commerce-enabled catalogs that are accessible on tablets, smartphones, the Web and on Facebook. Their catalogs aren’t your typical grid-based presentation of items. Rather, they look and feel like a glossy lifestyle magazine. Customers can simply click on or touch an item to buy it without ever leaving the catalog.

Express is another well-known brand that is transforming its shopping experiences and pioneering tablet and Facebook commerce. Its rich digital catalog can be shopped via tablets or on the label’s Facebook page, where its two million fans can discover and purchase the latest styles.

Another example is Celebrating Home. The direct sales firm has created digital catalog experiences that extend its reach from in-home party sales to thousands of potential customers via Facebook. Celebrating Home’s interactive catalog, which includes video and voice-overs, makes for a lively virtual shopping experience.

Retailers know how to tell stories in-store through merchandising and displays, and the tablet gives them a better medium to deploy those stories online. The old card-catalog model was designed for searching for a specific item or category. These new curated experiences stimulate customers’ senses by having them touch the screen, interact with the merchandise and turn the page to see what’s next. This all helps entice people to engage more with the content, browse and, ultimately, become inspired to purchase more.

For every retailer not named Amazon, it’s time to maniacally focus on where the profits are — power shoppers looking for merchandised experiences on their tablets as well as smartphones and social channels. For e-commerce to truly thrive, we have to set aside Amazon’s handcuffs and embrace discovery commerce.

Michael Schreck is the president and CEO of Zmags, a platform for rich media mobile and social merchandising. 

Image courtesy of Flickr user dead_elvis.

  1. TL;DR but seems a little self serving to me.

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  2. whereishawkins Saturday, March 31, 2012

    I’ll sum up the article for you since it is tldr.
    1) Amazon is too successful.
    2) Let me talk about what my company offers, which isn’t much, for 90% of the article. “Buy my product and you can be #2!”

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    1. Exactly! It’s also great that you could finish the article :)

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    2. Aboud Akhdir Monday, April 2, 2012

      loool 100%

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  3. Proabably one of the most dissapointing articles I’ve read in sometime. Classic use of an interesting title that is then turned into a self-serving dribble about some vendor’s made up world, “discovery commerce” in this instance. BTW – Amazon has revolutionized e-commerce a 1000X more than any company you mention and online catalogs have been around for 10 years. I agree that tablets enhance the experience (this can be delivered on a laptop and desktop just as well) but hardly a revolution being stiffled by AMZN.

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  4. I must say, I rather like the anti-social nature of Amazon. It is straight to the point and does exactly what I need it to do. It, without much effort, offers me the product I am looking for and the reviews to go with it. The only ones benefitting from ‘socializing’ Amazon, would be Amazon themselves. The fact that Amazon isn’t made for ‘shopping’ doesn’t bother me a bit. If I find something on a website, I’ll still always check Amazon for a better deal.

    I’ve skimmed through the second bit of the article, but I agree with the others who posted before me. The bit I’ve read wasn’t any news to me. It seems a tad obvious to someone who tries to stay up to date. I thought “self serving” to be rather accurate; Making the article irrelevant.

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  5. Brendan Coots Saturday, March 31, 2012

    Just to add to what others have already said, I don’t get the point of this article considering Amazon is a major leader in curated and personal shopping. Their entire website is loaded with recommendations and curated options for your specific interests.

    If the author’s point is that their site isn’t tailored for tablets, well, that’s a weak point as the basis for an article, but it also ignores the Amazon Window Shopping app, Amazon App Store etc. Maybe they aren’t formatted like a glossy lifestyle magazine, and sure that’d be nice. But one could argue that presentation style is somewhat at odds with Amazon’s long tail approach. You can assail their margins, but they are the biggest retailer out there and growing. What’s the problem again?

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  6. Well, I read the other comments first, because I thought it might have been that cheeseburger I had for lunch, but no, it’s not just me. What incredible drivel.

    There is a growing trend in purposefulness, in ones life and concerning ones possessions. That is just the opposite of wandering around the internet using your iPad to be surprised into buying something by the electronic equivalent of a glossy magazine. Stuff for the sake of stuff is over.

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  7. First rule of blogging – do not shamelessly whore your own product. I am embarrassed to be vaguely in the same industry as this lot…I couldn’t respect Amazon more for innovation in e-commerce..

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  8. This is the latest in a series of anti-Amazon blog postings on gigaom, the others focusing on ebooks. Like the others, this article is overly long yet light on data, unless the data is about the author’s business.

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  9. The 4 steps might make sense, but how does the product examples you gave demonstrate any of them?

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  10. jose martinez Saturday, March 31, 2012

    This article does not make sense to me. It is not coherent and I do not see how the various points the author makes tie in with each other. Dribble indeed.

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  11. “Accessible on tablets…”

    Good luck with that! I have to fight this poorly conceived model of e-commerce and discovery on a daily basis. Sadly, I designed much more sophisticated visual methods too early, only to watch Flash and PDFs become the norm in catalog and magazine design.

