A FEW days ago, I got an e-mail from my sister Amy in Los
Angeles saying she and her husband had received boxes from J. Crew. Christmas
presents from me, she assumed, since I had ordered them online and told her to
But for whom, she asked? The cards were buried deep in the packaging, and one of
them was missing. Nothing was gift-wrapped, either (although I had requested and
paid for it). The boxes contained two pairs of shoes (although I had ordered
only one pair), a man’s pullover and a sparkly pink woman’s sweater. The sweater
was for a friend who also lives in Los Angeles, but somehow ended up being sent
to Amy’s husband.
I called J. Crew to complain, and what followed was tedious and time-consuming,
as all Internet dramas are, involving a review of numerous e-mails — “your order
has been received,” “your order has been shipped” — in this case to the wrong
place and in the wrong ways, some of which I might have prevented if I’d been
vigilant tracking the flurry of e-mails.
The customer-service representative, consulting records, assured me that the box
for my friend had been delivered. It had been left at the front door, she said,
and gave me the address, which turned out to be not my sister and her husband’s
house but my friend’s office, a gigantic building in Beverly Hills. “Left
outside the front door? Are you sure?”
“Yes,” she said, and, as an apology, she would send me a $50 gift card. I
e-mailed my friend. Had she received a box from J. Crew? “No,” she said.
My sister offered to gift-wrap and deliver my friend’s present. This was
especially kind because traffic in Los Angeles is awful, as bad as New York’s
during the holidays, which is one reason I order on the Web. But rather than
make life easier, Web shopping only complicates it in new, more frustrating
My husband, in charge of buying for all the children in our life, announced one
evening that he had bought all his presents. To be done with Christmas shopping
was so exciting that you’d think he’d used up some calories to do it, when in
fact he’d never left his desk. The next morning he got an e-mail from Hammacher
Schlemmer saying the item was out of stock and would ship after Jan. 1. So he
had to phone and cancel the order. He then had to Web-shop all over again.
When I ordered the presents on the J. Crew Web site and checked a box for the
gift-wrapping, I received a message back that J. Crew did not wrap shoes, my
sister’s present. As Amy and I were sorting things out, I wondered why in the
world I thought it was O.K. to send a Christmas present that wasn’t
It seems to me — a fact I had completely forgotten — that a Christmas present
should be wrapped in pretty paper, maybe with some Santas dancing across it,
maybe something glossy and glamorous. Shouldn’t the tag be handwritten?
Shouldn’t the ribbon be made of paper that curls when you whip it across a
scissor blade? A present should beckon you. Who wants a Christmas tree with a
bunch of U.P.S. boxes under it?
Last week a U.P.S. box arrived. I opened it, and inside, unwrapped, was a slate
cheese board and a gift card that said, in computer script, “Merry Christmas
Julia and Jerry, love Anna.”
Anna is my niece. Jerry is my husband. I assume that I am Julia.
Precious holiday giving cannot be entrusted to a Web site. A gift shouldn’t be
something you open by accident — hello, what is this? — ripping open the
cardboard outer box with a knife, and then having your present fall out naked.
Ordering Christmas presents on the Web, regardless of the dubious ease, has
obliterated the idea that there should be some grace to a present, some beauty,
and that the receiver should experience it. Instead it’s become as mundane and
problematic as all our Web purchases, which in my family include paper towels
and toilet paper.
All this joy of Internet shopping was accompanied by our phone ringing several
times a day: a computer voice from Virgin America insisting that my husband owes
$70 — a $50 credit-card fee and $20 interest for not paying it. My husband has
never had a Virgin America credit card. But to “proceed,” as in clear the
problem up, the electronic voice asked him to identify himself by giving the
number of the credit card that he does not possess. The telephone, which used to
symbolize “reach out and touch someone” — remember that tear-jerking TV ad? —
has become a disembodied voice reaching out to drive us crazy.
But I digress. Or do I? It all seems related. Intimacy replaced by expedience.
So this is my New Year’s resolution: I am never ordering another Christmas
present on the Web again. Next year I am wrapping all my gifts myself and
standing in line at the local post office for an hour or two to mail them. It’s
the least I can do for the people I love.
WASHINGTON — The Obama administration on Wednesday outlined a
set of online privacy principles that officials said would help consumers
control the use of their personal data gleaned from Internet searches.
The framework for a new privacy code moves electronic commerce closer to a
one-click, one-touch process by which users can tell Internet companies whether
they want their online activity tracked.
Much remains to be done before consumers can click on a button in their Web
browser to set their privacy standards. Congress will probably have to write
legislation governing the collection and use of personal data, officials said,
something that is unlikely to occur this year. And the companies that make
browsers — Google, Microsoft, Apple and others — will have to agree to the new
But because those companies also are the largest competitors in the business of
providing advertising to Web sites, and are part of a consortium participating
in the development of the principles, administration officials said they
expected the standards would give consumers privacy while also allowing
electronic commerce to grow.
“American consumers can’t wait any longer for clear rules of the road that
ensure their personal information is safe online,” President Obama said in a
statement released Wednesday. “By following this blueprint, companies, consumer
advocates and policy makers can help protect consumers and ensure the Internet
remains a platform for innovation and economic growth.”
Even before Congress approves privacy legislation, the Federal Trade Commission
will have the ability to enforce compliance with a code of conduct to be
developed by the Commerce Department or with advertising industry guidelines
that companies would adopt voluntarily, Jon Leibowitz, the chairman of the
F.T.C., said during a call with reporters on Wednesday.
Companies responsible for the delivery of nearly 90 percent of online behavioral
advertisements — ads that appear on a user’s screen based on browsing and buying
habits — have agreed to comply when consumers choose to control online tracking,
the consortium said on Wednesday.
But even if a click of a mouse or a touch of a button can thwart Internet
tracking devices, there is no guarantee that companies won’t still manage to
gather data on Web behavior. Compliance is voluntary on the part of consumers,
Internet advertisers and commerce sites.
"The real question is how much influence companies like Google, Microsoft, Yahoo
and Facebook will have in their inevitable attempt to water down the rules that
are implemented and render them essentially meaningless,” John M. Simpson,
privacy project director for Consumer Watchdog, said in response to the
administration’s plan. "A concern is that the administration’s privacy effort is
being run out of the Commerce Department.”
But Mr. Leibowitz noted that the F.T.C. had already been aggressively penalizing
companies that did not adhere to their stated privacy programs. Last year it
brought charges against both Google and Facebook.
“If you ask what makes businesses want to do this,” Mr. Leibowitz said, the
answer is, “respecting consumer privacy and protecting data online encourages
The Digital Advertising Alliance, a group of marketing and advertising trade
groups, said it had committed to following the instructions that consumers gave
about their privacy choices by using Do Not Track technology already available
in most Web browsers.
Stu Ingis, general counsel for the Digital Advertising Alliance, said the group
hoped to reach agreement within about nine months with browser companies on
standards for the use of a one-click notification of a consumer’s privacy
Hardly a day goes by without some development in the expansion of privacy
standards or the punishment of privacy violations. On Wednesday, California’s
attorney general, Kamala D. Harris, said the state had reached an agreement with
Amazon, Apple, Google, Hewlett-Packard, Microsoft and Research in Motion to
strengthen privacy protections for smartphone owners who download mobile
The agreement will force software developers to post conspicuous privacy
policies detailing what personal information they plan to obtain and how they
will use it. It also compels app store providers like Apple and Google to offer
ways for users to report apps that do not comply.
The new privacy outline brings together several efforts to develop and enforce
privacy standards that have been progressing for the last couple of years on
parallel tracks, under the direction of advertisers, Internet commerce sites and
The next step will be for the Commerce Department to gather Internet companies
and consumer advocates to develop enforceable codes of conduct aligned with a
“Consumer Privacy Bill of Rights” released as part of the administration’s plan
The bill of rights sets standards for the use of personal data, including
individual control, transparency, security, access, accuracy and accountability.
Tanzina Vega contributed reporting from New York
and Nick Bilton and Nicole Perlroth from San Francisco.
February 14, 2012
The New York Times
By JOHN MARKOFF
SAN FRANCISCO — A team of European and American mathematicians
and cryptographers have discovered an unexpected weakness in the encryption
system widely used worldwide for online shopping, banking, e-mail and other
Internet services intended to remain private and secure.
The flaw — which involves a small but measurable number of cases — has to do
with the way the system generates random numbers, which are used to make it
practically impossible for an attacker to unscramble digital messages. While it
can affect the transactions of individual Internet users, there is nothing an
individual can do about it. The operators of large Web sites will need to make
changes to ensure the security of their systems, the researchers said.
The potential danger of the flaw is that even though the number of users
affected by the flaw may be small, confidence in the security of Web
transactions is reduced, the authors said.
The system requires that a user first create and publish the product of two
large prime numbers, in addition to another number, to generate a public “key.”
The original numbers are kept secret. To encrypt a message, a second person
employs a formula that contains the public number. In practice, only someone
with knowledge of the original prime numbers can decode that message.
For the system to provide security, however, it is essential that the secret
prime numbers be generated randomly. The researchers discovered that in a small
but significant number of cases, the random number generation system failed to
The importance in ensuring that encryption systems do not have undetected flaws
cannot be overstated. The modern world’s online commerce system rests entirely
on the secrecy afforded by the public key cryptographic infrastructure.
