Social networks influence holiday e-shopping

Xmas orders nearly doubled from 2005, indicating that IT has improved e-tailers' supply chains, analyst says

New e-commerce trends have shaped this holiday season, including the increasing importance of social networks, blogs and user content, booming sales of luxury items, an extended shopping period and the emergence of niche sellers.

By all accounts, sales growth has been strong. Excluding travel and auctions, consumers spent US$21.7 billion at U.S. online stores between Nov. 1 and Dec. 20, a 26 percent increase over the same period last year, according to comScore Networks.

Even more significant, the spending increase between Dec. 18 and Dec. 20 was 35 percent, reversing a trend from past years when sales slowed down as Christmas Day approached. The change this year is due to retailers' improved ability to ship items on time later in the season and to consumers' willingness to pay extra for this convenience, according to comScore.

This conclusion is supported by a Shop.org survey publicized this month that found that the number of retailers guaranteeing that standard-shipping orders placed by Dec. 18 or 19 will be delivered by Christmas Day nearly doubled from last year. This is a clear sign that e-tailers' supply chains have improved with IT, said Jeffrey Grau, a senior analyst at eMarketer. "They have become more efficient in the operations," Grau said.

The 2006 season has also brought opportunity for small niche sellers, who have benefited from the word-of-mouth power of social networks and blogs and from search engine advertising. Joseph P. Bailey, research associate professor of decision and information technologies at the University of Maryland, has found a clear increase in the volume of e-tailing transactions going to small businesses in 2006, compared with 2003, a trend that also benefits buyers.

"It's the long-tail idea of e-commerce allowing for a proliferation of products from market niches," Bailey said. "This allows shoppers to find exactly what they want."

The Massachusetts Institute of Technology's Sloan School of Management credits search engines with propelling this phenomenon. As search engines let shoppers discover obscure, unique products on the Web, manufacturers feel encouraged to make and promote them, knowing there is a market for their niche, a Sloan study publicized this month found.

Also fuelling the sales growth of niche products are social networks and blogs, whose influence on shopping decisions is evident and growing, eMarketer's Grau said. "Word of mouth via blogs and social networks is another means in which small Net retailers are gaining traffic," he said.

The rise of this so-called social commerce effect was documented back in October, weeks before the start of the holiday shopping season. That study, by Compete, found that when making a purchasing decision, social networkers give more weight to their peers' feedback than to any other source of information.

Underlining the trend is Hitwise's finding that in early December, online retail sites were receiving 6.2 percent of their traffic directly from social networking sites, up from 2 percent in the same period last year. To Hitwise's General Manager Bill Tancer, this statistic is clear proof that social networking sites such as Google's YouTube and News Corp.'s MySpace.com have begun displacing portals such as Yahoo as the new home base for Internet users.

In fact, this is a wake-up call for comparison shopping sites, which this holiday season are being bypassed by many shoppers, to a large extent because they have been slow in embracing social commerce, Tancer said. "This is probably the most remarkable trend we've noticed this holiday season," he said.

For the week ending Dec. 16, sites in Hitwise's comparison shopping category have, in aggregate, seen their share of Web site visits decrease by almost 9 percent, compared with the same week last year, while e-tailers have seen their share increase 4.3 percent, Tancer said.

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