Wednesday, April 29, 2009
Growth in Online Advertising Slacking Off
There's good news and bad news in the latest Internet Advertising Revenue Report, newly released by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers. The good news is that Internet advertising revenues in the U.S. are still growing, topping US$23 billion in 2008. The bad news: That growth appears to be flattening. Indeed, it did not take this report to alert the industry that growth in this once hot category has been on a downward slope recently.
"The ad buys on our site are in line with the IAB's findings," said Brian Gluckman, manager of media relations for AutoTrader.com. "The growth in purchases here by both dealers and manufacturers has flattened from years past, though it's certainly not stopped entirely," he said. "In these times, some advertising makes more sense and other advertising makes less," Edmunds.com CEO Jeremy Anwyl said. He noted that Edmunds.com -- whose audience is a very focused group of car shoppers -- is experiencing growth in ad sales, "but I'd imagine a media outlet that serves a more general audience has a tougher sale to make these days."
To be sure, 2008 was a year of economic anomaly -- the financial system equivalent of the 100-year flood. The fact that Internet advertising topped 2007's total of $21.2 billion -- a record year -- by 10.6 percent is significant. Still, 10.6 percent is the smallest yearly increase for the industry since 2002. In year-over-year growth, 2007 topped 2006 by 26 percent.
One reason for the slowdown, of course, is that the four main verticals that use Internet advertising have been severely impacted by the recession. The top sectors to advertise online in 2008 -- as in 2007 -- were retail, financial services, computing and automotive, the report found.
Notably, consumer packaged goods increased its share of total Internet ad revenues in 2008 by 60 percent over 2007, the report said. Online ad growth "is flattening for the same reason as all else -- the economy," Tracy Tuten, associate professor of marketing at Longwood University and author of Advertising 2.0: Social Media Marketing in a Web 2.0 World.
"Ad budgets are tightening overall, and this is causing the flatter growth curve," she said. "Still, things will not become too dire for online advertising because of the efficiency of buys in the online space, and because of the measurement and accountability benefits."
There is another story hidden in these numbers that bodes better for the online advertising space. Online ad buys are making up a much greater percentage share of advertisers' budgets, noted AutoTrader.com's Gluckman, with big cuts coming from traditional print mediums. "Auto dealers and manufacturers are still spending some on TV, but more for brand-awareness campaigns," he said.
"My opinion is that the report gives a high-level snapshot of what is happening -- but to get the true story, you have to dig deeper," Anand Subramanian, CEO of ContextWeb and the operator of the ad exchange Adsdaq, said.
"If you look specifically at growth for targeted advertising versus run of network or run of site, it's a different picture. What we're seeing is that targeted advertising, be it contextual or behavioral or geographical, is actually going up," Subramanian said, "and untargeted buys, like run of network [or] run of site, are coming down. This blended effect is what's reflected in the IAB report."
This is further evidenced by Google's data, which shows advertisers continuing to spend on search and contextual advertising, he said. Untargeted vendors, like ValueClick or AdNetworks, are seeing a downward trend. It was inevitable that online advertising growth would slow, Ray Lyle, principal at Driving Revenue, said.
"Don't worry," he remarked. "With the newspapers and magazines dropping by the dozens, expect online advertising to continue to grow for the foreseeable future."
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"The ad buys on our site are in line with the IAB's findings," said Brian Gluckman, manager of media relations for AutoTrader.com. "The growth in purchases here by both dealers and manufacturers has flattened from years past, though it's certainly not stopped entirely," he said. "In these times, some advertising makes more sense and other advertising makes less," Edmunds.com CEO Jeremy Anwyl said. He noted that Edmunds.com -- whose audience is a very focused group of car shoppers -- is experiencing growth in ad sales, "but I'd imagine a media outlet that serves a more general audience has a tougher sale to make these days."
To be sure, 2008 was a year of economic anomaly -- the financial system equivalent of the 100-year flood. The fact that Internet advertising topped 2007's total of $21.2 billion -- a record year -- by 10.6 percent is significant. Still, 10.6 percent is the smallest yearly increase for the industry since 2002. In year-over-year growth, 2007 topped 2006 by 26 percent.
One reason for the slowdown, of course, is that the four main verticals that use Internet advertising have been severely impacted by the recession. The top sectors to advertise online in 2008 -- as in 2007 -- were retail, financial services, computing and automotive, the report found.
Notably, consumer packaged goods increased its share of total Internet ad revenues in 2008 by 60 percent over 2007, the report said. Online ad growth "is flattening for the same reason as all else -- the economy," Tracy Tuten, associate professor of marketing at Longwood University and author of Advertising 2.0: Social Media Marketing in a Web 2.0 World.