The researchers described their work in a paper that the authors have submitted
for publication at a cryptography conference to be held in Santa Barbara,
Calif., in August. They made their findings public Tuesday because they believe
the issue is of immediate concern to the operators of Web servers that rely on
the public key cryptography system.
“This comes as an unwelcome warning that underscores the difficulty of key
generation in the real world,” said James P. Hughes, an independent Silicon
Valley cryptanalyst who worked with a group of researchers led by Arjen K.
Lenstra, a widely respected Dutch mathematician who is a professor at the École
Polytechnique Fédérale de Lausanne in Switzerland. “Some people may say that
99.8 percent security is fine,” he added. That still means that approximately as
many as two out of every thousand keys would not be secure.
The researchers examined public databases of 7.1 million public keys used to
secure e-mail messages, online banking transactions and other secure data
exchanges. The researchers employed the Euclidean algorithm, an efficient way to
find the greatest common divisor of two integers, to examine those public key
numbers. They were able to produce evidence that a small percentage of those
numbers were not truly random, making it possible to determine the underlying
numbers, or secret keys, used to generate the public key.
They said they “stumbled upon” almost 27,000 different keys that offer no
security. “Their secret keys are accessible to anyone who takes the trouble to
redo our work,” they wrote.
To prevent this, one of the organizations that had collected the public keys has
removed the information from the Internet and taken steps to protect it from
To perform their study, the researchers used several databases of public keys,
including one at the Massachusetts Institute of Technology and another created
by the Electronic Frontier Foundation, a Internet privacy rights group. The
foundation’s database results from a project, known as the SSL Observatory,
originally intended to investigate the security of the digital certificates that
are used to protect encrypted data transmitted between Internet users and Web
“We were very careful: we did not intercept any traffic, we did not sniff any
networks,” Mr. Hughes said. “We went to databases that contained public
information and downloaded public keys.”
The researchers said they were not able to determine why the random number
generators had produced imperfect results, but they noted that the problem
appeared in more than the work of a single software developer.
They also stated that if they had been able to discover the flaw, it was also
possible that it had been previously uncovered, perhaps by organizations or
individuals with malicious intent: “The lack of sophistication of our methods
and findings make it hard for us to believe that what we have presented is new,
in particular to agencies and parties that are known for their curiosity in such
matters,” they wrote.
While they said that the publication of results that potentially undermine the
security of encryption keys was inappropriate unless the parties were notified
first, the researchers noted that the way they discovered the flaw made
identifying potentially vulnerable parties a challenge.
“The quagmire of vulnerabilities that we waded into makes it infeasible to
properly inform everyone involved, though we made a best effort to inform the
larger parties and contacted all e-mail addresses recommended or specified in
still-valid affected certificates,” they wrote. “The fact that most certificates
do not contain adequate contact information limited our options. Our decision to
make our findings public, despite our inability to directly notify everyone
involved, was a judgment call.”
There have been previous failures of random number generators that have
undermined Internet security. For example, in 1995, two researchers at the
University of California, Berkeley, discovered a flaw in the way the Netscape
browser generated random numbers, making it possible for an eavesdropper to
decode encrypted communications. Last year a group of computer hackers revealed
that Sony had made a crucial mistake in not using a random number in the
algorithm used by the security system of the PlayStation 3, making it possible
to discover the secret key intended to protect digital content on the system.
The researchers whimsically titled their paper “Ron Was Wrong, Whit Is Right,” a
reference to two pioneers in public key cryptography, Ron Rivest and Whitfield
Mr. Diffie was a developer of the first method for two people who had not
previously physically met to share a secret message safely. However, what became
known as the R.S.A. algorithm, created by and named after three mathematicians,
Mr. Rivest, Adi Shamir and Leonard Adleman, ultimately became the dominant
standard. (They later helped found the security company RSA.) The so-called
Diffie-Hellman method, developed by Mr. Diffie, Martin Hellman and Ralph Merkle,
required only a single secret number.
January 20, 2011
The New York Times
By CLAIRE CAIN MILLER
Google’s strong fourth-quarter earnings proved that it is now firmly
ensconced in e-commerce, and also showed that, with its Android operating system
and related apps, it is smoothly transitioning to the mobile world.
But that news, reported on Thursday, was quickly followed by the announcement
that Larry Page, a Google co-founder, will replace Eric E. Schmidt as chief
executive in April.
The move marks a return to the helm of the company for Mr. Page, who left the
role in 2001 when Google was still a private company. Mr. Schmidt will become
executive chairman, focusing on outside partnerships and government outreach,
the company said.
The upheaval at the top may have overshadowed the earnings report, but the
numbers were good. Google benefited from the best online holiday shopping season
since 2006, as Web users increasingly began their shopping sprees at the search
“Whenever e-commerce improves, we see more advertisers competing for the same
keywords, and that means more revenue for Google,” said Sandeep Aggarwal, an
Internet analyst at Caris & Company.
To make it easier for shoppers to find what they were looking for, Google in the
run-up to the holiday season introduced tools like Boutiques.com and search
results that showed which offline stores have an item in stock. It also began
offering retailers product ads with images.
Google reported on Thursday that net income in the quarter ended Dec. 31 was
$2.54 billion, or $7.81 a share, up from $1.97 billion, or $6.13 a share, in the
year-ago quarter. Excluding the cost of stock options and the related tax
benefits, Google’s fourth-quarter profit was $8.75 a share, up from $6.79.
The company said revenue climbed 17 percent, to $8.44 billion, from $6.67
billion a year earlier. Net revenue, which excludes commissions paid to
advertising partners, was $6.37 billion, up from $4.95 billion.
“Our strong performance has been driven by a rapidly growing digital economy,
continuous product innovation that benefits both users and advertisers, and by
the extraordinary momentum of our newer businesses, such as display and mobile,”
Mr. Schmidt said in a statement.
While Google’s e-commerce offerings drove its search business during the
quarter, the company also began to convince investors that it is successfully
moving into new businesses, particularly mobile and display ads.
On a call after the earnings report, Jonathan Rosenberg, senior vice president
for product management, said the winners of 2010 were Google’s display
advertising business, which now has two million publishers; YouTube, where
revenue doubled; businesses that have begun using Google products; and Android,
with 300,000 phones activated a day.
Mr. Rosenberg also said there were 10 times as many searches year over year done
from Android devices, which translates into advertising revenue for Google.
Google has been selling display ads, those with images and sometimes video, on
YouTube and other Web sites. The company does not break out display ad revenue,
but eMarketer, a research firm, estimated that Google accounted for 13.4 percent
of display ad revenue in the United States last year, up from 4.7 percent in
2009. Meanwhile, Yahoo, the market leader, lost share, eMarketer said.
Google’s mobile business is particularly promising, analysts said, as people
increasingly neglect the laptops on their desks for the phones in their pockets.
For Google to maintain its dominance, it has needed to follow them, which it has
been doing with apps to search the Web on the go, look up directions, watch
videos, find local businesses and even make phone calls.
This year, Mr. Rosenberg said, the company will focus on products that allow
people to access local information on mobile phones, as well as commerce, adding
that the two are tied together.
“They key to unlocking mobile commerce was to make it easier for people to both
search and then consummate the transaction on the mobile device,” he said.
“As smartphones become ubiquitous and local businesses put their inventory
online, I think this will be the year that smartphones” change the way commerce
is done, he added.
Still, other Google businesses have yet to find success. Google TV has faced
delays and poor reviews; the Justice Department is still deciding whether to
permit Google to acquire the flight software company ITA; and analysts are
watching closely to see if the iPhone’s debut on Verizon affects sales of
Also, analysts expressed concern about Google’s spending; the company is
continually hiring and paid more than $2 billion for a building in New York to
house growing operations.
December 23, 2010
The New York Times
By TIMOTHY WILLIAMS
Online sales increased more than 15 percent this holiday season, according to
data released Thursday, the latest confirmation of the growing importance of
Internet commerce during retail’s most lucrative time of the year.
Retailers online took in $36.4 billion from Oct. 31 to Dec. 23, compared with
$31.5 billion in the period a year ago, according to MasterCard Advisors
SpendingPulse, which tracks all forms of payments for purchases, including cash
The growth of online purchases is expected to surpass in-store sales this
Christmas, though it still represents a small percentage of total sales. The
National Retail Federation said last week that it expected sales in November and
December to increase 3.3 percent this year, up from 2.3 percent a year ago, to
Much of the online increase came in apparel sales, SpendingPulse said, which
took in $7.3 billion since Oct. 31, up 25.7 percent from a year ago.
Over all, apparel purchases online accounted for 18.9 percent of the total
clothing sales this holiday, SpendingPulse said, up from 16.9 percent a year
Cold, wet weather across much of the country in the last several weeks led
consumers to stock up on warm clothing, which has been a boon to retailers, said
Michael McNamara, vice president for research and analysis at SpendingPulse. The
inclement weather has led many to shop at home.
“What is driving this is that apparel sales online are doing well in general,
represented by a shift from brick-and-mortar stores,” Mr. McNamara said. “The
cold weather has helped, too. Retailers are saying this is the season of the
Department stores saw an 11 percent increase in online purchases. Sales of
electronics goods increased 12.2 percent. Jewelry had a comparatively modest 4.5
percent increase online, according to SpendingPulse.
