e-commerce | Paul Wallbank - Communications Professional

Daily links – Chinese property developers go onto internet

Chinese internet use and smart phone manufacturers dominate today’s links along with Microsoft and Uber’s latest business changes

Today’s links have a distinctly Chinese flavour around them with a look at how the country’s smartphone manufacturers are coming to dominate their market, Tencent’s plans for global domination and how property developers are looking to the internet to save their falling sales.

Uber and Microsoft make their regular appearances to round out the links in their changes to billing and security.

Chinese property developers turn to the web

Faced with declining sales, Chinese property developers embrace – the Internet!

How Chinese smartphone makers are beginning to dominate the market

The rise of China’s smartphone makers: 10 of the top 17 smartphone manufacturers now come from China.

An interview with Tencent

Business Insider has an intriguing interview with one of the VPs of Chinese internet giant Tencent.

In his Q&A, S. Y. Lau discusses how Chinese communities are seeing their incomes rise due to the internet. One of the famous case studies of connectivity are India’s Kerala fishermen who used SMS to arbitrage their market. We may be seeing a similar story with Chinese tea farmers.

Microsoft restrict warning of patches to paying customers

In a short term money grabbing exercise, Microsoft have unveiled a plan to only inform enterprise customers of upcoming security patches. My prediction is this won’t last.

Uber cuts prices

Car hiring service Uber has cut its fares in thirty US cities while guaranteeing drivers their incomes. This is probably a move to keep competitors like Lyft at bay.

Big Data, retail and the 80/20 rule

Retailers are using big data to apply the 80/20 rule – or Pareto’s Law – to reduce returns and shrinkage

Sorting out troublesome customers is one of the major benefits that big data offers businesses, a profitable example lies in reducing returns to online stores.

One of the banes of online retail is dealing with returns, the industry pioneers overcame objections to shopping over the web through no-questions-asked returns policies that’s trained customers into expecting they can send items back regardless of the reason.

The Frankfurt School of Finance and Management’s Christian Schulze surveyed nearly six million internet transactions and found returns are effectively costing online retailers half their profits, as The Economist reports.

Leaving that sort of money on the table is painful for any business and online retailers are trying to find ways to reduce those return costs by sacking their customers;

But this risks a backlash: rejected shoppers are likely to rush to the newspapers or social media to complain—and their gripes may turn other, more profitable customers against the firm.

Much of this comes down to Pareto’s Law, that 80% of your problems will come from just 20% of customers, and a key imperative in business is to get the troublesome, high maintenance customers buying from your competitors without being too obvious.

Identifying those troublesome customers is where Big Data comes into play, coupled with intelligent analytic tools businesses are able to identify who is more likely to return a product or dispute a bill before the sale is made.

As the Wall Street Journal reports many online retailers are exploring ways they can reduce the return rates using Big Data and analytics.

By giving buyers access to their purchasing history stores are able to suggest when a customer is buying something that isn’t appropriate or the wrong size.

The WSJ cites fashion retailer Rue La La, which lost $5 million in returns last year, as an example.

For instance, a customer who has continuously bought the same brand of dress shirts in both a small and a medium might see a note pop up saying: “Are you sure you want to order the small? The last five times you ordered both sizes, you only kept the medium,” Chief Executive Steve Davis said.

Another tactic for retailers is to discourage frequent returners from buying high margin goods through targeted vouchers and offers. One point the WSJ article makes is how differential pricing is going to be applied – if you regularly return goods then expect not to be offered the best discounts when you visit the retailer’s website.

Many returns though are the result of genuinely dissatisfied clients and this is where improving customer service kicks in, the WSJ describes how some retailers are now providing video tutorials for their products and increasingly smarter customer service can be used to avoid returns.

With the increased sophistication of customer analytics and support tools, we’ll see online retailers squeeze more profit out of their businesses as well as look after their most profitable clients.

The problem for ‘bricks and mortar’ retailers not deploying new technologies is they won’t have the tools to compete with their savvier online rivals.

A good example of legacy managers struggling in the face of chronic under investment are Australian retailers and this week the Myer department store chain had to shut down its online outlet after the system collapsed.

There is no timeline on when Myer’s website will be back up. It’s a tough time for those retailers that haven’t invested in modern system and an even tougher time for companies with legacy managers like those at Myers.

The use of big data in analysing shopping behaviours is one area where well managed retailers will out perform their poorer rivals, it’s hard to see how companies like Myer will survive in the modern era of business.

Pay Pal and the Modern Spice routes

PayPal trace the modern online spice routes with some important messages for retailers.

