Buy into it: The technology of online shopping
- 21 January 2011
- From the section Business
Looking for a birthday present or Christmas gift? These days the chances are you'll turn to the internet rather than hit the shops.
Shopping online is now easier — and more popular — than ever, whether for physical goods like books or groceries, or music and movie downloads.
The web made its name as a home for bargains, since internet retailers could undercut shop prices by avoiding overheads such as rent.
But using the web to lower prices is not the only hi-tech trick that internet retailers have up their sleeves.
'Online jumble sale'
New York-based website Etsy is an online marketplace for handicrafts and vintage goods. It sells everything from handmade jewellery to antique cameras, and is used by more than 400,000 sellers across 150 countries.
This might make it seem like a global jumble sale, but senior staff say the company sees itself as a technology firm — to the point that almost half of its employees work in software design and engineering.
"Our whole business is technology," says Chad Dickerson, the company's chief technology officer. His explanation of why is simple.
"The best way to achieve scale is to be on the internet, and to be on the internet you have to be a technology company, and you have to build software."
Etsy, which launched in 2005, uses a number of innovative methods to connect buyers and sellers.
These include the chance to browse less-travelled shops in the hope of finding an undiscovered gem, to the ability to search for items simply by picking a colour. It is all, crucially, developed in-house.
"I think one mistake non-technical businesses make is that they think there's some kind of package that you can buy," says Mr Dickerson.
"If you look at the largest commerce sites on the internet, you'd be hard pressed to find anyone that's using any sort of commercial package.
"If you're in a world where to get big you have to build it yourself, then the only way to build it yourself is with engineers."
Few online retailers demonstrate this more effectively than Amazon, which has continued pushing boundaries since launching from Seattle in 1995.
What started with a book-selling operation has now turned into a vast empire covering electronics, music downloads, furniture and toys. It is now America's second most valuable retailer, trailing only supermarket giant Walmart. It employs more than 30,000 people, many of them in engineering.
The company's influence is partly the result of persistence — it stuck out the dotcom crash while rival web retailers fell by the wayside — but also springs from a relentlessly technological approach.
Amazon's entire system is aimed at avoiding what founder Jeff Bezos refers to as "muda" - the Japanese word for waste. By using technology to eliminate unnecessary spending and boost efficiency, the company is able to pass savings on to customers.
"I think frugality drives innovation, just like other constraints do," Bezos has said. "One of the only ways to get out of a tight box is to invent yourself".
Examples of technologies that have helped Amazon along the way are legion. It was, for example, the first to develop the so-called "1-Click" ordering system, which allows shoppers to buy items without having to re-enter their credit card details each time.
And its Associates scheme, where individuals can gain a cut of any sale they refer to Amazon, was a complex technical problem but became a huge hit.
It is not just about the web, however. Some of the company's most important technological innovations are actually offline.
For example, Amazon uses a tightly-monitored and highly automated network of huge fulfilment centres to try and minimise the wastage in getting products to a buyer.
The centres are spread out — there are just 20 across the whole of north America — but by close monitoring of stock and rapid turnarounds, they often manage to make ordering online feel more convenient than going to the shops.
Amazon is now the model for hundreds of companies worldwide, including the Lebanese site Neelwarfurat and Russia's Ozon.ru. But while technological efficiency can be achieved in all sorts of areas, one expert suggests there is still plenty of room for improvement.
"In lots of ways e-commerce hasn't changed much in the past five or six years," says Dan Wilson, an online retailing expert who was previously a community manager for eBay.
Among the areas he believes is ripe for reinvention is dispatch, where even the most advanced retailers are forced to rely on existing postal services and courier companies.
"Dispatch is really struggling," says Mr Wilson. "The weak link is that bit where you get the stuff you've ordered - it's meant to be a moment of joy, but often it's not."
One way to avoid that problem is to get rid of physical goods altogether. Digital services have rocketed in popularity over recent years, spurred on by the spread of broadband and faster mobile networks.
While not every product can be turned into a pure stream of information, the shift has certainly worked for some. Apple's iTunes Store, piggybacking on the success of the iPod, has become the world's largest retailer of music and revolutionised the industry.
Other services such as on demand video rental service Netflix and the BBC's own iPlayer are now streaming television shows and films that would have previously required much greater investments in infrastructure.
And the other great benefit of digital information — whether in products themselves or merely in our online interactions — is the trail of data it leaves behind.
Just as supermarkets and department stores use loyalty cards and sales research to understand the way their customers behave, internet retailers are now starting to concentrate their efforts on understanding the information that their websites can capture.
In the past, sifting through this data would have been impossibly expensive. Changes in the computer industry mean that it is now within reach of most organisations - a shift that insiders suggest could spur the next great step forward for internet retail.
"We found that people who search for 'Lynyrd Skynyrd', the band, also search for 'taxidermy'," says Etsy's Chad Dickerson.
"It's a small data point, but what that kind of analysis allows us to do is if a new person arrives on Etsy, we can do a better job of predicting and recommending items that they may like."