Tuesday, October 5, 2010

eCommerce Rule #8: WWAD (What Would Amazon Do)?

Amazon was among the first online retailers to offer many of the elements so crucial to e-commerce today: obsession with customer service, affiliate marketing, product reviews, free shipping, a VIP service, on-site advertising and many others. When Amazon first launched many of these features, observers scratched their heads in confusion (e.g., why would Amazon let consumers say negative things about the products they sell?). But eventually other e-tailers followed suit.

Now, it’s tough to find any sophisticated online retailer that hasn’t implemented product reviews. In fact, companies like BazaarVoice help online retailers launch product-review functionality with minimal effort. It’s now widely understood that product reviews often increase conversion rates by a double-digit percentage.

The newest frontier is onsite advertising. Amazon clearly measures eGPV (see “Conversion Rate” under Rule #3), and every change Amazon embraces improves its eGPV. To this end, Amazon has been running a variety of online ads on its site for a few years now – including Amazon’s own pay-per-click advertising and third-party display ads. The thought of letting third-party sites advertise on your site, after you’ve spent so much money and worked so hard to get consumers to visit your site in the first place, might sound sacrilegious. But mark our words: This train has left the station. Onsite advertising represents a great opportunity to leverage manufacturer trade budgets to generate additional revenues for your onsite clicks. Companies like Hooklogic and Intent Media hope to be the BazaarVoice of onsite advertising and are already gaining traction with some of the biggest names in e-commerce.

Other Amazon best practices we admire:

Metrics-oriented culture. E-commerce is a low-margin business. To make a low-margin business work, Amazon has an incredibly metrics-oriented culture. Amazon isn’t the only one. Time and time again, the most successful e-commerce businesses we see share Amazon’s obsession with metrics. (We joke that it’s no surprise QuidSi’s CEO, Marc Lore, worked in a Wall Street risk-management group before becoming an e-commerce entrepreneur). Take this to heart. You just can't be successful as an online retailer if you're not similarly obsessed with metrics.  A/B test and optimize everything - every link, every call to action, every merchandising decision. As one successful eCommerce exec once told me, "If we don't have an A/B test going on, I get very grumpy."

Obsession with page-load times. It’s easy to be tempted to add JavaScript tags from different vendors to your Web pages to soup up the functionality on your site. But beware: These tags can slow down performance. And Amazon has long known that the faster your page-load time, the higher your conversion rates. In April 2010, Google took the step of incorporating page-load time into Google’s all-powerful Quality Score, which makes page-load times more important than ever.

Keeping “fit.” Each workgroup in Amazon must build a “fitness function”, a customized equation that incorporates the most important metrics for a particular group. When computed, the fitness function creates a single “fitness number.” This is the number each group presents to Amazon CEO Jeff Bezos. And if this all-important number isn’t going “up and to the right” consistently, the group is in trouble. Each group’s fitness function has to be approved by Bezos, and sometimes it takes months (if not years) for groups to arrive at the right function.

Keep it simple. Amazon has maintained its innovative, startup culture partly by avoiding the temptation to build large teams to tackle big problems. Instead, the company typically takes a problem and divides it into bite-size pieces, assembling small teams to attack each part of the problem. The rule of thumb for the teams is that they should be “no bigger than you can feed with two pizzas.” Most often, this means a team of three developers, a product manager, perhaps a shared designer resource and a manager.

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