Video Commerce And eCommerce Video: Disruptive Innovations In E-Commerce

Video Commerce

The Vision of Video Commerce

Video Commerce
A New Paradigm for Marketing, Selling,
and Servicing Commercial Products and
Services on the Internet

January 24, 2009

Author:

Justin Foster

Founder, Video Commerce Consortium

Co-Founder, Liveclicker

http://www.video-commerce.org

http://www.liveclicker.com

The Video Commerce
Consortium
advancing video in e-commerce

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Copyright © 2009 Video Commerce Consortium – www.video-commerce.org –All Rights Reserved.

Video Commerce


Table of Contents

Introduction ....................................................................................................................................3
Online Video: A Disruptive Innovation in E-Commerce ........................................................3
Today’s Online Video Industry .................................................................................................5
Immediate E-Commerce Opportunities ...................................................................................5
The Future of Video Commerce ...............................................................................................6
Disruptive Attributes of Online Video .........................................................................................7
“Everyone’s a Producer” ..........................................................................................................7
Video Trapped within the Enterprise ............................................................................................... 8
User-Generated E-Commerce Video .............................................................................................. 8
Supplier-Generated E-Commerce Video ...................................................................................... 10
Self-Produced E-Commerce Video ............................................................................................... 11
Proving the Business Case for E-Commerce Video ................................................................... 11
“Publish Everywhere.” ............................................................................................................12
Web Publishers................................................................................................................................. 12
Email Campaigns ............................................................................................................................. 13
Social Networks and Social Bookmarking Services ................................................................... 13
Affiliate Sites ..................................................................................................................................... 13
Consumer and E-Commerce Blogs, Third-Party Web Sites ..................................................... 14
Television........................................................................................................................................... 14
Mobile Devices ................................................................................................................................. 14
Search Engines ................................................................................................................................ 14
In-Store Kiosks ................................................................................................................................. 14
Video Sharing Services ................................................................................................................... 15
Video Channels ................................................................................................................................ 15
Emerging Platforms ......................................................................................................................... 15
“Two-Way Dialogue”................................................................................................................16
More Information..........................................................................................................................19
Video Commerce Consortium Members ...............................................................................20

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Video Commerce

Introduction
The widespread consumer embrace of e-commerce in the late 1990’s ushered in a new era of
convenience for consumers and opportunities for merchants to persuade buyers. Yet despite the
possibilities of the paradigm, over the last decade e-commerce sales have remained little more than a
sideshow when viewed against the backdrop of mainstream “brick and mortar” retail sales – at least in the
United States. In the third quarter of 2008, only 3.4 percent of all retail sales in the country were
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attributed to e-commerce, according to the US Census Bureau.

The reasons why e-commerce sales continue to lag offline sales are many, but one hard-to-dispute fact is
that despite all the advantages offered by online shopping, most people still prefer the experience of
buying products in the physical world. No amount of convenience afforded by e-commerce could ever
replace the physical act of walking into a store, seeing a product in “real life,” interacting with
knowledgeable salespeople, and walking out the doors a proud new owner.

E-commerce merchants have long wrestled with this “experience gap,” largely imposed by the technical
limitations of the Internet. Today, merchants push online shopping to its perceived limits through
technologies like behavioral targeting, guided search, automated product recommendations, 3D product
navigation, and user communities - innovations that help make shopping online more convenient and
powerful while bridging time and space between merchants and shoppers. Still, a core element of the
offline shopping experience remains elusive in the online world, and merchants fail to connect in the most
meaningful ways with shoppers.

Online Video: A Disruptive Innovation in E-Commerce

Online video emerged as a tool to market and sell over the Internet in the late 1990’s, but only recently
began to fulfill its original promise of greater sales and richer shopping experiences. During the dot-com
period, many e-commerce visionaries foresaw the potential for online video to become a powerful
medium for persuasion – not just in advertising, but also in merchandising and service. While there are
many examples of early online video pioneers in e-commerce, technical limitations and lack of video
content hindered widespread adoption on both the consumer and merchant fronts. Streaming video
online was often only possible when the end user downloaded a browser plug-in. Even then, playback
quality was lackluster when viewed over a 56.6K Internet connection in a postage stamp sized window.
Plus, producing video was an expensive proposition for merchants, requiring great technical expertise
and investment compared to other e-commerce initiatives. For years, online video remained on the
sidelines as other e-commerce technologies matured.

