## Friday, October 31, 2008

### Website traffic estimation: My excel forecasting model (Part 2)

Due to the number of inquiries after my first posting "Website traffic estimation: is there..." I've decided to share my forecasting excel model.

IMPORTANT

1) Linear Function: y = 8E+09x + 49771
2) 2nd degree polinomic function: y = -1E+13x2 + 1E+10x - 3272,2
3) For the part of the curve that corresponds to websites with an Alexa traffic rank below 100.000, the function used is an average of the polinomic and linear functions

Two functions are used to calculate traffic. This could be upgraded, corrected and improved with more data points or sources of datapoints.

Please if you know any public source of reliable data of historic data on traffic, or have any comments email me at pedroneiraf@gmail.com

4) Cells with yellow background ARE NOT Alexa's 3 month average reach. This input was distorted, so before inputing the data directly from Alexa, it has to be corrected
5) The way in which this data is "corrected" is by a simple cross-multiplication aproximation to the nearest upper value in the list (the closest upper white cell).
6) This function will not work well for recently created websites.
7) This material is for non-commercial use only. Any usage of these functions or part of this excel sheet should quote the source.

The results I've got so far with this function have an average error of 7%, although it has to be said that in some cases, the error might be up to 40%. It has worked for me so far 80% of the time with an error of less than 15%, which is more than acceptable considdering the errors wound in other tools like the web Traffic Estimate. If you have a website and know your numbers, just compare and see the difference.

Please, this model is just a starting point, that needs to be upgraded, corrected and improved with all your comments.... Any suggestions ???

## Tuesday, October 28, 2008

### Word of Mouth Marketing in Internet 101 (WOMM 101)

WOM = Word of Mouth

WOMM: Word of Mouth Marketing

According to the Word of Mouth Marketing Association Word of Mouth Marketing is defined as:

"Giving people a reason to talk about your products and services, and making it easier for that conversation to take place"

Uhh?? … Sorry but … Isn’t that definition, in one way or another, just the goal of almost any advertising marketing campaign?? … I was a bit disappointed. After not so careful consideration, I decided to research a bit on the subject and share my opinion in this post.

Basics of Word of Mouth

To start, I went to see WOMM Wikipedia’s definition and things got a bit better. Some of the things that are very descriptive about word of mouth marketing mentioned on this definition are: WOMM is more credible than other forms of marketing and that deliberate efforts to fake or generate WOM using deceptive practises, usually don’t work out (or have the opposite effect: negative WOM)

Word of Mouth Marketing (WOMM) has always been considered one the most powerful marketing techniques. It has three main characteristics that make it very different from other more traditional marketing channels:

1.- Very difficult to control
The usual way that all marketing campaigns go is FROM the advertising company TO the end consumer. The company tries to communicate something through advertising, whatever the marketing goal might be: brand awareness, increasing consumption, change from a rival brand, etc. If the end consumer “buys” the message, then the campaign has achieved its goal. The powerful effect that a WOMM campaign has is that it’s based on the premise the company will not be the one transmitting the message, but another consumer. Anything transmitted from one consumer to another about a product, a brand or a person will be many times more effective than something transmitted directly from the company…. And that is exactly is where the risks and rewards lie: the message transmitted will be much more powerful… but you can’t control it…

2.- If successful, it might be the most effective marketing tool
The outcome in a TV/Radio Ad campaign can be very predictable. It might be better or worse depending on which media is bought or on the creativity of the campaign but the final outcome in terms of sales tends to be unsurprising. On the other hand Word Of Mouth Marketing campaigns can result in tremendous successes or incredible failures, given that WOM can be extremely positive or terribly negative for a company.

Some examples of very effective WOMM Campaigns are the iJam 5Js and the “Yo amo a Laura” (see video below)

Examples of WOMM campaigns with terrible outcomes, mainly for trying to fake WOM, are the Subservient Chicken and Josh Friedman’s blogging about the movie “Snakes on a Plane”.

3.- If successful, it might be the most Cost-Effective marketing tool.

Usually, the best WOMM campaigns are very cost effective… if successful. Some of the best campaigns start with a blog post from a very recognized and influential person, a kind of “Homemade” video on YouTube, an e-mail or some other way of viral marketing. The production and media buying cost of these marketing channels is generally much lower than producing and airing a TV Ad, or o buying tons of pages in specialized magazines.

On part 2 of this post I’ll continue with my view on What are the basic elements for a successful Word of Mouth Marketing Campaign.

