Active Users and Online Retailing

There was an interesting debate in the comments to my post yesterday on active and non-active users.

Gian Fulgoni, Chairman and co-founder of comScore said:

most businesses are in the opposite position. They need to boost the
activity of registered but inactive users. Think of most online
retailers, for example, who only convert 5% of their monthly visitors
into buyers. Their challenge is figuring out how to get a share of the
spending of the visitors / non-buyers. No way to do that without
focusing on them and understanding why they visit you but buy
elsewhere. Once you know the answers to that you have a shot at
addressing the issue. You don't if all you do is focus on the visitors
who buy.

And Steve Goldstein, CEO and co-founder of Alacra agreed with Gian and said:

I agree 100%. If I could get 10% of my inactive www.alacrastore.com users to be active the business would be significantly better.

Now, these are two entrepreneurs who I backed over 10 years ago who have both built profitable and valuable businesses. So they know a thing or two about business.

But I think they are both missing an important insight. When I think of online retailing, I think of three kinds of users; non-active users, active users, and active users/transactors.

As Gian points out, for a business to succeed, it needs to have a healthy number of transactors. But looking at your user base as either non-active or transactors is the wrong way to think online (and maybe offline too). Just like bookstores use cafes to bring potential purchasers in the store, online retailers should intentionally cultivate an active non-transactor user base.

Our portfolio company Etsy does a good job of this. Many of the visits to Etsy are to read The Storque, participate in the conversations in the forums, or to build up lists of your favorite things. There are literally millions of people who do these things every month. Some of them choose to transact during these visits, but many do not.

So I'd advise all online retailers to focus on making users active first and foremost and give them a lot of things they can do on your website beside transact. By doing that you increase the number of monthly visits and therefore the total amount of potential transactors.

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