June 17, 2024


Feel everything

Web 3.0 – The Future of Online Retailing

The other day I visited a website which is an online shopping community where users can build, maintain and share online collections of their favorite products with other users. There is even a style compatibility test on the site where users can see how compatible they are with other users in terms of their shopping habits, taste and style. Since then, I have been thinking everyday about the role online communities will play in eCommerce and then it finally struck me – eCommerce as we know it will go through a significant transformation and communities will not only change the rules of the game, communities will, in fact, rule the game.

Imagine an online retail store that is run by its own communities. Communities decide what products to sell, communities setup the online content for the products, communities rate the products as well as the vendors, communities set the prices for products, and last but not the least, communities write the software to power the online store! At this point you are probably thinking that this is a crazy idea. How will a retailer make money if the communities set their own prices for products! Welcome to Web 3.0 – the future of online retailing. In this article, I will demonstrate how online communities will be at the center stage of eCommerce and how will they change the dynamics of web based merchandising and selling, as we know it.

If we look at various aspects of traditional eCommerce, majority of the functions are performed by the category managers, sourcing managers, merchants, technology and the operations teams. The technology team creates the software platform, category managers and sourcing managers determine the product assortment, and then work with the vendors to actually determine the cost for the products and finalize contracts. The category managers or the vendors upload product content such as descriptions, attributes, images, product copy etc. Although majority of the work in this case is performed by an internal team, the input for most of the decisions is typically based upon explicit or implicit customer research.

The power of internet is that it can be used to capture insights about customer’s needs on a real time basis, and decisions can be taken based upon that insight. It is this power that will fuel the growth of “Self adjusting” applications which can evolve based upon real time customer needs. Let us look at various eCommerce functions mentioned above and see how the power of communities could alter the game.

  • Category Management: Although today this function is based upon offline customer research – technology is now available that can allow the communities to vote for the merchandise that is popular. For example, the website could offer Polls and other voting functions where customers specify the products they are interested in purchasing. In addition, the real time sales information could help in estimating relative ranking and predicting future demand of the products. In this context, the role of category manager can be replaced by business rules within the application that determine the online assortment based upon real time customer information and sales information
  • Sourcing: For this discussion, let’s look at the drop ship model where the vendors ship merchandise directly to the customer. Once the demand for the products has been determined based upon real time customer feedback and sales history, the vendor community can be invited to engage in a “reverse auction” where they bid on supplying the merchandise at the lowest price, within the SLA boundaries The negotiations that are currently done between the sourcing team and the vendors can now be done using a rule based, open market auction model.
  • Product Content Setup: Kaboodle.com already offers this capability. Communities can setup their own product content, add description as well as images that others can search for and rate. In traditional eCommerce, this is one of most painful tasks that the category managers or vendors are responsible for. The collective power of communities will not only help in setting up product content quickly but will also ensure excellent quality of the content. Take, for example, a Digital Camera. In traditional eCommerce, the category managers or vendors will setup a product page that describes the camera and provides details on the specifications. In future, communities will be able to add content that describe the key benefits of that digital camera and offer their independent perspectives around the pros and cons based upon their real life usage. This is much more compelling and will help other customers make more informed purchase decisions.
  • Pricing: This is where things get even more interesting. Communities will be able to specify their own Willingness to Pay (WTP) for various products via polls or other online mechanisms. This will help generate a real time demand curve for the products, and the pricing rules engine will adjust the product price based upon the demand curve, and in the end, offer the product at a price which maximizes the overall profit margins at category or aggregate levels. The beauty of this approach is that the pricing engine would be able to adjust on a real time basis based upon instant feedback from the communities and the overall sales history.
  • Customer Service : A number of online retailers have now established discussion groups around various topics related to various product categories. Taking this one step further, discussion groups could be setup around resolving customer issues. Product experts within the communities will be able to help new product owners in resolving their issues or answering their questions. This model will not only help reduce customer service costs, but will also build “stickiness” and a sense of belongingness across its communities that would result in additional conversion from the online stores
  • Software Development: The power of this concept is that the entire software development for such an application can be done in an Open Source environment where communities actually collaborate and write the software together. Open source communities have already built some best in class applications and frameworks – even more feature rich and superior than their commercial counter parts in many cases.
  • Web 2.0 introduced to us the notion of online communities and demonstrated how powerful these communities can be in building social networks that do not see any geographical boundaries. The future of internet belongs to these communities and the successful organizations will be the ones that can see this potential and build their operations as well as offerings with communities in the center stage of their business.