"Ad budgets are tightening overall, and this is causing the flatter growth curve," she said. "Still, things will not become too dire for online advertising because of the efficiency of buys in the online space, and because of the measurement and accountability benefits."
There is another story hidden in these numbers that bodes better for the online advertising space. Online ad buys are making up a much greater percentage share of advertisers' budgets, noted AutoTrader.com's Gluckman, with big cuts coming from traditional print mediums. "Auto dealers and manufacturers are still spending some on TV, but more for brand-awareness campaigns," he said.
"My opinion is that the report gives a high-level snapshot of what is happening -- but to get the true story, you have to dig deeper," Anand Subramanian, CEO of ContextWeb and the operator of the ad exchange Adsdaq, said.
"If you look specifically at growth for targeted advertising versus run of network or run of site, it's a different picture. What we're seeing is that targeted advertising, be it contextual or behavioral or geographical, is actually going up," Subramanian said, "and untargeted buys, like run of network [or] run of site, are coming down. This blended effect is what's reflected in the IAB report."
This is further evidenced by Google's data, which shows advertisers continuing to spend on search and contextual advertising, he said. Untargeted vendors, like ValueClick or AdNetworks, are seeing a downward trend. It was inevitable that online advertising growth would slow, Ray Lyle, principal at Driving Revenue, said.
"Don't worry," he remarked. "With the newspapers and magazines dropping by the dozens, expect online advertising to continue to grow for the foreseeable future."
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Innovation in a World of E-Commerce Woe
It's been nearly a decade since the Internet bubble burst in 2001, and the intervening years have seen the rise of powerhouse companies such as Google, MySpace and Facebook, which have helped broaden the scope of what was once referred to as the "Information Superhighway."
The Internet was once limited primarily to email communication, file transfers and other rather mundane purposes. It's now evolved into a global social gathering place with as many diversions as the local mall, multiplex and fairgrounds combined. Users turn to the Web to read and post news and opinions on a smorgasbord of topics from politics to food.
However, as the impact of an ongoing global economic crises continues, is the outlook for online businesses and services as rosy as it has been for the past eight years? The world -- both online and off -- is still coming to grips with the economic downturn that hit full force in September 2008.
Disappointing fourth-quarter figures that saw ad sales increase less than one-half of a percent have lowered expectations for online ads over the rest of 2009.
"When we ran the numbers for Q4, we were pretty shocked, because it was much worse than we thought it would be," Karsten Weide, an IDC analyst, said. "Overall growth in Q4 year-on-year was just 0.4 percent. It was essentially flat, and the only reason why it was still at least a little bit of growth was because search grew by 10 percent. But display [advertising] declined by 7 percent, and classifieds dropped by 18 percent."
The first quarter of 2009 will not see much improvement for online advertisers, according to Weide. "We think that the search growth rate will still go down to 8 percent, display will be worse than last quarter, and classifieds will be as bad -- maybe a little better -- with a big loss but not quite as much. If you count these all together, we think the bottom line is that online advertising may decline this quarter by as much as 4.8 percent," he explained.
That would make this the first time since the bubble in which the segment will see losses for the second quarter in a row, Weide observed. Sales will likely hit the bottom around the middle of 2009, he said.
The economy is unlikely to recover with the same speed that it tanked, in Weide's view. "We think it's not going to be a U-curve, recovering as quickly as it went down. We expect a long, protracted recovery phase with growth starting again in 2010."
Companies whose advertising formats or venues are still considered experimental will take the biggest hit, according to Weide. "That includes social networks, even though they made US$50 million dollars last year."
Google is in a good position. Because the company focuses primarily on search, it is insulated somewhat from the turmoil. Microsoft and Yahoo have seen ad sales decline, but their display businesses have not been as deeply impacted as those of other, smaller companies.
Given that advertising is the bread and butter of a wide array of online businesses and services, the loss of revenue could have a significant impact on what companies will be able to do in terms of developing new technologies and business models.
Despite the loss of advertising revenue, smart companies will invest even more in research and development, according to Weide. "It should prompt them to spend even more money on research. You need to explore the market segments that are just coming online, like online video -- and mobile, to some extent. Plus, you need to put money into technologies that make your advertising offer more attractive to advertisers," he said. "We're talking performance advertising here: behavioral targeting, semantic targeting, social advertising and things of that nature and things that have a service quality to them -- media planning, integrated dashboards, in-gaming and possibly creative services as well."
Despite concerns about user privacy, behavioral targeting, semantic targeting, and advertising on social networks are very promising fields. "There's a lot of pressure on marketers to deliver online for the same money or less money for advertisers," Weide said. "Yahoo is the big guy, and [there are] a number of small players like Q Interactive.
