Two years ago, Ed Manion would probably never have bought his fianc?e's engagement ring on the Internet. But when the Tucson real estate investor went to online jewelry merchant BlueNile.com, he found all the information about diamonds he would ever need. Better yet, thanks to his high-speed Internet connection, he could design his own ring online, a task that would have been impossible with pokier Net access. A cool $43,000 later, he has the answer to his big question (Barbara Anne Womble said "Yes"). "That interactive diamond finder is fabulous, and without all the bells and whistles on your computer, you can't use it," Manion says.
After years of anticipation, this holiday season seems destined to go down in the books as the First Broadband Christmas. Thanks to sharp cuts in the price of high-speed Internet access, the number of U.S. homes with broadband has jumped 38% from last holiday season to 22 million, according to consulting firm IDC.
That spells big opportunities for e-merchants. Not only are broadband customers online for more of the day than their dial-up brethren, they also spend as much as 30% more. To reel in these shoppers, e-tailers ranging from Amazon.com (AMZN) Inc. to shoe site Zappos.com Inc. are ugrading their Web sites with videos, better pictures, more sophisticated product comparisons, and the ability to customize everything from diamond rings to dress shirts. Considering a new Apple (AAPL) desktop? At Amazon, you can watch a clip of how easily it works with Apple's iPod music player. At Landsend.com, you can quickly custom-design a china-blue dress shirt with French cuffs and then see it on a computer model with your body shape and hair color.
Catering to broadband customers, who tend to be more affluent, may put an afterburner behind merchants' online holiday sales. Jupiter Research is forecasting a 21% gain in sales this year, to $16.8 billion, while other market researchers are projecting similar increases. And those figures may be too conservative. Jupiter, for example, is assuming that each person will spend only 3% more online this year, with the rest of the increase coming from more people on the Net. However, broadband shoppers spend $862 a year online, vs. $646 for dial-up customers, according to Scarborough Research. If this year's broadband adopters act like people who made the jump before, they'll spend more online and pull the average figures up. "If there was a phenomenon likely to jump-start e-commerce this holiday season, this would be it," says Robert L. Cohen, Scarborough's president.
That's one reason many e-tailers expect sales gains that outstrip the macro forecasts. Amazon.com says fourth-quarter sales will rise between 23% and 34%, while Walmart.com (WMT) expects revenues to jump 60%. In addition, many smaller e-tailers such as luggage retailer eBags Inc. and Blue Nile project growth rates of 60% to 100%. "January's story is going to be, 'How did the analysts get it so wrong?"' says Patrick M. Byrne, CEO of discounter Overstock.com (OSTK) Inc., which expects to grow 60%.
Encouraged by strong sales to high-speed shoppers earlier this year, e-tailers stepped up efforts to add services targeted to them in time for the holidays. At eBags, CEO Jon Nordmark was moving slowly toward adding video and other broadband-friendly features six months ago, thinking other tactics could raise sales with less work. Now he's busily rolling out videos for around 100 products, up from a handful this spring. The reason: Shoppers who watched the video in early marketing tests were 19% more likely to buy the same product as customers who didn't.
In broadband, e-tailers see the solution to the huge problem of getting people comfortable buying products they can't see. At Zappos.com, CEO Tony Hsieh began testing software in late 2001 that lets consumers look at shoes from the side, the top, and even underneath. This year, he expanded it to cover nearly all 300,000 pairs of shoes in Zappos' warehouse, though it means photographing each new style from six different perspectives. "It's labor-intensive, but customers love it," Hsieh says.
Perhaps no one has a bigger job than Blue Nile CEO Mark Vadon, who is selling jewelry that tops $300,000. Blue Nile's solution was to introduce a diamond guide and ring-designing service that lets consumers sort through stones and settings. With the average customer looking at 200 pages on the site before buying, Vadon says speed is a must. "I don't know if even I would shop our site without broadband," he says. The approach is working: In the past three weeks, Blue Nile has sold diamond rings for $150,000 and $166,000.
To be sure, e-tailers are wary of moving too quickly and alienating consumers who still use dial-up. Merchants are careful to give them alternatives. For example, Blue Nile has a simpler diamond guide for slow connections.
Next Christmas will be even more of a broadband fiesta. By then, U.S. broadband penetration is likely to hit 31 million households, says Goldman Sachs. But this year there are enough broadband users to drive online sales, just as a growing number of e-tailers enter the promised land of profitability. By Timothy J. Mullaney in New York, with Wendy Zellner in Dallas