## Wednesday, October 22, 2008

### (Part 2) Amazon vs eBay. Selling on Amazon or selling on eBay? Which is the best option for online vendors

Coming from Online retailing Amazon vs eBay. Selling on Amazon or selling on eBay? Which is the best option for online vendors (Part 1)

• Fulfillment by Amazon:

Since the beginning, Amazon invested heavily on automated fulfillment and distribution centers. This is one of the main reasons eBay has been able to expand faster (geographically) than Amazon. eBay is a 100% online business while Amazon has to invest time and resources to build its fulfillment centers. Anyway, coming back to the point of view of an online vendor this is a very important difference between the two platforms: Amazon offers the possibility to outsource the fulfillment (storing, picking, packing and shipping) while eBay doesn’t. Amazon calls this service

• Return policy / Guarantee:

This is one of the most important differences between the two platforms: Amazon has a full guarantee designed to protect the buyer while eBay does not. This might not seem too important but it is on the long run, because it’s a way to autoselect the kind of buyers and sellers you want to have in your marketplace. Amazon’s guarantee is the “A-to-Z Guarantee protection”.
The guarantee obliges any seller to refund or resend the item to the buyer in the event of a claim. This is designed to offer confidence to buyers so they know that they anything they buy on Amazon or from an Amazon third party seller will be as described. Sellers that don’t comply with Amazon’s minimum ratios of client service, by failing consistently to refund/resend items to buyers eventually will not be allowed to sell on Amazon. This means that only good quality service sellers will be allowed to remain selling on Amazon. What Amazon is doing with this is very clear: It’s eliminating one of the most important reasons that kept buyers from buying online, which is fraud/forgery. eBay does not function like this at all, eBay is not responsible of what the seller does or sells. This is why there have been so many claims of false luxury goods of the most prestigious brands being sold on eBay but the problem continues. The way buyers can penalize bad sellers in eBay is through reputation (giving a bad feedback) or through eBay’s Resolution Center which depending on the case and the allegations, can take some time.

All this explanation of the way each platform tries to protect its buyers from forgery/fraud is just to show you how it directly affects the sellers. Sellers of fake items or items with a very low quality won’t go to Amazon because they know that they will have to pay the buyers in case of claims or they will be kicked out of the marketplace. The outcome of the guarantee, besides obviously protecting buyers, is that Amazon is self-selecting good quality sellers for its platform.

 SELLERS Perspective Amazon eBay Fees MORE EXPENSIVE - Listing Fee: Low for volume - Commisions: High 15% Better for high volume // High rotation items CHEAPER - Listing Fee: Low for individual listings - Commisions: Low 8% Better for High price // Low rotation items Format Fixed Price Format Fixed price + Auction Auction: Better for Antiques and Collectibles. Ebay moving into Fixed Price direction Average sale Price BETTER Buyers pay more on average for the same items WORSE More price competition Payment Methods LESS OPTIONS BUT EASIER TO MANAGE If Amazon can't collect the payment, the seller doesn't have a sale, and the item remains listed. MORE OPTIONS BUT MORE COSTLY eBay sellers can accept PayPal, money orders, cashier's checks or cash. However, they're responsible for managing collections, which means investing more time and labor into each transaction. Return Policy WORSE Tight claim and quality control. If many clients solicit returns, they can be kicked out of Amazon BETTER Not obliged to return. The only penalty could be a bad feedback Shipping / Fulfillment BETTER Amazon fixes the shipping credit, per category, regardless of what actually the shipping cost ends up being WORSE Seller fixes shipping price, but supervised by eBay (to avoid overcharging) Client Follow Up / Marketing Info WORSE Sellers are not allowed use the contact information for follow up marketing actions. This is a big setback for any seller because in each transaction, the seller is selling an item, but the customer is acquired by Amazon, not by the seller. MUCH BETTER Billing information is managed by the seller itself. The seller can decide what to do in terms of follow up marketing actions. The long term relationship will be between the seller and the client, not between the platform and the client.

Conclusions and final thoughts

• Although in general Amazon seems to have better quality of service and a more options for sellers, It’s more expensive and doesn’t allow follow up marketing actions; two things that are not trivial for sellers. In other words, It might be better… but at a cost.
• The other very important point is that the clients of both platforms tend to be loyal to their marketplace, which means that if you’re a seller on eBay and decide to start selling on Amazon, you’ll reach millions of NEW customers. Sell on both platforms, you have nothing to lose, only millions of new customers to reach.
• As a final conclusion, I could argue that both platforms should be used only to generate incremental sales, and not become the only source of income. To be so dependent on only one sales channel, has always proved to too risky….

