delocal

Hiroshi Mikitani, the CEO of Rakuten (formerly Buy.com) has written a piece for the Harvard Business Review with the title Humanizing E-Commerce.  It's a fascinating read.

Mikitani believes that human beings need communication and connection. So instead of emphasizing efficiency and convenience, Rakuten tries to create a personalized, bazaarlike shopping experience...

Our approach to e-commerce is quite different from that of Amazon and many other companies. I think of those competitors as vending machines: They are hyperefficient supermarkets with standardized offerings...

I didn’t want to create a superstore; I wanted Rakuten to be more like a bazaar, where the owners of many small shops would curate the merchandise and interact personally with customers. I believe that is the kind of experience many people prefer—even if they’re shopping online...

Newer online retailers, such as Fab and Etsy, are imitating our model...

Mikitani speaks of "communication and connection", "efficiency and convenience", and claims Rakuten is "bazaarlike".  Calling Amazon a "hyperefficient supermarket", he claims customers prefer the curated experience of a small retailer.

When we launched, companies were just beginning to sell over the web. Amazon had already opened, but it was selling only books. Some companies began setting up “online shopping malls” that would allow many merchants to sell goods via a single website. IBM had opened one called World Avenue, with brands such as L.L. Bean, Hudson’s Bay, and Gottschalks. But the model proved tricky, and IBM discontinued the project after a year because its merchants complained that there was too much IBM branding on their sites and that IBM wasn’t an effective intermediary between the retailers and the customers.

At Rakuten we offered a different model. We charged $650 a month to set up a store—a small fraction of what the big internet malls were charging. We allowed merchants to customize their web presence rather than fit into something we had designed. We encouraged them to interact directly with customers, because we’d found that merchants who told their personal stories and made a connection with shoppers did very well...

When people talk about “social shopping” or “social commerce,” they’re referring to the fact that people like to connect with others for advice about purchases. Some people think that friends—whether in real life or on social media—have a big influence on what we buy. I don’t believe they’re that powerful. The curators running our shops know quite a bit more about products and are a much better source of recommendations. If you want to buy a tennis racket, do you ask a friend or the pro at the shop? If you want to learn about wine, do you ask a friend or a sommelier? Over time the professionals at these shops will become like friends to you and will give you personal recommendations.

Other companies use algorithms to drive recommendations, but a human being’s recommendations tend to be more effective. I think a hybrid approach works best. Rakuten has many PhDs who work with big data and analytics, and we have a state-of-the-art research lab. But we believe that a shopkeeper’s recommendation is fundamental. A human being can listen as you explain your needs and can tell you the stories behind the products you’re considering.

Our prices are really competitive, because instead of one price across our website, we have individual merchants who are competing against one another. Price is important, but many shoppers aren’t supersensitive to small differences, particularly once they have established a relationship with a merchant. Sometimes price is less important than design and passion, for instance.

One potential downside of offering a decentralized marketplace with goods from thousands of merchants is that quality or service problems may occur. But Rakuten has found ways to avoid this. We have a tight screening process for people who want to open a store on our site. We monitor transactions. We have a survey program that allows customers to give feedback on shops, and if a shop consistently receives poor ratings and cannot improve, we’ll kick it out. If goods don’t arrive, we offer a refund.

I think many other web players could learn from our approach. Look at the big travel websites in the United States, such as Expedia, Priceline, and Travelocity. They are standardized and very process-oriented. They’re designed so that someone can quickly type in some dates and a destination and then make a reservation. Travel websites in Japan are quite different. They’re set up so that hotels can edit their pages themselves and tell their own stories. That allows the hotels to make a connection with customers. It’s the same thing with golf courses. Customers use Rakuten to make reservations for approximately 10 million rounds of golf a year in Japan, and they choose where to play on the basis of the storytelling and the expertise of the golf pros who describe the various courses on our site.

Fab and Etsy offer either a highly curated selection of merchandise or handcrafted goods that are highly personalized, so the buyer feels that he or she is dealing with a human seller. EBay has been heading in this direction as well. That’s not surprising. Why do people shop in small boutiques? Because they want a personal connection and a superior level of service. Good prices, efficiency, speed, accuracy—those things are definitely important, and we provide them. But if we can also provide communication and interaction and a story behind the products, it becomes a win-win relationship.

That his words appear between the covers of the most venerated business journal imaginable is, to me, nothing short of serendipity.  (I would certainly entertain an investment from the highly successful Mr. Mikitani.)