This year, six days surpassed the $1 billion mark, led by Nov. 30 and Dec. 1,
which each had about $1.1 billion in sales.
One three-day period — Dec. 14, 15 and 16 — each had sales of more than $1
billion. Last year, only three days had $1 billion in sales or more.
On the Monday after Thanksgiving, which was Nov. 29 this year, many online
retailers offered discounts and other deals to attract shoppers. The result was
$99.3 million in sales — a 25.3 percent increase rate from a year ago. Online
deals on the Friday after Thanksgiving spurred a 34.5 percent increase in online
sales, to $597 million.
December 19, 2010
The New York Times
By STEPHANIE CLIFFORD and CLAIRE CAIN MILLER
This holiday season, online sales are zooming, even as online retailers offer
fewer discounts and turn picky about who shops at their sites.
After two years of relative malaise, online sales grew 12 percent in the first
47 days of the holiday season, according to comScore, to $27.5 billion. That
significantly outpaces the growth rate of retail sales over all, which analysts
expect to rise 3 to 4 percent this holiday season.
But online retailers are now protecting their margins with careful offers,
dispensing with the promotions of the last two holiday seasons that were meant
to drive sales and get rid of extra inventory. Gone are the coupons that give
shoppers 40 percent off all purchases. Instead, offers go to selected customers,
and are specialized: a discount on wool jackets, free hoop earrings when people
spend $100, a “mystery” discount amount that is revealed only at checkout.
The promotions try to get customers to behave in a certain way. A coupon may
seem straightforward, like Drugstore.com offering $5 off a $30 purchase. In
fact, it is encouraging one-time customers to browse through several pages of a
site and get to know what a retailer offers as they decide what to buy.
“The reason there’s these different promotions and not just the straight
dollar-off or percent-off promotions all the time is there are different
incentives,” said David Lonczak, chief marketing officer of Drugstore.com. “You
may just need a sale, you may have a product you’re long on and you need to get
rid of it, or you may be looking to acquire customers with a higher basket,” he
said, referring to the transaction price. “You have to be thoughtful.”
Discounting has declined; in November, retailers’ e-commerce revenue from sales
of full-price items rose 52 percent versus November 2009, according to MyBuys,
which works on personalization offers for retailers.
But less discounting has not tamped down online sales. On Thanksgiving weekend,
more than one-third of purchases were made online, versus about 28.5 percent
last year, according to the National Retail Federation.
That is because even staunch in-store shoppers are now comfortable buying
online, said Fiona Dias, executive vice president for strategy and marketing for
GSI Commerce, which provides e-commerce technology to retailers like Toys “R”
Us. And the high demand means that online retailers do not have to slash prices
to get customers.
“If anything, we’re running tight on inventory because everyone has sold a lot
more than they expected to,” Ms. Dias said of the sites she works with. “That’s
why we’re not seeing 50-percent-off promotions.”
Given their strong position, retailers are trying to get customers out of the
price-wars mind-set that they adopted during the recession.
“At some point, we have to stop and try to go back to where we were because if
everyone continues to offer 20 percent, 50 percent off, it’s going to change the
market on a long-term scale that it would be too hard to get back from,” said
Melissa Joy Manning, who runs an online jewelry store bearing her name. She has
stopped discounting, but is giving a pair of silver hoop earrings to customers
who spend $100 or more. “We don’t have unlimited resources, so we do try to be
as creative with them as we can,” she said.
Like Ms. Manning, other retailers are getting creative with unusually specific
“It’s about margins,” said Andy Dunn, the chief executive and co-founder of
Bonobos, a men’s clothing site. While last December, about a third of his
revenue came from promotions, this year it’s down to about a quarter, even as he
expects his revenue to nearly triple for the month. “There’s less of a need to
be highly promotional,” he said. “At the same time, we feel we need to get
better at the laser-beam promoting.”
So he is whittling down offers, sending, for instance, a 20 percent offer on
suit elements to people who have bought wool pants but not a jacket.
“We don’t have to treat everyone the same,” he said.
Drugstore.com also changes its approach depending on the customer.
That offer for $5 off any purchase over $30 may prompt people to explore the
site. “So if a new Drugstore.com customer doesn’t know I sell toys and games,
would you think I’d sell a Razor scooter?” he said. “I have to incent you to
He would use a percent-off coupon, he said, when he wants to drive overall
sales. And he tends to avoid offers like “$10 off your purchase,” because “I
would get a whole bunch of people coming in, they would find the product that
was 10 dollars and one cent, they would get it and I would never see them
again,” he said.
Other retailers are trying to stand out in crowded in-boxes. Bloomingdales.com
had a “mystery savings” event last week, in which customers on its e-mail list
were sent a code that called up discounts of between 10 and 40 percent at
“People are going, ‘Well, maybe I’m going to be the one who hits the jackpot,’ ”
said Bruce Berman, president of Bloomingdales.com and chief financial officer of
Bloomingdale’s. “So they open it at a higher rate.” The tactic helped the store
stand out, he said. The day after the Bloomingdale’s e-mail went out, Saks Fifth
Avenue also sent one promoting a “mystery sale” online. Saks declined to comment
on the promotion.
For Bloomingdale’s, Mr. Berman said, “It worked out to our advantage because
whoever shops both will say, ‘I already did that.’ ”
Sometimes, a retailer can be too successful with an online sale, and have to
shift tactics on the fly to keep profit up.
At the Gap Inc. sites, which include Banana Republic and Old Navy, the plan was
to do heavy discounts on the four days after Thanksgiving. But Friday sales
“exceeded our forecast — it was too hot, it was too strong,” said Toby Lenk, the
president of Gap Inc. Direct. “So we pulled back on our promotions for Cyber
And other retailers have had to devise new tactics after vendors instructed them
to stop offering discounts on their brands.
“With the discounting in the last years, the perception from our vendors is that
we were discounting their products,” said Pete LaBore, director of customer
retention at Backcountry.com.
So the company came up with a new offer — “on our dime,” Mr. LaBore said — that
gave $20 off on the site. “It’s totally free money,” the offer said. But
customers did not seem to believe it, and Backcountry.com sent another e-mail
two days later with the subject line, “Seriously — It’s Free.”
The offer went only to people who had bought, in the past, certain brands or
categories in which Backcountry.com now had too much stock, or to people who
usually spent enough that “we weren’t just going to have somebody coming in
buying a three-dollar pair of socks,” Mr. LaBore said.
It seemed a smart approach; so far, the offer has been profitable, with most
people spending much more than $20, Mr. LaBore said.
“We’re trying to get away from the ‘sale, sale, sale’ message, and this is a
different way to do that,” he said.
November 11, 2010
The New York Times
By STEPHANIE CLIFFORD and CLAIRE CAIN MILLER
For years, Wal-Mart has used its clout as the nation’s largest retailer to
squeeze competitors with rock-bottom prices in its stores. Now it is trying to
throw a holiday knockout punch online.
Starting Thursday, Wal-Mart Stores plans to offer free shipping on its Web site,
with no minimum purchase, on almost 60,000 gift items, including many toys and
electronics. The offer will run through Dec. 20, when Wal-Mart said it might
consider other free-shipping deals.
“Everyone’s trying to figure out how we can serve a customer that’s trying to
save every penny they can,” said Steve Nave, senior vice president and general
manager of Walmart.com. “It’s the most competitive offer out there, and we’re
pretty excited about it.”
Even before Wal-Mart’s surprise move, shipping prices were this holiday season’s
predicament for online retailers. In a bid for cost-conscious consumers, Target
and J. C. Penney introduced their most aggressive free-shipping programs ever,
and Sears, Toys “R” Us, Williams-Sonoma and others were trying to match the
success of Amazon’s shipping program, offering unlimited two-day shipping for an
But given Wal-Mart’s scale and influence in the marketplace, its free pass for
shipping sets a new high — or low — in e-commerce. And it may create an
expectation among consumers — free shipping, no minimum, always — that would
make it harder for smaller e-commerce sites to survive.
Wal-Mart says it will not raise prices to offset shipping and will not press
shippers, like UPS and FedEx, to absorb the costs. But Wal-Mart and other big
retailers already have low-price contracts with shippers, and the stores
maintain distribution centers nationwide that reduce shipping distances and
For smaller retailers and Web sites, which pay regular mail rates and may ship
from only one location, free shipping is not nearly as affordable and often must
be added into prices.
“You’re trying to compete with the Amazons and the Zappos, who have so many
different warehouses that they can significantly reduce transport costs,” said
Gary Schwake, director of business development at the Distribution Management
Group, a consulting firm that advises retailers like Eddie Bauer.
Retailers say that shoppers have already started to revolt against shipping
fees. While consumers are sensitive to what an item costs online, shipping costs
can have even more influence, according to market research.
When e-commerce took off a decade ago, free shipping was a rare perk. Now, 55
percent of consumers are at least somewhat likely to abandon their purchase if
they do not get free shipping, according to comScore, the online-research firm,
and about 41 percent of transactions online now include free shipping (usually
with a minimum purchase).
