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Shaun Ryan: [0:02] Hi, I’m Shaun Ryan from SLR Systems and this is the e-commerce podcast. Today, I’m talking to Larry Kavanagh, CEO and founder of DMinSITE. Hi, Larry.

Larry Kavanagh: [0:09] Good morning.

Shaun: [0:10] Good morning. Now, Larry, traditional first question: What was the first thing you ever bought online?

Larry: [0:16] I remember having an easy Sabre account and actually buying an airline ticket on… It was not a website like you see them today; it was all text based, and it looked like a DOS prompt. I don’t know how in the world I would have found that, but I was on with my 2400 baud modem buying airline tickets back in the mid-90s.

Shaun: [0:35] What was the most recent thing you bought online?

Larry: [0:38] I got Amazon’s kindle product. For someone who’s traveling for business and doesn’t want to have to carry around a book on a plane all the time, it’s a great device. So, I’m always buying stuff on my kindle. That’s probably easily the most recent thing I’ve bought online.

Shaun: [0:59] DO you subscribe to magazines as well?

Larry: [1:04] I’ve not tried that online, although I’ve not tried that through the kindle, but you can do magazines and newspapers also.

Shaun: [1:09] I’ve got to get me one of those. To move back onto yourself, what’s your history, Larry? How did you get to where you are today?

Larry: [1:21] I was actually a chemistry major at University of Chicago. After college, I worked for a publishing company where I wrote direct mail packages and analyzed the results of mailing direct mail packages to different lists. I then moved to a mail order catalog company, where I did that on catalog bases. Then when the Internet came along, as it turns out Internet marketing really follows a lot of the same principles that I learned in classic direct mail marketing.

[1:50] You can come up with an idea, test it, and see the results so much more quickly online than you ever could offline.

Shaun: [1:58] So, tell me a little bit about DMinSITE. How did it start and what are you doing?

Larry: [2:06] I ran a mail order catalog for the owner of a company called Gardens Alive gave me a fantastic opportunity when I was in my mid to late twenties. It was at year seven that I said, it’s time for me to go out and start my own thing. So, I got together with a good friend, and we built this very first e-commerce platform that was really designed for the mail order catalog industry.

[2:34] We put together a platform that we thought would work for them and launched our first website on the platform. Who else is going to be nutty enough to put up an e-commerce site with somebody who’s never done one before, except for the guy that I worked for for seven years?

Shaun: [2:54] Right.

Larry: [2:54] So, Gardens Alive was the first site we launched. We ended 2000 with running the e-commerce website for three catalogs and have grown since then. Our software platform, our e-commerce platform has a lot of techniques built into it to try to help the shopper that’s on your site find the product that they are most likely to buy in as few clicks as possible.

[3:21] Today, as I mentioned, our e-commerce platform runs the sites for 78 catalogs. It’s software as a service, so we’re providing the hosting and security. We’re continually updating our software. Our focus is always about what is going to entice that shopper to actually make a purchase. Our metric is sales per unique daily visit. We are always trying to do whatever we can to optimize that metric.

Shaun: [3:53] Now, the other day we are talking and you were telling me about some insights you learned around the checkout process and trying to optimize that process. Can you tell us a little bit more about that?

Larry: [4:08] Absolutely. One of the things we pay a great deal of attention to and one of the easiest ways I would say that any site out there today – for anyone listening to this recording who has an e-commerce website, one of the easiest ways to increase your online sales – is by paying attention to what percentage of people put something into their cart, and actually make it through to final checkout. Looking at where you lose them at each step, and testing different ideas to try to increase the percentage of people that actually put something in their cart and actually complete checkout.

[4:46] It’s amazing to me how many people don’t at least have one experiment a quarter, at least one experiment a year because it’s such an easy place to try to improve sales. It’s the place where we’re constantly experimenting. One of the things that we tried recently – we tried various versions of this over the years – we finally came across something that may work at well, a version of what we call a one page checkout, where instead of having people go through several different steps where they fill in their shipping information on one page and their billing information on another page, and their credit card information on another page, and selected shipping methodology on a fourth page, we actually found a way to combine all of that information onto a single form.

[5:40] The trick of it is to not make that form so confusing that they can’t figure out what to do. To not make that form so overwhelming that they say it’s going to take me forever to get through this form, so I’m not going to finish. To do it in a way that still gathers all of the information that you need. I’ve got to tell you truthfully, we’ve had several flops in trying to come up with that one page checkout. Our most recent version of it that we launched in November, the initial results on that are very strong.

[6:16] As I just mentioned, the metric we use is sales per daily visitor. We’re seeing a 16 percent increase in sales per daily visitor on the version of the site that has that one page checkout, versus the version that had been our control, that had been our best checkout process up to that point.

