shopping carts, originally uploaded by anyone_anywhere

I’ve been enjoying Jeremy Liew’s posts on Lightspeed Venture Partners’ new blog. On Jan. 1 he posted six 2007 consumer internet predictions and at the top of the list was “Ecommerce 2.0 arrives“:

Google’s search revenues continue to grow at 70-80% growth rates. Yet the public ecommerce companies‘ revenues are growing at “only” 25-30% at best. But almost every Google click is going to an online transaction somewhere - people still aren’t using search advertising for branding purposes. So what is filling the gap? Some of it is the multichannel retailers coming on strong, Walmart, OfficeMax, etc. But a lot of it is from the next generation of ecommerce companies, still private but doing revenues in the $10s and sometimes $100s of millions that have quietly been growing at 50-100% per year through the last few dark years. Companies like Zappos, Art.com, Mercantila, Netshops, CSN Stores, Backcountry, Bodybuilding.com, Toolking, US Auto Parts and dozens more have grown up, mostly away from Silicon Valley, and many without the need for venture capital. Those that have taken investments have often been at scale and profitable when they do. Watch this space as the next generation of ecommerce sites ride people’s growing willingness to buy online, use search to acquire new customers and focus on verticals rather than trying to be an all encompassing department store.

As someone who lived and breathed e-commerce in the so-called “dark years,” I’m convinced 2007 will be more evolutionary than transformational. Jeremy’s right in suggesting that e-tailers have specialized and done well within niches. Pick up a copy of Internet Retailer’s Top 500 Guide and you’ll see them - Toolbarn.com, figleaves.com, artbeads.com, etc. Will we witness a wave of venture dollars going into these or similar companies, though? I doubt it - the niches that were large enough have already been picked. Lightspeed’s own recent investment in Mercantila is about bringing a toolset of best practices to a slew of verticals which in aggregate represent a big pie. It’s a smart move and an opportunity for a single player, but I don’t think there’s a lot of low lying e-commerce fruit.

So what will happen in 2007?

1) E-tailers will take better advantage of broadband connections. Blendtec’s genious “Will It Blend?” is a stellar example. Expect outsourced providers to enter the market with integrated video solutions, more detailed product images (see North Face, for instance), virtual display (e.g. picture an outfit made of multiple items at an apparel site), and other means of showcasing product and driving engagement.

2) Content shifts traffic patterns. Especially within niches, the more sophisticated e-tailers will look to media to drive visit frequency. Just as groceries changed Wal-Mart’s customer base from one that visited on average once a month to one that visited on average once a week, e-tailers will use topical media to bring customers back (see Bluefly’s “flypaper“).

3) Dynamic customization techniques pick up momentum. IP address geolocation enables e-tailers to architect a pitch specifically for user sets. For instance, a visitor from Hawaii might be greeted by t-shirts rather than winter coats. Clickstream and purchase pattern mining (as regularly seen on Amazon) will become more accessible to smaller players and better integrated via dynamic product selection display (rather than the standard dashboard many execs pore over to drive static implementations). Aggregate Knowledge offers just such a solution.

4) Outsourced vendors increasingly enable conversions and fulfillment. A childhood mentor used to say, “Take care of the ounces, and the pounds will take care of themselves.” In e-commerce, we’ve seen near universal adoption of security marketing over the last few years - ScanAlert’s “HackerSafe” badge, in particular, has taken off. Additional outsourced tools can, together, make a world of difference for a site and many will see better adoption in the year ahead. Examples include customer reviews (Bazaar Voice), shopping cart abandonment recovery (Second Bite), search (Endeca), and international fulfillment (used to be Comerxia, but they went belly up; someone will surely step in though I don’t think 2007 is the year e-commerce goes international in a big way).

5) Certain niche providers will integrate advertising for complementary goods. Sure, screen space is valuable, but if the online ad market continues to heat up we’ll see the less brand-conscious e-tailers plunge for ad delivery to supplement product sales.

6) Expect some to launch community sites. Circa 2004 Karmaloop put up a short-lived personals section that I thought held promise. For whatever reason they pulled it. With white-label social networking tools emerging, we’re sure to see e-tailers try to piggy-back off the success of MySpace/Facebook/Bebo. Many will create custom pages on the networks themselves and be served well.

Again, evolutionary, not transformative. Anyone take the contrarian view that outsourced vendors will face challenges via commoditizing tech or that 2007 will be the year that e-commerce goes international in a big way? I’m still smarting from trying to run an international ad campaign on Overture in 2004 - the tools were not there.