Social networks influence holiday e-shopping

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 Inc.

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 Inc. "They have become more efficient in the operations," Grau said.

The 2006 season has also brought opportunity for small niche sellers, who have benefitted 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 fueling 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 Inc., 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 Pty. Ltd.'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 Inc. 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.

Although more shoppers are going directly to e-tailers' sites, comparison shopping sites are far from irrelevant but they must lure back those users by incorporating social networking, blogging and user-generated content. This will turn their existing product-review sections into participatory shopper communities, Tancer said.

Partly because security concerns about e-tailing have quieted down in recent years, sales of big-ticket items have exploded this year. comScore's Jewelry & Watches is the fastest growing category so far this holiday season in terms of dollars spent, up 66 percent compared with the same period last year. Other categories of expensive items seeing strong growth include Video Game Consoles (54 percent) and Consumer Electronics (33 percent), comScore said.

"A few years ago, people shied away from purchasing jewelry online, but as shoppers' confidence and experience increase and they have more positive online buying experience under their belt, they buy more expensive items," said eMarketer's Grau.

They are also more aware of promotions and special sale events online, which ironically has affected the big boys of e-tailing, such as Amazon.com Inc. and Wal-Mart Stores Inc., this holiday season, said Patti Freeman Evans, a Jupiter Research analyst.

Large e-tailers have run into Web site performance problems due to larger-than-expected traffic spikes during so-called "door-buster" offers, in which a limited quantity of high-demand items becomes available for a limited time, she said. As in physical stores, shoppers this holiday season have crowded Web stores, pinging the sites repeatedly in their eagerness to snatch the item in question, she said.

Remarkably, these e-tailers thought they had allocated enough bandwidth. That the spikes were significantly bigger than expected reflects a new level of savvy and aggressiveness on the part of online shoppers.

For Edgar Dworsky, it remains to be seen how smart online shoppers are about what he calls increasingly complicated and restrictive return policies. Dworsky, founder of Consumer World, a consumer resource guide, warns shoppers not to overlook e-tailers' return policies. Otherwise, they might end up mumbling "bah humbug" when they belatedly discover that items' return periods have lapsed or that unexpected restocking fees apply.

Returns bring us to an eBay Inc. study released this week, which found that 57 percent of U.S. residents receive holiday gifts they don't like.

Now, that is one persistent holiday trend everyone would like to see reversed.