[6:31] So now, what we are doing is… As I said, my background is in chemistry and science, and so, one experiment does not prove that it will always work in every situation. Now, what we’re doing is this spring, we are going to replicate that experiment on a couple of other sites. If we see the same results, then we are going to recommend it across the rest of our client base, that our clients move to this one page checkout as a way of trying to improve total sales.

Shaun: [6:58] I think, that’s amazing that you can get that sort of increase just from working around that shopping cart process. A 16 percent increase….

Larry: [7:10] I’ll tell you the truth, as I mentioned, my experience with this is that you have two or three failures first. So, the 16 percent looks like it came out of the blue, but it didn’t. It came out of what we learned from three or four failures first, and then finally putting the pieces together. Then you have these breakthroughs like this.

Shaun: [7:30] Yes. I think, that’s a great model though. You can be testing different things on different customers and when you find something that works, then all of your customers can benefit from those insights that are gained.

Larry: [7:42] That’s one of the things that we try to make as a benefit of being a part of the DMinSITE community is that we are… Certainly some of our customers do some things that are proprietary that we don’t share, but when they do things that are not proprietary or when we are bringing them an idea and they are agreeing to test it, then there is a great opportunity for us to share that learning across the base.

Shaun: [8:08] That’s a fantastic model. Just to be clear, this is run as a software as a service, so your customers don’t have to install any software. You run the whole site for them, right?

Larry: [8:19] That’s correct. Our customers have a lot of control over their site. Our management console, our adjunct screens, if you want to call it that, allow them to control the look and the feel of their site, allow them to control the placement of products on their page, their categorization. They have a lot of control of the site through this management console that they access online. But, they’re not… The site doesn’t specifically exist at their location. All of our sites exist in a location facility just a little bit north of San Jose. We take care of all of the IT, the infrastructure, as well as, as I mentioned, continually updating the software.

Shaun: [9:05] That must take a load off the customer’s plate, particularly from the IT perspective. I suppose that’s one of the appeals to the catalog, because if they don’t have that sort of infrastructure, or if they don’t have specialized people who are able to run a website, then you just do all that for them.

Larry: [9:23] My experience – having been a cataloger and having been a direct marketer – is that what our customers really know how to do is what I call merchandising. They know how to figure out, for their market niche, what is the right product, how to price that product, how to write about that product, how to photograph that product, when to put it on sale, when to obsolete it, when to bring in new merchandise or new products. That is what they know well.

[9:53] Sometimes I’ll get a prospect say, “Hey, can I just turn over my entire website to you, never look at it and you just send me reports on how much money I’m making?” Then what I tell them is, “I’d love to be able to do that, but you (the merchant) are always going to know what products to promote, what to put on the home page, and we’ll never know that.” We’ll never know that as well as our customer.

[10:18] But, what we can do is enable them to express that merchandising knowledge that they have and, as you say, not have to worry about the IT aspects, the programming aspects, the security aspects. A lot of what we do is really try to help them express what they know, how to take what they know and bring it to life online.

Shaun: [10:39] So, you can each focus on your core competency. That’s great.

Larry: [10:43] Exactly.

Shaun: [10:45] You also told me you also will run a lot of their email for your customers as well. Can you tell me a little bit about that?

Larry: [10:54] We have actually done it going back to 2000. We have always sent out – in the old days it was really bulk email blasts for our customers. Believe it or not, there was a time when people didn’t really know for sure whether or not email was going to be effective at driving website sales.

[11:12] And from the beginning, I always thought that it had an important role in driving website sales. Over the years, we have evolved our email capabilities so that today our customers can set up both bulk email campaigns that might go out to their entire audience, as well as triggered email campaigns. When someone does something on their website, after they trigger that event, we can send out an email, or a series of emails to people who met that criteria without the marketer ever having to set anything up and do it themselves.

[11:55] One of the things that we have found more recently is that email deliverability is really an important concept, it is really an important way that you can try to generate more revenue out of your email list. Just like I was mentioning on the website, we use sales per unique daily visitor as a metric. In email, we like to look at over a month’s time, or a quarter’s time, what is the revenue that is being generated by an email list per name on that list.

[12:29] Very interestingly how well you are able to get that email name delivered, how well you are able to get that email name into someone’s inbox in some ways, within certain boundaries, is more important than which product you actually promote.

Shaun: [12:49] The spam filters that are there will pick up a lot of this even if people have opted in for the email and want to receive it; they get taken out of their inbox.

Larry: [13:00] The ISPs have gotten so much smarter about it. I tell my clients, I think, it is a great thing for us that the ISPs have gotten so much smarter about this, in that they are not trying to filter based on the content that is in the email as much anymore. They are actually paying attention to what their consumers are doing when your message arrives in the inbox. Are they actually opening the message, are they clicking on the message?

