Companies as diverse as Wal-Mart, Microsoft, the New York Times, and NBC are concerned about the growing threat from Google. If you are a retailer you need to be aware of what is happening in online search and make it work for you before it works against you. Here’s a quick overview of what’s happening and why retailers need to leverage it to sell more online.
Microsoft Challenges Google
First of all, what does Google really do? Google monetizes your attention. Google uses its clever technology to give you something compelling (relevant search results) and earns revenue by advertising during to process. Microsoft is getting into that game in a big way with two important initiatives. First they created an advertising platform to challenge Google’s stranglehold on targeted ads on a search platform. (Microsoft announced adCenter at ChannelAdvisor’s recent Summit trade event.) And now they are announcing Live.com, an online platform based in part on their Office productivity suite. What the Office Live component will do is offer features based on Microsoft Office but as an advertising-supported online service. By turning a product into a platform users can turn general productivity applications into customized business solutions. And Microsoft can then use their advertising engine to monetize your attention by serving you targeted advertising.
Google Targets Your Phone
Meanwhile Google and Yahoo are pushing fast into the wireless phone market and will be delivering more features wirelessly. I am absolutely convinced of the importance of local search and that EBay bought Skype to create a searchable marketplace for local services. Google Maps has an open API on which developers can build applications showing data from other sources on a map. Now you can not only find goods and services online, you can find where they are on a map. And soon you will be able to find them wherever you are with your mobile phone. The next step will be for goods and services to find you.
If you are marketing to consumers this is great. But if you are a retailer you need to be aware of the future in which consumers are empowered to know where the best deals are at all times. How would your business be affected if a customer in your store could glace at her phone and see that a better deal is available at your competitor two blocks away? Could you differentiate yourself enough to overcome that threat?
Yahoo Talks to Your TiVo
Yahoo has announced new functionality for its online calendar, part of the popular My Yahoo portal, that will allow TiVo subscribers to schedule upcoming recordings from its online TV listings. Why is this important? Because by extending functionality Yahoo is gaining more of your attention.
The Retail Angle
Now if you are in the retail business all this is important to you for several reasons whether you sell online or not. First it blows the advertising business wide open. You can now reach potential customers at more times, in more places, and when they are most interested. But more importantly it creates an attention platform that you can leverage to enhance your customer relationships. Google, Yahoo, eBay with Skype, and Microsoft are building online platforms and services to monetize your attention. They will pay for it through advertising. If you sell products then this is represents new opportunities for you. Use the opportunity this new attention economy gives you to build conversations with your customers. Reach them when they are most interested and you will be an advisor. The old broadcast model makes you a distracter.
Search empowers the consumer. It discounts the benefits of location and threatens to disintermediate retailers. But by embracing search first you can highlight your differentiating factors and bring consumers to you in way not possible before. The big guys are spending billions to build the engines. You can be the fuel or you can ignore the coming changes and risk becoming roadkill.
Here’s why I think that Google’s threat to the world’s largest online marketplace is overblown, plus my opinion on eBay’s plans for Skype.
The benefits that Google Base appears to offer to online buyers and sellers is first that it’s free, and second that it is searchable via Google, whereas eBay and craigslist are not. Two great benefits to be sure. But beyond that nothing is clear and Google is predictably cryptic as to its plans for the service. As I mention below, I think this is simply an attempt by Google to make more information searchable and to make its results more locally relevant. Enhancing the ability of consumers to find things is a laudable ecommerce goal but free listings, even with a Google-sized audience, do not make a market. In addition to a list of things you can buy, eBay offers a secure online payment system, feedback ratings on buyers and sellers, extensive anti-fraud efforts, search via categories and attributes, and policing of the behavior of its members. The effectiveness and implementation of each of those is up for debate, but the bottom line is that eBay is a total marketplace offering distinct advantages for both buyers and sellers.
Google has earned respect as it enters new markets and Google Base certainly represents a new angle on participatory ecommerce. But all this discounts how consumers actually shop at retail. Most of us are browsers focused on the items we are interested and not on the technology used to present them to us. When you are in a mall do you care about the total square footage, the construction techniques used to support the glass dome over the food court, or the volume of air moved by the air conditioning system? No, you probably never thought about the physical infrastructure. If you are an eBay buyer do you care that the seller had to pay a listing fee? Not your problem. The seller will pay that fee for access to the buyers. Right now, and for the foreseeable future the buyers are on eBay. And since most eBay users are buyers and not sellers the critical mass to move to another marketplace will not be there.
Local Advertising
That said, I do see eBay and Google converging onto a new ecommerce market – local services. This is where eBay’s Skype acquisition and Google Base will become strategically relevant. Let’s start with the numbers.
According to Borrell Associates, online local advertising amounted to $2.8 billion in 2004. That’s an increase of over $600 million from 2003, but still represents only about 2% of all local advertising spending. The physical yellow pages still rule as the dominant medium for local services advertising. But it seems that consumer behavior is changing faster than advertising budgets. The Kelsey Group reports (Feb. 2004) that 25% of online buyers’ searches are for local merchants. That’s surprising to me and apparently double what analysts had predicted. So the trend is clearly that buyers are increasingly turning to online searches for local services.
Local merchants and small businesses account for the lion’s share of the $15 billion in annual yellow pages advertising spending. It has proven effective as a search vehicle for local products and services but it has the disadvantage inherent in physical media of not providing a quantifiable return on investment. Online marketing provides this benefit by tracking click-through. This is a key reason why ad spending through Google is now around $500 million a month.
This leads to a rich market in local services advertising to be tapped by a service that can deliver the quantifiable results of pay-per-click model on the web with the usage pattern of the print yellow pages. This is where I believe eBay is heading, and where I think Skype fits in.
The Skype Angle
The initial criticism I read of eBay’s purchase of Skype, beyond the seemingly astronomical price, was that connecting buyers with sellers through IP telephony was not something their users wanted. In fact sellers were pretty vocal that they did not want a way for buyers to be able to call them. They prefer to keep them at arm’s length by using only email. Fair enough, but that underestimates the Skype potential by focusing solely on eBay as it exists today. If we look at local services as a future market yet to be tapped by the proper technology, then eBay has a huge potential market for connecting (local) buyers to sellers (of local services). And if that market is now served by the yellow pages then the model for connecting those buyers and sellers is clearly voice phone calls.
So, here’s what I see happening. Say for example that you have a service need. Typically it is a one-time occurrence where you have a leaky pipe or a broken garage door. Maybe you need to book a band or order a wedding cake. In these cases you need someone local and you need to communicate with them to explain the situation. You probably pick up the yellow pages and call a few companies based on the size of their ads. In some cases you may do a web search, but you are less likely to find relevant local results and even if you do you will probably still call them on the phone. This is not like ordering a book that can be shipped from anywhere. Especially if you have something broken and you need it fixed!
EBay can step into this market by providing a local services marketplace with the ability to click to call by using Skype. All the components are there for eBay to make this happen – the market need, the financial viability, the technology, and the market leadership position to establish it. The hurdle is disintermediation, but that’s a topic for next time.
As I discuss things related directly to the field of my employment, I feel it important to publicly issue a disclaimer regarding the content on categorystrategy.com. All original content appearing under my name on this site is my own work comprising my personal experience and opinions. It is not sanctioned or endorsed by my employer or any other organization.