Today, few would deny we live in an increasingly video-centric society. Rising broadband adoption
across the developed world opens new opportunities for distributing and consuming video. Near-
universal browser penetration of Adobe’s Flash® Player enables in-browser video viewing for the average
Internet user. The growing market penetration of video-enabled mobile devices allows the consumption
of video over rapidly growing 3G networks. Last, YouTube demonstrated a powerful new reality: anyone
with a digital camcorder, webcam, or multimedia phone and access to an Internet connection could
publish and distribute video over the Internet – at close to zero cost. Considering the trends, it is difficult
to imagine next year’s web with less video content compared to today.

1
US Census Bureau News, November 19, 2008. Timothy Winters (survey processing), Carol King (Survey
Methodology), William Davie (seasonal adjustment)

3

Video Commerce


Worldwide Broadband Penetration

Adobe Flash Player PC Penetration

December 2007 March 2008 June 2008 September 2008
Total number of PCs using the Internet (IDC) 2 852 million 878 million 904 million 915 million
Percentage of Mature Markets who can view Flash
98.8% 98.8% 99.0% 98.6%
Player content version 7 and higher 3
Percentage of Emerging Markets who can view
97.4% Not surveyed 97.3% Not surveyed
Flash Player content version 7 and higher 4
Worldwide Adobe Flash Player penetration -
838 million 864 million 890 million 898 million
estimate 5

2
Forecasted number of PCs using the Internet - IDC (International Data Corporation) Internet Commerce Market
Model (February 2007, v11.1)
3
Mature markets include U.S., Canada, UK, France, Germany and Japan.
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The penetration rate is based on an international sample and sourced by Millward Brown. The Emerging markets
include China, S.Korea, Russia, India and Taiwan. The sampling error is +/-3.7% at the 95% confidence level.
Emerging markets are surveyed every other wave and the percentages are carried over from the previous wave
when the Emerging markets are not surveyed.
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Total Player penetration is a calculation of the total number of PCs connected to the internet, multiplied by the
weighted percentage of worldwide penetration from the Millward Brown study. This is an assumption made by
Adobe.

4

Video Commerce

Today’s Online Video Industry

Today’s online video industry is largely fixated on video as a medium for advertising or building audience.
Network and cable TV stations port content to Hulu.com and their own web sites while branding
professionals labor to incorporate video into marketing campaigns in an ongoing quest to achieve the
next big “viral video hit.” Independent video producers further the well-documented media fragmentation
online through the creation of original video programming fashioned after television-centric paradigms
while user generated videos dominate video sharing services like YouTube.

Consumers still mostly view online video as an entertainment medium; we associate online video content
with entertainment-oriented television programming or silly homemade movies: the YouTube video of a
cat playing “Jingle Bells” on a piano or the latest episode of “Saturday Night Live” on Hulu.com. Few
think of online video in terms of direct shopping a la QVC or HSN, or associate online video with e-
commerce. After all, the widespread fusion of online video and e-commerce is only beginning.

Immediate E-Commerce Opportunities

Case studies illustrate the ability of online video content to effectively influence purchase decisions. Many
e-commerce sites employing video as a merchandising tool see increases in product sales of 10% to
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250% or more when best practices are followed. Some retailers are also seeing lowered return rates,
highlighting the potential for video to cut costs.

