White Paper | Authors: Mark Gubbels Criteo, Paula Abjelina Adcolony, Dave Yang Grab
As in all inventions, ecommerce came to life as an answer to a simple problem: can mail and fax processes be done without human intervention? The birth of ecommerce can be traced back to the 1960s when Electronic Data Interchange was developed to answer that question.
There are claims however, that the first recorded occurrence of a transaction was when Stanford students reportedly sold cannabis to MIT students via an Advanced Research Projects Agency Network Account (ARPANet).
Modern ecommerce took on a familiar shape when English inventor, Michael Aldrich was credited with developing the concept of online shopping. After finishing shopping errands, he had the idea of connecting his television to the supermarket to deliver the groceries. Aldrich connected a TV to a transaction processing computer using a telephone line, giving birth to what he called teleshopping, or shopping at a distance. This teleshopping system was marketed a year later as a B2B system, although no evidence showed that it was ever used for consumer retail.
Through the next decades, online shopping grew at an unprecedented pace.
• 1990 saw Tim Berners Lee and Robert Cailliau build a hypertext project called the World Wide Web. Lee used a NeXT computer to create the first web server, as well as write the first web browser
• in 1992, one of the first ecommerce sites, Book Stacks Unlimited, was opened by Charles M Stack. It became Books.com in 1994, and eventually became part of Barnes & Noble. In 1997 Dell recorded the first million dollar sale from online transactions
• 1995, Amazon started an online bookstore and offered more titles compared to its offline competitors. In 2001 they launched their first mobile site. The same year, eBay launched and became famous for introducing the concept of online auctions
• 1995 gave birth to search engines, starting with Yahoo!, then Google in 1998; currently both have ecommerce subsidiaries
• 1998 saw the birth of payment processing made possible by PayPal. It made global ecommerce possible as an acquired bank that does payment processing for online sellers, auction sites, and commercial users. Customers get to send, receive, and hold funds, in 24 different currencies.
Ecommerce Growth Drivers in the 2020s
Ecommerce grew exponentially between 1998 until the 2010s. According to the United Nations, by 2021 the global ecommerce industry earned approximately USD26.7 trillion.
The development of Online Marketplaces has made it easier for vendors and buyers to congregate and allows marketers to promote the goods and services offered within a trusted space. Large marketplaces like Alibaba, Flipkart, Magento, Lazada, and Shopee have grown an average of 65% in the decade between 2010 and 2020.
Mobile commerce has become the norm for most buyers and sellers as digital habits became screen-agnostic. It has allowed users to browse for goods, compare details and prices, and shop from sites or apps using a smartphone or tablet, without the need to visit a physical store. Mobile device sales account for as much as 43% of ecommerce sales globally.
Digital Marketing and Social Shopping have enabled companies to own their voice within social media and communicate directly to potential buyers. Businesses now adopt client-specific marketing strategies hinging on behavioural data available from their platforms. In addition, social networks have incorporated online purchasing into their platforms.
Ecommerce in Asia Pacific
No other event has accelerated the growth of ecommerce more than the pandemic that started in 2020. Asia Pacific digital buyer penetration stands at 72.9%, trailing behind only North America and Western Europe.
The worldwide growth of Retail Ecommerce was 25.7%, where Singapore leads in Asia Pacific at a 73.6% growth during the 2020 pandemic. Australia (53%) and Thailand (40%) also figured in the top 10.
India has the highest forecasted retail ecommerce growth at 27%, followed by the Philippines and China. In Southeast Asia, Indonesia has the highest forecasted retail ecommerce sales at USD 20.21B. The outlook for 2022 remains poised towards growth.
Ecommerce in Southeast Asia
To gain more insights into ecommerce for marketplaces, our IAB SEA+India Commerce Council conducted various discussions with major holding agencies in Southeast Asia and India, all of whom have created dedicated commerce marketing divisions. All of the commentary and numbers mentioned below are taken from these discussions, albeit we have maintained anonymity at the request of the agency partners. The creation of these specialist divisions feels similar to 2010 when agencies began to experiment with social media and invested more as those platforms began to emerge.
