Shopping vs. Buying February 14, 2008
Posted by Simeon Simeonov in e-commerce.Tags: become.com, comparison shopping, e-commerce 2.0, paradox of choice, product discovery, shopwiki, shopwiki.com, thefind, thefind.com, vertical search
12 comments
It’s Valentine’s Day and blogging about e-commerce just feels right… Keep your fingers crossed for ice.com, one of our recent e-commerce investments. It’s a big week for their business.
I had a good discussion today with a friend of mine who was one of the founders of Mobissimo (travel search) about the difference between shopping and buying.
Much of the Internet is optimized for buying: if you know what it is you are looking for, everything from Google to comparison shopping engines will help you find it quickly and at a reasonable price. Search is a great metaphor for this. Tell me what you are looking for. Here is where you can find it.
Shopping is about the “if” part above. It is about product discovery. Discovery is a big deal because it happens before an intent to buy is formed. How a purchasing decision is framed during the discovery process may determine which product ends up being selected. Great sales people everywhere know that cold.
OK, everyone wants an iPod (search works great for that) but does everyone want a Bob jogging stroller? What if they are just looking for a jogging stroller but don’t know what kind they want to buy? The Google query results are just not that helpful to me. JoggingStroller.com is a great site but how do I know they cover enough of the universe of jogging strollers? How do I know I’m not missing that One Great Jogging Stroller? I can open a few more sites but they are all geared towards buying and not towards shopping.
So I go to the thefind.com and search for jogging stroller. I get 12,189 results from 540 stores. I’m not sure about you but to me that answer is both annoying and depressing. Annoying because I bet there aren’t 12,189 types of jogging strollers out there. It shows that thefind.com has good crawling tech and pretty poor equivalence matching algorithms. Depressing because those kinds of numbers just make me feel like I’ll never be sure I picked the right one. (That has to do with the paradox of choice.)
Determined, I go to become.com. The same query delivers 687 products. That’s better. I like products. I’m looking for products. I wasn’t looking for “results”, which is what I got on thefind. Beyond that, become.com doesn’t offer any meaningful help in finding the right jogging stroller. Also, as Siva from thefind points out in the comments to this post, there is a qualitative difference in the result sets between thefind and become.com, though I wonder whether the average consumer will know and understand that difference.
Jonah posted in the comments section that trying this out on shopwiki produced 387 results, all legitimate products. Per Siva’s comment above, I’m not sure about shopwiki’s business model so I can’t say whether this result is good or bad. The user experience on the site doesn’t help much with shopping, though.
These sites miss something that any good salesperson knows about. The right match between a buyer and a product is as much about the buyer as it is about the product. Ever tried to buy a digital camera at Best Buy? The good salespeople are curious about your life and how you want to use the camera. They are not just building a relationship (though that’s important also). They are restricting the product set that makes sense for you in order to simplify the comparison shopping process. They want to know enough about you in order to present 2-3 reasonable models for you to choose from. The bad salespeople give you an earful about the specs of all top-selling models.
Which sites out there do a good job of discovery, i.e., helping people figure out what to buy as opposed to helping people buy what they know they want to buy?
Balancing Choice November 27, 2007
Posted by Simeon Simeonov in Digital Media, e-commerce.1 comment so far
I’m on a plane to SF (for a third week in a row) re-reading parts of John Maeda‘s The Laws of Simplicity. It’s the kind of book you get more out of the second time around.
One of the observations is that saving time & effort by eliminating the need to choose is a powerful way to simplify an experience (third law). For example, I’ve switched to using an iPod Shuffle on flights because it offers the shortest path to music in my ears. I’m saving the time looking through thousands of albums and dozens of playlists. I’m also saving the potential frustration of picking which few dozen out of 40,000+ songs I’ll listen on the six hour flight.
In the physical world, consumption choices have steadily increased. In the digital world, they have skyrocketed. Despite search engines and a plethora of vertical portals, is has become increasingly more time-consuming to find exactly what we are looking for. Hence is it no surprise that businesses are spending increasingly on technology and marketing to convince us that we don’t need to think about choices. From personal shopping to online product recommendations to “automatic” content generation for our social network profile to auto-generated entertainment channels, we are letting software decide what we like.
On the flip side, eliminating the need to choose can get dangerously close to eliminating the need to think. The pleasure of simplicity can lead to a reduction in critical thinking (we complain about the masses being led by the media) then grow into apathy (few people are excited about voting in dictatorships) and in extreme cases can be downright dehumanizing as proven time and time again by atrocities committed by people who later claim they didn’t have a choice.
I’m certainly not suggesting that Amazon’s recommendation engine will dehumanize Internet shoppers. The trick is in the balancing of choice (complexity) with lack of choice (simplicity). This, not surprisingly, is another law in Maeda’s book.