E-Commerce Retailer Case Study Date Source
quot;We ran an A/B test across 50,000 product detail page views
and measured the conversion rate in Omniture in order to
track the impact of video at the product page level,quot; said Jon
Nordmark, Founder of eBags. quot;What we discovered was August, eBags internal web
that the conversion rate increased 50.1% for those users 2008 analytics,
that clicked the quot;playquot; button in the video compared to the
control group, and 138.9% for those users that watched the
entire video compared to the control group.quot;
“Customers want to get a feel for what it is they’re buying,”
said Lee Brown, Managing Director of Onlinegolf. “That’s
December,
where video comes into play.” Onlinegolf has seen an InternetRetailer.com
2008
average increase in conversion rates of 88% for items
featuring video.”
“We have about 300 product videos on the site and the chief
December,
benefit has been to reduce our return rate by about 10%, InternetRetailer.com
2008
which is a significant cost savings.”
PetsUnited, LLC reports the average sale tied to a video is
September,
50% higher than if the shopper places the order after InternetRetailer.com
2008
viewing just text and a product photo.
Video… improved the conversion rate by 44% for product
pages with videos, “If there’s a style they’re interested in,
consumers can read about the benefits and features and
January,
see images. But unless there’s a video on a model’s foot, InternetRetailer.com
2009
they’re not going to know what it looks like in action,” he
says. “That’s a key question in the buying process for any
consumer when it comes to ready-to-wear footwear.”

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“Building an Effective Video Commerce Strategy,” Justin Foster, Founder & President, Video Commerce
Consortium, November 7, 2008.

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Video Commerce

A September 2008 study released by DoubleClick on the effectiveness of rich media advertising found
video ads drove higher engagement and clickthrough rates compared to traditional display ads, and
additionally that 55% of in-page video ads were watched to completion.

The Future of Video Commerce

Although video is finally proving itself an effective tool for selling online, many challenges remain before
the full vision of video commerce can be realized. For example, simply placing video on product pages or
buying video advertising ignores much of the medium’s potential. From increasing SEO, to driving higher
engagement and traffic from affiliate and email marketing efforts, differentiating and extending the
shopping experience to emerging channels and driving customer-centric commerce through social
networking, blogging, and user generated content, online video promises to deliver innovative new
shopping experiences across an entire spectrum of marketing channels.

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Video Commerce


Disruptive Attributes of Online Video
To tackle the central challenges facing online video in e-commerce, one first needs to understand a few
of the disruptive forces presented by the proliferation of online video content. Once the disruptive forces
are understood, they can be applied in an e-commerce environment to generate sustainable advantage
and “grease the wheels” for video commerce programs.

Challenge Disruptive Innovation
Producing, acquiring, and discovering YouTube Effect:
“Everyone’s a Producer”
video content
Publishing and distributing online video Channel Pervasiveness:
“Publish Everywhere”
content
Driving engagement, interaction, and Interactivity:
“Two-Way Dialogue”
transactions through video content

“Everyone’s a Producer”

YouTube illustrated the potential for anyone with access to a digital camcorder, webcam, or video-
enabled mobile phone to achieve broad video content distribution over the Internet at close to zero cost.
Online retailers can leverage this fundamental idea regardless of where video content is sourced.
However, since video producers are motivated to grant access to video content for different reasons
depending on their position in the video production and distribution ecosystem, multiple strategies are
needed to produce, acquire, or discover video content depending on its production source.

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Video Commerce


Video Trapped within the Enterprise

In a non-scientific poll conducted by The Video Commerce Consortium on January 21, 2009, 403 online
retailers were asked, “In your opinion, what are the biggest roadblocks facing video commerce within your
organization?” The poll illustrates conflicting organizational strategies and politics play a central role.
This is likely due to the cross-channel nature of video; it can be applied in many channels, and e-
commerce organizations are commonly organized by channel ownership. For example:

• Email managers manage email campaigns.
• Merchandisers manage product merchandising on the e-commerce web site.
• Affiliate managers manage the affiliate channel.
• Emerging media managers oversee social networking, blogging, and UGC strategies.

Before online video can gain broad acceptance within e-commerce organizations, evangelists must
escape their comfort zones and reach out across organizational barriers to communicate the potential of
video in terms other stakeholders can understand. In short, enabling video to spread throughout the
enterprise requires collaboration across channels.

User-Generated E-Commerce Video

In the context of e-commerce, user-generated video is broadly considered confined to the realm of
product reviews. The truth is anyone with access to a digital video recording device can produce any kind
of video content for use in e-commerce. No rule or law prevents independent video producers from
developing educational, how-to, promotional, or entertainment-oriented video programming with a primary
intent of selling products or influencing buying behavior. In fact, one might convincingly argue more
product-oriented video programming exists today on video sharing services like YouTube or ExpoTV than
is effectively used to sell products on e-commerce web sites.

