The International Retail Supply Chain Battle

In November 2015, Beijing Century Joyo courier services registered with the US government as a non-vessel operating common carrier (NVOCC). Freight forwarding and the pricing associated with it has been considered opaque and ripe for disruption by providing better technology-enabled transparency and cost advantages. Unless you are in this business or following the news closely, you wouldn’t know this:

Beijing Century Joyo courier services is a subsidiary of Amazon!

According to David Spitz, CEO of Channel Advisor Corp. (a marketplace enabler for Amazon, Walmart, Ebay and other retailers) — products sourced from China will account for the majority of unit volume on Amazon. Also, he states that 20% of Amazon’s sales will be from its own private-label products.

Both these points seem to lend case to the greater need for a robust supply chain to help enable these drivers of growth. As part of a secret project apparently named as “Dragon Boat” and appropriately so given its focus on China, Amazon has unleashed an interesting game plan to start dominating on the logistics side. Incidentally, Amazon’s new hire focus in their Global Sourcing teams is oriented towards recruits joining their Supply Chain Optimization Technologies (SCOT) team — https://www.youtube.com/watch?v=ncwsr1Of6Cw&feature=youtu.bewhere there is a race to build next generation inventory planning platforms and other capabilities.

Amazon is trying to reduce the cost of its Fulfillment by Amazon (FBA) services given that the majority of its products originate from China. Amazon has also begun establishing shipping routes from China to North America, UK and Japan. Amazon logistics intends to create a one-stop E2E ocean freight service to its marketplace sellers. Such initiatives are also targeting the growing cross-border e-commerce trade, which is about 15% of total global e-commerce volumes.

Alibaba, not to be left behind in this race, is investing $16 billion in supply chain initiatives for its Cainiao subsidiary. Cainiao started in 2013 largely to support shipments from China. It has now expanded to 224 countries and regions. Cainiao provides a data-driven logistics platform to about 90 Chinese and international logistics companies. This is however focused on the package delivery for its larger Taobao and T-mall retail operations. Amazon is also promising to deliver small items from China in five days for its prime members.

While these initiatives are working towards the shipment of its parcel products across the globe, the sourcing of import/export products also benefits from the infrastructure advantages being built as part of these global services. Alibaba.com has a separate division Alibaba logistics that determines the shipping needs of importers and provides freight options that the suppliers can then support. Alibaba logistics has built out partnerships with UPS and Fedex for express delivery. They have partnered with Maersk for container shipments and DHL and Kuehne+Nagel for airfreight. In 2016, Alibaba enabled suppliers to reserve space on Maersk container ships through its OneTouch service. This service offers online booking on select routes between 5 Chinese ports and 8 international destination ports. In early 2017, Alibaba announced a cooperation agreement to integrate members of the world’s largest logistics network, WCA Ltd., with the Alibaba platform. In order to continue serving even small and medium enterprises, Alibaba has partnered with more than 100 logistics companies and 1700 freight forwarders.

Building a vast supplier base

Walmart.com roughly had about 2 million items up until 2013 as it revamped its marketplace program. When the marketplace program was accelerated in 2015, there was more than a 200% growth YOY in the number of items offered as more sellers were on-boarded through a seamless portal. As the mechanisms to get more sellers got better, the opportunity to offer more products to the customer increased. This is still way behind the 360 million items that Amazon offers with more than 90% of that mix coming from the roughly 2 million marketplace sellers on its platform.

Alibaba.com through its sourcing platform offering has increased its supplier base massively (although heavily skewed towards Chinese suppliers) and is continuing to offer a suite of services addressing the convenience and trust needs of its stakeholders. It has several challenges to deal with especially with many suppliers being traders or middlemen and the ability to deliver quality products is heavily dependent on the buyer’s importing knowledge and skills. Nevertheless, the platform ecosystem is in place and Alibaba is working hard to remove the outlying challenges in this complicated business.

Building a broader supplier network however helps with the ability to not only add more products exponentially, but also reduce costs across the supply chain through the consolidation of demand and supply. According to the Hackett Group, procurement organizations who work with a diverse supplier base had lower overall operating costs and spent 20% less on their buying operations.

Reducing global shipment costs

There is a cost associated with providing the trust and convenience benefits through a robust platform. This is however optimized when suppliers and retail buyers come together for repeated transactions based on realized benefits that they see. It is an unavoidable reality that trading is becoming more and more global and it is necessary to ship products at lower costs to build a sustainable business.

Amazon’s shipping costs in 2015 exceeded $5 Billion. This includes the entire domestic as well as international shipping costs that the company incurred. From a shipping standpoint, they had a net loss of $1.85 Billion.

This continuous surge in their shipping costs has prompted Amazon to invest aggressively and experiment in a host of capabilities. It is important to note that while all these investments are geared towards reducing costs to the company, however, these can be interpreted as a suite of services geared to build trust and convenience to continue creating stickiness and attract more buyers and sellers under its fold.

A few of the evolving ‘services’ that Amazon has been offering on the shipping side are:

  • Truck trailers for replacing domestic carrier networks
  • Bicycle couriers
  • Prime air drones (in UK and eventually in US and other countries)
  • Air freight
  • Prime Now delivery
  • Amazon Flex — crowd-sourced package delivery

While the initial and ongoing investments to make this happen are heavy and prone to risks of failure, the benefits are equally high if the layers of costs are peeled off and optimized in the supply chain.

The supply chain space is ripe for a massive digital disruption. Alibaba and Amazon are leading the way in this space and many players in this industry will become not only a beneficiary but a critical part of it. The question is whether you as a retailer, supplier, freight forwarder, shipper etc. are willing to be dominated by these two nimble global players?

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Driving Surety of Supply in Retail Sourcing using Blockchain

A paper on the application of Blockchain technology in retail supply chain

Surety of supply in the global supply chain can be interpreted as the ability to ensure product availability at the right time and right place to meet a planned customer demand. In the context of sourcing, it starts from identifying and working with the right suppliers in an origin market, manufacturing products to scale and plan, and getting the products to the destination market on-time. This is easier said than done due to the inherent complexity of a global supply chain: The lead times are longer, inventory demand and the corresponding production is subject to disruptions, supplier compliance and risk needs constant monitoring and finally, the total cost of inventory may end up being high due to inventory pile-up (possibly from late delivery or early replenishment or larger order sizes) at the destination DCs and Stores.

The Sourcing value chain is deemed inefficient if it is unable to identify the right suppliers for the products that retail buyers want to sell to consumers. Sourcing teams also need to ensure that Suppliers manufacture and deliver these products at the desired quality and target shipping dates. While inefficiencies can happen due to several factors that need to be individually analyzed and addressed, there is an opportunity to look at the supplier base broadly as a collective network of willing partners who want to add to and gain value from the relationship. This requires a decentralized look at the management of the value chain and at the same time, enabling a collaborative participation of stakeholder partners across the value chain.