Agencies have seen significant growth in advertising on ecommerce platforms. Across APAC, agencies report year on year (YoY) growth at over 100%, specifically on the lower funnel. This would include ecommerce and social channels. Social was mentioned as an area where platforms clearly see the opportunity to drive lower funnel conversions as well.
The growth in terms of investment was not just driven at the lower funnel. Upper funnel in terms of branding and growth drove double digit growth on ecommerce channels. There is a tendency for brands to only think about lower funnel conversions on ecommerce platforms; however, over the long term agencies are reminding their clients that brand is still a key exercise in maintaining longevity.
Ecommerce is by definition and intention a crowded marketplace where brands need to ensure they are continuing to drive awareness and differentiation through brand executions, such as live streaming commerce. Some agencies reported FOMO was driving client investment in more upper funnel commerce, as they see competitors highly visible in large branding executions.
The driving force of 2021 in all markets was the covid pandemic. Specific to consumer behavior this accelerated the adoption, usage and utility of ecommerce platforms. In APAC specifically, government lockdowns in various markets like the Philippines and Vietnam effectively shuttered traditional brick and mortar sales channels for sustained periods of time.
Prior to the pandemic, ecommerce was seen as an optional sales channel where branding took place. Now ecommerce is seen in a different light and the global impact of the pandemic has accelerated and brought credibility to ecommerce platforms. One market example of this is Singapore which is the most advanced digital economy in ASEAN. Prior to the pandemic, ecommerce was 8% of sales, currently that figure is closer to 25%.
As marketers turn their attention to ecommerce they are also honing how they measure success or set KPIs for these channels. First off, brands have a clear objective on driving sales and for this they have ROAS as a key metric to track. The brands do, however, understand that in order to have consistent traffic to their ecommerce channels, driving traffic to these marketplaces is key. In fact, Shopee is recognizing agencies not only for direct buys but also buys that drive to their platform.
For example, if you spend on Facebook or Google and it drives to Shopee they have a conversion table that credits spend based on impressions driven. This once again points back to the crowded marketplaces of these platforms and the need to drive user attention to your points of sale.
Marketers are looking for clearer ways to measure attribution on these platforms. In addition to ROAS, many brands are looking if the buyers were first time consumers versus repeat. Brands also want visibility on average order values and frequency. The ability of platforms to deliver on this consistently is seen as an area of improvement by agencies. Brands are even willing to pay for this visibility and prior to Lazada acquiring Redmart, brands were paying 1%-2% of gross merchandise volume (GMV) to access these data points.
In terms of adoption, several of the agencies we spoke to reported 30%-40% of budgets in Southeast Asia is earmarked for performance marketing. This still lags the rest of APAC but is expected to accelerate this year. When making media mix recommendations, currently 70% is focused on driving to ecommerce channels and 30% is on other channels. This can vary depending on the vertical; for example, home appliances last year saw roughly 60% of spend on the platform with only 40% being allocated to drive traffic. This is driven by consumer destination behaviour which once again shifted due to various lockdowns and the pandemic as a whole. One area for brands to be wary of is the degradation of brand loyalty due to the rise of ecommerce platforms. The combination of wider selection, readily available information, and reviews all have led to dilution of brand preference. As a result brands need to remain actively engaged in reviews both positive and negative.
As ecommerce evolves, brands are looking for ad solutions that are CPM biddable-based and programmatic. The move to auction-based programmatic platforms will allow ecommerce platforms to participate in always on budget, meaning that there are continuous marketing and optimisation efforts. As mentioned before, brand is important on these platforms and hence video assets are important but they need to be programmatic. Video should be adapted to the platform, specifically these should be ‘shoppable’, allowing a consumer to click on the video and be taken to the product. The video acts as an elevator pitch to the consumer and in today’s mobile world should be in the 7 to 15 second range.
As the pandemic eases, we are seeing a convergence of media where other channels are more integrated with digital commerce. The use of QR codes on OOH is now commonplace, but agencies also expect the major commerce platforms to develop enhanced branding tools and measurement to show the power of their audiences beyond a simple last click performance model.
