In a world where online businesses regularly burst into the public consciousness, and then just as regularly fall away into oblivion, one company has consistently endured.  With a restless, innovative spirit, Amazon has repeatedly embraced new opportunities afforded by the rapid evolution of web technology.  It has become a model for how business can leverage the power of web 2.0 and beyond, to market to and communicate with customers in ways that were previously unheard of.

Andreas Weigend, born in Germany, came to the US to pursue a  doctorate in physics from Stanford, and post-graduate studies in cognitive science and behavioural economics. As Amazon’s Chief Scientist he coupled academic rigour with business reality to help forge Amazon’s customer-centric, measurement-focused culture..

Recognised as one of the world’s leading specialists in understanding how people behave online, the value of Weigend’s insights can be measured by the number of startups and established firms that are clamouring for the competitive edge afforded by his research and experience.  Alibaba, Best Buy, Lufthansa, MySpace, and Nokia are just a few of the companies who have benefited from his acumen and understanding.

Speaking exclusively to HSM, Weigend offers insights into how our behaviour and expectations are being shaped by the web, and what businesses both on and offline should be doing to survive and thrive in this revolutionary new era.   

Andreas, how do you assess Amazon’s impact on the world of business?

When people ask me for advice, I usually tell them to simply copy Amazon.  Most of what you see there has been tested against alternatives.  Companies of course need to differentiate, but if your company is online, once you start tuning the performance, you are likely to end up with something that is more similar to Amazon than what you started with.

Amazon pioneered powerful concepts in online retail that have profoundly affected the way consumers shop – concepts that we now take for granted. Examples include recommender systems  to help consumers discover items, wish lists to express intent, and user-created reviews.  Amazon is always trying to delight the customer, in both the short term and long term.  They analyse, not just the transactions, but also the interactions involved in the decision-making process.  This data strategy element is a key driver that will carry Amazon into the future

OK – so let’s talk about data.  Why do you believe that it’s such a critical element for those companies who want to be successful?

First, it’s actually not just the data that is important … it is data and metrics.  We  are now able to measure many things on a very fine scale.  In a traditional, physical store, you can browse without anyone really knowing what you are looking for.  In contrast, on any website, you need to click somewhere to proceed.  Knowing all the customer’s interactions, not just their final transactions, enables a big shift in mind set compared to traditional retail.   

We have the privilege of living in that one time when the world got connected.  FIrst WE connected computers, then connected people (think Facebook). Now, the frontier has moved to connecting data, and that’s  the Social Data Revolution.

So tell me a little bit about this concept of the Social Data Revolution and its impact on business…

So far, we have mainly discussed passively contributed, implicit data.  What has changed in the last few years is that, in addition to this passive data, people have started to actively contribute data – people share their situations, people share their interests, people share their relationships.  So we wind up with data both about themselves, and about their relationships to other people. 

This is extraordinarily important for marketing, because people now have a way to express what they might be interested in, and the social element in marketing – word of mouth, asking your friends what they have bought – is a very important driver.  Experiments and surveys typically show that social marketing is between five and ten times more effective than other forms of marketing.

An early example of this social marketing would be Amazon’s “Share the Love” scheme, where, upon check out, you are asked whether there is anybody who might be interested in buying a copy of the same book you just bought.  As an incentive, you get 10% credit and they get 10% discount if they actually buy the book within a week- and most people think this is fair.

How should marketers be using all this data that is being generated?

One of the most important differentiators between traditional marketing and Web 2.0 marketing is the use of the web for marketing and feedback, both for physical and for digital products. This information can be found equally easily by consumers and company employees.  At one of my consulting engagements with Nokia, we realized that  most people interested in their products do not go to Nokia’s own site: Google’s algorithm did not put Nokia’s site on the first page of its search results.  Airlines are another beautiful example.  Flatseats.com describes the pros and cons of business and first class seats across airlines and aircrafts, via people contributing this out of their goodwill and passion.  Whether you make phones or fly airplanes, finding out what people are saying about you on the web is a great and inexpensive start.

There is a lot of scepticism about how sites such as Facebook can be used by businesses to actually make money…  What’s your view?

Last year, working with Lufthansa on social marketing opportunities, we spent a few hours with Facebook executives.  It seems that most people, when on Facebook, are not in the mindset to buy things.  For them, Facebook is a communication tool.  Many companies are exploring Facebook and Twitter, trying to see how they can reach consumers, We are still at the very beginning, where many different things get tried, but we don’t really have a good business model yet.

On the other hand, Dell sold about $1,000,000 worth of computer equipment by having special sales that were announced through Twitter.  So companies experiment, and the shift is much deeper than most people think. 

Now everybody has become a marketer.  If I love a product, I will tweet my friends about it, The decision making process is hugely influenced by what other people think.  Think about the last ten items you bought, and just reflect on what percentage of influence came from your friends, your peers, and the web, and what percentage came from a salesperson, or came from marketing. You’ll be surprised how small the traditional marketing component is.

How has web 2.0 affected customer expectations?

To me, Web 2.0 means architectures of participation.  Amazon did an experiment removing reviews, and found that the first review is worth between $30 and $40.  If  people don’t see any reviews for an item, they are less likely to buy it.  People are looking for affirmation. 

One of Amazon’s brilliant features is “people who click on this item eventually bought that item.”  Now you feel safe in this otherwise insecure world of online commerce.  If 86% of customers bought that item, you can’t be all that wrong! Customers expect support for their decision making, like stuff written by other people similar to them, in their situation, and maybe a step ahead of them. This is the de facto force in how people now make decisions. Not via glossy brochures written by the company.

How do I start connecting with people on the web, how do I get people to start talking about my company on the web – how do small and medium sized businesses start generating a critical mass of interest?

The good thing is that people write about what they want to write about.  So, if you do a really great job, or you do a really awful job, people will give you their attention, and Google will rank these entries high – Google is very positive towards user generated content.  On the other hand, if there is nothing really to be said, then nobody will bother.  If people care they will talk, and if they don’t care you can’t get them to talk.   

Tips – Start Improving Your Online Marketing Today

• Spend an hour Googling yourself, and get a feeling for what the world really says about you.  It’s often eye opening.

• Don’t worry too much about collecting all the data; first think about what actions you can take.  Don’t worry about making the right decision up front.  Avoid analysis paralysis.  Instead, think about two or three reasonable things you could do, do them, and then immediately measure what works and what doesn’t work

• Don’t worry about Second Life, Facebook, Twitter, and the latest trends, but rather about the expectations consumers have for the data they create – namely, that they want to get value for themselves, within half an hour, not half a year, and that they are willing to contribute data to reach that goal.

Dr. Andreas Weigend will be sharing his insights at:

World Innovation Forum 2010 New York City 8-9 June 2010