The problem of UNMET DEMAND (and hence potential lost sales and customers) due to inability of the sourcing supply chain to ensure surety of supply is driven by the following broad factors:

  1. Supplier Readiness
    a. manufacturing production problems
    b. factory problems due to compliance, safety and labor
    c. raw material problems
    d. shipment problems
  2. Supplier Availability
    a. product supply locked with a few
    b. sudden customer demand spikes forcing change in order strategy
    c. cost and lead time considerations

The resultant impact of this supplier delivery performance not meeting the desired needs is the following:

  1. Service loss/short-term sales loss in destination markets: Immediate sales forfeited due to deliveries not received on time from suppliers for open purchase orders.
  2. Increased inventory in Import DCs (and subsequently in Warehouses/Stores): Delayed product deliveries leading to piled up stock or faster replenishment cycles to meet shifting demand.
  3. Unplanned expedites resulting in high cost of logistics: Faster shipping methods employed (air vs. ocean) to get products faster to meet the at-risk commitment (in-store date).

In effect, we have an opportunity to better manage our network of suppliers to handle demand variance and supply disruptions so that we can MINIMIZE the downstream effects it has on increased cost of inventory, supply chain disruption and lost sales.

Solution Design:

Instead of handling the problems of supply after the fact, we can look at a proactive way of handling demand-supply considerations. By means of a Blockchain model, we can attempt to identify demand (as related to buy plans and their corresponding Purchase Orders) and propose a way for an extended network of suppliers to participate in meeting retail demand before the point of failure.

The design of such a business process system could look like the below model. This is one of several variations we can achieve in modeling a supplier-participation network:

 
A simple Blockchain model for distributing and sharing PO Demand
 
 

What happens within the Blockchain?

We will use an example derived from the model to explain how a Blockchain works in managing the PO optimization process.

Supplier Diversity:

Let us assume that a buy plan was created to direct import women’s top of a particular style and product specifications. This buy plan is vetted by a Sourcing Manager who will then publish the buy plan for review by the Supplier Base. Let us assume the supplier base to consist of 10 suppliers. Of these 10 suppliers, 2 are new suppliers (Supplier D & E) and 1 is a Trader (Supplier B).

Supplier Selection:

The Supplier Base reviews the buy plan and submits a quote detailing their capabilities in manufacturing the women’s top according to the defined specifications. Let us assume the quote was supplied by two existing suppliers (Supplier A and C), Supplier B and Supplier D. The total of 4 suppliers are now under consideration for securing the PO contract to manufacture the product for the retailer.

At this stage, let us assume Supplier D was rejected. The Sourcing Manager approves Supplier A and B and puts Supplier C on a waitlist. As explained earlier, a waitlisted supplier is someone who has submitted a compelling quote but isn’t the top choice for being approved immediately for securing a PO contract. However, Supplier C will be used as a risk-mitigation option by being allowed to participate in the PO process provided priority has been given to Suppliers A and B to secure their orders.

Once the supplier negotiations and agreements are completed, it is assumed that Suppliers A, B and C are now ready to do business with the retailer.

Blockchain Ledger, Transaction Chains and Visibility:

The PO ledger is the critical element of the blockchain and defines “what” is being exchanged and updated between the various nodes (participating entities) of the blockchain. In this example, we have 4 nodes in the blockchain — the Sourcing team, Supplier A, Supplier B and Supplier C. The nodes can be expanded as desired and it assumes that all nodes receive the most recent and updated copy of the PO ledger at all times. The complexity of letting Suppliers A and B participate first in securing orders can be enabled by controlling the node participation within the blockchain (It is to be noted that the concept of an open, distributed and completely decentralized blockchain is ideal for cryptocurrency transactions and has been generally modified to be more conducive to business environments by Blockchain service providers like IBM).

The PO ledger can be defined to have any fields considered as valuable to the node network in making the right transaction decision in the Blockchain. It is suggested to have at least the following entries:

  • Buy Plan ID: The ID of the buy plan as registered in a retailer’s system.
  • Total PO Qty: The total order size desired for the products under the buy plan (in the above model, the ledger is simplified and assumes a single product as part of a buy plan. For multiple products within a buy plan, we can create separate ledgers per item under the same buy plan ID so that suppliers can bid per item to secure the PO contract). For the women’s top, let us assume the total PO Qty to be 100.
  • PO Offer Qty: The offer qty is the latest snapshot of what order quantities are available still for suppliers to secure the PO for. Initially, the Total PO Qty and the PO Offer Qty will be the same (100 in this case). If we assume that Supplier A has secured the order contract for 30 (explained further below), the remaining on offer PO qty is 70. This is open for Suppliers B and eventually C to take.
  • Target In-Store Date and Target Port-arrival Date: The in-store date and the destination port arrival dates are guidance data that will enable Suppliers to understand what is the expected timeframe for manufacturing and shipping the accepted PO offer quantities to the retailer. The benefit of tracking this within the ledger is that it allows for real-time visibility of order related parameters (another benefit of the Blockchain that will be leveraged in this model). For any reason, if there was a PO revision that updated the in-store dates, it is clear to the nodes in the Blockchain what the expected new dates are. It is however important to note that a supplier should go by the PO contract (outside of the ledger) to comply by the required in-store date. The ledger will only have the latest snapshot of the in-store dates for the offer quantity.
  • WIP (Work in Progress) Daily Order Quantity Shipped: This is a daily updated snapshot of the total order quantity shipped out by each individual supplier to the retailer. This quantity is the fulfilled order quantity that the supplier is sending via freight to the destination port.
  • WIP Daily Order Quantity Produced: This is a daily updated snapshot of the total order quantity produced by each individual supplier to the retailer. This quantity has been manufactured in the production lines of the supplier’s factories and are ready for quality checks and shipping.
  • When the retailer publishes the PO ledger with the offer quantity, suppliers get to secure the order quantity that they can produce. This will be closely monitored offline so that suppliers do not promise more than they can deliver in securing the PO. Let us assume that Supplier A has initiated a TRANSACTION to offer 30 quantities of the women’s top. If they are the first bidders in the Blockchain, they will be offered the PO contract accordingly. This can happen either through an intervention or without the intervention of an offline team at the retailer. Once the transaction is secured, a CHAIN link is formed between the retailer and Supplier A for the order quantity of 30. The PO offer quantity in the ledger is now updated to 70.

Transaction Privacy:

Let us assume Supplier B has taken up 60 and Supplier C eventually takes up the remaining 10 on offer. This will close the transaction in the blockchain for the buy plan ID. Further modifications to the PO will update the ledger accordingly. In order to secure privacy of the transactions between the retailer and each individual supplier, it is possible to given the retail sourcing team node full visibility into all the transactions while letting each supplier node only see what they have contracted to offer.