Online payments company PayPal has released a paper on the The Modern Spice Routes which describes the pattern of online trade across the US, Germany, UK, China, Brazil and Australia.

The results are a snapshot of how online commerce patterns are evolving.

PayPal commissioned the Nielsen Company to survey 6,000 online shoppers about their cross border online buying habits to determine some of the characteristics of global internet commerce.

What immediately stands out in the report is the United States’ dominance with 45% of global market share, China follows with 26%.

At the bottom of the pack is Australia with 16% and, surprisingly, Germany with 13%.

The US itself is an interesting study with the most preferred overseas shopping destination being the United Kingdom followed by China.

Why are people shopping online?

American respondents were overwhelming shopping overseas to access more variety, with 80% of respondents citing the reasons for shopping offshore being “more variety that cannot be found locally”.

Finding more variety was the key factor in all the markets. Even in countries like China and Australia were respondents cited saving money as their main reason for shopping internationally online, more diversity in offerings came a very close second.

That in itself show the opportunity for companies selling internationally – be unique and don’t offer what can be found at the local WalMart or Tesco.

Illustrating this, the PayPal report cited Australia’s Black Milk clothing and Germany’s Hatshopping as two international success stories.

Intra-region trading

An understated point with the report is just what proportion of international shopping is of each country’s spend – in the United States’ case it is only 18% while in Australia it’s 35%.

Illustrating those internal trading patterns are the British and German figures that show online shopping in other European nations is substantial, so intra-EU trade is a considerable factor.

Similarly, the second popular destination, after the United States, for Chinese online shoppers is the Hong Kong SAR. In fact the Chinese statistics show that intra-Asian trade is just as substantial as EU commerce with Japan, Korea and Singapore all feature highly on the list of shopping destinations.

This illustrates a problem for Australia as it has neither the United States’ massive domestic market or a group of closely integrated neighbours and the high level of international online shopping indicates just how poorly local merchants are doing with their internet strategies.

Indeed, for Australia that the proportion of online shoppers buying overseas is so high should be a worry for local merchants.

Today’s modern trade of bulk carriers, courier companies and shipping containers is very different to the spice routes of Marco Polo’s day, the world is evolving around new trading patterns right now.

For businesses like Australia’s retailers those changed trade routes may not be kind to those who can’t change.

For God’s sake get a website

Setting up a website is one of the easiest, and most important, things a new business should do.

The annual MYOB Business Monitor was released earlier this week with the depressing news that half of the Australian businesses surveyed didn’t have a basic website.

MYOB’s survey reinforced the finding of PayPal’s Digital Literacy Report a week earlier that found only 34% of Australian small businesses list their contact details online.

This is madness – over a decade ago consumers moved online and now with the mobile internet any business without a website is almost invisible in the marketplace.

What is really dispiriting about these reports is that listing with the various online services and setting up a website is not hard, at worst it should take half a day for a simple site and to complete Google Places, Facebook and Yellow Pages listings.

The easiest way to create a website is to setup a free Blogger page, it takes about twenty minutes and is more than adequate if you just need a site that lists your services, location, contact details and phone number.

While Blogger is good for the basics, it does run the risk of locking a growing business into Google’s walled garden which is why WordPress is the better alternative for more advanced companies or proprietors.

Most readers of this site already know how important an online presence is for any organisation, but it’s almost certain that everyone knows a business owner who doesn’t have a website.

If one of those business owners is someone close to you, then the best thing you can do for them is to sit down with them and setup their basic online presence.

Unless you think it’s time they went out of business. In which case you won’t have to wait long.

Should Amazon focus on shareholder returns?

Is Jeff Bezos the digital Nelson Bunker Hunt as Amazon continues to gain value while not making any money?

“Shareholder returns” has the been the mantra for the modern manager – particularly when justifying fat salaries and bonuses.

Amazon though is very different – despite the company’s massive market position it doesn’t make profits, founder Jeff Bezos claims he prefers to focus on customer needs.

On a fundamental level Bezos is right – the business that delivers what customers want will succeed. The market doesn’t give a fig about shareholders’ returns or management’s KPIs.

Although making a profit is helpful.

That Amazon is spectacularly unprofitable should worry shareholders, it’s fair enough for a startup in its early days to incur losses but Bezos’ baby is nearly 20 years old and it still isn’t capable of walking on its own.

Yet this doesn’t deter shareholders. Comparing Amazon’s stock price against Apple’s and Microsoft’s is instructive.

Microsoft currently trades at a Price/Earnings ratio of 15.8 while Apple’s is 9.7 – Amazon trades at an infinite P/E.

A school of thought is that Amazon will reap monopoly profits once it conquers the world’s online retail and owns a big chunk of the cloud computing market.

