E-commerce: What Happened in 2017 & What's Next in 2018
Now that we have left behind the prime time of consumerism, Black Friday, and the year is drawing to an end (in fact, there are fewer than 30 days remaining in 2017), it is about time for merchandisers to get serious about the strategies that will help them drive better results in 2018. Before they pull out their crystal ball to make some assumptions, we wanted to chime in by inquiring with some industry experts about where we will see the most innovation in the e-commerce space in 2018 and beyond.
To be able to connect the dots more comprehensively, first, let’s take a quick glance at what happened in the industry throughout this year. After that, you will find the exclusive comments from the executives from some of the vendors featured as Leaders and Challengers in the Gartner Magic Quadrant for Digital Commerce, including SAP Hybris, Digital River, Salesforce, and Episerver.
2017 in Review
According to the National Retail Federation (NRF), total retail sales were expected to grow somewhere between 3.7 and 4.2% in 2017, excluding cars, gas stations, and restaurant sales. While e-commerce was expected to be on the rise, just like in the last several years, this year we have seen retail drop with more store closures and retail bankruptcies.
If we move from consumer spending on retail to IT spending on digital commerce technologies, the growing demand is formidable. According to Gartner’s survey, 80% of respondents said they intended to increase their digital commerce IT budget for 2017. Moreover, of the seven selected verticals, the retail industry has the second-highest average budget increase of 22% for 2017, followed by services, wholesale and manufacturing. According to Forrester, companies will spend $2.4 billion on B2B commerce platforms by 2021, of which just over $1 billion will be spent on midmarket B2B commerce platforms alone.
Now that we did a reality check on retail sales and the online retail platform market, it is time to briefly review what events and trends shaped this year before diving into the predictions and trends for the commerce sector for the next year. Here are some takeaways from e-commerce news we have covered here at CMS-Connected throughout 2017:
Since eCommerce started to disrupt everyday household products, with Amazon leading the pack which accounted for 53% of all retail e-commerce sales growth in 2016, brick-and mortar stores have been struggling so much so that, in the first three months of this year, 2,880 store closures were announced, and there have been nine retail bankruptcies. One of the main reasons behind those store closures is to be able to strengthen their hands to combat with dominating online behemoth Amazon and adjust to changes in consumer spending behavior.
The buy-online/pick-up-in-store option has been a powerful tactic for brick-and-mortar stores to compete with Amazon and to drive foot traffic. However, Amazon’s acquisition of Whole Foods weakened this competitive edge.
To go up against Amazon’s inevitable growth, Target and Google announced that they are expanding their delivery partnership to the entire continental U.S, which will allow consumers to shop Target across the U.S. via Google Express, including by voice. By adding Target to its arsenal of retailers on the Google Express platform including Wal-Mart, Costco, Kohl’s and Ulta, Google has strengthened its hand to compete against Amazon’s dominance with its Echo devices.
Speaking of conversational platforms like Amazon’s Echo, this technology has become a game changer this year, especially in the commerce world as it has changed the way people interact with computers and digital businesses. Therefore, many more enterprises have already started making strategic bets on conversational, bot-powered services as the next vehicle for business interactions to drive better customer experience. Whether it is a chatbot, a virtual assistant, or a voice-activated assistant, the level of personalization that these technologies can deliver provides a huge advantage to retailers as far as customer engagement goes.
Google announced a new beta for Google Attribution, a tool that will help advertisers understand whether their online marketing campaigns actually lead to offline sales by measuring the relevant contribution of every single touchpoint along consumers' paths to purchase. The report that the platform provides will enable marketers to make an informed decision on bidding more on a channel that performs well or revoking budget from any marketing tactic that doesn’t lead to sales. In other words, merchandisers will take advantage of an insight on every advertising dollar’s effectiveness across different channels and devices.
While Google and well-known brick-and-mortar stores are ganging up on Amazon in the US, the e-commerce behemoth is expanding its global footprint, especially in the Middle East. This year, Amazon bought 100% of the region’s biggest e-commerce player, Dubai-based Souq.com and acquired a retail operation in the Middle East which will immensely assist Amazon in dealing with bureaucratic tasks in the region. It’s worth noting that the Middle East is on the verge of a massive digital disruption with significant untapped eCommerce potential, according to a 2016 Digital Middle East report by McKinsey & Company.