WIP Risk Monitoring and Mitigation:

Work in Progress (WIP) tracking can be done easier through the blockchain as we will have a continuous snapshot of changes in the production and shipping lines for the supplier. By building additional top up logic through algorithms to process this WIP data, we can determine at near real-time any potential risk that each supplier poses to fulfilling their PO commitments. Let us assume that Supplier C is at risk of maintaining the PO commitment as the algorithms (or manual review) has identified that two of the factories are running at full capacity and missing production targets while the Supplier itself is going through a financial trouble in securing raw materials in time.

If the algorithms fire up and determine that supplier C is at risk of fulfilling the PO for the desired in-store date, the retailer can take a proactive view into the order commitment with Supplier C. In this case, the retailer will update the ledger to remove the chain link with Supplier C for the order quantity 10 (or any other updated snapshot number) and release that as an Offer quantity for the remaining suppliers (A and B) to take up if they can. If it is possible for either Supplier A or B to take up the additional order quantity, then the retailer has an opportunity to avoid the risk with missing order shipments that may have resulted in a lost sale potentially in the stores. If Supplier A or B cannot take up the additional offer quantity that the retailer has given, we can release a new supplier node into the Blockchain assuming there is a possibility for a Domestic Importer or an agency to take up orders with a faster lead time and production turnaround.

Why Blockchain?

Do we really need a Blockchain model to achieve this Supplier-PO management opportunity. The answer is in-between a Yes and a No. However, there is a stronger case to utilize the power of Blockchains to create open networks of business relationships. What Blockchains give is the opportunity to devise working business models that take away the overpowering role of a central administrative agency in monitoring and dictating the rules of engagement for the flow of transactions (e.g. money, products and resources of any kind) between participating entities. In the financial world, crypto-currencies have challenged the hegemony of central banks for enabling the free flow of money between two transacting parties. In the business world, Blockchain has a greater application in the supply chain space where FLOW of information, money, assets and resources happens all the time. In many cases, businesses are tempted to have a centralized role in monitoring this ecosystem while it is very much possible that by letting the supply chain participants have greater visibility into the flow of asset resources, there is better participating to meet targets and avoid risk.

According to IBM that has developed a Blockchain platform — “A blockchain network for business is collectively owned and operated by a group of identifiable and verifiable institutions, such as a business or university, for example. It’s a permissioned network, where the participants are known to each other. Blockchain technology underpins the bitcoin network, but the bitcoin network is non-permissioned, which makes it poorly suited to business use cases. It has no identifiable ownership structure and is operated by a community of participants that may or may not be identifiable.”

Blockchains have the power of a distributed network providing data sharing, replication and synchronization across various entities participating in the network. This makes information management and decision making easier.

Retail Product Management

Retail is as old as humanity. We were traders as much as we were hunters, gatherers, farmers and sleepy socialists. Retail brings people and products together. From the days when bartering existed to the days when ships packed away good to far away places, we have had a fascination for what retail trade opens up.

My rendezvous with retailing began by accident in 2002, when I first traveled to the US to work for a retail software firm. Working as a support specialist for retailers worldwide, I found the business of retailing to be enchanting and fun. Moreover, it was also easy to comprehend. I ended up working with a major electronics retailer too as an IT consultant following which I was determined to have a career in the retail industry.

When I did my MBA, again by accident, I had the opportunity to work in e-commerce when it was picking up along with the internet revolution as a viable shopping option for millions of shoppers across the globe. Ever since then, I have worked for two e-commerce start ups and am currently working for the World’s largest retailer.

I will blog about my experiences every now and then and hope to share the knowledge, experience and possibly even my ignorance in this wildly changing, fragile and highly competitive industry.

Amazon Marketplace Program: What if Walmart steals the entire pie?

It has been a while since I posted a blog entry. A new job, a new place, a new home and several other activities has kept me away from blogging. In this article, I want to explore a nagging thought that has been in my mind for a long time. Is Amazon merely profiting from the marketplace/seller program they run or do the retailers selling on Amazon also benefit from it? What if Walmart really takes off with its very modest marketplace program and makes it “competitive” a la Walmart style?

I don’t have the insider view (and won’t use it here for Walmart) and hence can only speculate to a certain extent. I believe, Amazon is making a killing with the marketplace program at the expense of the 3P retail sellers who don’t have any other viable option to access a large customer base for boosting their sales. In today’s e-commerce world strictly limited to the US market, the bottom-line is that there is no healthy competition to Amazon on the marketplace program. While Ebay comes close with its version of a marketplace and there are a few other competitors, including Walmart, fighting in the ring, they do not come anywhere close to the size of Amazon’s program.

In this article by Scott Wingo, CEO of Channel Advisor, a beautiful analysis is done to show the prominence of the marketplace program for Amazon (http://www.amazonstrategies.com/2013/02/part-iiiii-amazons-q4-results-.html). It largely supports a view that I constantly keep sharing with office colleagues at the water cooler; Amazon is nothing once you take the marketplace program out of its business. Amazon is big today because it took several years for the competition to take note of it and initiate any serious action. Even Walmart with its deep pockets and huge resources never ventured into any serious efforts to drastically augment this business stream. Marketplace is a profit making venture. You only realize a percentage commission on the actual GMV or marketplace sale made. But, that percentage commission is pure profit after adjusting for other services you may provide at a cost to the company (for example, fulfillment). In Q3 of 2012, Amazon’s GMV from global marketplace sales was more than the sales generated from their own channel. The difference may be small but  that is also explained by the fact that Amazon’s own network sells more media than EGM. 40% of the units sold are marketplace items and the total 3P revenue (near profit) in Q312 was $2B. What is also interesting in the article is the steady gain that marketplace has had when compared with its own channel (1P) from a GMV standpoint. Amazon sells over 100 million skus largely because of its marketplace program when compared with say, Walmart.com, which sells a relatively modest number of skus.

One needs to note that the benefits accruing to a small retailer selling on Amazon vs selling on any other strong retail competitor site (say Walmart) is very minimal. Amazon provides some add-on-benefits to a retailer selling on Amazon.com when compared to selling on other networks. The biggest and only noteworthy benefit of all is the fulfillment-by-amazon (FBA) program. This helps a retailer publish their product on amazon and let Amazon fulfill customer orders, ship them out and also provide customer service capabilities. This is touted as a major benefit to sellers who want to outsource these capabilities to Amazon rather than take it up on their own. However, none of these services offered by Amazon come for free. In fact, there is a fee associated with every bit of service they provide on behalf of the retailer. Even customer service as an option is burdensome to the 3P marketplace seller as Amazon’s friendly policy towards customers never takes a friendly view on behalf of the sellers towards product returns (check forums on Amazon seller central to read more on some of these pain points). All in all, while Amazon provides these “exceptional” benefits and has worked hard over the years to make their marketplace program superior (kudos to them for this), none of these benefits they provide to the sellers is a strategic core competence, the one that cannot be replicated by the competition, especially if the competitor is someone like Walmart.