Wal-Mart is throwing itself into the holiday season shipping fray as it tries to
revive sales. Even as other retailers’ sales have recovered, sales at Wal-Mart’s
stores in the United States open more than a year have fallen for five
consecutive quarters. Recently, it has been adding to the merchandise it
carries, offering products for under $1 and undercutting Target on toy prices.
The Wal-Mart shipping offer has no minimum. Mr. Nave said an important factor
was that an item was likely to be given as a gift. “We looked at the areas we
felt were going to be popular in gift-giving this holiday, and went from there,”
Even after the holidays, “I would expect to see us continue to have offerings
similar to this in the future in some way, shape or form,” he said.
The Wal-Mart announcement was not public until Thursday, but retailers had
already been escalating their shipping programs since last year, when mobile
comparison-shopping apps helped make free shipping popular.
Amazon.com has one successful model. Year-round, it offers free shipping on
orders over $25. And its Amazon Prime program, in which members pay $79 a year
for unlimited two-day shipping on almost all purchases, could account for as
much as a third of sales, said Jordan Rohan, an analyst with Stifel Nicolaus.
“It is making other retailers scramble,” he said.
To fight off Amazon Prime, a month ago GSI Commerce started ShopRunner, a
service that bands together e-commerce sites including eBags and the Web site of
Toys “R” Us. Shoppers pay $79 a year for unlimited two-day shipping from any of
the members. This fall, Williams-Sonoma started a service like that for $30 a
year, and Sears and Kmart, which introduced a similar program three years ago,
are pushing it heavily this season.
Beginning in October, J.C. Penney started offering free shipping year-round,
with a minimum purchase of $69 for most of the year. Target is offering free
shipping on purchases of $50 and up, on 800,000 items. And in August L.L. Bean
began offering free shipping with no minimum, through Dec. 20.
Bigger companies have a big advantage in the battle over free shipping: volume.
According to the Distribution Management Group, air shipping prices for big
retailers are about 70 percent less than for a small company. Shipping at Amazon
costs about 4 percent of sales, and Amazon loses money on it because it offers
marketing benefits, said Aaron Kessler, an e-commerce analyst at the research
firm ThinkEquity. But shipping at small sites usually costs about 35 percent of
sales, said Mr. Schwake, the retail adviser.
Despite the costs, smaller retailers say they have little choice but to offer
free shipping, in some form, these days.
“Everyone does it,” said Michael Mente, the co-founder of Revolve Clothing, a
Los Angeles-based women’s clothing site. Asked if he received discounts from the
shippers, he said, “Unfortunately not.” At the start-up site ModCloth, which
sells women’s clothes, the co-founder Susan Gregg Koger said she couldn’t afford
free shipping year round, but she decided to do it for the holiday season. It is
a risk, she said.
“That’s really hard to offer and then roll back,” she said.
While Wal-Mart may continue with some free shipping offers after the holidays,
even other big retailers like L.L. Bean say they just cannot afford it after
Christmas is over.
“We’d love to be able to offer free shipping, but free shipping isn’t free,”
said Laurie Brooks, an L.L. Bean spokeswoman. “It does cost a company money."
There are potential downsides, even for Wal-Mart. Physical stores with Web sites
run a risk in promoting free shipping, Mr. Rohan said. “They’d much rather you
buy that same item in the store for $50 and pick up a hundred dollars of other
stuff you wouldn’t even think about,” he said.
December 28, 2008
From The Sunday Times
The imaginary worlds of Sim City, Second Life and other
digital utopias are about to be joined by a very different online experience –
shopping in London’s West End.
An ambitious new scheme to duplicate online the real-life experience of a
shopping expedition in central London is promising to transform the way
Britain’s leading retailers do business.
Stung by the growing popularity of internet shopping – online sales in November
were up 16% on last year – the body representing West End traders is creating a
unique internet world where shoppers will be able to wander down computer
simulations of London streets, click their way into exact replicas of well-known
stores, and thumb through goods stacked on virtual shelves.
The aim is to combine the speed and efficiency of internet shopping with the
sense of exploration and discovery that real high-street browsing entails. By
turning the London shopping experience into an elaborate online haven filled
with spectacular graphics and clever animations, more than 600 West End traders
from Bond Street, Oxford Street and Regent Street could sell more goods online,
and lure more shoppers away from their keyboards for a taste of real shopping.
The £8m scheme is the brain-child of Alex Wrottesley, a budding media
entrepreneur whose Near software company has joined forces with broadband , to
provider Be, a subsidiary of O2 create an interactive computer model of the main
shopping streets in central London.
“This is the first time that someone has tried to recreate a city just as you’d
find it in real life,” Wrottesley said last week. His company used laser
measuring devices mounted on the roofs of vans to draw up 3-D maps of the
streets in the project. Employing the sort of imagery used by Hollywood special
effects designers, Wrottesley created a highly realistic 3-D computer model to
be known as Near London. It is due to open for business online by October 2009.
The model will allow mouse-wielding users of Near London software to click their
way down mostly traffic-free streets, and to enter any shop they choose. There
will be no beggars, pickpockets or graffiti soiling the pristine online
landscape. Only an occasional Routemaster bus will disrupt the smooth flow of
The projects’ designers also intend to change the weather according to live Met
Office data – if it’s raining on Oxford Street there will be simulated rain
online – and newspaper billboards will show up-to-date headlines.
Virtual shoppers may also contact friends through social networks such as
Facebook and MySpace, then head off on joint shopping expeditions using instant
messaging to discuss their finds.
Any real-life shop-owners on a street included in the project can open their
virtual doors to passers-by for a “rent” of £40 a month. They can then use the
doors as portals to their own websites, or use Near’s designers to replicate
their shop interiors in the style of the rest of the project.
“Most people see virtual reality worlds like Second Life as a bit geeky and
pointless, but this is completely different,” said Jace Tyrrell, marketing
manager of the New West End Company, a trade body that appears to have
concluded: if you can’t bring the shoppers to Oxford Street, you need to bring
Oxford Street to the shoppers.
Among retailers that have already expressed interest in a parallel London life
are the fashion brands DKNY and Armani Exchange. Capital Radio, whose
headquarters are on Leicester Square, may also join in.
The project’s designers hope that local museums, theatres and cinemas will sell
tickets on the site.
“I think if retailers took the opportunity to design their shops in an engaging
way, it could be successful,” said Trinny Woodall, the fashion adviser and
television presenter. Katherine Jenkins, the mezzo-soprano, who yesterday opened
the Harrods sale, said: “It could make internet shopping a lot more enjoyable.
Virtual reality is seen as a bit geeky, but if they did it well I’m sure it
would become popular with women.”
The danger, of course, is that shoppers will find the online London so much
cleaner and more appealing than the real thing, that they will stop going to
Oxford Street altogether, putting Britain’s best known high street out of
That thought has already occurred to Sir Philip Green, the billionaire retailer
whose empire includes Topshop and Bhs. “It may work for people abroad,” he said.
“But from a London perspective, where we employ thousands of staff, it doesn’t
sound like it’s going to bring any more people to my stores where I’m paying
rent.” Woodall said she doubted that a virtual London, however popular, could
replace the traditional shopping experience.
“People will always want to try something on,” she said. Yet she acknowledged
that online shopping had its advantages, especially in a recession – no parking
tickets, no congestion charge, no hassle.
“That said,” Woodall added, “it’s very important to get people into the West
End. I hope this system doesn’t dilute the vitality of the high street.”
November 20, 2008
The New York Times
By CLAIRE CAIN MILLER and BRAD STONE
SAN FRANCISCO — As deserted malls and department stores struggle to court
cash-short consumers with steep discounts this holiday season, a similar and
even more ferocious price war is being waged online.
Internet retailers, trying to navigate what is shaping up to be the first truly
dreary holiday shopping season ever on the Web, are engaging in price-cutting
and discounting so aggressive that it threatens their profit margins and, in
some cases, their very survival.
For example, Sony introduced its HDR-SR11 high-definition digital video recorder
in April with a suggested retail price of $1,200. This week, Dell.com was
selling it for $899, and the electronics retailer Abe’s of Maine had it on its
site for $750 — and both were throwing in free shipping.
At Lori’s Designer Shoes, a Web site that sells women’s accessories, a brown
leather Hype tote bag started at $338, fell to $246 and is now available with a
20 percent discount coupon for $196.80. Lori Andre, the owner, said she
generally tried to avoid online promotions “because then you train the customer
and they’ll expect that, and you’re not going to make any money.” But last week,
traffic hit a wall and sales on the site fell by nearly a quarter. “We’ve been
in business for 25 years, and never seen the bottom drop out like this,” she
Traditional retailers are facing the same problem, of course, and discounts are
proliferating from suburban malls to Fifth Avenue. But the price-cutting is
fiercest on the Web, where customers can easily shop for the best price with a
quick search on Google or on specialized shopping engines like Shopping.com.
Online, the competition is only a click away. For many Web sites, the discounts
and price cuts are the only way to hold on to customers as online buying
unexpectedly plummets. The research firm comScore reported Tuesday that sales
growth on e-commerce sites slowed to a meager 1 percent in October compared with
the previous year — the lowest rate ever for online retail and well down from
the industry’s typical 20 percent gains.