    Fortunately, models using data, imagery, and social tools will emerge. And, it is mostly likely from such companies as Amazon, simply because it costs a fortune to develop all of the underlying infrastructure, methodologies, and account driven features. What is simply sad about these efforts is that they assume that marketing will drive the new world of commerce. It won’t Data will. And, without the depth of understanding a company and its customers over a period of time measured in years rather than months, can such new models emerge.

    SMS, QR codes, and even PDFs on devices have a place. They are not mallets in search of e-commerce problems however. If I have to re-download the IKEA catalog one more time on my iPad to show people why it is a bad idea, I am going to scream.

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  12. From what I’ve seen, Amazon is moving in the right direction by having purchased Quidsi. It has various online stores that cater to specific markets. Take yoyo.com (toys), woof.com, and diapers.com for instance.

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    1. Not woof.com – wag.com my bad

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  13. Where is the “sponsored content” disclaimer?

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  14. This is crap. Amazon is not only #1 web classic retailer but has, with the kindle and cloud server retal, created a whole new customer base. This article is biased.
    Shame

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  15. As a former intern at amazon, I can say without a doubt amazon raises the level of customer service and the quality of the ecommerce experience. One example I came across while working there was an elasticity study that showed that it would be more profitable(without sacrificing vol) to raise the prices for rare DVDS, but instead they kept prices lower because it was a better customer experience. It takes a lot of integrity as a manager to give up free money like that.

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    1. That is what I have heard about Amazon. All they want to do is give a great customer experience on their website. How can they be at fault for doign something right??

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  16. Stupid advertisement just like the IPsoft one – Autonomics. Gigaom is going crazy

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  17. John Durcan Sunday, April 1, 2012

    I kind of get what he is saying — retailers want customers to browse and stay a while so they will buy more. No one does that on Amazon. (Although as a consumer I love amazon.)

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  18. Interesting theory, but not much data to support it. I’ve got first hand experience that none of this is right: I was the Producer of Borders.com. Notoriously late to market, we launched Borders.com in 1997 with the main objective of maintaining the Borders store experience — expert merchandising, a space abuzz with activity, a place to explore (one of our tag lines!), frequently updated expert reviews, articles, special promotions, guest authors… We were ranked #1 bookseller .com by some analysts because of this. Guess what? We got our asses kicked by Amazon. Of course some of the failure could be chalked up to poor execution, not enough marketing, the fact that people would shop with us and then buy at Amazon…. But the truth is online consumers didn’t flock to Borders.com to experience our social commerce or discovery commerce or whatever. 

    Maybe times are achangin’ on this — online consumers have different expectations, devices are everywhere, we can infuse more customized experiences in ecommerce, everyone is always online so there are more social opportunities. Maybe…. But I haven’t seen it yet. 

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  19. Amazon is doing Market Basket Analysis,It does provide suggestions based on your previous shopping experiences.I Dont need to mix my social life and shopping.These two things are separate entities.I am super happy with Amazon!!

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    1. Ditto! These anti-Amazon progranda we are getting lately-means Amazon is doing something right.

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  20. Victor Dweck Monday, April 2, 2012

    Agree with most of the comments here.

    FYI: Using the conceptual model of a print catalogue on a computer screen is the stalest form of innovation. It’s the opposite of embracing new technology.

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  21. Ouch! You guys are killing me. I appreciate the feedback. What I am suggesting is that “in and out” experience that Amazon delivers is not the model for growth for 99 percent of retailers (their stocks will not defy gravity as Amazon’s has for over a decade without material net margins). I understand why consumers (like me) love Amazon when we know what we want — because it is fast, inexpensive, and efficient. Fantastic for selling pens and toothbrushes, not so good for selling apparel and jewelry. Retailers need to create shopping experiences that people aren’t anxious to leave. That is my point. And, yes, perhaps a bit self-serving (not intentionally) — but the future interface to online shopping is not going to look like an optimized “Amazon-esque” website on tablets, mobile, and social. Finally, if you are male and love technology, you are NOT likely to be the “shopping persona” this new interface intends to serve (which skews female and drives 90% of all retailer profits offline).

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  22. Nonsense! Not only does Amazon do a great job in innovating, it also does very well with strategic acquisitions. Author needs to know that Amazon owns Zappos.com and Quidsi properties including diapers.com and Soap.com. This argument is simply plain stupid.

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  23. Amazon works for 99% of the purchases I and most people make on a day to day basis. We just want a transactional and the cheapest option for a given product. The comments on Amazon are also the widest you’ll find for most products and these guide purchasing so much more effectivly than in-store comparisons.

    Yes there are other specialty options, which you mentioned, and they serve a useful purpose for various niches. But they don’t fit with wider mass market.

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  24. Reblogged this on WebStore Daily and commented:
    Very interesting article on how online retailers can compete with big-box online giants like Amazon by adopting ‘Discovery Shopping’ methods to entice customers to purchase.
    “According to our data, brands that have adopted discovery-based commerce have twice as many conversions and five times as many page views. Most importantly, the value of their customers’ orders have increased by up to 40 percent.”

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  25. Amazon is all about the customer experience. Don’t you think they already planning something like this already? Stay tuned.

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