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Video Commerce

Although it is clear user generated video has gained some mainstream consumer acceptance as
evidenced through the rise of YouTube and other video sharing services, most e-commerce organizations
struggle to obtain a broad base of user generated video content to market and sell their products online.
Those who have realized some success understand that in order to grow the volume of user generated e-
commerce video, incentive must be provided to content creators.

Incentive can be applied in many ways, from pay-for-performance based on the effectiveness of a video
to sell products or drive traffic, to flat licenses paid to acquire the rights to use e-commerce video content,
discounts applied to future purchases, entries into contests, or even through nonmonetary compensation,
such as by fulfilling a content creator’s need to feel recognized and appreciated.

BeautyChoice.com is one such online retailer that understands how crucial incentive is to acquiring user-
generated e-commerce video. In a period of just over two and a half months, the startup e-commerce
company grew its base of user generated video content from zero videos to over six-hundred videos
through a combination of recruiting talent over YouTube, contracting with several amateur video
producers, and enrolling individual producers in its affiliate program and rewarding producers when a sale
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was made on their e-commerce site.

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Source: Interview with Jordan Blum, Founder & CEO BeautyChoice.com, January 24, 2009.

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Video Commerce


Supplier-Generated E-Commerce Video

Non private label e-commerce merchants can often acquire video assets directly from their suppliers. For
example, drugstore.com was able to launch the majority of its 200+ videos in just a few months by
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requesting video content from brand marketers that sold products through the e-commerce site.

Manufacturer-sourced video content can be extraordinarily compelling for e-commerce merchants to
adopt because it is usually freely available; manufacturers are often delighted to make previously
produced content available to e-commerce merchants or even produce new video content for their online
retail channels; however there are pitfalls to be aware of when using content developed by brand
marketers.

First, since the content is produced by manufacturers, it may carry the message the product manufacturer
intends rather than one the e-commerce merchant desires. Next, unless branded content is unique to
each e-commerce outlet, it fails to provide a point of differentiation for the e-commerce merchant. Third,
product manufacturers may not allow an e-commerce channel to use its branded content for any number
of reasons – for example, a value-oriented online merchant using a video produced by a luxury goods
manufacturer could produce cognitive dissonance in the mind of the consumer. Last, manufacturer
content is often delivered through “retail syndication networks,” intermediaries in the market that serve to
distribute video content across multiple e-commerce sites on behalf of their clients: product
manufacturers.

Leading e-commerce merchants today take advantage of the “everyone’s a producer” phenomenon
demonstrated by YouTube by using leverage to obtain video content directly from product manufacturers.
The dynamic of leverage always exists between suppliers and retailers; the greater the buying power of
the retailer, the more leverage that retailer carries with its suppliers. However, leverage needn’t be
employed in a heavy-handed way that threatens the relationship dynamic between buyer and seller; often
suppliers are happy to provide video content as an act of customer service or with the expectation of
increased product sales through the retail channel.

In the new paradigm of video commerce, the acting principle is that video content is abundant, not scarce.
Retail syndication networks, in their present form, artificially place a limit on the volume of video content
available in the market by creating a friction in the marketplace between the video producer (the product
manufacturer) and the video consumer (the e-commerce retail site). To succeed in the future, retail
syndication networks may need to alter their business models or partner with outside entities in order to
satisfy the underlying reality that video content is abundant and the barriers to producing new content are
extremely low.

In the new paradigm of video commerce, the acting principle is that video content
is abundant, not scarce.

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Source: Interview with Alison Jeske, Director Product Management, drugstore.com, January 21, 2009.

10

Video Commerce


Self-Produced E-Commerce Video

Self-producing video content carries several advantages for the e-commerce merchant. First, this model
provides the most control over video content; the merchant does not rely on consumers or suppliers to
develop messaging. Self-producing video may also provide more flexibility. With an in-house staff
focused on video production or a trusted partner developing content, the retailer also exerts greater
control over resource allocation. Last, self-produced content is differentiated; the e-commerce merchant
owns the rights to the content and can prevent competitors from using the content on their own sites. E-
commerce companies may even develop their own production styles that become an inseparable part of
the retail brand.