Sales of music, movies, books, computer software, flowers and gifts have been
hit the hardest, with double-digit declines, comScore said. “A lot of these
retailers aren’t running on big margins to begin with, so it’s pretty
challenging,” said Gian Fulgoni, chairman of comScore. “But it’s a Catch-22
situation: They have to run these deals because that’s what consumers are
looking for this season.”
To preserve the sanctity of their brands and some level of pricing control, some
Web companies are promoting discount sites separately from their main brands.
Zappos.com, a shoe retailer based in Henderson, Nev., never runs promotions on
its site. Instead, it quietly moves shoes that do not sell in six months to
6pm.com, a clearance site it acquired last year, but runs separately. This
month, the company is buying more search ads for 6pm.com, where a pair of
colorful slip-on Keds sneakers is on sale for $12.73 — 74 percent off the
original price on Zappos.com.
Even when these extreme discounts mean selling shoes for less than Zappos.com
paid for them, it is better to recoup some cash than none, said Tony Hsieh, the
company’s chief executive.
The discounting is not just drastic, but is also occurring unusually early in
the season. Kmart, a division of Sears Holding, initiated Black Friday prices on
electronics — 40 to 50 percent off — on Nov. 2, nearly four weeks before the
real Black Friday, the busy shopping day just after Thanksgiving that usually
marks the beginning of the holiday buying season.
Kmart’s discounts are available both online and in stores, but the retailer is
throwing in free shipping on Web purchases of $49 or more this week, a measure
it has never taken before.
E-commerce experts said they expected the cutthroat price competition to be
fatal to some struggling retailers. “Folks that have been on the ropes or near
the ropes during the good times are going to go under. There is no question
about it,” said George Michie, co-founder of the Rimm-Kaufman Group, a search
Many boutique stores opened e-commerce sites because they were simple to build
and inexpensive to run, yet those same advantages also forced them to compete
with thousands of other sites selling similar products, each offering steeper
Plasticland, now an online boutique selling clothes, home décor and jewelry,
started in 2002 as a single store in San Diego. The owners, lured by the global
audience of the Web, moved it online in 2005. They were caught off guard this
spring, when sales started to plummet.
The company, now based in Plano, Tex., switched to lower-priced merchandise and
began moving unsold goods onto its clearance pages a month earlier than usual. A
necklace with a red apple pendant now sells there for $32.50, down from $65, and
a serving platter for $37.80, down from $54.
“Our profit per piece obviously drops, which means that we have to ship a lot
more merchandise to make the same amount of money,” said Rebecca Nyhus, the
store’s co-owner. “Lowering price points has helped us weather the downturn, but
it has really bogged us down because shipping is so time-consuming” and
Like many other small e-tailers caught in the holiday margin squeeze,
Plasticland was forced to raise its minimum order for free shipping to $100,
from $50 to try to recoup some of the lost profits.
Free shipping is becoming a painful imperative for all e-commerce sites.
Three-quarters of online shoppers said in a comScore survey that they would shop
elsewhere if a site did not offer free shipping, and nearly all sites offered it
for at least some purchases.
E-commerce giants like Amazon.com, which offers free shipping on orders over $25
and eliminates even that minimum for customers who pay a flat annual fee, can
easily absorb shipping costs. But small online vendors struggle. Powell’s Books,
a bookstore in Portland, Ore. with a site that competes for customers with
Amazon.com, offers free shipping on orders over $50.
“In our business model, we could not afford to give free shipping on every
package. It just would not work,” said Dave Weich, director of marketing at
To exacerbate matters, a major expense for online retailers seems to be rising:
the cost to advertise products on the search engine Google, the source of
considerable traffic and visibility for most e-commerce sites.
Over the last year and a half, prices for text ads related to women’s fashion
have quadrupled, say apparel retailers. In the popular gifts category, the price
to advertise alongside results for common search queries like “gift baskets”
jumped 50 percent from the 2006 holidays to 2007 and is expected to climb again
For Delightful Deliveries, a 10-year-old company that was selling gift baskets
online, that extra expense — plus the challenge of competing on price against
its own wholesalers, which also sell on the Internet — proved too much. The
eight-employee company, based in Port Washington, N.Y., closed in September.
Eric Lituchy, the founder of Delightful Deliveries, is now watching the Internet
price war from the sidelines. “I think everyone is praying that this economy
does not get any worse and that people find reasons for optimism and spend some
money at Christmastime,” he said.
WHEN the e-commerce giant eBay emerged from the last recession
seven years ago with an aura of invincibility, its chief executive, Meg Whitman,
boasted that “eBay is to some extent recession-proof.”
As the online auctioneer’s revenues and stock price kept climbing, one of its
primary rivals, Amazon.com, just limped along.
How times have changed.
Ms. Whitman, now co-chair of Senator John McCain’s presidential campaign,
retired from eBay earlier this year as the company struggled with stagnation.
Amazon, meanwhile, has emerged as one of the most vibrant and reliable retailers
in the country.
And in an unmistakable sign that Internet companies are indeed exposed to the
gathering economic storm stemming from the credit crisis, Ms. Whitman’s
successor, John J. Donahoe, laid off 10 percent of eBay’s 16,000 employees last
Mr. Donahoe noted that eBay was already feeling the effects of the downturn.
“This looks like it is going to be a more typical economic cycle that impacts
consumer spending,” he said. “We are not immune.”
That the economic crisis is washing up on Silicon Valley’s shores shouldn’t,
perhaps, come as a surprise. Most tech companies are defenseless against waning
advertising, business spending and consumer interest in big-ticket items like
computers. Over the last three months, investors have punished tech companies
like Google, Microsoft and Apple, extracting a fifth to a half of their market
E-commerce, though, was once thought to be a refuge from economic storms. People
who stay away from the mall might actually be more tempted to shop online and
hunt for deals, or so the thinking went.
But analysts are now revisiting that assumption. Many consumers, citing an
uncertain economy, say they will clutch their wallets tightly this holiday
season regardless of where they shop: 48 percent surveyed recently by eBillme,
an online payment service, said they planned to delay purchases.
Traditional, brick-and-mortar stores had wrenching, double-digit declines in
September sales and are bracing for a bleak holiday season. No one is certain to
what degree online retailers will feel that same pain, because digital vendors
have never endured a deep, protracted economic slump before.
“We still feel pretty good about this year, but I worry about next year and
beyond,” said Brian J. Pitz, an analyst at Banc of America Securities. “Are
people going to spend when they can’t get home equity lines of credit, a student
loan or a car loan?”
For eBay and Amazon, the twin giants of e-commerce, the financial meltdown has
arrived at a particularly crucial time. After years of claiming that their
businesses were complementary, not competitive, the companies are now on a
Amazon has accelerated its courtship of small online vendors, allowing them to
sell on its site — becoming more like eBay. And eBay, desperate to revive
itself, has decided to emphasize traditional, fixed-price sales of both new and
old merchandise — becoming more like Amazon.
AT stake is more than e-commerce bragging rights. On the Internet, size matters.
Larger companies can collect more information about consumers, negotiate better
deals with partners and use that leverage to expand their dominance (for
example, Google versus Yahoo in search).
“This is a pivotal holiday season for eBay,” said Jeffrey Lindsay, a senior
analyst at Bernstein Research who has covered the Internet for a decade. “What
people fear is that Amazon is basically building a bigger sales base than eBay
and will use that knowledge to sell people more and more of the things they want
to buy online.”
Indeed, the balance of power in e-commerce seems to be shifting faster than
anyone expected. Just three years ago, eBay had 30 percent more traffic than
Amazon. Today, its total of 84.5 million active users is barely ahead of the 81
million active customer accounts that Amazon reported in June.
Amazon has exceeded eBay in other measures as well.
EBay’s market capitalization was three times Amazon’s in 2005, back when Wall
Street loved the fact that it carried no inventory and generated huge profits.
This year, eBay’s stock has lost over half its value and, in July, Amazon’s
valuation surpassed eBay’s for the first time.
In a series of interviews, Mr. Donahoe acknowledged that eBay, based in San
Jose, Calif., didn’t adapt fast enough to shifting e-commerce winds. He now
embraces a “turnaround mind-set” and is refocusing its Web marketplace toward
shoppers who don’t want to waste time in online auctions.
“There are times when I wish we can close this store and just open a new store,
but we can’t,” he said. “We need to make bolder, more aggressive changes to the
eBay ecosystem even if they are unpopular.”
Up in Seattle, meanwhile, Amazon’s chief executive, Jeffrey P. Bezos, says that
after years of failed experimentation, third-party vendors — the foundation on
which eBay was built — now account for about 29 percent of sales on Amazon. The
company has endured and outlasted critics who long complained about its high
Last year, it impressed investors with accelerating growth, and its stock price
revisited the highs of the dot-com boom, before waning euphoria and market
pessimism erased more than half of those gains this year. Mr. Bezos credits
Amazon’s tolerance for risky, expensive bets like the Kindle electronic reading
“Our willingness to be misunderstood, our long-term orientation and our
willingness to repeatedly fail are the three parts of our culture that make
doing this kind of thing possible,” he said.
EBay’s recent problems have made Mr. Bezos and his team look like shrewd and
patient stewards of the Amazon franchise. And Amazon’s second wind is making
eBay look as if it has missed one of the greatest opportunities in the
Internet’s short history.
