eMarketer reports on how retail sites can use social networking to their advantage.

The rise of social networks is having a positive impact on ecommerce in the US. Along with demographic changes and growing broadband penetration, it is one of the key factors that drove online shopping spending up by 25 percent in 2005.

The impact of young consumers on ecommerce is particularly visible in the way they share product recommendations over the internet. Many online shoppers are already familiar with how retailers from Amazon to Expedia to Target integrate customer ratings and reviews on their websites. But for young consumers who like to hang out in social networks such as MySpace.com or Facebook.com, product advice is an incidental part of the chatter that is the main attraction. In contrast with the structured form of product recommendations found on Amazon, this is a fluid and informal way of sharing opinions online about products and brands.

Retailers also stand to benefit from online communities in several important ways:

• Consumers can be a source of feedback (similar to a focus group) on product design and features, marketing and advertising campaigns, and how well customer service and support are performing, which can lead to innovation for a retailer
• Word of mouth (i.e., viral marketing) is free advertising and increases the visibility of niche retailers and products
• Increased website traffic, a common effect of viral marketing, inevitably brings with it more ad dollars
• Increased sales can come from harnessing techniques based on personal preferences such as collaborative filtering; at a more advanced level, retailers strive for a higher degree of relevance in matching the knowledge of one person to someone of like interests who has a need to know (the "twinsumer" concept)

However, as Forrester Research revealed in October 2005, only a minority of online retailers currently enrich their websites with community content that helps customers evaluate products or services. Some 26 percent of online retailers host customer ratings and reviews. Buying guides are the most popular form of evaluative content. About two in five web retailers provide some version of formatted information that helps customers evaluate product options.

Yahoo! Shopping, Yub.com and Tribe are three innovative retail sites that seek to capitalize on the ecommerce benefits of community content:

Yahoo! Shopping
In November 2005, Yahoo! launched a new form of online ecommerce community called the "shoposphere," which takes recommendation lists, such as those used by Amazon, a step further. The main feature in the shoposphere is a "pick list." Users create and assign a theme to a pick list and then add product results found from doing searches on Yahoo! Shopping. People can comment on each other's pick lists and share them with others via email or RSS feeds. At the unveiling of the shoposphere, Rob Solomon, vice president of Yahoo! Shopping Group, noted, "We think that personalization and community filters are going to be an important part of the shopping experience going forward."

Yub.com
Yub.com ("buy" spelled backwards), a wholly owned subsidiary of internet retailer Buy.com, is a cyber-shopping mall featuring big name brands. Shoppers sign up to become members and enter into a shopping social network where product reviews and recommendations are shared. Members are encouraged to write reviews for the chance to earn cash-back rewards. The intent is to create an environment where the under-30 crowd can hang out with friends to discuss trends and shop at the same time. However, Yub.com's social network illustrates the risk a retailer faces when hosting user opinions on its own website. Browsing user reviews on Yub.com revealed several reviews and rants critical of parent Buy.com.

Tribe
In contrast to the two sites above, which are ecommerce sites where social networking is a primary component, Tribe is a social-networking service where product recommendations are incidental. Tribe members join local communities around shared interests such as finding the right job, a new place to live or fellow Apple computer enthusiasts. However, a lot of products are recommended in these communities, even though that is not their explicit purpose. Common sense implies that this content must have some significance to the online buying behaviour of Tribe members.

Jeffrey Grau is a senior analyst at eMarketer. This article is drawn from his new report, "Retail E-Commerce: Future Trends."  Click here to learn more.