The biggest risk there is privacy concerns, and most of them are not evil," Weide said. In a few years, it is possible that advertisers will have come up with multiple new methods of reaching consumers, all designed to offer up ads that are the most relevant for them based on location and other demographics.
When it comes to search engines, there are a number of technologies from larger and smaller companies that could still shine despite the tough economic conditions, Susan Feldman, an IDC analyst, said. "When I looked at Kumo from Microsoft Live, I thought 'Oh, yeah.' We're beginning to see inklings of what they're going to do -- some of the stuff that Yahoo is doing and Google is starting to copy with drop-down, type-ahead suggestions to related queries," she noted.
Older search utilities could also benefit. For example, Clusty, a clustering search engine from software maker Vivisimo that's been around for years, is one alternative to a traditional search engine.
"You have to have a way of describing very succinctly what you are looking for, and sometimes you just don't know how to do that. You know it when you see it. StumbleUpon is getting there, but is still not exactly what you need," she explained.
MrTaggy, an experimental site developed by the Palo Alto Research Center (PARC) uses metadata to help users find what they're searching for. "MrTaggy has all kinds of information. The keyword search is a tool, but not one I want to use all the time," Feldman pointed out.
For example, when Feldman was preparing to give a speech on innovation, a keyword search for serendipity, innovation, industry, etc., did not yield the results she sought. However, when she put the term into MrTaggy, the application returned the phrase "Ah ha moment."
"That is what I should have been searching for, and there has been a lot written on it," Feldman said. "I wouldn't have found it. That's the kind of thing we need so we can explore things that are tangential. All of those are coming to market. Just today, Endeca released a new platform called "McKinley," which is different way of introducing people to what is going on in the world."
Netbase has created a technology that moves beyond traditional keyword search and instead uses advanced linguistics to read every sentence of documents and extract rich information and relationships. It then organizes that data into meaningful categories for researchers.
"Suppose you're a medical researcher and you want to find causes of a particular type of tumor. Netbase has indexed Medline and returned relevant results that would take days to find in 10 seconds, including drugs that have an effect [and] genes that are related to a particular condition," she said.
This next generation of search goes beyond simple words and looks at the relationships between various words and the ideas they represent. It will pull out information in a way that can help users shorten the time they spend looking for what they want to know.
"The semantic Web is nothing compared to what these guys are doing," Feldman said. "This is using text analytics. This is what the semantic Web ought to be and should be. It will be amazing."
The mobile Internet continues to be a major source of innovation, as existing and emerging companies seek new ways to bring an ever-expanding mass of content onto smartphones and other handheld devices. On the other end of the spectrum are the huge in-home systems like home entertainment centers, which are also being built with Web-facing features. The drive for building Web access into multiple devices will feed the ongoing demand for video content online.
"Individual access to the Web is probably the biggest change we've seen in the last 10 years. It will continue to push innovation because you need more content available for more devices, which means more opportunity for services in the cloud and greater importance placed on things like storage on a device," Joshua Martin, a Yankee Group analyst, said.
As video content moves online and broadband moves into the living room, look for a migration away from traditional cable and satellite subscriptions. "This is going to be earth-shattering, because the Internet is no longer restricted to the computer for the mass market. Now that the average Joe Consumer will be able to do that, it will really change the game," Martin noted.
However, an old hiccup remains for online video companies: how to monetize the business model. Even though owners have worked in advertising models to a certain degree, the rise of user-generated content on sites such as YouTube More about YouTube has generally not resulted in great amounts of revenue. Fans of these sites may soon find themselves paying a subscription fee to check out the latest antics of Joe Schmoe.
"It is probably harder now more than ever for companies to develop ways to monetize their content, particularly with the advent of user-generated content that is becoming increasingly compelling. With so many options for people, it will be interesting to see what happens," Martin said.
Sports is one entertainment genre that enjoys a great deal of attention. For example, online viewers may soon be able to view each hole of a major golf tournament, Martin said. Recently, college basketball buffs were able to watch NCAA playoff games online, and advertisers bought sponsorships.
However, tangles still remain. Professional football will likely be one of the last sports to come online, given the exclusive contract the National Football League signed with DirecTV for its NFL Sunday Ticket offering. Once that contract expires, the organization may head online.
In terms of movies and TV shows, Netflix continues to be a leader in online video content and is an example of the kind of innovation other companies should pursue, Martin said. The company has launched numerous partnerships with hardware makers that allow Netflix subscribers who own devices like Xboxes and TiVos to stream content directly to their TVs.
"This is more of an evolutionary phase," Martin noted, "where the convergence we've talked about that makes services and the consumer experience more valuable is coming to fruition."