Agencies expect continued momentum on ecommerce platforms in regards to advertising spend. The expected shift will come primarily from offline media such as retail, in-store, outdoor, and radio. The shift in ad spend is a reflection of more Gross Merchandise Value (GMV) taking place online; this is yet another market force driving spend away from traditional into digital.
Ecommerce in India
When shifting focus from Southeast Asia towards a major marketplace in India our interviewee provided us with following in depth insights. The YoY change in regards to clients using ecommerce platforms for advertising is showing a strong increase on the seller side. Sellers are investing more and more in advertisement and experiencing double digit growth. This includes ecommerce and social channels.
An example in India would be Amazon. According to a former employee of one of the biggest marketplaces in India, Amazon crossed USD500M in ad revenue in 2021. Another trend she observed is that large brands use marketplaces as their main channel, and focus mainly on the bottom of the funnel. Compared to large brands however, new brands focus more on the upper funnel. In terms of YoY growth this is proportionate to the YoY growth in sales, with double digit growth.
We spoke with someone in India who previously worked for a major marketplace, and she said that Covid-19 had a major impact in India and drove significant growth in marketplaces, leading to a general trend of new brands kickstarting on marketplaces. She said the reason for this is that marketplaces have proven to be cheaper to get results and therefore achieve desired KPIs. At the same time the bigger brands divert spend towards major ecommerce players like Meta, Google and Instagram.
In terms of adoption this is mainly driven due to the fact that in India consumers seem to be more trustworthy of ecommerce platforms compared to brands. The reasons for this are better logistics, better return policies, and better terms and conditions. Our same interviewee from India further noted that if the trust factor of brands in the future increases, then adoption would shift away from marketplaces towards Meta, Google, and Instagram.
When discussing KPIs to measure where clients place their advertisements on ecommerce platforms, in India the primary KPI is ROAS. When looking at omnichannel, the main KPI is Customer Acquisition Cost (CAC). The ecommerce platform itself focuses predominantly on ROAS and lifetime value of customers.
When discussing where ecommerce platforms currently fit into the marketing mix, for new brands the mix is leaning towards ecommerce platforms compared to advertisement platforms. Our interviewee said that as brands grow their business to consumer (B2C) channels, the expectation is that they divert the mix more to social media and Google. An example of this is that Instagram has a very strong market capture already.
Furthermore, dependent on verticals, electronics and mobile have a big share in marketplaces. However, when looking at FMCG and lifestyle then these are bigger on Instagram and Facebook.
Examples of key enhancements in which Indian ecommerce platforms could improve their ad solutions would be merchandising related. Our interviewee mentioned that currently 80% of the business is based on keyword search. Therefore more visual merchandising solutions would help from an ad perspective. An example of this would be video and a bigger focus on appealing creatives.
According to our interviewee, the future expectation in India is that client wallet share will decrease on ecommerce platforms in the next three to five years. The main reason for this is that big AdTech players will take larger chunks of the wallet share.
Conclusion
The origins of ecommerce may have started in the 1960s with a peer to peer transfer between university students in the shadows. The possibilities were then brought to light in the 1990s with the first million dollar electronic transaction. The momentum from there gathered speed to the tune of a trillion dollar-plus industry. The speed of the change in consumer behaviour to online was further facilitated by the pandemic. As we move forward, the convenience and breadth of choices that ecommerce brings to consumers is a true force of nature in itself, allowing it to remain and grow.
As brands, we finally have a place that we can truly call home. No longer do we have to look for context like we did in TV or radio, or learn to mimic what our social voice is to fit our message into the folds of consumer experiences. With ecommerce we can simply be brands, and the brands who master the full funnel opportunity will be those who best harness this opportunity which is here to stay.
Consumers are clearly more comfortable shopping online, experiences have become more immersive and logistics have improved considerably, all of which lead to further consumer expectations. This is reflected in how agencies view the future of ecommerce, with platforms and brands expected to continue to iterate at pace to stay ahead of the competition, and give consumers both the convenience and the experience they now expect as standard.