While replicating a competitor’s strategy doesn’t necessarily make you the leader or replace the market leader overnight, the beauty of the marketplace program is that you can get to cause serious disruption in a relatively easy manner. 3P sellers are not tied by any means to Amazon’s seller program if they can find an alternative and cheaper channel to sell their wares. Yes, they cannot exit the Amazon relationship completely as they have put their flesh and blood to make Amazon the giant that it is today. That in turn has made Amazon a necessary partner for them to access the huge consumer base that comes first to Amazon to find their favorite items. Similar to Google search that fed on the constant flow of advertisers and consumers reaching their site over the past several years to learn and grow its search engine, Amazon too has benefited from the fact that over the past ten years, every small retailer sold on the seller program to the point where consumers now blindly believe that Amazon has the product they want. The 3P retailer helped spin a huge consumption web for Amazon and now they are stuck to it like a fly.

All that a player like Walmart needs to do is disrupt the pay-by-service model that Amazon is making money on, offer the same items that are sold by the same marketplace partners that Amazon has and utilize the exceptional advantage of the 4000 strong Walmart store network to create a competitive advantage. Adding to that, if you take away the subscription fees of ~$40 that Amazon charges to be a premium marketplace partner, you now have a level playing field. The one thing missing still is the huge consumer base that Amazon has, again much greater than what Walmart.com can boast of. But, that game can be won over by slick marketing and a few “million” dollars spent in the right direction for a couple of years. Amazon, however, is racing towards global marketplace leadership. This is not just an investment of time or money but huge resources to move the needle and become a first mover in countries that Walmart is yet to set foot in.

If the behemoth of Bentonville can take a few longer strides against the scurrying technology rabbit (yeah, it is Amazon) that is racing fast, Walmart has a way to solve the one puzzle that has tripped it in the recent past  – how to become a leader in the e-commerce space and be ready for any other channel disruption in the future? The retail battle of the future can no longer be won alone. You have to take along willing partners and make money out of them, help them make a little on their owen, and overall make it a win-win situation.

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Google’s Free “Search As You Type” Offering

Google is firing on all cylinders when it comes to offering new or improvised products in the e-commerce space. I had noted a couple of recent products introduced by Google in my earlier posts. None of them are major innovations, but they are bringing Google closer to partnering better with e-commerce merchants. The latest offering from Google literally intrudes into the very website of a retailer.

Google’s “search as you type” feature allows an e-commerce merchant’s customer to use onsite search and find products to buy on the website. This is not much different from an autofill or autocomplete solution offered literally by any search solution provider in the market like Endeca or Solr. The good thing about Google is that it also allows the display of certain products with images, price and a brief description. As a customer, one may find the products displayed as an opportunity to directly view the product details and purchase them if needed. This makes a lot of sense especially if customers are looking for some specific products they have already researched and are just checking to see if the the retailer is carrying them or not. For the rest of the customers, this is just noise and in fact makes the search drop down big and ugly. Lowes and Hasbro have participated in the pilot program and as usual this comes for FREE from Google.

Conversion rate from onsite search can be as high as 3% or more. In my experience, I’ve seen that it certainly scores better than search directed from an external search engine either through organic or paid means. Onsite search converts better as we already have the customer shopping the website and all it takes is relevant products to be visible and available for purchase. A great onsite search solution solves that purpose. Google makes life easy for a lot of online retailers who don’t have the money to purchase an expensive solution like Endeca or invest resources to use the open source yet complicated search solution Solr. The catch is however that all this magic can only happen if retailers share all their product related data to Google so that they can create the unthinkable (unless it is a different, less intrusive solution that I am not aware of!).

Google yet again is working hard to gain big from this “free” offering. Consumer shopping patterns and buying behavior is all now in the hands of Google, which can mine the search data to figure out what products are being searched the most in each retail website, what products are carried by them and what products don’t sell. With onsite search becoming the most used feature on a website as it becomes the easiest and first point of interaction for a customer to shop, literally everything about the fate of the website can be deduced by Google through the patterns it sees. This can obviously be used to improve the Google Shopping experience and the way products are displayed in Google’s search engine, which in turn is the bread winner for the company via its Adwords program.

Time will tell if this is something retailers will sign up for. Most major retailers don’t need Google search on their website. They have enough money and are spending enough on SEO and paid  Adwords campaigns to attract customers, following which they have better onsite search solutions to convert them. Even without Google onsite search, they can get enough insights into onsite search behavior if they are ending up using say Google Analytics as their in-house Analytics powerhouse. Now, this brings up an interesting question though. Maybe Google is also planning to make some interesting improvements to onsite search reporting in Google Analytics. It could possibly show detailed product information and conversion breakdown so that retailers know what products are selling better or are not working. Overall, I think Google’s product team is relentlessly trying to touch every possible area in retail and somehow link it to their cash cow- Adwords. Nice going!!

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Linkedin for Ipad

The new Ipad app from Linkedin was one of the most eagerly awaited offering for a lot of hardcore Linkedin users like me. It surprised many that Linkedin took so long to come up with an ipad app in the first place. When the app was made available, I was naturally very excited and downloaded it immediately. However, looking at it from a user perspective, I was slightly disappointed with what the app had to offer overall.

For starters, the good thing is that even though the interface is way different from the website (rightfully so!), it is still intuitive from a user standpoint. I know that I can click on my image to view my profile and I can click on the inbox button to view my messages. Full marks to the product team that came up with a simple interface and a decent UI for that.

What was missing though is why the app was created in the first place? Was it for just keeping the nagging Ipad users happy that they have an app now? Was it because they just wanted tablet users to see something different? If the answer to the above questions is yes, then I think the new Linkedin app solves the user need and perceived business goal.

However, I would expect a lot more thinking on what is eventually driving an investment in an app for a tablet device? First, the tablet device is an ipad and I believe Linkedin must have realized that there are a lot of users (traffic) coming their way through this medium. Second, the app is meant to serve an inherent business goal or opportunity for Linkedin. If it isn’t, then the app is just a piece of worthless novelty.

If I understand Linkedin’s business model correctly, a majority of their revenue comes from recruiting or hiring solutions. In other words, jobs and job related services. Isn’t this one of the big reasons why Linkedin wants its users to come visit the website in the first place? As a Product Manager, if I had to look at why I am building an app, I would focus on not just the traffic being streamlined and acquired better, but also the revenue stream that eventually sustains my business. This is where the app is a big disappointment. Where is the click for me to checkout jobs? Where is information on the premium services available as a user?

