Think back, for a moment, to 1999. The dot-com bubble is in full swing. The DOW is above 11,000 (about where it is today), the University of Michigan Business School is offering a course called “From Idea to IPO in 14 Weeks”, and grandiose predictions are en vogue like never before or since.
One common prediction from that era was that brick & mortar stores would inevitably lose out to eCommerce. The argument was: who would drive to a store instead of simply shopping online? And what business could afford to maintain retail space as consumers moved online? Investors found this logic so compelling that Pets.com raised $300 million in venture capital, sponsored a float in Macy’s Thanksgiving Day parade, and even ran a Super Bowl ad before the bubble burst.
Now, fast forward to 2011. The brick & mortar model is going strong. National banks spent most of the 2000s opening as many branches as possible, and State Farm is still, quite literally, your neighbor.
Meanwhile, eCommerce is still only about 7% of retail sales in the US and growing gradually. What happened?
In short, the prognosticating class failed to recognize two basic facts:
1. As social creatures, people like to establish trust via personal interactions before making important purchases
2. As physical creatures, people prefer to touch even the most basic things before buying.
This history of eCommerce since 1999 has largely been about overcoming these two hurdles. Progress has been slower than expected, but there have been notable successes. Amazon, for example, disrupted books and music sales by making it fun and easy to sample media on their website, and in this domain the old predictions are starting to come true: Borders is closing their doors.
Yet, eCommerce has remained highly impersonal, and the fate of booksellers has been the exception, because websites have never had a good way to promote trust-building interactions. That is, until Facebook began powering 1-click logins for other sites.
Facebook’s tools increase sign-up rates (thanks to the simplified process) and, more importantly, give websites the opportunity to personalize online experiences. eCommerce sites can now offer personalized product & service recommendations even to first-time visitors, establishing trust and credibility as quickly as users can recognize their friends’ profile pictures.
Study after study shows that people trust their friends’ recommendations more than any other source of information, so we should expect Facebook’s tools to fuel another round of disruption. But what will be the next shopping experience to move online? Presumably, non-physical products sold on the basis of trusted recommendations would be the logical place to look.
My colleagues at Stik.com and I are betting that big-ticket industries like mortgage, insurance, and financial advice will be among the next to move online. These products are just contracts, after all, but people have traditionally been afraid to buy online because the stakes are so high. By harnessing the power of trusted recommendations, however, websites can begin to overcome this barrier. And importantly, the professionals in these industries are eager to help. It’s unquestioned dogma among salespeople that “referral business is the best business,” and they are more than willing to work to build their online reputations.
We are still early in the history of trust-based, Facebook-powered eCommerce, but the early data is promising. At Stik.com, people are twice as likely to interact with professionals that their friends recommend. As any eCommerce veteran will tell you, that’s a quantum leap. When trusted, personal recommendations become commonplace, brick & mortar offices may finally be disrupted after all.
This post originally appeared in Business Insider on September 2, 2011.
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