Search vs. Interaction and Engagement-Focused Ecommerce (1 of 2) (Tech Strategy)

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I have previously written about ecommerce being a choice between attention and infrastructure. All ecommerce companies do both but you definitely see specialists. It can make a big difference in some product categories.

Attention vs. Infrastructure Is a Strategy Question in Ecommerce

For example, TikTok is better at getting attention, which is powerful in beauty products. Here’s the image in my head when I think about attention-focused ecommerce.

In contrast, Alibaba and JD are both specialized in building infrastructure. This used to mean just logistics and delivery. Now it is smart logistics, cloud and (sometimes) physical retail. This is powerful in furniture and appliances.

Here’s the image I think about for infrastructure-focused ecommerce:

You can also re-frame this in terms of demand-side vs. supply ecommerce strategies.

Are you adding value and scale on the demand or the supply side?

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The argument is often made that the increasing value you get in ecommerce from scale on the supply side (i.e., logistics) does flatline at a certain point.

  • You can’t make deliveries any faster.
  • You run out of SKUs to add.
  • You ultimately run out of wants to make production and supply more efficient.

But the value on the customer side can keep increasing.

  • You can keep making customer improvements.
  • You can make the customer experience better.
  • You can keep adding services.
  • You can personalize.

So that’s where you want to focus long-term.

Early Amazon is often discussed in these terms. An article by Nicholas Colin about Amazon makes this point.

This is his graphic and he refers to this as Northern vs. Southern side strategies.

Now, I prefer the attention vs. infrastructure framework. But I believe this demand-side and supply-side framework is helpful. It can be true in some cases, especially in digital businesses. Ecommerce businesses do have a lot of avenues for customer improvements. However, most physical goods don’t. You really can’t keep improving the experience of drinking a Pepsi. But I like the focus on customer-facing innovation.

I would definitely argue that Chinese firms are really good at customer-facing innovation and value add. Alibaba is great at this. So are businesses like TikTok, Temu and WeChat.

A recent Alibaba White Paper had some interesting points on this. About Chinese businesses being more focused on improving experiences, as opposed to just increasing efficiency.

I Like Matthew Brennan’s Framework for Search vs. Interaction-Focused Ecommerce

We can split the mentioned just attention (i.e., demand side) strategy into two different approaches. Ecommerce businesses can be search vs. interaction / engagement-focused.

And this idea is something was talked about a lot when Pinduoduo first went public. Matthew Brennan of the China Channel wrote a white paper in 2020 (Interactive Ecommerce Whitepaper 2020.08.10)

I interviewed him in two podcasts about Pinduoduo and his white paper.

I also wrote about it in an article:

I’m bringing this up because I recently visited Alibaba Cloud headquarters in Hangzhou. My goal was to see how they were using generative AI to change ecommerce. And this framework of search vs. interaction-focused ecommerce immediately came up.

Let me go through them before talking about the AI tools.

Walmart and Amazon Are Good Examples of Traditional Search Focused Ecommerce

Traditional, PC-based ecommerce was about searching for what you wanted. And then spending a lot of time into the search results. You try to find the item you want. You check the merchants. You check the features and specifications. And check the prices. And maybe even check the reviews.

This type of ecommerce was centered on search. And the winning strategy was to have a bigger selection of goods than anyone else. Ideally at prices others cannot match (or beat).

Early Amazon was basically the digital version of the Walmart strategy. Walmart has most everything you need. And nobody else has lower prices. So why go anywhere else?

And Walmart is a good analogy for search-based ecommerce. You don’t go to Walmart every day. You don’t go for fun. You go when you need certain things. And you spend a lot of time hunting in the massive store to find what you need (i.e., you search the aisles). I sometimes think about Walmart as a big physical search engine.

That’s pretty much what early Amazon built digitally. They just made the product inventory dramatically bigger. But it was still mostly about a big selection at really good prices.

For Amazon, the buyer sat at their PC (before smartphones). And did a long session where they searched for what they wanted. They weren’t there to be entertained. They weren’t there every day.

In the days of PC-based, search-focused commerce it was all about GMV. That was the primary KPI.

The big focus operationally was on the supply side. Bigger warehouse. More products. Faster delivery. And always greater efficiency.

The demand side focus was usually about convenience. Plus, maybe some targeted customer improvements.

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But there are some big problems with search-focused ecommerce.

  • It places a big burden is on the buyer. There are so many choices. Searching takes time and effort. Plus, reading the reviews. Comparing the features and prices. It’s work.
  • The basic user experience is fairly easy to replicate digitally. You just need a big product catalog and an app. So, you had to aggressively add value on the demand (add services) or the supply side (build out the warehouses). You ultimately need to beyond just endlessly adding products, lowering prices and increasing convenience.

A Quick Introduction to Early Pinduoduo

You can break PDD’s strategies into different phases. And their focus on interactions was definitely key to their rapid rise (more on this in Part 2). It was addictive and fun like TikTok.

However, I argue their initial success was more to a couple of tactical moves they made.

  • They had crazy low prices. It was a C2M model that cut out the middlemen and enabled purchasing economies of scale. These lower costs enabled them to do low prices in a select number of items.
  • They were an early mover in fourth and fifth tier cities in China. And this is a very value conscious consumer base.
  • They had a strategic partnership with WeChat that let users do group buying. A viral mechanism that also lowered prices even more.

In the last 5 years, they have definitely moved into higher quality products, expanded into China’s middle class, and have added more search-based ecommerce. Note: Taobao has done the reverse.

That’s it for today. In Part 2, I’ll go into interaction and engagement-focused ecommerce.

Cheers, Jeff

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Related articles:

From the Concept Library, concepts for this article are:

  • Interaction / Engagement-Focused Ecommerce
  • Search-Focused Ecommerce
  • Generative AI

From the Company Library, companies for this article are:

  • Pinduoduo

Photo by Hugh Han on Unsplash
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I am a consultant and keynote speaker on how to accelerate growth with improving customer experiences (CX) and digital moats.

I am a partner at TechMoat Consulting, a consulting firm specialized in how to increase growth with improved customer experiences (CX), personalization and other types of customer value. Get in touch here.

I am also author of the Moats and Marathons book series, a framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

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