“EBay could have closed the door to Amazon back when Amazon was mostly just a
platform to sell books and music,” said Scott Devitt, an analyst at Stifel,
Nicolaus & Company, the investment bank. “But what eBay did in those days was to
take a very hands-off approach and let the marketplace control itself. And that
ended up being the downfall of the business relative to others that have
OVER the summer of 2004, at the annual executive retreat that eBay insiders call
“Telluride,” a product strategy team argued that eBay needed to break into the
promising world of digital media. Pointing to the popularity of services like
Napster and the new iTunes music store from Apple, the group predicted that
media like books, music and movies would inevitably be distributed digitally,
over the Web.
EBay, they argued, needed to ride that wave.
That insight — which did catch on at Amazon and is now responsible for
high-profile efforts like the Kindle and Amazon’s MP3 store and video-on-demand
service — went nowhere at eBay.
“Nobody really shut it down. The process shut it down,” says a former eBay
executive who was on the product strategy team but requested anonymity to avoid
alienating former colleagues. “The company was obsessed with making quarterly
Whether passing on digital media was a mistake at eBay is still an open
question. But the anecdote illustrates larger problems. More than a dozen
current and former eBay executives, from all levels of management, say eBay
routinely failed to reorient its core business.
They say eBay avoided fiddling with its auction model because it was wary of
disrupting a long-profitable equilibrium between buyers and sellers.
EBay has known for years that some Web buyers were looking for a different
experience. Surveys suggested that auction participants were alienated by
untrustworthy sellers and hidden shipping fees, and increasingly preferred the
certainty of instantly buying items at a fixed price.
Although eBay executives recognized and routinely acknowledged the problem, they
never took bold, direct steps to address it.
In 2005, the company acquired Shopping.com, a comparative shopping site that
catalogs products for sale elsewhere on the Web. But for years eBay did not
promote the company’s listings, primarily because its vocal community of sellers
— the ones paying fees to eBay — protested whenever eBay sent buyers to other
Josh Koppelman, who founded the e-commerce site Half.com and sold it to eBay in
2001, says that there was an understandable cultural reluctance inside eBay to
alienate sellers. “We got paid a fee to provide a service to a community,” he
said. “Hurting members of that community was difficult.”
Instead of imposing critical fixes to its slowing model, eBay searched for
high-growth businesses elsewhere, acquiring Skype, the online calling service;
StubHub, the ticketing site; and a series of classified-advertising Web sites.
The company did create a whole new site, called eBay Express, where it tried to
satisfy buyer interest in a simpler shopping experience. EBay Express
automatically amassed all the fixed-price, non-auction listings on eBay
properties and presented them in an organized way with only one payment system,
PayPal — also owned by eBay.
But in the two-year life of eBay Express, eBay never directed any meaningful
traffic to it, fearing that it would interfere with the more profitable and
popular auction-oriented site. The company shuttered eBay Express this year and
has said it will move some of its innovative features to eBay.com.
Contributing to intransigence, according to several former executives, were deep
divisions and constant hand-wringing among its managers over the most
fundamental question: What is eBay?
One camp believed that eBay was a discount palace and that it had to continually
offer deals to buyers in whatever shopping format they wanted.
But another group, resistant to change even as late as last year when eBay was
clearly losing ground, believed that the brand was tied up in the excitement of
auctions. Emphasizing traditional shopping destroyed what made eBay special,
“Today online shopping is mainstream, but it’s also becoming boring,” Bill Cobb,
then the president of eBay North America, wrote in a June 2007 blog entry that
typified this thinking. “We’re investing in the quintessential eBay experience
of buying and selling — person to person — in an auction format.”
Ms. Whitman seemed to moderate this constant debate while never actually
settling it. At times, she also seemed unwilling to leave auctions behind.
In an interview last week, while on a break from traveling with the Republican
vice-presidential candidate Sarah Palin, Ms. Whitman said it was hard for her to
reflect on these kinds of divisions within the company, or on missed
“There was no shortage of realistic looks in the mirror, where we asked
ourselves if we were doing the best job that we could do,” she said.
She also addressed another notion raised by former eBayers, who say executives
were dismissive of Amazon but focused obsessively on Google, the search leader
whose tentative moves into e-commerce were viewed inside eBay as acts of
“Google is a disruptive competitor. It’s not a marketplace and it’s not a
retailer but has a different way of marrying buyers and sellers,” she said. “I
don’t think you can overstate any competitive threats.”
But paranoia about Google, these former executives say, fueled strategic
missteps like the Skype acquisition, which Google had also pursued. Ms. Whitman
and other eBay managers spent considerable energy trying to integrate Skype, and
last year eBay wrote down $1.4 billion of the $3.1 billion acquisition.
As eBay obsessed about Google, the online retailer from Seattle was encroaching
on its turf.
CONVERSATIONS with Jeff Bezos of Amazon inevitably provoke two kinds of
outbursts. One is that famous, barking laugh that punctuates even seemingly
mundane sentences. The other is his paean to the wisdom of long-term thinking.
“We are willing to plant seeds that take five to seven years to grow into
reasonable things,” he said in an interview. “You can’t do big, clean-sheet
invention unless you are willing to invest for long periods of time.”
Mr. Bezos has delivered these kinds of odes to patience and risk tolerance for
nearly a decade. The company’s appetite for enduring short-term pain for
long-term gain is clearest when comparing it with its rival, eBay.
While eBay was buying into classified advertising, online payments and Internet
telephony, Amazon spent hundreds of millions of dollars building its brand as a
trusted retailer — hiring customer service representatives and returning money
to customers when transactions went awry.
As eBay took a pass on digital media, Amazon dove in and frustrated investors
for years with margins that were diminished by a bulky R.& D. budget — but
produced promising businesses like the MP3 store.
Compensation at the two companies also reflects core differences. Amazon
evaluates its executives annually and gives performance-based stock grants.
Until this year, when Mr. Donahoe became chief executive, eBay gave cash and
stock bonuses based on quarterly performance, rewarding managers for meeting
Wall Street’s short-term expectations.
Similarly, Amazon’s push to recruit the small sellers who orbited eBay was
marked, at first, by patience and often-embarrassing experimentation.
In 1999, five years after Mr. Bezos first plunged his stake into the ground as
an online bookseller, Amazon invaded eBay’s territory, introducing Amazon
Auctions and a way for retailers to set up stores on the site, called zShops.
The efforts tanked.
The problem then “was that nobody came,” Mr. Bezos said. “Actually, sellers
came, but the customers didn’t care and didn’t shop there.”
Amazon tried to promote this siloed merchandise on its site by linking to it on
its more popular product pages. These so-called “smart links” were hotly
controversial inside Amazon and became the subject of a rivalry between its
retail and technology groups.
Fearful that sending visitors to other pages would cut into their sales,
retailing executives at Amazon took to removing them from the page at every
opportunity, according to one senior Amazon executive who was there at the time.
SEVERAL years ago, the company introduced Amazon Marketplace, laying the
groundwork for its current path by listing new and used items from third-party
sellers alongside its own merchandise.
If Amazon didn’t stock a particular item, or if independent sellers could offer
better prices, they would become the featured retailer on the page.
Amazon settled internal tensions by giving its retail managers credit for any
products sold on their pages, even by third-party sellers. But Mr. Bezos says
the arrangement still produces anxiety.
“Put yourself in place of our retail buyers,” he said. “You just purchased
10,000 units of a particular digital camera and you are told, if any third party
anywhere in the world can offer a better price, we are going to give them the
buy box and you are going to get stuck with the inventory. That causes some
Over the last five years, Amazon has lowered hurdles for independent vendors to
sell on its site and recruited new groups of merchants as it has expanded into
other countries and product categories — automotive parts in 2006 and office
supplies this year, for example.
Amazon executives say they don’t specifically pursue top eBay sellers, but some
merchants suggest otherwise.
David Duong, founder of Shoe Metro, a Web retailer based in San Diego, says
Amazon representatives called him shortly after Amazon.com introduced a shoe
category in 2005 and asked him to begin selling on the site.
“I guess they found us on eBay,” he said. “We were actually going to talk to
them, but they beat us to the punch.”
Lately, small merchants and their trade organizations say, the outreach has
become even more direct. The Professional EBay Sellers Alliance said that Amazon
recently offered to waive some fees for the 800 members of the group, an
organization of eBay power sellers, to woo them to its platform.
Because Amazon also sells many of the same products as its merchants, executives
at eBay predict that competitive tensions will emerge as the Amazon Marketplace
grows. Maybe so. It’s happened before.
Amazon once ran the Web operations of large traditional retailers like Borders,
Circuit City and Toys “R” Us. One by one, those retailers concluded that
outsourcing such a crucial feature of 21st-century retailing to a competitor was
a bad idea.
But some of its newer deals with sellers indicate that Amazon is finding ways
around those tensions, at least with small merchants.
Andrew and Deb Mowery of Fort Collins, Colo., who started selling home, garden
and pet supplies on eBay in 1999, now make 60 percent of their sales on Amazon
and about 20 percent on eBay. In addition to listing items for sale on the
Amazon Marketplace, they are also a wholesale supplier to Amazon, providing it
with products like heated pet beds.
