Ecommerce Conversion, a Trillion Dollar Opportunity

Global ecommerce sales topped $1 trillion for the first time in 2012 and the outlook for growth remains robust at over 18% per year, a huge milestone for the Internet and the shift of purchasing to the web. As exciting is the fact that this still represents less than 15% of total retail spending meaning there is a lot of potential growth ahead. However, for the past few years as I have sat in board meetings and partner meetings discussing our portfolio companies in the ecommerce and online transaction arenas and I continue to wonder why conversion rates of consumer web traffic to purchasing customers remains at levels that seem low. To be sure, the industry and our portfolio companies have done a lot to increase conversion rates from ~1% to levels closer to 3% – 4%, and the industry heavyweights have achieved even greater conversion rates with Amazon now north of 16%, but a lot of data I have seen is the retail conversion rates, on average across all categories, convert visitors to purchasers at a rate that is more than 20%………almost 10x the rate of the ecommerce average. I have been bouncing this idea off of entrepreneurs, other VCs and our investors (limited partners) for a few years. I have gotten pretty consistent agreement that this is both a conundrum and a big opportunity. In fact, if ecommerce conversion rates were the same as retail, that would mean an increase in ecommerce revenue of $10 TRILLION…….of course this is somewhat overstated but it clearly makes the point that this issue is HUGE.

Why is this?

When you visit a website maybe your purchase intent is lower than when you go to a physical store (there is a lot of thinking that web research drives in store purchasing)?

When you visit a retail store, maybe being able to touch the product increases your propensity to buy?

Maybe the instant gratification of buying the product and taking it home increases propensity to buy?

All of this may be true, but one thing I know is very different, there are no talking, interactive salespeople on ecommerce websites. Yes, there is text chat, and yes you can call customer support, but unlike when you walk into most retailers (auto dealers to furniture stores to Apple) there is not a smiling human being who greets you and says “How can I help you today?”

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