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The Internet was once limited primarily to email communication, file transfers and other rather mundane purposes. It's now evolved into a global social gathering place with as many diversions as the local mall, multiplex and fairgrounds combined. Users turn to the Web to read and post news and opinions on a smorgasbord of topics from politics to food.
However, as the impact of an ongoing global economic crises continues, is the outlook for online businesses and services as rosy as it has been for the past eight years? The world -- both online and off -- is still coming to grips with the economic downturn that hit full force in September 2008.
Disappointing fourth-quarter figures that saw ad sales increase less than one-half of a percent have lowered expectations for online ads over the rest of 2009.
"When we ran the numbers for Q4, we were pretty shocked, because it was much worse than we thought it would be," Karsten Weide, an IDC analyst, said. "Overall growth in Q4 year-on-year was just 0.4 percent. It was essentially flat, and the only reason why it was still at least a little bit of growth was because search grew by 10 percent. But display [advertising] declined by 7 percent, and classifieds dropped by 18 percent."
The first quarter of 2009 will not see much improvement for online advertisers, according to Weide. "We think that the search growth rate will still go down to 8 percent, display will be worse than last quarter, and classifieds will be as bad -- maybe a little better -- with a big loss but not quite as much. If you count these all together, we think the bottom line is that online advertising may decline this quarter by as much as 4.8 percent," he explained.
That would make this the first time since the bubble in which the segment will see losses for the second quarter in a row, Weide observed. Sales will likely hit the bottom around the middle of 2009, he said.
The economy is unlikely to recover with the same speed that it tanked, in Weide's view. "We think it's not going to be a U-curve, recovering as quickly as it went down. We expect a long, protracted recovery phase with growth starting again in 2010."
Companies whose advertising formats or venues are still considered experimental will take the biggest hit, according to Weide. "That includes social networks, even though they made US$50 million dollars last year."
Google is in a good position. Because the company focuses primarily on search, it is insulated somewhat from the turmoil. Microsoft and Yahoo have seen ad sales decline, but their display businesses have not been as deeply impacted as those of other, smaller companies.
Given that advertising is the bread and butter of a wide array of online businesses and services, the loss of revenue could have a significant impact on what companies will be able to do in terms of developing new technologies and business models.
Despite the loss of advertising revenue, smart companies will invest even more in research and development, according to Weide. "It should prompt them to spend even more money on research. You need to explore the market segments that are just coming online, like online video -- and mobile, to some extent. Plus, you need to put money into technologies that make your advertising offer more attractive to advertisers," he said. "We're talking performance advertising here: behavioral targeting, semantic targeting, social advertising and things of that nature and things that have a service quality to them -- media planning, integrated dashboards, in-gaming and possibly creative services as well."
Despite concerns about user privacy, behavioral targeting, semantic targeting, and advertising on social networks are very promising fields. "There's a lot of pressure on marketers to deliver online for the same money or less money for advertisers," Weide said. "Yahoo is the big guy, and [there are] a number of small players like Q Interactive.
The biggest risk there is privacy concerns, and most of them are not evil," Weide said. In a few years, it is possible that advertisers will have come up with multiple new methods of reaching consumers, all designed to offer up ads that are the most relevant for them based on location and other demographics.
When it comes to search engines, there are a number of technologies from larger and smaller companies that could still shine despite the tough economic conditions, Susan Feldman, an IDC analyst, said. "When I looked at Kumo from Microsoft Live, I thought 'Oh, yeah.' We're beginning to see inklings of what they're going to do -- some of the stuff that Yahoo is doing and Google is starting to copy with drop-down, type-ahead suggestions to related queries," she noted.
Older search utilities could also benefit. For example, Clusty, a clustering search engine from software maker Vivisimo that's been around for years, is one alternative to a traditional search engine.
"You have to have a way of describing very succinctly what you are looking for, and sometimes you just don't know how to do that. You know it when you see it. StumbleUpon is getting there, but is still not exactly what you need," she explained.
MrTaggy, an experimental site developed by the Palo Alto Research Center (PARC) uses metadata to help users find what they're searching for. "MrTaggy has all kinds of information. The keyword search is a tool, but not one I want to use all the time," Feldman pointed out.
For example, when Feldman was preparing to give a speech on innovation, a keyword search for serendipity, innovation, industry, etc., did not yield the results she sought. However, when she put the term into MrTaggy, the application returned the phrase "Ah ha moment."
"That is what I should have been searching for, and there has been a lot written on it," Feldman said. "I wouldn't have found it. That's the kind of thing we need so we can explore things that are tangential. All of those are coming to market. Just today, Endeca released a new platform called "McKinley," which is different way of introducing people to what is going on in the world."
