Key Elements of E-Commerce: Traffic & Monetization

To summarize the success of a website (through Fermi’s paradox), one would essentially need just two primary metrics: what’s the traffic and how well are you monetizing that. Monetization could range from a few basis points (basic ad impression), a commission (%age of GMV) or direct product sale.

Let’s look under the hoods of these two primary metrics. We could think of 6 drivers and probably 12-13 sub-drivers, as shown below:

Traffic: Partner, Search engine, Promotions and Word of mouth (social/online and offline).

Monetization: Advertisement and Transactions (independent of type e.g. subscription)

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Most of the efforts to improve the performance of a website can be bucketed and accounted accordingly. However, let’s try to analyze when these drivers become significant during a ‘online’ business cycle.

  • Start-up: Search Engine, Word of Mouth + Social Marketing & Memes
  • Growth: [Start-up]  + Advertisement, Transaction
  • Maturity: [Growth] + Partner, Promotions
  • Decline: [Maturity]  + New disruptive idea | Graceful exit

However, irrespective of the phase, ‘Innovation’ is an indisputable driver for any online business offering and it’s success in the online world. The degree of innovation need may vary. In my opinion, ‘Innovation need’ is an inverted ‘U’ across the business cycle e.g. very high in Phase 1 (startup), moderate in the middle where you may not want to experiment too much with what seems to be working (except usability), and Phase 4 (decline). Organizations that are able to come up with a new disruptive idea in Phase 4, reverse their growth trajectory once again, the other have to conjure a graceful exit strategy.

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