One of the primary drawbacks of self-producing video content is the potential for higher production costs.
From hiring management and production staff, paying for talent, studio rent, set materials, production
equipment, and software, self-producing is often the most expensive way to source e-commerce video
content. Still, for private label merchants or merchants concerned with the potential loss of brand control,
self-production may be the best option available. Since it can be the most expensive production choice,
e-commerce merchants that choose the self-production route must maintain a relentless focus on
production best practices in order to generate efficiencies. Measurement must also be a key focus so
executive leadership can gauge the return on investment from self-produced video.

Proving the Business Case for E-Commerce Video

Ultimately, there are only two ways to improve the business case for e-commerce video. Either the costs
required to discover, acquire, and produce video content can be reduced, or the revenue generated from
online video can be increased. To reduce the cost required to develop video content, online retailers may
consider a variety of avenues for discovering, acquiring, and producing e-commerce video, all of which
provide benefits and drawbacks. To increase revenue, e-commerce merchants must apply best practices
and harness the next disruptive innovation illustrated by the rise of online video: “Publish Everywhere.”

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Video Commerce


“Publish Everywhere.”

Although early case studies show video proving itself an effective on-site merchandising tool, the ability
for an online video asset to generate incremental revenue is not limited to merchandising alone. Leading
e-commerce merchants are now moving beyond merchandising and beginning to think of video as a
media with potential to display across channels, in each instance leveraging video’s unique ability to carry
persuasive, rich messages.

Any online video carries potential for broad distribution; publishing may occur across many video sharing services, devices, social
networks, affiliate sites, ad networks, search engine results, in-store kiosks, blogs, email, and other emerging mediums.

Web Publishers

Video advertising has garnered much of the early attention in the online video market, but video ads
displayed over ad networks are only one component of a much larger video commerce ecosystem.
Emerging ad networks commonly distribute video ads as standalone video content in web pages, or insert
video content as pre, mid, or post-roll ads inserted into longer form video content.

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Video Commerce


Email Campaigns

Embedding video in email marketing campaigns has long been a desire of email marketers, but security
limitations in email clients and spam filtering made adopting video in email problematic in the past. Now,
technology exists to convert full-motion video assets into animated .GIFs to be embedded in email
campaigns, while email marketers can control attributes like frame rate, file size, and interactive elements
in the video content. Future technologies promise to support video player embeds in email messages
with rich, full audio and industry-standard video encoding technologies.

New technology enables the conversion of video assets into email-friendly video clips.

Social Networks and Social Bookmarking Services

Consumers may post video assets displayed on e-commerce sites on their Facebook, MySpace, or other
social networking pages. Likewise, videos may be bookmarked using services like digg or StumbleUpon.
Consumers may also create their own video assets featuring products for sale on e-commerce sites.

Affiliate Sites

The “Everyone’s a Producer” paradigm also applies in the affiliate world. Existing and emerging affiliate
networks now enable affiliates to syndicate video content in e-commerce video libraries or upload affiliate-
specific video content. In either case, affiliates collect commissions either when the end user clicks
through an embedded link or images within the video, or more often when a transaction referred by the
affiliate is completed on the e-commerce web site.

13

Video Commerce

Consumer and E-Commerce Blogs, Third-Party Web Sites

Copying and pasting a few lines of HTML code is often all that is required to embed a video into a blog or
web site. New contextual targeting technology enables the most appropriate video in an e-commerce
merchant’s video library to display based on the content of the page where a video is embedded.

Television

Services like SpotRunner enable users to create and upload online videos, then publish those videos as
15, 30, or 60-second television ads in a geo-targeted region.

Mobile Devices

Some e-commerce sites now support the ability to download videos to iPhones and other smart phones,
while the growth of screen real estate on smart phones now enables users to browse the web in a
manner more closely resembling browsing on a laptop or desktop computer.

