Amazon is stifling the e-commerce revolution

“If you’re not in first place, then you’re in last.” —Ricky Bobby, “Talladega Nights: The Ballad of Ricky Bobby”

Amazon, the world’s largest Web retailer, is clearly in first place. So who is number two and prepared to challenge Amazon? Struggling to think of an answer? Me too. That is terrible news for consumers and for Amazon’s competitors.

As the president and CEO of Zmags, I’ve thought a lot about how companies can compete with Amazon, and I believe e-commerce needs healthy competition to sustainably innovate. But for that to happen, we need to fundamentally change the old e-commerce model.

Amazon continues to defy gravity deep into its second decade. A $ 40 billion dollar company trading for 70 times next year’s expected earnings just doesn’t seem right. Its third quarter, 2011 profit margin was 58 basis points. It’s as if Amazon is committed to margins below supermarkets.

Here’s the good news: Amazon’s model is out-dated and, by its very design, anti-social. It is terrific for directed purchases (low margin) and awful for offering engaging shopping experiences (high margin).

Amazon pioneered online directed purchases, training consumers to turn to them first to purchase specific items, guided particularly by price (and later recommendations). It’s undeniably efficient, but it’s almost exclusively transactional. One click and you’re out. Amazon’s anti-shopping model reflects the characteristics of the very people that built it — engineers — who quite frankly are not your typical power shoppers. The fact is that Amazon is just an old mouse trap that doesn’t catch anything but unprofitable mice.

The age of discovery

Thanks to a number of recent developments, the era of discovery shopping is emerging. First, companies like Rue La La and Groupon began offering closed flash sales and special deals, creating a new set of personalized experiences. So far, these remain largely transactional.

Then, the iPad entered the game. The iPad has massively raised consumers’ and marketers’ expectations. To date, most marketers have responded with an app-based strategy. Mobile and web apps provide a rich, flexible canvas for branding, merchandizing and storytelling in a way that is more engaging and less linear than predictable banner ads or other promotional marketing tools. And rather than relying on their IT departments for operational bandwidth, project management and compatibility, marketers have the freedom to use internal or external Web designers.

As tablet ownership grows (projected at 90 million in two years), it is driving the next important shift in e-commerce, what we call “discovery commerce.” Discovery commerce is the antithesis of Amazon’s directed purchase model. It offers today’s more profitable, tablet-toting consumers a highly curated digital shopping experience.

Tablet owners are not looking for a “one click and exit” shopping experience. A recent consumer survey sponsored by Zmags found that 87 percent of tablet owners used their devices for holiday shopping and the size of their total purchases dwarfed traditional PC-based e-commerce.

However, when we looked at the tablet-readiness of the top 100 Internet retailers, we found that less than one-third of these brands have optimized their sites for tablet commerce. The majority are relying on their standard e-commerce websites to deliver an “adequate enough” tablet experience.

Today’s retailers, brands and yes, even Amazon’s third-party sellers, need to be ready for discovery commerce. And they need to focus on the uber-profitable tablet shopper in particular. Here are four important steps to get started:

Focus on your best customers and the experience they want (go where the profits are, not just the volume).
Approach each new channel as if it were a brand new storefront (unleash the creativity).
Curate a story that merchandises your brand (engage the power shopper with compelling content, visuals, etc.)
Refresh and repeat frequently (new content experiences have to be updated often to avoid staleness)

According to our data, brands that have adopted discovery-based commerce have twice as many conversions and five times as many page views. Most importantly, the value of their customers’ orders have increased by up to 40 percent. Let’s look at three of Zmags’ clients that have moved beyond Amazon’s model for e-commerce and are leveraging the potential of tablet, mobile and social commerce.

First, Kenneth Cole. The fashion brand has created commerce-enabled catalogs that are accessible on tablets, smartphones, the Web and on Facebook. Their catalogs aren’t your typical grid-based presentation of items. Rather, they look and feel like a glossy lifestyle magazine. Customers can simply click on or touch an item to buy it without ever leaving the catalog.

Express is another well-known brand that is transforming its shopping experiences and pioneering tablet and Facebook commerce. Its rich digital catalog can be shopped via tablets or on the label’s Facebook page, where its two million fans can discover and purchase the latest styles.

Another example is Celebrating Home. The direct sales firm has created digital catalog experiences that extend its reach from in-home party sales to thousands of potential customers via Facebook. Celebrating Home’s interactive catalog, which includes video and voice-overs, makes for a lively virtual shopping experience.

Retailers know how to tell stories in-store through merchandising and displays, and the tablet gives them a better medium to deploy those stories online. The old card-catalog model was designed for searching for a specific item or category. These new curated experiences stimulate customers’ senses by having them touch the screen, interact with the merchandise and turn the page to see what’s next. This all helps entice people to engage more with the content, browse and, ultimately, become inspired to purchase more.

For every retailer not named Amazon, it’s time to maniacally focus on where the profits are — power shoppers looking for merchandised experiences on their tablets as well as smartphones and social channels. For e-commerce to truly thrive, we have to set aside Amazon’s handcuffs and embrace discovery commerce.

Michael Schreck is the president and CEO of Zmags, a platform for rich media mobile and social merchandising.

Image courtesy of Flickr user dead_elvis.

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