Related content: eBay vs. Amazon, the Buyer's perspective

## Monday, October 20, 2008

### Online retailing Amazon vs eBay. Selling on Amazon or selling on eBay? Which is the best option for online vendors (Part 1)

With Amazon increasing more 30% every year on 3rd party sales and recent news of layoffs in eBay, the question of selling on eBay or selling on Amazon is more important to online sellers now than ever. The economic slowdown and financial crisis has also made e-commerce vendors take a much closer look on listing fees, commissions, tools, etc in order take a more informed decision about which 3rd party platform they choose. This article will try to give some information to online stores about the advantages and disadvantages of selling on Amazon.com and ebay.com.

Let’s start the analisys with the current state of both platforms in terms of sales by 3rd party goods. This could be one indicator (certainly not the only one) of the platform’s success. The first impression is that eBay is the overwhelming leader in marketplace solutions for 3rd party ecommerce companies. In an analysis done by Piper Jaffray of Gene Munster, it’s estimated that in the last 12 months eBay sold 3rd party goods by a market value of roughly \$62 billion, while Amazon sold just \$6 billion. Although the difference might seem huge in favor of eBay, taking a closer look can prove otherwise. eBay sales have grown less than the industry average, increases in listing fees have outraged groups of important power sellers and as a result of this, the stock has underperformed S&P 500 and Nasdaq Index in the last year. On the other hand, Amazon’s third party sales have been growing steadily at the same pace as total revenues (30-35% a year). Amazon has outpaced Industry growth by a huge margin. Another important reason for the difference in the amount of US\$ worth of goods sold is just one of geographical reach. While eBay is present in 32 countries, Amazon has presence in only 7 so any volume comparison would have to be adjusted accordingly. With a clearer picture of the figures now, the trend is very clear: eBay sales are stagnating while more and more vendors are opting for Amazon as their marketplace platform.

The immediate following question would be Why? Why more and more vendors are choosing Amazon instead of eBay to sell if fees are more expensive? Some of the reasons why, that I’ve found are the following.

· Fee structure and pricing formats: While, on average, Amazon’s fees are higher, averages always hide important information. Amazon’s fee structure is easier to understand. There is one monthly payment for almost unliimited listings and a commission based on a Fixed price (not variable like in eBay). This makes Amazon’s marketplace more appealing to vendors with high volume / high rotation goods, meaning goods with not much differentiation and more like a “commodity” type. On the other hand, eBay’s auction format and fee structure is much more appealing to high price / low rotation items. No wonder why eBay started as a platform almost only for “Antiques and Collectors” and has moved gradually to mainstream vendors.

· Better customers: Amazon customers have proved to be more loyal, spend more, and most importantly, pay on average higher prices for the same items than on eBay. These are very appealing reason for an Online Vendor to choose Amazon’s Platform; let’s check them one by one.

o More loyal customers: Even when Amazon sells goods from a third party seller, It retains customer information and the right to follow up on that client with any marketing action Amazon considers appropriate. This means that all direct marketing actions are centralized and controlled by Amazon and this is a huge advantage to make customers more loyal. On the other hand eBay does not control this information. If a seller sells something on eBay, the seller retains billing and contact information, not eBay. Therefore, follow up marketing actions are spread between many vendors, with no coordination or consistency to the eyes of the buyer.

o Customers that spend more: What Amazon does with the purchaser information is pure and “state of the art” direct marketing to increase revenue and profitability per customer. By sending relevant e-mails, cross selling items before checkout, whish lists, giving away shipping fees, personalization tools, etc, Amazon has achieved loyal customers, and in this case, loyal customers spend more than in any other site.

o Higher average prices: There are a couple of reasons that I can say why prices on Amazon are higher than on eBay. First and most important is the marketplace structure: Amazon is a fixed price marketplace while eBay is an auction based marketplace. By its nature, an auction based marketplace will be much more competitive on prices. For similar items, a difference of \$1 might make a buyer decide to go for the cheapest option. Also, it’s much easier to compare prices between different vendors because the website was originally designed to do this.

The other reason, easier to understand is just that fees on Amazon are higher, therefore on average, as sellers tend to maintain their prices, prices for similar items will be higher on Amazon than on eBay. In any case, is important for an online vendor to know that Amazon’s customers will be less picky on prices than eBay’s customers.

For these three reasons we can say that Amazon’s customers are better customers: they are more loyal customers, spend more money on each purchase, buy more often and pay higher average prices. This are very important reasons for sellers to use the platform, even at the cost of paying higher fees.

Related content: eBay vs. Amazon, the Buyer's perspective

The rest of the article, conclusions and a summary of pros and cons will continue in Part 2