Maybe this is a beta version or the first release that was meant to just get an app out the door to keep people silent. But, what would have worked better was if the app already had the right positioning to serve the business model that makes the company click.

By the way, checking out jobs and applying for them is really easy and user-friendly on the Linkedin website. The quality of job postings is also excellent. One thing that is annoying though is that keywords based search sometimes doesn’t give me all the job posting results even though I can fetch them separately. A missed job posting is not good for someone who is looking for a job in the marketplace. 🙁

Anyways, just getting to understand what’s out there in the market in my field of experience and what related jobs I can explore is in itself a very enlightening activity 🙂

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Selecting a Payment Gateway for Indian E-commerce

I recently noticed some Google search traffic coming my Blog’s way with people looking for “payment gateways used by Flipkart and other e-commerce players in India”. So I thought I could talk about this topic for the benefit of folks trying to work with a gateway or researching a gateway to plug into their e-commerce website.

I did a tad bit of research while trying to identify which payment gateway is best for an e-commerce business when I was responsible for integrating them at Jabong.com. I used good old Google to find places seldom visited. I scoured blogs and forums where people discussed such topics. I was trying to understand who the players are, what they offer and finally, who is better. I shall talk about how you can understand these gateways better, what they do and how to evaluate them for your company. There is a lot more information to consider when picking a payment gateway, but I hope this information will be helpful for someone trying to pick and chose a payment gateway provider.

The following are the parameters that I think are very important in identifying a good payment gateway for your business. While the answers to some of these questions will not come directly from the payment gateway, there are industry sources (friends, competitors etc.) who can throw some light on it during your research.

    • Transaction rate or processing rate or fee
      • Yes, while I it isn’t the single reason for choosing a gateway, it is a fairly important parameter to look at. You don’t want to end up paying a significant portion of your sales to a 3rd party processor especially in a low-margin e-commerce business.
      • the lowest I have seen is 1.5% (there is no point mentioning who offers this as all rates are on a per-case basis in this muddled business). The highest I have seen is 3%. Like fine-print, there are some hidden assumptions around what card (Visa vs Amex) or bank (Citi vs HDFC) we are talking about when the rates are being offered.
    • Gateway unannounced down-time
      • While gateways that frequently announce down-time cannot be spared either, unannounced down-times kill an e-commerce business irrespective of the lame but valid reason as to why it happened – bank server down, maintenance issues, connectivity with bank lost but it’s not our fault etc.
      • While gateways always give a rosy picture on this front (obviously!), it is good to check from friends or contacts in other places who have used the different gateways. CCavenue has been accused of not doing a great job here while none of the other aggregators are exemplary either.
    • Transaction success rate (%)
      • The success rate of transactions that were transferred from the merchant website to the gateway is an indication of how effective the gateway is in completing the sale for the merchant. Low rates here are indicative of the poor quality of the payment gateway.
      • This is also an elusive data to get directly from the payment gateway. CCavenue and Tpsl bear the brunt of negative reviews with their success rate somewhere between 60-65%. However, claims made by other gateways that they are better and around 75-80% has also been refuted by companies that have used them. EBS and PayU seem to be relatively better in this area, but overall the best way to measure this sometimes is to unfortunately integrate and test the gateway out.
      • Another variation of this parameter is to look at how many customers have dropped while they are transferred from a website to a payment gateway to begin with. Surprisingly enough, there is a drop off rate even at this stage before the transaction reaches the gateway. The problem is that this loss is in no man’s land as the gateway does not consider this in their success/failure rate calculations and neither can they. As a result, the e-commerce merchant should devise a way to capture such failures and re-invite the customer to transact again by saving their cart or session. A smart team member of mine was able to identify this loss and come up with a simple and clean solution to invite customers to transact again on the website.
    • Retry option for failed payments (works better in a redirect option)
      • Transactions at a payment gateway fail for various reasons. In some cases  it is prudent to allow the customer to retry the transaction rather than make them exit the checkout experience. This feature can be provided either by the e-commerce merchant (on the website when checkout fails) or by the payment gateway on their page (in a non-API integration scenario or if better even with API integration).
      • PayU and EBS are capable of providing the retry option to customers when such an issue occurs during payment. A retry option in itself does not guarantee a successful transaction as the payment may fail again. But, at least providing that option can capture a small percentage of the previously failed transaction.
    • T+1 or T+2 or T+n days for transfer of funds
      • Payments gateways take a little time before they transfer captured funds to the merchant’s bank account. This may or may nor matter depending on the number of transactions you generate as a merchant.
      • ICICI can process payments in T+1 days whereas most other aggregators do it in T+2 days.
    • Real-time fraud detection
      • Real-time fraud detection is very important to the success of an e-commerce business. Suspicious transactions have to be flagged immediately by a payment gateway so that necessary action can be taken to prevent an order from being shipped out or being unrecoverable.
      • While an e-commerce business can invest in its own fraud detection mechanism either through internally developed features or a separate 3rd party integration, a start-up firm cannot afford the high cost of setting up a robust fraud handling mechanism. Manual review of fraud issues is necessary to take meaningful decisions and this in turn means additional costs for the company.
      • Payment gateways like EBS provide the best available fraud detection and alert mechanisms by leveraging the benefits offered by its standalone RMS (Risk Management System) that uses velocity checks, device fingerprinting, Nexus network, blacklist database and so on to trap fraudulent or suspect transactions. They also do it in near real-time. Most other gateways mostly offer only velocity checks or limited set of fraud detection capabilities. CCavenue and ICICI don’t have real-time capabilities although they do get back to the customer in a 6hr to 48 hr window.
    • Reports or dashboards for viewing payment success/failure analytics
      • While all payment gateways have a dashboard for general maintenance of transactions, very few offer some good reports or charts that depict where transactions are failing or at what point the customer is lost while completing a transaction. This is tremendously valuable information to help an e-commerce merchant determine where the leakage is in and how it can be plugged to not lose customers.
      • EBS and PayU offer such capabilities while most other gateways don’t have this information (never collected) or cannot share this information (no way to present or share).
    • Netbanking banks offered
      • Surprisingly, not all payment gateways offer the same number or list of banks as part of the netbanking option. Netbanking can represent about 20-30% of prepaid sales for an e-commerce business as the payment transaction is within a bank’s four walls (online banking) and hence deemed safe and convenient by some customers.
      • CCavenue and Billdesk have the most banks (about 40-50 or so) while EBS, PayU are catching up. ICICI offers netbanking exclusively through Citrus payments but the number of banks is not high enough. However, having a high number of banks isn’t a deal breaker as SBI, ICICI, HDFC, Citibank, Standard Chartered and Axis bank are offered by most and probably cover about 90% of all netbanking transactions.
    • Add-on benefits like EMI (monthly installments) or other packaged offerings provided by the payment gateway  + Support
      • ICICI offers the largest suite of EMI option with multiple banks (outside of a 3rd party player Innoviti that seems to be exclusively the best option for all EMI under a single roof). The rest of the payment gateways offer one or more banks as EMI options plugged into a single gateway offering.
      • Most aggregators have a good support infrastructure for handling issues although things may vary on a case-case basis based on complexity of issue and solution provided. EBS, PayU, BillDesk are all good on the support front.