Netbase has created a technology that moves beyond traditional keyword search and instead uses advanced linguistics to read every sentence of documents and extract rich information and relationships. It then organizes that data into meaningful categories for researchers.
"Suppose you're a medical researcher and you want to find causes of a particular type of tumor. Netbase has indexed Medline and returned relevant results that would take days to find in 10 seconds, including drugs that have an effect [and] genes that are related to a particular condition," she said.
This next generation of search goes beyond simple words and looks at the relationships between various words and the ideas they represent. It will pull out information in a way that can help users shorten the time they spend looking for what they want to know.
"The semantic Web is nothing compared to what these guys are doing," Feldman said. "This is using text analytics. This is what the semantic Web ought to be and should be. It will be amazing."
The mobile Internet continues to be a major source of innovation, as existing and emerging companies seek new ways to bring an ever-expanding mass of content onto smartphones and other handheld devices. On the other end of the spectrum are the huge in-home systems like home entertainment centers, which are also being built with Web-facing features. The drive for building Web access into multiple devices will feed the ongoing demand for video content online.
"Individual access to the Web is probably the biggest change we've seen in the last 10 years. It will continue to push innovation because you need more content available for more devices, which means more opportunity for services in the cloud and greater importance placed on things like storage on a device," Joshua Martin, a Yankee Group analyst, said.
As video content moves online and broadband moves into the living room, look for a migration away from traditional cable and satellite subscriptions. "This is going to be earth-shattering, because the Internet is no longer restricted to the computer for the mass market. Now that the average Joe Consumer will be able to do that, it will really change the game," Martin noted.
However, an old hiccup remains for online video companies: how to monetize the business model. Even though owners have worked in advertising models to a certain degree, the rise of user-generated content on sites such as YouTube More about YouTube has generally not resulted in great amounts of revenue. Fans of these sites may soon find themselves paying a subscription fee to check out the latest antics of Joe Schmoe.
"It is probably harder now more than ever for companies to develop ways to monetize their content, particularly with the advent of user-generated content that is becoming increasingly compelling. With so many options for people, it will be interesting to see what happens," Martin said.
Sports is one entertainment genre that enjoys a great deal of attention. For example, online viewers may soon be able to view each hole of a major golf tournament, Martin said. Recently, college basketball buffs were able to watch NCAA playoff games online, and advertisers bought sponsorships.
However, tangles still remain. Professional football will likely be one of the last sports to come online, given the exclusive contract the National Football League signed with DirecTV for its NFL Sunday Ticket offering. Once that contract expires, the organization may head online.
In terms of movies and TV shows, Netflix continues to be a leader in online video content and is an example of the kind of innovation other companies should pursue, Martin said. The company has launched numerous partnerships with hardware makers that allow Netflix subscribers who own devices like Xboxes and TiVos to stream content directly to their TVs.
"This is more of an evolutionary phase," Martin noted, "where the convergence we've talked about that makes services and the consumer experience more valuable is coming to fruition."
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The Fact And Fiction Of Online Shipping Costs
You search, you find, you click "buy." Your e-commerce quest is nearly complete. You get to that checkout screen, and you think it's all good. Then the shipping charges get tacked onto your total, and you're left thinking that US$9.95 deal didn't end up being such a bargain after all.
Then there are those times when you need to make sure your package gets to its destination before the holidays -- a day late makes it a wasted effort. So you fork over the few extra dollars to guarantee the delivery date -- but did you really need to do that?
Countless online shoppers are asking themselves whether paying a premium for express shipping and handling fees is really necessary. After all, there have been many times when they've ordered an item for the "week-to-10-day" delivery and received it within three business days without paying the premium.
So what gives? You might think the retailer is charging extra for a service you don't need, and that it's all a sales ploy to hit unsuspecting consumers with extra charges just to beef up profit margins.
However, shipping and handling is a growing expense for retailers, and in these trying economic times especially, it's hitting their bottom lines more than ever.
"We work with many major retailers and can tell you that the vast majority lose money on shipping, especially during the holidays," Fiona Dias, executive vice president of partner strategy and marketing for GSI Commerce, a specialist in online business services More about business services, said.
The reason retailers are willing to take the hit on shipping and handling is that shipping costs represent the single biggest deterrent for consumers shopping online, Dias explained. "They pretty much have to offer free shipping or add constraints -- such as a minimum purchase amount."
With the tumbling stock market last fall, retailers actually "took a bath on shipping," she added. "Then [the] Thanksgiving and Christmas holidays were more compressed. [To encourage purchases,] retailers were either offering express delivery for free or subsidizing it greatly."