Speaking of the global market, there is a formidable challenger to Amazon - China-based Alibaba Group Holding Ltd., a seller of promotional and various other products. This August, the company announced that its fiscal first-quarter revenue soared 56% to $7.4 billion, surpassing analysts’ estimates. The organization has also been investing in the markets outside of China to expand its footprint across the world. China’s rigid restrictions for foreign companies along with the savvy of local operators has given rise to the domestic e-commerce players like Alibaba in the market. Every day, Amazon’s market share in China is getting dwarfed by Alibaba in the face of fierce competition. Its sales represented just 1.1 percent of China’s online gross merchandise value in 2015, and by 2016 that figure had dropped to 0.8 percent, according to an ICBC note that cited iResearch. Alibaba’s valuation has reached $400 billion while Amazon.com has a valuation of about $470 billion. To put these into perspective, Facebook’s valuation is at about $490 billion.
eCommerce Predictions for 2018 from Gartner MQ Leaders & Challengers
AI and Conversational Commerce
Founded in 1997 and acquired by SAP in 2013, SAP Hybris has been utilized by many internationally recognized organizations, including Samsung, O2, Vodafone, Procter and Gamble, GE, Toys “R” Us, and Audi. I reached out to Riad Hijal, Global VP, Omni-Channel Commerce Solution & Strategy, SAP Hybris, first, to pick his brain on what trends he sees on the horizon.
“The trends of artificial intelligence (AI) and machine learning are increasingly being infused into front-end and back-end operations to ensure consistent, contextualized customer experiences. Aligning with this trend, conversational commerce is taking off as it enables users to streamline the buying process. This is done by quickly responding to any last minute questions that left unanswered could potentially halt or stall the purchase decision. We expect to see an influx of vehicles that enable this such as chatbots, virtual concierges, and digital/virtual assistants. However, these capabilities will only be made possible through integration with a modern, agile, and API-enabled commerce platform such as SAP Hybris Commerce,” Hijal told me and added: “From a business perspective, enterprises are shifting their models to prepare for the outcomes-based economy. In this environment, customers will evaluate companies based on the overall experience they receive vs. a one-off offering they purchase from the brand. To meet these increasingly demanding needs, organizations have been transitioning to a subscription service model because it arms them with immense amounts of customer data that can be analyzed for hyper-personalized interactions as well as provide a stable revenue stream.”
Pricing Experimentation for Brands
Digital River, privately held by Siris Capital, a private equity firm, is headquartered in Minnetonka, Minnesota, U.S., and has offices in Asia, Europe and South America. Its Digital River Global Commerce platform offers a multitenant SaaS B2C and B2B platform with global payment capabilities, as well as optional marketing and operations subscription services. The vendor has been featured as one of the “Leaders” in the MQ published in April 2017. Speaking to CMS-Connected, James Gagliardi, Vice President, Strategy and Innovation at Digital River, shared the key trend he thinks that we will see more and more of in 2018.
“As brands compete against ecommerce leaders like Amazon and Walmart, dynamic pricing or contextual pricing based off factors like consumer interest, competition and periods of peak online demand around holidays or product launches, will be key. Moving forward, we will see more brands adjust their monetization strategies based on how their consumers are actually using their product or service. For example, rather than shoppers committing to a monthly or annual subscription, more companies may instead consider introducing micro-transactions and charge on unit-based measures. Specifically, companies will be doing more online price elasticity testing and assessing the right price point and frequency of purchase for their customers.”
“We’re beginning to see brands take the initiative on this. For example, Regal Cinemas has announced plans for an alternative pricing model for movie tickets that will drive revenue during peak periods. Expect more to follow suit in the upcoming year.”