Search Engines

Video SEO is a subject of intense interest now in the e-commerce world as search engines like Google
and Yahoo provide special weighting to video content. Google’s announcement in June 2008 that it
would begin allowing search engines to spider links in .SWF files may open new opportunities for
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indexing video content. Search engines like Blinkx have indexed over 32 million hours of video content ,
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while a January 2009 report confirms 25% of searches on Google properties occur over YouTube.

In-Store Kiosks

E-commerce merchants can bring online video in-store through interactive kiosks located on the retail
show floor. Consumers may choose to purchase out-of-stock items online, or watch video tutorials of
products being considered for in-store purchase.

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Blinkx.com Home Page.
10
Comscore qSearch Report, Christa Quarles, Analyst, Thomas Weisel Partners. December 18, 2008.

14

Video Commerce

Video Sharing Services

YouTube is the largest video sharing service, yet its market penetration is only 40.3% of the overall video
sharing service market. E-Commerce merchants can now use video syndication tools to dynamically
publish video content across a variety of video sharing systems.

Video Channels

E-commerce merchant Beauty.com launched an independent, interactive video channel featuring content
from the company’s media library at video.beauty.com. Interactive links featured within the videos drive
traffic to product pages on Beauty.com. YouTube also supports branded channels where e-commerce
merchants can feature video content.

Emerging Platforms

The applications for video in e-commerce will only continue to grow as more devices are connected to the
Internet. In-car video, e-commerce video in Internet-connected game consoles, and simpler television
distribution among other innovations will all continue to expand the scope and potential of video in e-
commerce.

15

Video Commerce


“Two-Way Dialogue”

The last disruptive innovation of online video is “two-way dialogue.” Two-way dialogue transforms a video
asset from a rich, unidirectional message into an interactive experience via insertion of interactive
elements within the video player. An interactive element could be as simple as a link overlay directing a
shopper to a product page, or as complex as an entire transaction completed within the video player or
the initiation of an interactive sales call. In any case, the viewer is presented with an opportunity to
interact with the video in a way that moves the buyer closer to the point of transaction after the interaction
is completed.

16

Video Commerce


Off-site video may contain simple links overlaid on video content directing users to product pages. The clear call-to-action helps the
viewer understand what will happen when the link is clicked.

YouTube announced on January 22, 2009 it will expand its click-to-buy program which overlays buttons and links on video content.
Amazon.com reported a 23,000% increase in sales of its Monty Python DVDs after running overlay ads on YouTube videos. 11

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YouTube Blog, “The YouTube Team,” January 21, 2009.

17

Video Commerce


Player interactivity may be extended to include in-video checkout.

Amazon.com launched an embeddable widget for its affiliate program in 2008 featuring link overlays and the ability for affiliates to
upload their own self-produced video.

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Video Commerce

More Information
For more information, join the VCC (Video Commerce Consortium) to discuss video commerce with a
community of peers. The VCC is a non-profit trade organization dedicated to advancing the use of online
video in e-commerce. It is the world’s largest community of online marketers, e-commerce professionals,
and technologists dedicated to learning about and advancing the use of video in e-commerce.

You may submit an application to join the consortium at www.video-commerce.org.

Justin Foster is currently serving as Founder & President at the Video Commerce Consortium and Co-
Founder & VP Market Development at Liveclicker, Inc.

The VCC is an early-stage trade association dedicated to advancing video in e-commerce. With over 400
members including the majority of the Top 500 Internet Retailers, the VCC is well-positioned for future
growth. Liveclicker is a Silicon Valley startup with deep experience in the e-commerce industry and a
primary focus on advanced video commerce applications for the web's leading brands.

Prior to his current roles, Justin served as President & Founder of the Email Marketing Roundtable, a
nonprofit trade group dedicated to bringing together email marketers to discuss email marketing best
practices. The Email Roundtable today provides a trusted discussion venue for over 1,250 online
marketers. He was also VP of Services at WhatCounts Inc, a leading email service provider focused on
enterprise and hosted email marketing applications.

You can contact Justin at justin [at] video-commerce [dot] o r g, or via phone at 253-988-3183.

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Video Commerce


Video Commerce Consortium Members

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Video Commerce And eCommerce Video: Disruptive Innovations In E-Commerce

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