Who does the balancing when it comes to online consumption? I see a somewhat unsettling shift where consumers increasingly cede this right to recommendation software whose ultimate goal is to optimize the P&L of online businesses. On average a business profits when its customers are happy but at the margin ad targeting systems, recommendation engines and services such as Loomia and Aggregate Knowledge (both of which I know well and respect much) are focused on the short-term P&L goals of their customers and not on your personal satisfaction because you are not their customer.
Which brings an interesting question: is there an opportunity for a personalization/recommendation service whose true customer (not user!) is the consumer? I believe so and have started talking with entrepreneurs about this.
Making Money From the Paradox of Choice February 19, 2007
Posted by Simeon Simeonov in Advertising, Digital Media, Long Tail, Mobile, The Long Tail, VC, Venture Capital, Web 2.0, e-commerce, startups.2 comments
In parallel to 3GSM, Ogilvy runs a telco conference in the beautiful Dolce Sitges Hotel, about 35km from Barcelona where the main even is. Sitges is a vacation town for the Barcelonians, a quiet place fit for a more exclusive event of 150 as opposed to the madhouse of 50,000 that 3GSM is. Thanks to my friend Ajit Jaokar who was speaking at the conference, I went along and ended up having dinner with Rory Sutherland, the owner of one of the longest job titles–Executive Creative Director and Vice-Chairman, OgilvyOne London and Vice-Chairman, Ogilvy Group UK. The humor of corporate hierarchy aside, Rory is a super-sharp Renaissance man who’s able to switch subjects at dinner faster than a croupier moves chips. Having had the chance to think through some of the topics in more detail, I wanted to share some thoughts that are applicable to a world where content supply and demand are spiraling out of control.
The Paradox of Choice re-introduced an old idea that more variety is not necessarily better. Sorting through choices takes effort. Further, since a “perfect” choice may not exist, even the knowledge of alternatives which are better in some respect can make us less happy with our ultimate choice. (There are lots of examples of this in published work. Rory’s blog links to a fascinating piece of research which suggests that one of the key reasons why people like to shop the organic sections of supermarkets is that they are presented with less choice.) This type of reasoning flies in the face of traditional neoclassical economics, which considers humans to be rational utility-maximizing creatures. More choice is always Pareto optimal, i.e., no worse than less choice. Psychology experiments suggest that’s clearly not the case. (One of the reasons why I abandoned economics was that I didn’t see many Homo economicus walking the world. It’s more interesting to think about how people actually behave than about how they should behave.)
Well, if we are not running triple stochastic integrals in our heads to optimize decisions based on all available information, how do we make choices? Without getting into details, the basic idea is that we use heuristics. That finding is supported by both theory and experiments from Herbert Simon’s work on satisficing (a combo of satisfying and optimizing) which spanned cognitive science and AI to evolutionary psychology to behavioral economics. The basic theme of heuristics is that they are quick and dirty (computationally efficient from a wetware standpoint), use local information as opposed to all available information and are much influenced by emotions.
Side note: for anyone interested in these ideas, especially in the context of how humans fail to accurately estimate probability and risk, I highly recommend Fooled by Randomness. I had missed that book despite my interest in the area and have to thank Gourdon Gould of ThisNext for bringing it to my attention. It’s a must read for anyone spending time in the financial markets, for economists and for entrepreneurs.
We live in a world where content choices are increasing at an increasing rate, from more cable/satellite channels to user-generated content to everyone dumping their content vaults on the Net. What hasn’t changed is the 24hr day (though I hear Fox execs are offering a lot of money for ideas on how to eliminate that constraint. 
). Are we better off? Sure, but… There are at least three reasons why more does not always equal better for individuals:
- The ratio of signal to noise has gone up. I have no good data to support this other than the logical argument that signal (meaningful data) changes relatively slowly as it is tied to things of importance and lasting value. I just can’t imagine there being enough new “signal” to justify, say, the rapid rise in the blogosphere content. When someone who’s not an expert on a subject (for example, me on most of the matter covered in this post) writes, the resulting text tells more about the writer than about the subject. Now, noise to some is signal to others, which is absolutely true, but that just brings the point that…
- Search and discovery costs have gone up. Again, I don’t have any good data on this, but my personal experience is that I spend more time searching for the right thing because I assume it exists and I’m less likely to accept the top choice my search engine gives me. Past data I’ve seen (I can’t find good links to it to share here) suggested that the average person puts 2-3 words in a search query + clicks the top 3-5 links in order until she satisfices her search request. More recently, I’ve heard from search engine startups and the likes of Google and Yahoo that average search term length is going up. That’s used to suggest that search engine users are becoming more productive. In addition, they may be getting more frustrated with the poor quality of the search results from simple queries and have to work harder to find what they are looking for.