However these are big markets and its unlikely any one company can ever dominate them. Indeed Amazon has failed to do so for nearly two decades despite undercutting most competitors and buying out nimble new rivals.

It’s tempting to think of Jeff Bezos being a modern day Nelson Bunker Hunt.

Bunker Hunt and his brother William spent most of the 1970s trying to corner the global silver market. At the peak of their attempt, silver prices went from $11 an ounce in September 1979 to $50 an ounce in January 1980 only to crash back down to $11 by Easter 1980.

The brothers were bankrupt by the end of the 1980s.

It’s doubtful whether Amazon’s shareholders want to follow that example, so it’s going to be interesting to see how long Jeff Bezos can continue to see the story of putting customers before owners.

Image by By The Cuba Company, New Jersey [Public domain], via Wikimedia Commons

Taxing the internet

Cash strapped governments are trying to find new ways of raising revenue. Can they find sources online?

On Friday the US Senate passed a motion supporting the rights of states to collect sales taxes on internet sales.

While not a binding vote or a law, this is the latest blow in the fight to control, and tax, online commerce.

The stakes are high, companies like Amazon have built their business models on basing themselves in low tax jurisdictions while many bricks-and-mortar retailers have complained they are at a disadvantage compared to out-of-state or international suppliers.

For consumers a few dollars in avoided tax isn’t the main reason they shop online, most internet shoppers cite a better range, convenience and, in many cases, superior service as the reasons they buy over the web.

But it is clear the online retailers do get an advantage over local stores.

While provincial governments cite protecting employment in their regions as part of the motivation for trying to tax online sales, the bigger issue is the desperate search for sources of revenue to balance cash strapped state and local budgets.

Those budget requirements aren’t going to ease – the global economy is restructuring in a way that doesn’t favour 19th Century levies like sales tax or stamp duty, while aging populations and declining incomes are increasing demands on government services.

With governments caught in a pincer of rising costs and falling revenues, it’s not surprising they are trying to find ways to get more money.

It’s not clear though they’ll win this battle though, the Senate vote is a symbolic gesture and the difficulties of being able to tax all forms of internet commerce can’t be underestimated.

The struggle ahead for local governments also can’t be understated, the public demands more services while administrators have to deal with rising infrastructure costs and the pension liabilities of retired public servants, teachers, firefighters and police.

Even the bravest politician struggles to find the political capital needed to deal with that challenge.

How we tax the internet is going to be a task that will define our governments and society in the first half of this century. We’re going to have to think very carefully about the choices we have ahead.

Tax image courtesy of ctoocheck through sxc.hu

Fiddling the prices

Has the Internet’s promise of transparency failed as online retailers vary prices.

Discriminatory pricing is nothing new, a good salesperson or market stallholder can quickly sum up a punter’s ability or willingness to pay and offer the price which will get a sale.

Anybody who’s travelled in countries like Thailand or China is used to Gwailos and Farang prices being substantially higher even for official charges like entrance fees to national parks and museums.

The Internet takes the opportunity for discriminatory pricing even further arming online stores armed with a huge amount of customer information which allows them to set prices according to what the algorithm thinks will be the best deal for the seller.

Recently researchers found that the Orbitz website would offer cheaper deals for people searching for fares on mobile phones and prices would vary depending of which brand of smartphone people would use.

Writers for the Wall Street Journal did an experiment with buying staplers and found the same thing.

Interestingly, one of the factors Staples’ seems to take into account is the distance customers live from a competitors’s store – the closer you live to the competition, the lower the price offered.

There’s also other factors at play; sometimes you don’t want a customer, or you don’t want to sell a particular product and it’s easy to guess the formulas used by Staples and other big retailers do the same thing.

One of the great promises of the internet was that customers’ access to information would usher in a new era of transparency. In this case it seems the opposite is happening.

Amazon and the Soviet customer service model

We all value our collections of CDs, books and photos, but what happens when we completely lose the digital equivalents?

The story of Linn, a Norwegian lady who had her account terminated by Amazon, demonstrates the dangers of being locked into one Internet company’s empire. Get cut off and you lose everything related to them.

A little understood part of the cloud computing and app world is that you, the customer or user – which isn’t necessarily the same thing – don’t really own anything. The money you spend on ebooks, mobile apps or web storage are for licenses to use the services, not the products themselves.

Should the supplier decide they no longer want to provide you with their service, then you lose your account and everything with it.

This is what happened to Linn when Amazon’s algorithm decided her account was in some way breaching their terms and conditions.

