New Class of Merchants

Guide to E-Commerce Technology

Displaced baseball fan, patron of fine art, local community activist: this is not how the typical merchant defines, segments and pursues an audience. But today, customer segmentation based on affinity is putting many non-retailers in the retailing business.

Organizations that exist to provide information, entertainment or services, or to champion a cause are finding in the web another way to leverage an additional revenue stream from audience interest that’s already built in. It’s a spin on portal strategies that seek to capitalize on eyeballs through both ad sales and revenue shares on merchandise. The difference is that the web sites of affinity-based groups give visitors an extra reason to buy: they tap into feelings of partisanship or group identity that broad-based portals don’t.

“Our success on the Internet is being able to deliver what the fans want and monetize the traffic we already have.” says Noah Garden, senior vice president of MLB Advance Media. The company, owned in equal shares by the 30 teams of Major League Baseball, operates MLB.com, which draws 2 million visitors a day with extensive content on League play and personalities plus up-to-the minute stats. “On the site, e-commerce is a soft sell,” he says. “It doesn’t hit you over the head. We provide all this free content to get fans closer to the game—and oh by the way, we also have commerce.”

Soft, but successful

It’s a soft sell, but a successful one. Garden says e-commerce is one leg of a three-part web revenue stream that includes advertiser sponsorships and increasingly, sales of subscriptions. For a subscription fee, fans get same-day audio feeds of games over the Internet. Subscriptions to live webcasts of playoff and Series games also are available, but only outside the U.S. In its second year, the subscription program is just emerging and will likely one day eclipse merchandise sales on the web, Garden says, but for now, sales of goods are the top source of revenue from the web. Not counting the season’s $9.5 million in online ticket sales, MLB.com will still rack up an estimated $25 million this year in sales and auctions of licensed merchandise and collectibles.

MLB.com links to the individual web sites of each team, all of which have been given a similar look and feel with the help of infrastructure provider Digital River Inc. Recently, Digital River also has taken over fulfillment duties. Centralizing the rights to official MLB-licensed merchandise in this way has allowed MLB Advance Media to corral a large yet fragmented market of dislocated team partisans.

Displaced fans

Analyzing visitor traffic confirmed the company’s earlier hunch that displaced fans would be its biggest audience. “When you look at who’s buying and from what parts of the country, it’s rare that the person from St. Louis links to the St. Louis site to buy a cap, for example. It’s much more likely that St. Louis fans living in another part of the country come to our site because they can’t find the St. Louis caps in their locals stores,” Garden says. “This was what we thought had been happening for a long time as we were setting up the site.”

But sports teams aren’t the only institutions that draw loyal supporters—and web customers—from all over the country. Museum Enterprise Partners, which operates the 3-year-old web store as well as the catalog operation of the Museum of Fine Arts, Boston, has a customer e-mail database of more than 100,000 names that reaches from Boston to the West coast as well as Florida to Alaska and outside the U.S. The for-profit company, in which Boston Museum of Fine Arts is majority shareholder, has an exclusive licensing agreement with the museum under which it develops merchandise based on the museum’s collections and pays royalties to the museum on each product sold.

Over the past few years web sales have grown from single-digit figures as a percentage of the museum’s combined web and catalog sales into the high teens and even the 20% range on occasion, says Joe Gajda, CEO of Museum Enterprise Partners, which spun off from the Boston museum 18 months ago. Yahoo hosts the site, which was designed and is maintained internally, Gajda says. Fulfillment comes out of the museum’s 30-year-old catalog operation.

A marriage

“The MFA, Boston is considered one of the premier art institutions in the world, and people shop with us because they want unique merchandise that relates to this world-class institution,” he says. “Secondarily they shop with us because they enjoy supporting the museum. They recognize that when they make a purchase the revenues help support the museum’s work.”

The marriage of high culture and commerce can raise issues that spinning off retail operations into an independent company helps resolve, adds Gajda, who got a first-hand look at the problem as a retail consultant to non-profits earlier in his career.

“When it comes to how they view their commercial enterprises, some non-profits are like a fish out of water,” he says. “Museums are primarily interested in education and curatorial efforts, their collections and scholarly endeavors. They’re admittedly ill equipped to run a retail business, but they want a source of revenue. At the same time, the investment required to make a retail, web or catalog business is in conflict with the institution’s need to acquire and curate.”

The museum’s longstanding product development program and catalog operation had taught staff how to work through such concerns. The opportunity to market this core competency as a service to other organizations was one reason Museum Enterprise Partners spun off from the Boston museum. The company is in contract negotiations with a number of other non-profits toward that end, Gajda says. “We understand not only what it takes to make a retail operation work but also the sensitivities of the museum and the need to work with curators to develop products up to the standards of the institution that aren’t going to ‘dumb down’ the collections,” he says.

With the some of the same sensitivities, PBS.org, Public Broadcasting Service’s content-focused web site, initially held commerce at arm’s length when ShopPBS.com went up in 1999. The e-commerce operation was first offered as an adjunct to expanded program content at PBS.org, and a secondary channel to support PBS’s existing home video catalog. PBS e-commerce director Royce West describes the initial e-commerce effort as “a gift shop, almost off to the side,” with little direct linkage between specific programs and the opportunity to buy related PBS products.

Social capitalists

Since then, PBS has learned more about the nature of its web audience and retailing online. The web site’s visitor audience is an educated group in search of information and interested in social causes: in short, they’re PBS viewers, though the segment skews slightly younger than the PBS TV audience at large. PBS identifies much of its audience as “social capitalists,” West says. “They’re the educators, the people who join the PTA, people who are more involved in their community in some socially important way. They’re people who work within the social structure of a community to make it stronger and better,” he explains.

They’re also people willing to pay extra for what they consider a worthy cause. PBS does little discounting of program merchandise, even for members. “On popular titles such as the Civil War series, other major retailers will beat us on price, so we push the mission,” West says. Unlike other non-profits who’ve spun off commerce businesses, PBS’s e-commerce operation remains within the non-profit corporate structure and all proceeds from merchandise sales, after costs, go into programming.

Pathway analysis shows that the overwhelming number of visitors come to ShopPBS.com only after coming to PBS.org first.

First stop TV

“Nine times out of ten, a TV program is the user’s first interaction with any material PBS offers. From there, they go to the content site to investigate more, than after that they have the opportunity to buy,” West says. For its last fiscal year ending in June, the web represented 32% of revenue from PBS’s direct marketing business, which includes catalogs that contributed 47% of revenue and on-air offers which contributed 21%. In all, e-commerce last year represented 19% of consumer product sales, which include both retail and B2B sales.

“In the beginning PBS.org wanted to make a distinction between content and commerce. It was thought that adding commerce would somehow cheapen the content experience,” West says. But more recent experience has proved the reverse. “We found that people don’t think of adding commence to content as cheapening the content, but as offering an added service to the customer,” he says.

Thus the web enables certain merchants to achieve the elusive goal of merchants everywhere: The merchandising becomes not a way to sell goods but rather a way to help customers to better understand a topic they’re interested in. “By integrating the content much more closely with opportunities to buy the products, customers see it as providing better context,” West says.

mary@verticalwebmedia.com