Today's price-sensitive consumers, for their part, are being extra careful when assessing shipping costs for an online purchase, confirmed Kevin Brown, director of marketing for Newgistics, a transportation system provider.
"They didn't think anything about shipping and handling costs. Today, a lot more that used to want next-day delivery now realize that five days is fine. They've decided they paid a premium for something they didn't really need."
These perceptions about gouging consumers on shipping and handling may have come from other retail channels, such as infomercials, where unsuspecting shoppers have sometimes been hit hard with hidden costs after placing that order for those too-good-to-be-true deals.
The online flower delivery business, for example, is another industry that may have gotten a bad rep when it comes to charging express premiums, Aron Benon, CEO of HonestFlorist.com, said. "A lot of 'practices' weren't up to where they should be," he explained "There were florists that charged extra for express delivery. That's ridiculous [in some cases], because delivery could usually be made within four hours anyway. Some have made a lot of money in shipping and handling."
Today, the only premium that should be paid is for a guaranteed delivery time, according to Benon. "You can assume it will get there in reasonable time, but a premium will get you that guarantee if you need it."
If there is confusion among consumers about shipping costs, it's more around setting expectations, Dias said. "The No. 1 call center complaint is the 'where's my order' inquiry." That's one of the main reasons why retailers will tend to overestimate the standard shipping times. "It's better to under-promise and over-deliver," she said. "If you say it will take a week and the package comes in four days, then you have a happy customer. If you say it will be four days and it's longer, a disappointed shopper is complaining to your call center."
As far as express shipping is concerned, the extra costs are necessary since retailers need to use more expensive delivery services versus the U.S. Postal Service More about USPS.
"It's less about the labor and more about the carrier,"" Dias said. "Sending through the US Postal Service is cheap. But once you get to UPS or Fedex, there is a lot more involved."
Given the fluctuations in fuel prices and the like, retailers have had to absorb those transportation costs, Brown added. "You're not seeing those rate increases being passed on to the consumer, which means costs are going up on the retail side. There's a point consumers won't go beyond, and shipping fees is one." There are a number of things online retailers can do to avoid problems and keep customer expectations in line.
One is to provide clear messaging on your site about shipping options, associated costs and delivery times. During holidays, spell out deadline dates for orders to avoid disappointment.
Second, do not put items on the site that aren't in stock. "I'm not a big fan of back orders," Dias said. "If it's not in inventory, let people know before they get to the shopping cart."
Third is to have a system in place to fulfill orders in a timely fashion. Where deliveries may have to cover lots of ground, partner with someone that offers regional warehousing services. On-site pickup at a store is an option that has proven very successful for retailers like Sears and Nordstrom, Dias said.
Providing visibility into shipments on the move can also ease consumers' minds and reduce the load on call centers. "It can cost $4 to $5 per call for a customer service engagement," Brown explained. "If consumers can track a shipment themselves, that can help reduce that cost."
For shoppers who are simply unhappy about shipping and handling fees, Avivah Litan, senior analyst for Gartner who offered the following advice: "Remember, it's a free world. If you don't like shipping terms on a site, shop somewhere you do."
Guardian eCommerce Privacy Seal Program.
Then there are those times when you need to make sure your package gets to its destination before the holidays -- a day late makes it a wasted effort. So you fork over the few extra dollars to guarantee the delivery date -- but did you really need to do that?
Countless online shoppers are asking themselves whether paying a premium for express shipping and handling fees is really necessary. After all, there have been many times when they've ordered an item for the "week-to-10-day" delivery and received it within three business days without paying the premium.
So what gives? You might think the retailer is charging extra for a service you don't need, and that it's all a sales ploy to hit unsuspecting consumers with extra charges just to beef up profit margins.
However, shipping and handling is a growing expense for retailers, and in these trying economic times especially, it's hitting their bottom lines more than ever.
"We work with many major retailers and can tell you that the vast majority lose money on shipping, especially during the holidays," Fiona Dias, executive vice president of partner strategy and marketing for GSI Commerce, a specialist in online business services More about business services, said.
The reason retailers are willing to take the hit on shipping and handling is that shipping costs represent the single biggest deterrent for consumers shopping online, Dias explained. "They pretty much have to offer free shipping or add constraints -- such as a minimum purchase amount."
With the tumbling stock market last fall, retailers actually "took a bath on shipping," she added. "Then [the] Thanksgiving and Christmas holidays were more compressed. [To encourage purchases,] retailers were either offering express delivery for free or subsidizing it greatly."
Today's price-sensitive consumers, for their part, are being extra careful when assessing shipping costs for an online purchase, confirmed Kevin Brown, director of marketing for Newgistics, a transportation system provider.
