[It's going to take me a while to get my rhythm back. Bear with me. Thanks.]

The holiday shopping season is upon us meaning many analysts will start predicting big or small sales based on year over year numbers (provided by NetRatings, ComScore, Hitwise, etc.) for the ecommerce group.

Three predictions for you:
1. We’ll see year over year growth, but not as strong as we’ve seen in past years.
2. Because year over year growth won’t be as strong as last year, everyone will completely freak out, with headlines from reporters fueling the fire by saying the end of ecommerce is near.
3. Despite the pending DOOM, traffic to the shopping engines will be well above average and merchants using the shopping engines will continue to do well despite another round of increased click costs.

Ok, to my first two points, we’ll see some growth, but not as strong as we’ve seen before. Believe it or not, the ecommerce industry is maturing. Take me, for example. I’ve been buying online since the summer of 1996 (my first purchase was a t-shirt for the 1996 Olympics in Atlanta). Not surprisingly, once I got over my initial fear that 10,000 people were going to steal my credit card, I bought more and more. At some point, I even started purchasing higher ticket items.

Amazingly enough, after 11 years of buying online, I’m no longer growing the number of purchases or buying higher and higher ticket items. I have a feeling a lot of people have gotten to this level. That’s not to say that the total pie of ecommerce transactions can’t increase – there are still people in the US just getting online or fairly new to the online buying world and some new technologies and functionalities will spur online buying. There are more reasons for growth, but let’s just keep it simple right now. I’m just saying that the days of 100% year over year growth are gone. So are the days of 20-25% year over year growth. We’re probably in the days of 8-20% year over year growth for medium sized retailers and probably less for large retailers.

At this point, merchants are tweaking little things to pump through a 0.25% increase in conversion. Don’t get me wrong, that 0.25% increase can add up to a lot of $$$, but it’s not like we’re going to see merchants suddenly jump from 1-3% conversion to 11-13% conversion. People use the web to window shop and to research. I know, who woulda thunk it?!?

Ok, I’m dumbing things down even for me, so let’s bring the conversation up a little. Merchants are doing smart things like moving to more stable and sophisticated ecommerce platforms. With an upgrade to Mercado or Mercent, for example, merchants are no longer just thinking about optimizing, but actually implementing smart, mertrics oriented tests. Merchants are also learning more about their customers to more effectively market to them. This is all good.

Yes, the ecommerce pie will grow. Just not at the rates we’ve seen before.

So what about the shopping engines? My third prediction is that the shopping engines will continue to outpace the industry, showing good, and in some cases, even great year over year traffic growth. Why? Because for as much as everyone rails on the industry for playing a dumb game of arbitrage, the shopping engines really do add value. They are not perfect, but they take product listings, organize them to some degree, and present the user with better information than they could get through a normal Google search. That matters. That’s what being a vertical search engine is all about – using your expertise about a certain vertical to provide valuable information to an end user.

What’s really going to be telling is how the top sites do:
-Shopzilla has admitted (multiple times now) having trouble with rising click costs on the main search engines. This will only get tougher as holiday shopping intensifies. Will the Scripps Network come to Shopzilla’s aid? Will a last minute redesign and newfound focus on a better user experience spur loyalty? It’s going to be a tough battle for Shopzilla to ‘win’ Q4 2007. But as you look at year over year (y/y) numbers, remember that traffic isn’t the only thing that matters.
-Shopping.com is stuck in eBay hell. They’ll continue to plow ahead like all good management consultants, but I get the feeling that this might be the year merchants have enough tracking tools in place to really dig into conversion numbers deep enough to realize that all clicks aren’t created equal. I absolutely hate the lack of transparency of Shopping.com’s partner network. And the fact that Shopping.com is trying to sign up merchants on a CPA basis just solidifies my opinion that overall conversion rates stink. While this will have a long term effect on the ability to work with merchants, the short term impact to Shopping.com will be minimal as the company probably makes over 55% of its revenue from banner ads and Google Adsense ads. In other words, milk the merchants for all they’re worth and sign up lots of graphical advertisements advertisers.
-Yahoo! Shopping isn’t going to get much love in the midst of the company’s restructuring.
-PriceGrabber will knock everyone’s socks off.
-Google Base/Google Product Search will stun even me as product search results are rolled out as Universal search results
-NexTag will continue to be a cash cow, playing the arbitrage game better than almost anyone out there.

Expect me to dig to find out why the shopping engines are growing and if that growth means anything. Remember, anyone can buy traffic, but what matters to merchants is if that traffic converts into buyers.