- Information asymmetry has increased. In the past, there was not only less information available but, also, much of the same information was available to most people. (Think of the days of radio.) People from businessmen to your next door neighbor could make stronger assumptions about what other people knew about. Nowadays, I’m constantly caught having discussions with businesspeople and friends from the standpoint of significant information asymmetry. It takes time and effort to get closer to parity so that joint decisions can be made, e.g., which tech conferences should Polaris sponsor this year.
So, what’s the solution? There are four axes to consider:
- Go someplace where this is not a problem. What I’m describing is primarily a developed economy problem. People in Cuba aren’t troubled by too much choice. (I grew up in Communism so I know what I’m talking about.)
- Increase the available time to consume content. The supply of disposable time to consume content is bounded by the 24hr day but has been growing steadily over the past decade. TiVo and DVRs in general have allowed people to watch TV at odd hours. Despite the best efforts of some larger corporations, the Net has brought entertainment to the workforce. Mobile phones increasingly fill spare minutes with entertainment. And, yes, we have product placements in TV shows and virtual worlds as well as ads in elevators (a true startup innovation) and bathroom stalls. Unfortunately, we are getting to the point of strongly diminishing returns. It is very difficult to come up with another disposable hour of time in our busy lives. Therefore, much of content consumption will be replacement-based, which leads to…
- Make content more attractive to the audience. The Net’s “infinite number of channels” and low bandwidth costs (broadband penetration is what enabled MySpace and YouTube) have presented distribution options for both niche and user-generated content. Technology is also becoming much better at putting content in context. (An interesting point that came up at the Ogilvy dinner is that everyone is chasing mobile entertainment while they should be chasing content in context. Rory cited some research on the subject indicating overwhelming user preference for the latter.) Still, the more fragmented the content ecosystem, we have to…
- Make discovery significantly easier. This is probably the most exciting area and one where I’m focusing some of my time as an investor. Because content consumption often begins with discovery, the impact of better discovery tools is significant. Google’s market cap is built not on the fact that they sell advertising but on the fact that for many people discovery begins with their search engine. In short, to make money from the paradox of choice you have to make the large choice set seem small and relevant and that’s what discovery is all about.
So far, I’ve focused primarily on content but the same arguments apply to products. Especially in developed countries, it’s becoming harder and harder to find reasons why a new product should be purchased (the full kitchen/wardrobe/house problem is the real-world equivalent to the 24hr constraint). Manufacturers are developing systems for mass customization of products. For example, at 3GSM I saw a startup, which specialized in producing phones for niche audiences. They had a roadmap of dozens of designs, all on a common platform. And product discovery is perhaps an even more relevant problem than content discovery since products are often much more complex to evaluate.
More on the opportunities in discovery in my next post.
More on E-Commerce 2.0 January 4, 2007
Posted by Simeon Simeonov in e-commerce.5 comments
From Jeremy Liew’s 2007 predictions.
Ecommerce 2.0 arrives. Google’s search revenues continue to grow at 70-80% growth rates. Yet the public ecommerce companies‘ revenues are growing at “only” 25-30% at best. But almost every Google click is going to an online transaction somewhere – people still aren’t using search advertising for branding purposes. So what is filling the gap? Some of it is the multichannel retailers coming on strong, Walmart, OfficeMax, etc. But a lot of it is from the next generation of ecommerce companies, still private but doing revenues in the $10s and sometimes $100s of millions that have quietly been growing at 50-100% per year through the last few dark years. Companies like Zappos, Art.com, Mercantila, Netshops, CSN Stores, Backcountry, Bodybuilding.com, Toolking, US Auto Parts and dozens more have grown up, mostly away from Silicon Valley, and many without the need for venture capital. Those that have taken investments have often been at scale and profitable when they do. Watch this space as the next generation of ecommerce sites ride people’s growing willingness to buy online, use search to acquire new customers and focus on verticals rather than trying to be an all encompassing department store.
Source: Lightspeed Venture Partners Blog
Mobile Payments One Step Closer November 23, 2006
Posted by Simeon Simeonov in Industry News, Mobile, e-commerce.1 comment so far
ZDNet reports on a collaboration that should bring mobile payments closer to reality.
Sony and former Philips chip unit NXP Semiconductors have announced they will create a joint venture to create a secure chip that enables short-range wireless interaction between handhelds, PCs and other consumer electronic devices.
The problem with mobile payments has not been one of core technology. There have been a number of successful pilots in Asia and Europe. The article has some good links but you can also look at the Octopus card and the Oyster card. The core wireless and security technologies have been available for nearly a decade. The main issue has been compatibility (and the associated increase in cost if a device were to support multiple solutions). That’s why the Sony-NXP collaboration is important–together the companies will have critical mass to push a common solution to market. ETA 3+yrs?