There is a lot more to the payment gateways business in India and to the selection of the optimum gateway. But, a balanced decision can be made if all these parameters are also evaluated to arrive at the best choice. I’ve seen some well-heeled and well-educated (IIM/IIT pedigree) salesmen from payment gateways draw a rosy picture of what they offer compared to the competition. Going prepared for meetings with the gateway representatives is highly necessary to understand and identify the real stuff from the bluff.

Many Indian e-commerce companies prefer to go with multiple payment gateways primarily due to the confusion and dissatisfaction that each option provides. Many companies use industry references like the IRCTC database to build an in-house payment gateway algorithm that switches between multiple gateways based on payment type (netbanking vs card payments), payment transaction costs (transaction % rate) and payment gateway performance (success rate with a certain card-type, downtime etc.). With PCI certification in place, an e-commerce merchant will all the more see less use for an aggregator (or at least more than one aggregator) integrated with the website.

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What is a Payment Gateway?

What is a payment gateway?

A payment gateway is a 3rd party entity (or software) that processes payment information entered by a customer on an e-commerce website. The gateway processes these payments on behalf of the e-commerce merchant. When a customer pays for merchandise using a credit/debit card, netbanking or any other prepaid mechanism (a.k.a non-COD payment in the Indian context), the payment gateway identifies the issuing bank of the card or connects directly with the online bank (in case of netbanking) to complete the payment. Once successful, they take the customer back to the e-commerce website.

Is it that simple?

No, it isn’t. Actually speaking, a payment gateway doesn’t do all this. A payment gateway is just a software (webpage or API) used to collect payment information details from a merchant (e-commerce entity) when a customer has placed an order. The gateway then transfers this information to a payment processor. The payment processor identifies the card network (visa, mastercard, Amex etc.) and then communicates with the card issuer bank to complete the payment. In order to get this done, the payment processor creates a merchant account on behalf of the e-commerce merchant. The payment processor enables the flow of funds between these various entities on the successful completion of a transaction. A merchant account is created by the payment processor with the acquirer bank on behalf of the e-commerce merchant. Payments are collected from the issuer bank and passed along to the merchant’s bank account. End of day, money flows from the customer’s bank account (identified in the credit card bill) to the e-commerce merchant’s bank account (identified as payments flowing from a payment processor). In today’s world, a payment gateway and payment processor are usually one and the same entity (or they are masked to the point that the difference is difficult to tell). Hence, for most practical purposes one can assume that what a payment processor does is done by a payment gateway. Hence, integration of an e-commerce merchant with a payment gateway is equivalent to integration with a payment processor.

The payment processor charges a certain % value per transaction (1.5% to 2.1%) as processing fees and pays only the net difference to the merchant. For example, a customer uses a citibank visa credit card to make an online payment of Rs. 1000 on xyz.com. A payment processor (with a 1% transaction fee) completes the payment on behalf of the customer. The payment is cleared by the payment processor via the acquirer bank and funds of Rs.990 is transferred to the e-commerce merchant’s bank account.

Any e-commerce player (in the World) requires some kind of connectivity with an acquiring bank so that when a customer enters credit card information on the website to make a payment, the acquiring bank processes the payment by working with the card issuing bank via a payment processor.

Is there anything more to it?

Yes, in the Indian context (and pretty much also for other countries) there are two types of payment gateways (or processors) that exist. One is a direct payment processor associated with an acquirer bank (e.g. ICICI payseal from ICICI merchant services, HDFC bank). The other is an aggregator (e.g. CCavenue, EBS, PayU). The aggregator is a provider of a basket of payment and associated services to the customer. This includes not just the ability to process credit and debit cards, but also the ability to process netbanking transactions, cash cards and other alternate payment methods. This is achieved by the aggregator as they enter into multiple tie ups with acquirer banks and other payment providers and build a common interface to provide all these options under one roof. An aggregator has multiple pricing options  based on the transaction type and size of the merchant (e-commerce) business.

So, am I better off working with an aggregator rather than a direct payment processor?

This is not an easy question to answer. If you are a young startup firm with not much transactions to boast of, players like ICICI, HDFC and even the aggregators may not consider working with you. There will be huge delays in getting to talk to someone in their organization and the paperwork will be daunting.

The aggregator does good for an e-commerce startup by providing all payment options under one roof. The problem is that none of the payment gateways have a strong credibility when it comes to successfully processing transactions and/or providing optimum customer service. Fraud detection as a service is also not provided in an optimum manner by some of the payment gateways. It is also not prudent to put all your eggs in one basket. The challenge with a single payment gateway integration is that we are locked into having all our prepaid transactions tied to a single entity. If the gateway is down or unavailable or plain not efficient, the e-commerce business will face the brunt of it in terms of lost sales in checkout.

The challenge with the direct payment processors is that they don’t offer netbanking (unless with a separate integration like the way ICICI does with Citrus payments) and other payment options like cash cards etc. They are however good for credit/debit card transactions and also have a fairly good transaction monitoring system for fraud or chargeback issues.

Is there anything more to payment gateways?

Yes, indeed. Now, the question is how to integrate with a payment gateway? is it through a redirect to a webpage hosted and maintained by the gateway or is it through a seamless direct API integration. The answer is simple, direct API is the best. The problem is that in India, direct API integration is not clean and offered by all gateways. Many aggregators like CCavenue provide a seamless integration that cannot necessarily be called as API-based although they are good and work better than redirecting a customer to the gateway’s custom built web page for completing a payment. Another constraint is that in order to do direct integration, an e-commerce merchant is required to be PCI DSS certified. This is a long drawn process and many startup firms are better off just redirecting customers to the gateway’s payment page where all the options are displayed.

Now, many aggregators allow their webpage to be customized so that the look and feel is as per the merchant’s desire. But, many of these customization are hardly worth noting and don’t give any edge to the merchant. To see what the challenge is with PCI DSS certification, see my other post on this topic at http://ecommerceproductmanager.wordpress.com/2012/06/04/pci-dss-certification-for-e-commerce-websites-in-india/

Please continue…

Well, I don’t know why I added that line above, but to talk more about payment gateways, I would like to bring to attention the fact that a better transaction rate (% fee applied on every transaction) should not and cannot be the single motivation for choosing between various payment gateway options. I have seen several websites where the discussions around gateways begin and end with either the number of banks being offered by the gateway or who is offering the cheapest transaction rates. While they are all useful, they are not completely important to making the right decision in terms of selecting a gateway.