[13:23] And if they are not, then the ISPs are saying, “If you are below a certain rate, if less than X percentage of people are opening and clicking then we think your email must not be that relevant and so we are either going to put it in a spam box or we are not going to deliver it at all.

[13:39] What we have done, in order to try and help our customers to score well with the ISP’s on this metric is we actually break for all of our customers, their email list up into segments – people who are 0 to 18 months buyers, people who are 0 to three month clickers, people who are 0 to three months openers, people who have not opened an email in more than the last three months. And then people for whom we have had spotty delivery, where we haven’t been able to actually get an email into the inbox.

[14:09] The ISPs will actually penalize you as well for continuing to mail someone who they are bouncing. And what our customers have found is that if you take those top three segments and just mail those top three segments, your regular weekly, or two times a week email, that you are going to improve your deliverability tremendously. Because those are the people who are actually showing interest in your email. It will improve what the ISP’s call your ‘reputation score’ with them.

[14:35] And then once a month or so you can do a last chance offer to those non-openers and non-delivered. And all of a sudden you are finding that a lot of those people go through, where as they weren’t going through if you were trying to send them through every week because your reputation score with the ISP has gone up and so they are actually delivering some of those folks.

[14:56] What our customers have found is that you can get a pretty nice boost in the effectiveness of your email program by segmenting your list this way and following what we are recommending for our mail program.

Shaun: [15:09] Wow! There is obviously a lot of work gone into that. That sounds fantastic to me. I think, you said you have 78 customers using your ecommerce system. Do you see any trends across these customers in terms of the sorts of problems they’re having at the moment, and what they’re doing about those problems?

Larry: [15:32] I think the single biggest problem that our customers face is, I would say, really it comes down to at the end of the day, new customer acquisition. How do you continually find ways to acquire new customers? Typically our customers will have historically focused on one or two methods of new customer acquisition. And really every method of new customer acquisition is getting harder and harder to do because of either increase cost or increase competition.

[16:06] One of the things that we have been actively recommending to our client base is that there really are three or four or five different ways that you can acquire new customers, major ways that you can acquire new customers. And whichever one they are strongest in, we don’t say necessarily walk away from that. But we say take a little time and energy now to focus on this other methodology that you perhaps have not spent a lot of time and energy on.

Shaun: [16:34] Do you want to just briefly on what those four or five ways are?

Larry: [16:38] Sure. For our customers, first of all they’ve got the catalog that they actually mail out. That physical mail piece is one method that they use to acquire new customers. But online you’ve got search engine marketing, SEM, your paid search. You’ve got SEO, search engine optimization as another way in which sites can acquire customers.

[17:02] And for our customers actually SEO is probably far and away the most under utilized methodology for acquiring new customers. I think there are some historic reasons why classic direct marketers shy away from traditional SEO. It is less measurable, it is less, spend a dollar today and see an impact tomorrow. It doesn’t sort of fit their background, et cetera.

[17:27] But, as you know, and I suspect a lot of people listening to this know, SEO can be an incredibly powerful way of acquiring new customers if you are a little bit patient and apply a little bit of resource to it.

Shaun: [17:38] And it can be one of the most cost effective ways as well because you pay for the work to optimize your site, and then you reap the benefits at essentially no additional cost.

Larry: [17:49] Yes, and for most of our customers, maybe only 10 percent or less – particularly if you pull out their brand name – of their sales comes through SEO. Of course, I know some what I would call “pure plays, some websites that are just online only and don’t have this catalog driving business, where that number is fifty, sixty, seventy percent.

[18:10] So, I think for our customers, it’s a place where they have huge room to grow. Bu, I think the next area that is not utilized very well is tapping into your own customer base. Those raving fans of your business, finding some creative ways to tap into your customer base and have them introduce you to either their friends or to other people who they think might be interested in your product.

[18:35] In old world direct marketing, it was very big to do they were often called “friend get a friend programs”. It’s, for a lot of our customers – I haven’t seen them translate that online – although I think the opportunity is really there, particularly when you think about the effects of social networking, etc.

[18:56] Then another, less major source, I would say are things like different types of comparative shopping engines, different types of malls, the e-bays, and other ways in which you can get your products out there on line. I don’t find those as effective at new customer acquisition, in that the shopper that you get through that channel, through that portal, tends to be more loyal to whatever portal they came through than they ever become to you.

[19:25] Nevertheless, there are a lot of those comparative shopping engines that you can work with at a net profit. If those customers maybe convert a little less well into being your ongoing customers, some of them still do convert.

Shaun: [19:40] Yes. OK, that’s all great information. Now, what sort of trends have you seen this year, or what do you think is going to come up in the next year?