"They didn't think anything about shipping and handling costs. Today, a lot more that used to want next-day delivery now realize that five days is fine. They've decided they paid a premium for something they didn't really need."
These perceptions about gouging consumers on shipping and handling may have come from other retail channels, such as infomercials, where unsuspecting shoppers have sometimes been hit hard with hidden costs after placing that order for those too-good-to-be-true deals.
The online flower delivery business, for example, is another industry that may have gotten a bad rep when it comes to charging express premiums, Aron Benon, CEO of HonestFlorist.com, said. "A lot of 'practices' weren't up to where they should be," he explained "There were florists that charged extra for express delivery. That's ridiculous [in some cases], because delivery could usually be made within four hours anyway. Some have made a lot of money in shipping and handling."
Today, the only premium that should be paid is for a guaranteed delivery time, according to Benon. "You can assume it will get there in reasonable time, but a premium will get you that guarantee if you need it."
If there is confusion among consumers about shipping costs, it's more around setting expectations, Dias said. "The No. 1 call center complaint is the 'where's my order' inquiry." That's one of the main reasons why retailers will tend to overestimate the standard shipping times. "It's better to under-promise and over-deliver," she said. "If you say it will take a week and the package comes in four days, then you have a happy customer. If you say it will be four days and it's longer, a disappointed shopper is complaining to your call center."
As far as express shipping is concerned, the extra costs are necessary since retailers need to use more expensive delivery services versus the U.S. Postal Service More about USPS.
"It's less about the labor and more about the carrier,"" Dias said. "Sending through the US Postal Service is cheap. But once you get to UPS or Fedex, there is a lot more involved."
Given the fluctuations in fuel prices and the like, retailers have had to absorb those transportation costs, Brown added. "You're not seeing those rate increases being passed on to the consumer, which means costs are going up on the retail side. There's a point consumers won't go beyond, and shipping fees is one." There are a number of things online retailers can do to avoid problems and keep customer expectations in line.
One is to provide clear messaging on your site about shipping options, associated costs and delivery times. During holidays, spell out deadline dates for orders to avoid disappointment.
Second, do not put items on the site that aren't in stock. "I'm not a big fan of back orders," Dias said. "If it's not in inventory, let people know before they get to the shopping cart."
Third is to have a system in place to fulfill orders in a timely fashion. Where deliveries may have to cover lots of ground, partner with someone that offers regional warehousing services. On-site pickup at a store is an option that has proven very successful for retailers like Sears and Nordstrom, Dias said.
Providing visibility into shipments on the move can also ease consumers' minds and reduce the load on call centers. "It can cost $4 to $5 per call for a customer service engagement," Brown explained. "If consumers can track a shipment themselves, that can help reduce that cost."
For shoppers who are simply unhappy about shipping and handling fees, Avivah Litan, senior analyst for Gartner who offered the following advice: "Remember, it's a free world. If you don't like shipping terms on a site, shop somewhere you do."
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The Flourishing Fraud Economy
Online scammers who sell stolen credit card numbers, bank account data or Social Security information haven't felt much pain from the economic problems facing the rest of the world, according to new research. One factor is a steady supply of raw materials -- phishers have targeted the growing number of people looking for mortgage and credit fixes with specially crafted scams to steal their info.
One economy apparently isn't hurting these days -- the one run by identity thieves in the dark corners of the Internet. Demand and prices remain stable for stolen credit cards, Social Security numbers and other private information, according to a new study by security software maker Symantec.
Meanwhile, the supply of such data is steady too, thanks to the way the recession has inspired new scams targeting people who are worried about work and their finances, according to the Symantec report and another study from Gartner. "There's no pricing pressure at all -- it's not dropping, they're not negotiating down," said Alfred Huger, vice president of Symantec Security Response. "That tells us that there are still the same number of buyers. The underground economy has not been affected by the recession."
One reason is that the prices for some records have been falling for years and can't go much lower. Stolen credit card numbers now go for as little as 6 US cents each, if they're bought 10,000 at a time. The price can be $30 per card for smaller orders.
Access to hijacked e-mail accounts: 10 cents to $100.
Bank account credentials: $10 to $1,000.
Scammers can hire people to "cash out" compromised bank accounts for between 8 percent and 50 percent of the amount they're stealing. Hosting for scam Web sites ranges from $3 to $40 per week.
Stay in Line
Symantec says sellers appear loath to undercut each other. Many cyber gangs are believed to be affiliated with organized crime, and crooks who don't play by the rules risk being locked out of future business, or being targeted with Internet attacks or possibly even physical violence.