Chatbots ON Messaging Apps
Oracle made significant enhancements including chatbots and artificial intelligence with enhanced mobile, video and messaging capabilities. With the new release, marketers are now able to customize responses during the conversations powered by an Oracle-connected chatbot on Facebook Messenger or Amazon Alexa. The technology is designed to detect the human’s intent and context therefore, if the conversation between customer and chatbot becomes complicated, the tool will automatically hand off to a live agent to avoid any potential frustration. According to Oracle, the capabilities also provide differentiated customer self-service experiences. On top of these, the new innovative chatbot capabilities are also expected to improve sales productivity as they automate common sales tasks such as account search, transaction creation, and updates.
“In a world where not everyone will download your mobile app but are using Facebook Messenger and Alexa-driven devices, chatbots are a way for you to play in these new conversational media,” Steve Krause, Group Vice President, Product Management at Oracle Marketing Cloud, told attendees. “The reason this matters is because of things like Messenger, Alexa, Google home – these are starting to happen and we’re only at the beginning of this trend. This is about enabling you to be there as a brand as interaction happens.”
A Shorter Journey from “I Saw It on Instagram” to “It’s Mine!”
Heike Young, Manager, Industry Strategy & Insights at Salesforce, pointed out the opinions of influencers on social media seem to be growing in importance: "Social media-driven traffic to retailers’ mobile sites is firmly on the upswing, with a 42% increase in 2017, according to the Shopping Index. We know consumers increasingly look to social for influencer suggestions and inspiration from family and friends on what to buy next. But in 2018, we’ll see social’s influence on mobile traffic become even more pronounced as networks like Instagram make it simpler for consumers to visit a product detail page and browse mobile sites directly from social content. In fact, Commerce Cloud now has a pre-built integration that makes it easy for brands to create shoppable content on Instagram business accounts. And with more sites implementing Apple Pay (see how Wolverine Worldwide does it) and Android Pay on checkout pages or right on the PDP, expect the journey from “I saw it on Instagram!” to “It’s mine!” to get even shorter."
Visual Commerce is The Next Frontier
James Norwood, Executive Vice President Strategy, CMO at Episerver, shared his thoughts on where we will see the most innovation in the coming months: “The commerce ecosystem is becoming more complex every day, and we think brands are starting to understand that it’s not as simple as ‘online vs. brick-and-mortar.’ There are new, disruptive channels cropping up all the time, such as conversational assistants, and to keep up, marketers and merchandisers must be agile. The ‘set-it-and-forget-it’ mentality no longer cuts it. That being said, content is still king on every channel, and the content that matters most to consumers is increasingly visual and interactive, which has given rise to a lot of conversations in the industry about visual commerce, which is definitely the next frontier, and why capabilities like user-generated content and seamless content delivery are so crucial now.”
Gartner’s Predictions on Digital Commerce Platforms
By 2018, 40% of B2B digital commerce sites will use price optimization algorithms and configure, price and quote tools to dynamically calculate and deliver product pricing.
By 2020, companies that are digitally trustworthy will generate 20% more online profit than those that are not.
By 2020, 25% of leading online sellers will have enabled first-generation "commerce that comes to you" capabilities.
By 2020, smart personalization engines used to recognize customer intent will enable digital businesses to increase their profits by up to 15%.
Gartner forecasts annual growth of 15% from 2015 through 2020, with all regions expected to reach a double-digit CAGR for the next five years. This annual growth includes revenue from SaaS, licenses and maintenance.
Worldwide spending on digital commerce platform software is expected to reach $9.4 billion by 2020, in constant currency. The on-premises deployment model will account for 53% of software revenue.
Gartner predicts that 75% of US households will have smart speakers like Amazon Echo or Google Home by 2020.
While I definitely agree with these seasoned leaders’ predictions cited above, I have created my own humble list. Here are some tidbits:
Video has been a formidable disruptor in recent years. Next year, video marketing certainly won’t lose any ground. Moreover, this trend will get even more interactive through live streaming. Now that the technology is completely accessible for any type of marketer, it is expected to change the way people interact online.
Although this technology hasn’t taken off in the West just yet, injecting live-streaming into commerce has generated very lucrative results in China despite the fact that Chinese consumers still have a strong distrust of e-commerce brands. To give you an example, last year Alibaba live-streamed an 8-hour fashion show on Singles' Day to better engage customers. During the live-streaming, the e-commerce giant enabled consumers to buy the latest designer clothes in real time before the show even finished. Currently, China has 300 live-stream platforms. Another impressive result came out when Maybelline used a live-stream platform to announce Angelababy as its newest ambassador. As a result, within two hours, it sold over 100,000 lipsticks.