In my next post,  I shall talk about what parameters to look for when making a decision to choose a payment gateway.

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Google Trusted Stores Badge

Google is getting serious about e-commerce and hence any e-commerce Product Manager should get serious about Google. I recently read the Google Commerce blog and came across this news: Connecting shoppers and great stores online.

It is no surprise as to why Google is serious about the e-commerce industry in particular as a growth platform to mitigate their over-dependence on mere ads as their primary source of revenue. This infographic by Wordstream explains it all- http://www.wordstream.com/articles/google-earnings

Google’s annual revenue of $38 billion in 2011 came primarily from advertising. If you look at who are the biggest individual spenders on Adwords, the answer screams out loud- retailers and among them largely e-commerce merchants. Amazon.com supposedly spent about $55million and E-bay spent about $40 million. Lowes and Home Depot combined spent about $100 million although it could be for driving some traffic to their stores too. In fact, among the top 10 industries that spend heavily on Adwords and hence contribute significantly to Google’s revenue, most are in the e-commerce and related online transaction businesses.

This makes the relevance of Google’s new move called the “Trusted Store” badge very significant. Google is trying to expand the pie here by making sure that any e-commerce business struggling to make any entry in the competitive marketplace (the US market in this case) is able to gain prominence in Google search (and outside) by getting a “coveted” trust badge. This is probably a strategy aimed at two things. One- help an e-commerce player struggling to gain prominence in the highly competitive e-commerce market by getting a little nudge from Google through the trust badge. Two- get e-commerce players spending actively on adwords but getting poor ROI turn things around by getting some additional FREE help from Google to gain acceptance (trust) from customers, thereby boosting sales through better conversion. While the first objective is not that noteworthy in a mature market like the US (where this program is active), the latter objective seems more relevant. Why not make Google search more useful for the advertisers who tend to spend the most on its ad platform? if things works, they will spend more on Google, right!

For an e-commerce advertiser, getting clicks on adwords impressions is only half the battle won, albeit a significant one. After that, it becomes the e-commerce merchants sole responsibility to hold on to that customer and make him complete a purchase. Bounce rates can be high if the customer does not find what they want in the first two or three navigation steps. The conversion rate is also poor if the website does not help in influencing a customer to purchase. For a large player like Amazon.com, getting a customer to their website is more than enough as customers trust their business and hence would convert high once they come to their website. A smaller e-commerce player on the other hand struggles in this area. Customers are wary of spending their hard earned money on a website that they are unable to completely trust.

This is where Google steps in. They have determined that there are two areas that are most important in the mind of a potential customer looking to purchase from a website – reliable shipping and exceptional customer service. Google is taking a very serious approach by investing in a highly complicated mechanism required to generate the trust badge. Google is working very closely (in fact way too close) with the e-commerce merchant and its customers to understand how their business is performing when it comes to shipping and customer service. This is no trivial exercise and the efficacy of this program can only be measured over time. All this is coming at Google’s own expense. To top it all, they are making it more attractive for the potential customers by offering a $1000 lifetime purchase protection. The reason Google is possibly able to make this happen for free (with a good amount of cost for itself) is because it realizes the real battleground is in the Adwords space. The war for keywords and product listing in Google Shopping can only grow bigger if the players are equipped with the right tools to fight the battle. This is what the trust badge does.

Can anyone replicate the trust badge and make Google’s presence irrelevant? The answer is a simple NO. Google has made the trust badge program fairly complicated to execute to the point that it acts as an entry barrier to say a Norton verisign to equally compete on. Google also has the relevant customer base using its search service again acting as a huge competitive advantage against any other player trying to do something similar.

Will customers buy in to the trust badge program of Google? This is the single biggest driver for the success of the program. Customers are no longer taking what Google is offering for granted. They understand that Google also makes money (at least for the sake of its investors) and hence whatever is done for free doesn’t necessarily mean that it is best for them. However, Google has tried to address this issue by making the program entirely free on both sides (advertisers don’t pay to get the trust badge) and also by making the ratings process very transparent (it shows a report card that explains how the score was achieved).

So, what should Google do to make this program work or continue to grow?

  1. Continue keeping the program FREE. They cannot do a product listing ads u-turn by commercializing a free offer with a Google Shopping feature in the future. While a free lunch may sound shady, a free service to help a customer and a merchant benefit from each other sounds reasonable!
  2. Make Google trust badge a true and stringent test of QUALITY. Anyone and everyone running an e-commerce business shouldn’t get it easily. What is the difference between an A+ or a A or B+ or a B-? I don’t know if they have that many ratings but the one thing I hated about graduate school grades is that they are largely useless for making any big decision in life. I know that an A+ is a standout rating but what about all the others with an A? Google themselves don’t recruit people with less than exemplary grades in their company. As a customer, I can be very mean by ignoring a merchant whenever I see an A (irrespective of the trust badge showing up). Or, I could get confused when I read why someone has an A+ compared to an A. For e.g., 98% on-time shipping is an A whereas a 99% on-time shipping is an A+, but this is based on 1000 transactions with e-commerce company X! There are way too many data points for me to consider and make a judgement call on. What would bode well for Google and the customer is if the trust badge is a “hard-to-get” prize because the way to get it requires a lot of hard work for the merchant.
  3. Make Google trust badge a SIMPLE to understand seal. In the same lines as the previous point, the badge must be simple to understand. We should not make the customer work hard to understand the badge in a better manner and then make a decision on whether to go with the merchant or not. Google gains by doing it for the customer. Verisign’s trust seal is very simple. It just verifies and let’s a customer know that the business is a legitimate entity. For that, it has a verification process that goes into checking the credentials of the business. That’s it. There is nothing more to it. There is no grading and there are no levels to comprehend. While whether it is useful or not is a different question, simplicity is still important. Google can make their badge simple by not having many grades. It can have additional parameters under which an e-commerce player is evaluated, but getting the trust badge should just be a simple final outcome. The scoring methodology can be explained in a separate place, but the report card should have a final score so to speak.
  4. Add additional PARAMETERS to the trust badge. While reliability of shipping and customer experience are very great parameters for rating someone, there are more parameters that can be added to augment the trust factor. The biggest worry that customers have is around the post-purchase experience. Google can benefit the customer by looking at frequency of order cancellations initiated by the merchant, ease of returns, exchanges and refunds and quality of products shipped (damages, WYSIWYG).
  5. Finally, go INTERNATIONAL. Maybe Google’s product manager’s are all concentrated in Mountain View and their thought-leadership is largely centered around the US market. Hence the decision to maybe launch this program only in the US. But, a trusted stores program works wonders in the international market and may hardly make a big difference in the vastly mature US market. The international market (especially BRIC nations like India) is flooded with new, young and serious entrants seeking dominance in a very attractive market where TRUST is tremendously low. Bounce rates are high and conversions drop especially during checkout in a market like India. Each of these markets have internet consumers who know Google, love Google and believe what Google says and does. While there are several hundred e-commerce merchants in the US, the consumer market is very mature and they are not swayed by too many offerings around trust. Research may indicate otherwise, but research in the US always indicated that customers are worried about safety of payments on the internet, no matter how big the e-commerce industry and online payments is growing every year. Sometimes, we are better off not asking too many questions to the customers around safety and trust. The answers are always the same!
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Google Shopping: Bidding Your Way to the Customer’s Wallet