Mr. Mowery is essentially competing with himself, but the arrangement works. “If
they run out, I’ve got their back,” he said. “If I run out, they’ve got my
Amazon wants to forge these kinds of close ties with other small sellers. A
program called Fulfillment by Amazon, introduced in 2006, allows retailers to
store their inventory in Amazon’s warehouses. When someone buys an item from
that seller, Amazon ships it out of its warehouse in an Amazon box.
Integrating small merchants into its operations also allows Amazon to learn more
about whom it can trust to sell on its site. Compared with eBay, the company
says it exerts a far greater measure of control over its marketplace, calling
certain vendors “featured sellers” and vetting others in product categories that
are sensitive to fraud.
“At the end of the day, we believe it’s good for all of our sellers to make sure
we are protecting the consumer experience first,” Mr. Bezos said. “Our first and
foremost goal is to earn trust with consumers. If there are no consumers buying,
nothing else matters.”
DESPITE Amazon’s success in courting independent sellers, its selection is still
just a fraction of what eBay offers, and in some cases its prices are higher.
For example, there are hundreds of new, used and refurbished Trek racing bikes
on eBay; as of last week, Amazon had three for sale. Acquisitive parents can buy
a $90 Deux Par Deux baby sweater dress on eBay for under $30. But only a few of
this French designer’s items are listed on Amazon, and for close to full price.
And that Lehman Brothers 150th-anniversary collectible tote bag, which every
irony-obsessed stock market fan wants under the Christmas tree? It is available
for purchase only on eBay, in auctions.
This is where Mr. Donahoe talks about a vision to fix eBay, and to create a Web
discount store that offers a wide variety of new and old merchandise in auction
and fixed-price formats. To get there, he must administer the sweeping, painful
fixes that eBay has previously shunned.
“It was increasingly clear to me in 2007 that what felt like bold changes, and
to the community felt like bold changes, were not bold enough,” he said.
His attempted fixes have started internally. In addition to making executive
bonuses annual instead of quarterly, to keep employees from leaving and reward
longer-term thinking, he moved the company’s focus to buyers instead of sellers.
He canceled the annual eBay Live conference next year with merchants — this
year, it turned into an unwieldy complaint session — and began making eBay
executives read weekly surveys that ask shoppers whether they would recommend
eBay to a friend.
THE eBay facade is also undergoing its most significant renovation in its
14-year history as Mr. Donahoe tries to adjust eBay fees to tempt sellers to
list more of their products at fixed prices.
EBay has also added a new 30-day listing at a fixed price that is more
economical to many sellers than auctions. It has also disabled the feedback
mechanism that allowed sellers to rank buyers and introduced a new “best match”
search engine that promotes trusted sellers and good deals.
In another controversial change, eBay has struck special deals with large
merchants like Buy.com, which pays no listing fees and offers more than half a
million products on eBay.com.
The point of the arrangement is to ensure that eBay stays fully stocked in
basics like batteries and printer cartridges. Other eBay sellers are enraged,
though, arguing that the deal violates the sacred eBay tenet of the “level
These sellers have vented their frustrations online about eBay’s changes. It’s
hard to gauge whether the vitriol represents the majority view, but some less
vocal, larger sellers on eBay say they have actually benefited.
“EBay has told all bad sellers to shape up,” said Jordan Insley, an electronics
merchant who lives near Seattle. “I’ve seen a lot of sellers that used to sell a
lot of product fall off the charts.”
Although he worries that buyer traffic on eBay is slowing, Mr. Insley says he
will sell $13 million in gadgets this year on eBay alone. “I think eBay is
moving in the right direction. We are sticking around.”
Still, Mr. Donahoe can’t count on that sentiment to carry the day. Few of his
changes are expected to deliver any immediate results, other than alienating
Yet for eBay, the changes may be a matter of survival. The company need only
look across Silicon Valley at Yahoo to see what can happen to wounded Internet
companies with depressed stock prices.
In the meantime, he faces tough choices. He is weighing a possible sale of Skype
by next year, and analysts think he will almost certainly make that move, since
the company now acknowledges that Skype has little synergy with eBay’s other
That would free eBay to focus on its core marketplace, on getting through the
torrential economic downpour, and on combating a challenger that is making
greater incursions every day.
“I respect Jeff Bezos a lot as a leader and Amazon and what they’ve done,” Mr.
Donahoe said. “But it is still early days in this industry. E-commerce is 7
percent of retail. I don’t think anyone thinks it’s going to end there. We think
there is plenty of room for both Amazon and eBay to be successful.”
July 19, 2008
The New York Times
By STEPHANIE ROSENBLOOM
To go shopping these days, more Americans are trading in their
car keys for a keyboard.
Online shopping is gaining at a time when simply filling up a gas tank to head
to the mall can seem like a spending spree.
A number of retailers — including Gap, Victoria’s Secret and J. C. Penney — are
experiencing double-digit sales growth at their shopping Web sites, creating a
surprising bright spot during an otherwise gloomy time for sales in
One popular strategy for getting shoppers’ attention is offering free shipping,
in contrast to many other businesses, like airlines, that are adding surcharges
and other fees to offset their higher costs.
The Web sites of Neiman Marcus, Saks, Nordstrom, Bloomingdale’s, Macy’s, Bon-Ton
Stores, Aéropostale, American Eagle Outfitters, Target and Kmart were all
offering a deal on shipping this week.
“With gas being such an issue, we know that mall traffic is down more than
off-mall traffic,” said Mike Boylson, chief marketing officer for J. C. Penney,
which had an 8.7 percent increase in Internet sales in the first quarter of this
That is in contrast to a 7.4 percent decrease in sales at stores open at least a
year, known as same-store sales and a measure of retail health. “We see more
people turning to online because it’s much more efficient in terms of time and
money,” Mr. Boylson said.
Retailers are walking a fine line in encouraging online sales. Of course, they
are happy to attract more shoppers to their Web sites, but not at the expense of
in-store sales — an important measure for investors.
Then again, the Web can drive in-store business, whether shoppers go into a
store to return an online purchase or whether they buy an out-of-stock item
through a computer at the store.
Lately Nichelle Hines, an actress in Los Angeles, has been shopping online for
everything but gas itself — pet supplies, books, DVDs, water filters, kitchen
appliances, a dress, her favorite health drink and materials to build a
voiceover booth so she does not have to drive to a recording studio.
“It has saved us,” said Ms. Hines, who lives with her boyfriend, Charles, the
builder of the booth. “And we really just started doing this three or four
months ago just from sheer desperation of spending money on gallons of gas.”
When she does have to drive somewhere, Ms. Hines says she goes online first to
note the location of the nearest gas station.
“I’m a computer illiterate person,” she said. “But I’m becoming much more
literate as a result of gas prices.”
Victoria’s Secret, too, has had an online sales increase. Its catalog and
Internet sales were up 11 percent in the first quarter of this year while
same-store sales declined 8 percent, according to Maggie Taylor, vice president,
senior credit officer at Moody’s Investors Service.
Gap had an 11 percent decline in same-store sales in the first quarter, but a 21
percent increase in online sales. About six weeks ago, just in time for the
back-to-school shopping season, Gap reinvented its e-commerce operations,
enabling consumers to shop the Web sites of all of its brands — Gap, Old Navy
and Banana Republic as well as its newest, Piperlime, an online shoe store —
with a single virtual shopping cart and a flat $7 shipping fee.
“Parents don’t want to drive to four different stores, two different malls,”
said Kris Marubio, a spokeswoman for Gap Inc. The new Web design “helps
time-pressed and gas-price sensitive parents achieve their back-to-school
shopping goals in less time and at less cost,” she added.
The number of shoppers visiting Web sites that offer discounts has jumped, too.
Over all, the number of visits to what are known as coupon Web sites increased
21 percent from June 2007 to this June, according to the Internet audience
measurement company comScore Media Metrix.
CouponWinner.com, which works with more than 2,000 retailers, had an 186 percent
increase in traffic from February to June of this year, according to comScore.
Another such site, ShopItToMe.com, which sends alerts to members when their
favorite brands go on sale in their sizes at retailers including Saks,
Bloomingdale’s, Nordstrom, Ralph Lauren and J. Crew, has more than doubled its
membership in the last three months, according to the site’s founder, Charlie
“People are feeling less comfortable going out to the stores or driving two
hours to outlet stores because of gas,” Mr. Graham said. “It almost doesn’t pay
Online retail sales, often made all the more alluring by the lack of sales tax,
have grown right from the start, but still represent a small percentage of total
retail sales. And while e-commerce growth has slowed in the current economic
downturn, analysts do not expect it to cease. In fact, online sales represent
one of the only positives for many retailers.
“E-commerce, when you compare it to store retail is a bright spot because
whereas store growth is in the middle low single digits e-commerce is still
growing at least in the mid to highteens,” said Jeffrey Grau, retail e-commerce
senior analyst with eMarketer.
Internet sales are expected to surpass $200 billion this year, up from $175
billion in 2007, according to Forrester Research. Given that growth, Moody’s,
the credit rating agency, said last month that it would begin giving retailers’
Internet sales and strategies more weight when analyzing the companies. And
retailers like J. C. Penney and Target have begun including online sales in
their same-store sales figures.
“Online is starting to matter, and it is performing well,” said Ms. Taylor of
Moody’s. “Now that it is big enough to matter, companies want to call it out.”