"It makes you wonder if there's some collusion among the sellers," Huger said. "And it's a very heavily self-policing industry. I think people there would take a very dim view of significant undercutting of prices that would affect the whole industry."
Security experts not involved in Symantec's study say prices for booty like stolen credit card numbers might not be falling anymore because they have hit a bottom. The usefulness of stolen credit card numbers is waning because of anti-fraud measures -- crooks now need additional details, like PIN numbers or the security codes on the back of the cards, to sell as a package deal.
"The value of just the front side of your credit card has gone to almost zero -- the bad guys need to get more and more data," said Peter Tippett, vice president of research and intelligence for Verizon More about Verizon Communications' business security solutions division. That division investigates many large data breaches.
Gone Phishing
The pipeline for stolen data is being replenished by phony "phishing" e-mails that are becoming more common as the economy worsens. Three-quarters of the phishing e-mails Symantec examined were banking-related, for things like low-interest loans and mortgage refinancing. When people pay for those services, their money vanishes.
Symantec found a startling 66 percent increase in the number of phishing Web sites from the previous year.
Symantec studied data from more than 200 million personal computers running its antivirus software, 200 million e-mail accounts that do nothing but collect spam, and information from large corporations that use Symantec's products.
Gartner's study reinforced the finding that phishing scams are proliferating. It estimates that more than 5 million U.S. consumers lost money to phishing attacks from September 2007 to September 2008 -- a 40 percent increase over the estimated number of victims a year earlier.
Each victim is losing less money, though. Criminals have changed their tactics and are now pursuing a higher volume of lower-value attacks to evade banks' fraud detection systems, said Avivah Litan, a Gartner vice president.
Go Guardian eCommerce
One economy apparently isn't hurting these days -- the one run by identity thieves in the dark corners of the Internet. Demand and prices remain stable for stolen credit cards, Social Security numbers and other private information, according to a new study by security software maker Symantec.
Meanwhile, the supply of such data is steady too, thanks to the way the recession has inspired new scams targeting people who are worried about work and their finances, according to the Symantec report and another study from Gartner. "There's no pricing pressure at all -- it's not dropping, they're not negotiating down," said Alfred Huger, vice president of Symantec Security Response. "That tells us that there are still the same number of buyers. The underground economy has not been affected by the recession."
One reason is that the prices for some records have been falling for years and can't go much lower. Stolen credit card numbers now go for as little as 6 US cents each, if they're bought 10,000 at a time. The price can be $30 per card for smaller orders.
Access to hijacked e-mail accounts: 10 cents to $100.
Bank account credentials: $10 to $1,000.
Scammers can hire people to "cash out" compromised bank accounts for between 8 percent and 50 percent of the amount they're stealing. Hosting for scam Web sites ranges from $3 to $40 per week.
Stay in Line
Symantec says sellers appear loath to undercut each other. Many cyber gangs are believed to be affiliated with organized crime, and crooks who don't play by the rules risk being locked out of future business, or being targeted with Internet attacks or possibly even physical violence.
"It makes you wonder if there's some collusion among the sellers," Huger said. "And it's a very heavily self-policing industry. I think people there would take a very dim view of significant undercutting of prices that would affect the whole industry."
Security experts not involved in Symantec's study say prices for booty like stolen credit card numbers might not be falling anymore because they have hit a bottom. The usefulness of stolen credit card numbers is waning because of anti-fraud measures -- crooks now need additional details, like PIN numbers or the security codes on the back of the cards, to sell as a package deal.
"The value of just the front side of your credit card has gone to almost zero -- the bad guys need to get more and more data," said Peter Tippett, vice president of research and intelligence for Verizon More about Verizon Communications' business security solutions division. That division investigates many large data breaches.
Gone Phishing
The pipeline for stolen data is being replenished by phony "phishing" e-mails that are becoming more common as the economy worsens. Three-quarters of the phishing e-mails Symantec examined were banking-related, for things like low-interest loans and mortgage refinancing. When people pay for those services, their money vanishes.
Symantec found a startling 66 percent increase in the number of phishing Web sites from the previous year.
Symantec studied data from more than 200 million personal computers running its antivirus software, 200 million e-mail accounts that do nothing but collect spam, and information from large corporations that use Symantec's products.
Gartner's study reinforced the finding that phishing scams are proliferating. It estimates that more than 5 million U.S. consumers lost money to phishing attacks from September 2007 to September 2008 -- a 40 percent increase over the estimated number of victims a year earlier.
Each victim is losing less money, though. Criminals have changed their tactics and are now pursuing a higher volume of lower-value attacks to evade banks' fraud detection systems, said Avivah Litan, a Gartner vice president.
Go Guardian eCommerce