By now, everyone in the e-commerce world is aware of yet another disruptive force introduced by Google (or rather re-packaged and reintroduced). This one is called Google Shopping and Google wants to build a better shopping experience for consumers through this offer targeted at e-commerce merchants. In simple words, for the US market, Google product search is being converted into Google Shopping. This is based on creating product listing ads available as a service in Google Adwords. Google Shopping is a commercial offering, which means that there are no longer freebies available for merchants to list their products. It has to be paid for or bid for in a similar fashion to bidding keywords for running Adwords campaigns, except that in this case the bidding is for a “product target”. The details on how Google Shopping has been built can be read in the below blog by Sameer Samat, VP of Product Management at Google: http://googlecommerce.blogspot.in/2012/05/building-better-shopping-experience.html

Now, Google Shopping has been panned by critics who call it as dangerous for small businesses who cannot outbid their rival large retailers and hence would lose out on the race to gain prominence in Google search. Given the cost of clicks can range from $1 and upwards, there is some truth to why this doesn’t work well for a small e-commerce player trying to gain some prominence in listing products through Google search. But, this program is very similar to the much familiar keywords bidding process used in Adwords. Several e-commerce players have used a combination of SEO and Adword campaigns to gain customers over the years. It is true that keyword bidding has become an expensive affair as more and more competition has started bidding for much sought after keywords. This would probably be the case with product targets too that drive Google shopping. But, one needs to realize that bidding and participating in Google Shopping is not the beginning and end of gaining access to a customer. It is a so-called “privileged” access to customers by merchants who can afford to spend a little to get a customer. This is no different from every practice that one can see outside in the business world.

When a customer searches for a product on Google, he is by and large still in the “discovery” or “research” mode. While providing additional information like price at this stage is definitely an “influencer”, it is by no means driving a purchase decision in favor of a particular retailer. A small retailer losing out on a bid to display their products in a prominent yet constrained real estate space once occupied by Adwords ads is in itself not going to displace the merchant and steal his business. An e-commerce retailer needs to focus on customer acquisition for sure but his core focus should be on building strong business fundamentals – better operational efficiency and better sourcing of products. What Google is doing here is merely allow potential customers have an additional look at products sold by a specific set of merchants. Why would Google want to do so? Because it is the gatekeeper of every potential customer that can be acquired by an e-retailer in this world. As a gatekeeper, Google does not want to just allow customers pass the gate, they want to streamline that crowd as much as possible so that they reach the right destination. It is just that in order to do, they are charging an entry fee. This entry fee is not being collected from the customers, but the merchants waiting to grab hold of those customers and do business with. While I would prefer everything to be free in this World, the reality is that this isn’t unfair either.

Would it lead to a loss for merchants who cannot afford to pay the fees required to get customers to their shop? Yes, it may. But, customers in a mature market like the US are self-trained to research through several combinations of steps. These steps may be reduced, but they are never going be to easily replaced even by Google. Some of them are-

  • Check Google to see which merchant is carrying a product
  • Research the product on Amazon.com (or another top e-commerce player) for understanding more about product features
  • Check Google for websites that offer additional information on product attributes, user feedback, social feedback etc.
  • Check price of the product (base price + shipping) in multiple websites including Google shopping
  • Check the website (if not familiar) to see if it is trustworthy or not. Check for ease of checkout without any annoying roadblocks (bad UI, unwanted questions, unwanted steps – no guest checkout!?) and then finally make the purchase.
  • This is then followed by yet another Google search over the next few days to see if the product was purchased at a good deal (mitigating buyer’s remorse) and there were no price changes or unknown aspects of the product (user feedback) that were not captured earlier before purchase.
While Google is simplifying this process so that the customer reaches an e-commerce store faster, it will not eliminate all the steps. This in turn can help merchants with less money to spend on customer acquisition depend on these additional channels to capture customers.

Alternately, doing the same search for a product directly in Google Shopping is however different. A customer intent while inside Google Shopping is different from just being on Google. Here the customer is more than just doing “research” and if need be, will go to a e-commerce player offering the same product for a competitive price and complete their purchase with them. This is where the Google Shopping page is more powerful as an influence on customer purchase decision than the regular search. This is also where Google hasn’t invested as much product knowledge in drastically improving the product discovery and purchase decision mechanisms so that customers don’t bounce from Google Shopping and go elsewhere other than an e-commerce merchant. Product images are sloppy, product description isn’t motivational enough and speed of delivery, a major factor along with free shipping for driving purchase decisions is not displayed. This is by far a problem inherent with Google’s dependency on quality data from merchants in order to fuel the Google Shopping experience. Having worked with a big e-commerce player like Walmart.com with regards to data feeds, I also know how tremendously challenging it is for even an established retailer to provide all the necessary data points required to make Google Shopping a great experience.

Now, if Google’s focus is on Google Shopping, what can small e-commerce players do to improve their business through product ad list bidding? Well, for starters, all that a small merchant needs to do is just bid at least at a bare minimum price for key product types (brand or category or ad group etc.) so that they are included in the Google Shopping program. What also needs to be done is to maintain a high level of product quality so that data is always fresh and matches with data on the merchant website so that Google doesn’t reject the product for listing. Bidding high to get a premium seat is best left to the big guys unless you are a niche player in the market with products that maybe a Walmart or an Amazon (highly unlikely) doesn’t sell. Customers will definitely make an additional click to navigate and view additional search results in Google Shopping to nail down their purchase options (this is a hypothesis and I hope will be tested right). At a bare minimum, they will filter the options presented based on total price or other attributes and hence get to view a competitive offering.

Not finding yourself in the regular Google search product display because of poor bidding will turn out to be a major downfall only after Google has mastered all the e-commerce retailers and their data. This is practically impossible and will take a couple of years for Google to get it right (it can eventually happen though!). Google Shopping will turn out to be a huge profit driver or enough of one so that the company is no longer dependent on Adwords as the only key source for its long-term growth.

Check this link to understand how product ad list works: http://support.google.com/adwords/bin/answer.py?hl=en&answer=2456103

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