Larry: [19:53] Looking out a little bit, one thing that we’re paying attention to quite a bit is, most of our customers have pretty broad product lines, they’ve got a thousand SKUs or more. Some of them have five thousand, ten thousand. So, they have these sites that have lots of categories that are very broad.

[20:14] Again, which is one of the reasons why we think enhanced search like you offer is effective on our sites. One of the things that we’re looking at for those sites, actually on products that we are building and testing and may have something for in the first half of 2009, are micro sites. There’s a great company called CSN Stores, I don’t know if you’re familiar with them.

Shaun: [20:40] No, I’m not.

Larry: [20:43] It’s primarily a furniture business. It’s a site that sells furniture. While they’ve got one site that has all of their products on it, they actually have in total about 200 separate sites where they’ve taken their product line and really taken it down into some pretty fine niches, like hotplates.com or leatherbarstools.com, or swivelbarstools.com.

[21:06] It’s literally that small, you know kitchenclocks.com. With they’ve found is that with these, their total sales, at least what they’ve reported to Inc. magazine, I think were about $200 million dollars on 200 sites. That means their average site is one million.

[21:25] I’m sure they’ve got some that are a lot more than that, they probably have some that are very small, but what they’ve done is figured out how to create all these niche sites, but manage them in a way that is cost effective. That’s one of the emerging trends that I think is very interesting.

[21:44] It could be pretty lucrative for our client base because I think they have that same broad product line. We are working on an update to our software that would allow them to do these micro sites pretty easily through their [inaudible 22:41]. Then see if we can use that as a way to grow their business.

Shaun: [22:04] Yes, that makes a lot of sense. It’s a trend we see across a lot of our customers too. They’ll have micro sites focused around an idea or theme that’s often selling just a subsidy of the products they have on their main site. Often we’re providing the search on that micro site if there are enough products to justify it.

[22:24] I see, one of the benefits you can get from this is you can get help with your search engine optimization for those particular products because it’s now a completely different site. It’s focused around the core keywords that are relevant to those set of products being featured in the micro site. That micro site may well rank a lot better than your main site for those products.

Larry: [22:46] Yes, we want to do some experiments on what’s the conversion rate through paid search, sending someone to a micro site around the term versus onto the main site. We also have the ability with our email software to segment the emails, to send different versions of emails. You don’t have to do 10 different email campaigns, but do one email campaign that’s database driven, that might promote 10 different lines of products and go to 10 different micro sites.

[23:17] Again, see what we can do for email conversion rate, doing that as well. It’s an interesting area to play with. There was a great article on the CSN furniture site in the July 2008 Internet retailer that’s one that we printed out and handed to our customers at our last customer summit.

Shaun: [23:42] Right. Now, tell me, do you have a site that you particularly admire, that you are always looking to see what they are doing and using it for inspiration?

Larry: [23:56] I have two. I will say more about one than the other. Certainly, we always look at Amazon. Amazon has such a high percentage of shoppers actually transacting on it. I think they do a really nice job with experiments on their sites. We are always taking a look to see what Amazon does. They do some great stuff.

[24:18] In terms of one that I particularly admire, it’s a smaller site. It’s a company called e-bags. Are you familiar with e-bags?

Shaun: [24:25] Yes. I’ve met some of those guys at the various conferences I’ve been to. I know them, yes.

Larry: [24:32] Great folks. Three guys who came out of Samsonite, back in 1997. They didn’t know anything about online, didn’t know anything about direct marketing, but they knew a lot about luggage. They knew a lot about bags. They are so fast and so nimble at trying different ideas.

[24:49] I think, they tend to be frankly a little bit more at the cutting edge, even than Amazon in terms of how they incorporate what the new trends are online into their business successfully. They have a cool thing that they are doing called what’s your bag?

[25:07] They have people – it’s purses – they have people talking about what their favorite purse is, and why. They do this thing; they also find these small purse manufacturers, these locally hot designers and produce their bags for the national audience.

[25:34] They are always running a couple of years ahead of where the rest of mainstream e-commerce is, so far ahead that they are on the bleeding edge, but they are making money at it. They are who I would say I admire most.

Shaun: [25:44] Yes. You can use what they are doing for inspiration.

Larry: [25:48] Absolutely.

Shaun: [25:49] So, Larry, I think that brings us to the end of this pod cast. I want to thank you for your time. You’ve obviously got a lot of passion for the subject. It’s coming through, and you’ve given us some great information. On behalf of our listeners, I thank you for your time and really appreciate it.

Larry: [26:05] I appreciate the opportunity and I hope it’s been useful. I look forward to listening to other of your pod casts in the future.

Shaun: [26:12] Thanks very much, Larry. That was Larry Kavanagh, CEO and founder of DMinSITE. I’m Shaun Ryan from MSellar Systems for the e-commerce podcast.