• by Diane Mermigas , April 10, 2008

Contrary to popular belief, e-commerce and online advertising will not magically achieve maximum growth during a protracted recession without a swift attitude adjustment by marketers. They must become masters of social networking, search and engagement--with a little help from the gatekeepers of the Internet's digital marketing mechanics.

To exceed the predictable built-in growth that accompanies the ramping of any new technology or platform, e-commerce powers from Google to Facebook will need to work harder at making businesses comfortable. That requires improved accountable metrics, security and user-friendly interfaces.

Businesses seeking to supplement or shift their brick-and-mortar sales to the Web must use this economic downtime wisely. They need to realign spending to support the most cost-effective pitches and electronic transactions--actually generating the sales revenues that are the objective. They must redefine relations with target consumers by mining analytics for a deeper understanding of who they are and how they behave.

One of the most effective approaches to such transformation is focusing on social networking, search and engagement. These mechanics, and the analytics they generate, are critical to locating, remaining connected to and mining a relationship with potential buyers. Unfortunately, any foray into these areas represents the kind of discretionary research and development that many companies reduce in tough times. But they are the kind of efforts that will have an even bigger payoff in a thriving economy.

All this is worth pondering in the context of the annual "State of Retailing Online" report from Forrester Research, which predicts that e-commerce remains strong--due primarily to consumer convenience--and will top $300 billion over the next five years. Domestic business-to-consumer e-commerce will top $204 billion in 2008, comprising 7% of all U.S. retail sales. This annual report survey, conducted in association with Shop.org, identifies pay-for-performance search engine marketing and organic traffic--such as outbound email marketing initiatives--as the dominant online sources of consumer acquisitions. Emerging platforms that are jet engines for future adoption, social networks and mobile shopping applications have barely moved the needle so far.

But that will change. One-quarter of those surveyed said they consider social networks a popular marketing tactic, but 65% indicated plans to give it increased priority in 2008. In online video, 21% of those surveyed say they use it as a marketing tactic, and 67% say they will make it a priority this year. Even in an economic squeeze, the cost of online experimentation is manageable. Forrester reports that retailers spend between $7 and $9 per order on email and search engine optimization. A skillfully assembled email list of target consumers can yield a healthy return: retailers spend 50 cents per click across all paid search, and typically yield an incremental $8.47 in revenue. Online retailers employing social-networking tactics find their average cost per order is a hefty $50, which is comparable to the cost of traditional portal deals.

The challenge will be finding ways of measuring how social-networking engagement, peer recommendations, widgets and even blogs can produce direct sales and drive revenues. Until the Internet powers can better equate dollar value to fuzzy social computing metrics, such as reach, frequency, time spent, and page views, online retailers will be reluctant to tap into these viral digital media platforms.

Forrester analyst Sucharita Mulpuru forecast earlier this year that the domestic growth rate for online retail will drop to 17% over 2007 --the lowest-ever rate of growth for the industry, which will cause companies to pull back on their social-computing expectations. "While customer reviews and some personalization tools will emerge as the best ways to drive dollars, e-business professionals will also recognize the tangible payoffs from vehicles such as virtual worlds or blogs as often elusive," Mulpuru says.

The consumer insights and behavioral targeting marketers seek are endemic to social networks, at least one-quarter of which are not affiliated with MySpace or Facebook (think Classmates, Xanga, Friendster, Bebo, eHarmony and del.icio.us). Facebook's short-lived and controversial Beacon program was an example of how not to do it. MySpace's Hyper Targeting platform that matches marketers to thousands of member-profiles describing hobbies and interests is a better start.

Learning how to tap into an engaged audience bound by common interests and zealously sharing insights and information is one of the hidden e-commerce jewels of the digital age. The forecasts hardly do it justice. Advertising on social networks should top $1.6 billion in the U.S. this year and $2.1 billion globally, according to eMarketer. By 2011, those domestic and global spending amounts will more than double, and half of all U.S. Internet users--some 105 million people--will use social networking regularly. That's a lot of consumers not to connect and do business with in good times or bad.