We have found your account is directly related to another which has been previously closed for abuse of our policies. As such, your Amazon.co.uk account has been closed and any open orders have been cancelled.

Per our Conditions of Use which state in part: Amazon.co.uk and its affiliates reserve the right to refuse service, terminate accounts, remove or edit content, or cancel orders at their sole discretion.

“At their sole discretion” is the key point here. This is a standard term in most online contracts and reflects the legal realities of the physical world where a shopping mall manager or bar owner can ask you to leave their property without having to tell you why.

When you use a virtual service, which includes e-books and cloud computing software, you are on someone’s virtual property and they can ask you to leave any time they feel.

Of course those rights are subject to any contract you might have with that e-book seller, cloud computing service or shopping centre but you have to be in a position to enforce them – not an easy task when you’re in Norway and their lawyers are in Connecticut.

Even if you want to enforce the agreement you believe these services have entered into, the grossly biased contracts attempt to put all obligations on users or customers while freeing the vendor of the distraction of being responsible for anything.

The real problem though is the lack of notice and fairness – this blog’s previously looked at how PayPal, Facebook and Google will shut down business sites without any warning or due process.

It’s one thing to get thrown out of a shopping mall but it’s another matter when your car and week’s groceries are still in there.

Even more worrying in Linn’s case is how ebooks and music purchased with Digital Rights Management (DRM) controls can be erased by companies like Amazon. Which is like walking home from the shopping mall you’ve been banned from to find the manager has called by to confiscate the toaster and TV you bought last week.

What’s particularly notable in all of these stories though is the Soviet customer service model, the Amazon”Executive Customer Relations” representative Linn dealt with refused to tell her what she’d done wrong or what rules she broke.

The only thing “Michael Murphy” would tell her was she was effectively banned for being linked to a blocked account and stated;

“Please know that any attempt to open a new account will meet with the same action.”

No notice, no appeal, no rights. The computer says no and the bureaucrat cannot help you further.

Trust lies at the core of all business and this is even more true when buying services like e-books and cloud computing products. If you can’t trust a vendor to provide a service, or to act openly and honest with you when a problem occurs, then it’s unlikely you’ll use that service.

A lack of trust is what web 2.0 companies like Amazon and eBay risk with hostile, Soviet style customer service. This is the weak point of the entire online business model.

For individuals and businesses it’s important to understand that those e-book, cloud storage or social media services may appear to be a bargain, but there are risks lurking in the fine print.

The new Soviets might be doing well at the moment, but their days are numbered just as the USSR’s were.

Google tries to drive American business online

Can Google convince reluctant American businesses to move online?

Google’s quest to sign the world’s businesses up to websites stepped into the big time this week with the launch of America, Get Your Business Online.

The US program is based upon the Getting British Business Online program which was followed up with similar projects in Australia and then Texas prior to being launched nationally across the States.

An interesting aspect with the rollout of the various programs has been Google’s choice of partners — in Britain the key supporter was the incumbent telecommunication company BT.

For some reason the subsequent programs have chosen to partner with accounting software companies and small business groups. The US program is no exception.

These partnerships are interesting as the software companies involved are threatened by online cloud services — both Intuit and MYOB have their business models of selling boxed software to small businesses under siege.

While Google regularly cite the Boston Consulting Group’s survey on the importance of websites to business, it seems most small operators don’t care as about half of small businesses don’t care about an online presence most developed countries.

In Australia, the Getting Aussie Business Online fell short of its 50,000 sign up target which indicates smaller enterprises still don’t see the point.

They may be right — for the local locksmith or lawn mowing service a Google Places account may be all they need rather than a relatively high maintenance website.

Part of the problem is that small business proprietors are probably the most time poor people on the planet, so filling in another set of forms is one of the last things they will do.

Were Google to link Google + for Business to their other services so information wasn’t being duplicated there would be a far quicker and greater take up of their services.

America, Get Your Business Online should be a useful service for some local enterprises but the real challenge for Google is to integrate their services to make it easier for smaller operations to use.

Security and convenience

Good security is always inconvenient. We have to learn to live with it.

“Your security advice is too difficult, I don’t want to log in when I start my computer or have to mess around when I have to install new software,” a lady told me on the weekend.

Security is always inconvenient. It would be far more convenient if car doors weren’t locked and starting them was a matter of flicking a switch.

Of course we know if that was the case, most cars would be stolen within hours of buying them.

We accept the inconvenience of car keys because we know the cost of having a vehicle stolen is way higher than the occasional frantic search for lost car keys.

Right now we don’t value our data, computers or smartphones the same way.

This is changing and as we start using our phones as electronic wallets we’ll start valuing our passwords and online security more than our car keys.