What’s driving the next phase of the e-commerce evolution

Despite the generally terrible economy, American consumers have been on something of a spending spree this holiday season. Total spending from November to last week rose 2.5 percent this year compared with 2010, according to ShopperTrak.
Nowhere has the surge been felt more strongly than on the web. According to data from comScore, online holiday spending this year was up 15 percent through Dec. 18, to a total of $32 billion.
I will leave it to the economists to determine what this increase means for the U.S. economy as a whole. But the outsize growth in online spending suggests that e-commerce, as a sector of that economy, has passed some kind of tipping point and that factors beyond simply convenience and price — both long-standing hallmarks of online shopping — are propelling the e-commerce sector into the next phase of its evolution.
The mobile mall
One of those factors is clearly the growing adoption of mobile devices for online shopping. According to IBM Benchmark, which tracks e-commerce, 12 percent of online visits to retailers’ websites this year were made from mobile devices, up from 5 percent last year. Overall, 58 percent of online shoppers say they have made purchases from their mobile phones, according to TechBargains.com, while 75 percent have made purchases from their tablets.
Take, for example, Amazon.com, the world’s largest online retailer, which is clearly banking on mobile devices to drive online sales. The Kindle Fire tablet, one of this season’s hottest-selling gadgets, is tightly linked with Amazon’s online store and to Amazon Prime, the e-tailer’s free-shipping service. The device is not as much a computer as a portable storefront that Amazon clearly hopes will drive incremental online purchases. Amazon is even selling the devices more or less at cost in order to drive adoption, deferring profits as it builds a base of mobile Amazon shoppers.
Beyond brick and mortar

Another factor likely to propel online sales in 2012 and beyond is the growing online sophistication of retailers from the brick-and-mortar world, none more so than Wal-Mart.
Though by far the world’s largest retailer, with more than $400 billion in annual sales, Wal-Mart has lagged in the online world, trailing far behind Amazon, Staples, Apple, Dell and Office Depot in e-commerce. With same-store sales growth slowing markedly in the U.S., however, as it runs out of places to put new superstores, Wal-Mart has over the past 18 months put greater emphasis on building up the online side of its business.
In July 2010, the retailer appointed a new head of online sales and recently launched a new unit called @WalmartLabs, near Silicon Valley, to refine both its engineering and e-commerce chops. It has also made a series of strategic acquisitions designed to bolster its position in e-commerce, including Vudu in 2010 for $100 million and Kosmix in April for $300 million. @WalmartLabs is now using Kosmix’s technology to mine data from Facebook, Twitter and other online sources to try to refine Wal-Mart’s online offerings and target consumers.
While other retailers have also leveraged Facebook and Twitter data for e-commerce, over the years no retailer has made as sophisticated and effective use of data mining as has Wal-Mart. Its inventory management system revolutionized supply chains across myriad industries that sell their products through Walmart stores and has enabled the company to squeeze profits from cutthroat prices.
If Wal-Mart can successfully integrate online and social media data with its core data-mining and management capabilities, it would quickly become a far-more-formidable e-commerce competitor.
Wal-Mart also took steps earlier this year to integrate Vudu into the Walmart.com website. Though widely seen as a way to boost Vudu against competitors like Netflix, it is more likely the other way around: an effort to use Vudu to bolster online sales.
Historically, home video has been a very effective traffic driver for Wal-Mart, and the retailer has always used the category strategically. At the peak of the DVD market, the average ring for a customer who bought a DVD at Wal-Mart — often at a deep discount to the list price — was more than $75. By using Vudu to lure shoppers to Walmart.com, Wal-Mart is clearly hoping to repeat that trick in the digital realm.
Wal-Mart has also been able to use its clout with consumer electronics makers to get the Vudu movie app embedded on connected TVs and Blu-ray players, where it sits waiting to be expanded into a full-blown, virtual storefront in the living room. The strategy is similar to how Amazon is using digital content to sell Kindle Fires to build the base of portable Amazon storefronts.
For all of its recent online moves, there is no guarantee that Wal-Mart will succeed at e-commerce, of course, just as Amazon’s Kindle Fire strategy could still flop. But the growing number of devices being used for online shopping, coupled with the brick-and-mortar world’s being brought to bear on the web should ensure that next year’s online sales are even bigger.

Question of the week

Is anyone likely to challenge Amazon.com in e-commerce within the next five years?