Additionally, no matter if it is in a live or on-demand format, shoppable videos are also great influence drivers as they blur the line between moments of inspiration and actual buying. How it works is that consumers are able to click on the product that appears in the video to purchase it right away. Some social media platforms such as YouTube have already adopted this trend whereas Facebook is also rumored to be exploring shoppable video ads.
Integrated Commerce Strategy
A recent Synchrony Financial report suggests that it is not the end of brick-and-mortar stores but a huge transformation is pivotal, citing: “People are social by nature and will be drawn to gathering places to share ideas and be entertained. It’s not just about making money. It’s about building trust. Retailers who tap into this trend will be rewarded.” That’s exactly where an integrated commerce strategy that includes bringing the physical and digital world together comes into play.
With the advent of technology, it is now possible to bring convenience, ease of use, personalization, process simplification, and the high level of comfort to the storefront through a smart dressing room where customers can create a profile with their phone number, a fully-tailored experience that recognizes the items that were tried on in the dressing room, which ones were purchased and which ones were left behind, or through “memory” mirror technologies led by RFID tags, let customers try on virtual outfits and place iPads in fitting rooms enabling customers to ask for help, read reviews, see what sizes are in stock, and so on.
The Narrowing Gap between Social Engagement & Shopping
Today, it is immersive to take advantage of consumers’ obsession with their mobile devices as well as flexible content repositories that allow content to be published beyond a website to apps, channels, and Internet of Things (IoT) devices to create new touchpoints. Years ago, in fact, Alibaba’s Taobao saw the gap between social engagement and shopping and realized that they actually go hand in hand and eventually, increase conversion. With that awareness, the brand captured the Chinese culture of social shopping by providing a mobile platform that keeps shoppers engaged. Meanwhile, social media and commerce firms in the US and Europe have been living in denial of the impact a seamless e-commerce integration would have on their bottom line.
Finally, the situation is about to change as whether it is e-commerce or cloud software, today, vendors are in the process of injecting social networks into their platforms. Amazon, for instance, waded into the social media foray, having launched its Amazon Spark feature, which allows users to share photos of products they like, much like on an Instagram or Pinterest feed, but additional to those social platforms, with Spark, users also can click on an image and buy the items in it. The primary goal here is blurring the line between moments of inspiration and actual buying.
If you think that this emerging trend of social media integration is only limited to the B2C commerce market, I would like to remind you Microsoft’s acquisition of LinkedIn for $26.2 billion, with an aim to integrate the most popular professional social network with its cloud-based product line, including Office 365 and Dynamics 365. Given LinkedIn has passed 500 million registered users in 200 countries on its platform, Dynamics 365 is expected to dramatically increase the effectiveness of salespeople by tapping into their professional networks and relationships.
In recognition of the impacts of creating a sense of community and social proof on making purchases, in 2018, more and more technology providers will adopt stronger, more tightly integrated social engagement capabilities through either acquisitions or from building the capabilities in-house.
Conversational Systems Are the Future of Web Interface
Conversational systems are designed to help businesses maintain the feeling of connection as well as eliminate wait times, dropped calls, and lost tempers. Gartner ranges conversational systems from bidirectional text or voice conversations (simple questions about the weather) to more complex interactions such as collecting oral testimony from crime witnesses to generate a sketch of a suspect. The backend data analysis and machine learning algorithms make up the foundation for these products.
Developers and data scientists have been working on computer systems that can recognize images and comprehend speech without the loss of accuracy and the nature of the conversation for decades. This year, like many industry insiders, I believe that conversational systems are poised for a remarkable bloom in 2018. To be even more specific, building a bot that incorporates with messaging apps such as Facebook’s WhatsApp and Messenger and China’s WeChat would be a smart move for forward-thinking retailers in 2018. That way, brands may not only make themselves available on more popular channels but also remove the friction of their users having to download one more app, on top of all the apps they already have and may not use.