To encourage the trend, retailers are investing in online operations and
experimenting with new marketing techniques. Even retailers that are scaling
back in their physical stores are expanding or enhancing online operations,
which are by and large the fastest growing parts of their company. The shopping
Web sites themselves are becoming speedier, easier to navigate and filled with
A couple of months ago, Sears Holdings began working with a company called
RichRelevance, which makes technology that monitors 15 to 25 consumer behaviors
— like how visitors navigate through a retailer’s Web site and how they arrived
at the site — and then suggests products the consumer may like.
“We want to make sure customers are finding these products,” said Imran Jooma,
vice president for e-commerce at Sears, who explained that such online
initiatives are “just the beginning for us.”
Investing in online operations is less risky than investing in real world stores
because Web sites do not require the same level of personnel or resources.
What is potentially risky, though, is an emerging fuel-centric marketing
“Do you really want to remind people how much it costs to fill up their tank?,”
said Scott Silverman, executive director of Shop.org, a retail industry group.
For some retailers the answer is yes. EBags.com, a purveyor of items like dainty
clutches and backpacks, sent more than a million members an e-mail message late
last month with an illustration of gas pumps set at various migraine-inducing
prices. Then there was a pump that said “eBags.” It was set at $0.
“Paying too much to get from here to there?” the accompanying text read. “Skip
the mall. We’ll ship it to you for free.”
Then again, these days some consumers do not mind paying for shipping.
“A lot of shipping costs are $3 and $5,” said Jessica Delmar, 23, a manager for
a technology company in San Francisco who says she rarely sees the inside of
stores anymore. “That’s even less than a gallon of gas now.”
New Yorker cartoon from 1993 showed two dogs at a computer, with one saying to
the other, “On the Internet, nobody knows you’re a dog.”
That may no longer be true.
A new analysis of online consumer data shows that large Web companies are
learning more about people than ever from what they search for and do on the
Internet, gathering clues about the tastes and preferences of a typical user
several hundred times a month.
These companies use that information to predict what content and advertisements
people most likely want to see. They can charge steep prices for carefully
tailored ads because of their high response rates.
The analysis, conducted for The New York Times by the research firm comScore,
provides what advertising executives say is the first broad estimate of the
amount of consumer data that is transmitted to Internet companies.
Privacy advocates have previously sounded alarms about the practices of Internet
companies and provided vague estimates about the volume of data they collect,
but they did not give comprehensive figures.
The Web companies are, in effect, taking the trail of crumbs people leave behind
as they move around the Internet, and then analyzing them to anticipate people’s
next steps. So anybody who searches for information on such disparate topics as
iron supplements, airlines, hotels and soft drinks may see ads for those
products and services later on.
Consumers have not complained to any great extent about data collection online.
But privacy experts say that is because the collection is invisible to them.
Unlike Facebook’s Beacon program, which stirred controversy last year when it
broadcast its members’ purchases to their online friends, most companies do not
flash a notice on the screen when they collect data about visitors to their
“When you start to get into the details, it’s scarier than you might suspect,”
said Marc Rotenberg, executive director of the Electronic Privacy Information
Center, a privacy rights group. “We’re recording preferences, hopes, worries and
But executives from the largest Web companies say that privacy fears are
misplaced, and that they have policies in place to protect consumers’ names and
other personal information from advertisers. Moreover, they say, the data is a
boon to consumers, because it makes the ads they see more relevant.
These companies often connect consumer data to unique codes identifying their
computers, rather than their names.
“What is targeting in the long term?” said Michael Galgon, Microsoft’s chief
advertising strategist. “You’re getting content about things and messaging about
things that are spot-on to who you are.”
The rich troves of data at the fingertips of the biggest Internet companies are
also creating a new kind of digital divide within the industry. Traditional
media companies, which collect far less data about visitors to their sites, are
increasingly at a disadvantage when they compete for ad dollars.
The major television networks and magazine and newspaper companies “aren’t even
in the same league,” said Linda Abraham, an executive vice president at
comScore. “They can’t really play in this sandbox.”
During the Internet’s short life, most people have used a yardstick from
traditional media to measure success: audience size. Like magazines and
newspapers, Web sites are most often ranked based on how many people visit them
and how long they are there.
But on the Internet, advertisers are increasingly choosing where to place their
ads based on how much sites know about Web surfers. ComScore’s analysis is a
novel attempt to estimate how many times major Web companies can collect data
about their users in a given month.
Web companies once could monitor the actions of consumers only on their own
sites. But over the last couple of years, the Internet giants have spread their
reach by acting as intermediaries that place ads on thousands of Web sites, and
now can follow people’s activities on far more sites.
Large Web companies like Microsoft and Yahoo have also acquired a number of
companies in the last year that have rich consumer data.
“So many of the deals are really about data,” said David Verklin, chief
executive of Carat Americas, an ad agency in the Aegis Group that decides where
to place ads for clients.
“Everyone feels that if we can get more data, we could put ads in front of
people who are interested in them,” he said. “That’s the whole idea here: put
dog food ads in front of people who have dogs.”
Web companies also can collect more data as people spend more time online. The
number of searches that American Web users enter each month has nearly doubled
since summer of 2006, to 14.6 billion searches in January, according to
ComScore analyzed 15 major media companies’ potential to collect online data in
December. The analysis captured how many searches, display ads, videos and page
views occurred on those sites and estimated the number of ads shown in their ad
These actions represented “data transmission events” — times when consumer data
was zapped back to the Web companies’ servers. Five large Web operations —
Yahoo, Google, Microsoft, AOL and MySpace — record at least 336 billion
transmission events in a month, not counting their ad networks.
The methodology was worked out with comScore and based on the advice of senior
online advertising executives at two of the largest Internet companies.
“I think it’s a reasonable way to look at how many touch-points companies have
with their consumers,” Jules Polonetsky, the chief privacy officer for AOL, said
of the comScore findings on Friday.
But Mr. Polonetsky cautions that not all of the data at every company is used
together. Much of it is stored separately.
The information transmitted might include the person’s ZIP code, a search for
anything from vacation information to celebrity gossip, or a purchase of
prescription drugs or other intimate items. Some types of data, like search
queries, tends to be more valuable than others.
Yahoo came out with the most data collection points in a month on its own sites
— about 110 billion collections, or 811 for the average user. In addition, Yahoo
has about 1,700 other opportunities to collect data about the average person on
partner sites like eBay, where Yahoo sells the ads.
MySpace, which is owned by the News Corporation, and AOL, a unit of Time Warner,
were not far behind.
ComScore said it recorded the ad networks using different methods and that the
exact ordering of these top companies might vary with a different methodology,
but the overall picture would be similar.
Google also has scores of data collection events, but the company says it is
unique in that it mostly uses only current information rather than past actions
to select ads.
The depth of Yahoo’s database goes far in explaining why AOL is talking with
Yahoo about a merger and Microsoft is willing to pay more than $41.2 billion to
acquire the company.
Traditional media companies come in far behind.
Condé Nast magazine sites, for example, have only 34 data collection events for
the average site visitor each month. The numbers for other traditional media
companies, as generated by comScore, were 45 for The New York Times Company; 49
for another newspaper company, the McClatchy Corporation; and 64 for the Walt
Some companies are trying to close the gap. Walt Disney, for example, is
studying how to combine data from its divisions like ESPN, Disney and ABC. The
News Corporation is exploring ways to use information that MySpace members post
on that site to select ads for those members when they visit other News
IAC is using data from its LendingTree site to deliver ads on its other sites to
people it knows are looking for mortgages.
Some advertising executives say media companies will have little choice but to
outsource their ad sales to companies like Microsoft and Yahoo to benefit from
their data. The Web companies may prove they can use their algorithms and
consumer information to better select which ads for visitors better than media
“I think a lot of publishers are going to find they don’t have enough data,”
said David W. Kenny, chief executive of Digitas, a digital advertising agency in
the Publicis Groupe. “There’s only going to be a handful of big players who can
manage the data.”
People who spend more time on the Internet, of course, will have more
information transmitted about them. The comScore per-person figures are
averages; occasional Web users have far less transmitted about them.
The comScore figures do not include the data that consumers offer voluntarily
when registering for sites or e-mail services. When consumers do so, they often
give sites permission to link some of their interests or searches to their user
The figures also do not account for information people enter on social network
pages. MySpace, for example, collects billions of user actions each day in the
form of blogs, comments and profile updates, said Peter Levinsohn, president of
Fox Interactive Media, which owns MySpace.
Even with all the data Web companies have, they are finding ways to obtain more.
The giant Internet portals have been buying ad-delivery companies like
DoubleClick and Atlas, which have stockpiles of information. Atlas, for example,
delivers 6 billion ads every day. The comScore figures do not capture such data.
Executives from Web companies said they had been working to inform consumers on
their data practices.
These companies noted their consumer-protection policies. AOL, for example, lets
users opt out of some ad targeting, Google lets users edit the search histories
that are linked to their user names, Yahoo is working on a policy to obscure
people’s computer identification addresses that are connected to search results,
and Microsoft says it does not link any of its visitors’ behavior to their user
names, even if those people are registered.
A study of California adults last year found that 85 percent thought sites
should not be allowed to track their behavior around the Web to show them ads,
according to the Samuelson Law, Technology & Public Policy Clinic at the
University of California at Berkeley, which conducted the study.