And now, Internet shopping even has its own Black Friday.

The National Retail Federation was smart enough to point out a special day on the calendar year when the entire country is logged on and buying stuff from Amazon, E-Bay and other popular sites.

It’s called Cyber Monday. Here’s the story: On the Monday after Thanksgiving, everyone is back at work in front of his or her computer. But instead of working, they’re buying presents they couldn’t get at the Friday doorbusters.

But Cyber Monday is not the biggest online shopping day of the year. That’s just what the good people at the National Retail Federation want you to think. (Interestingly enough, the biggest Internet shopping day usually falls sometime around December 5-15. You can more about how Cyber Monday was started here.)

Despite its inaccuracy, the media has taken note and has compiled some interesting statistics. According to the data, online sales are booming this holiday season. ComScore Networks — a Virginia-based company that monitors Web-related data — reports that online sales this Cyber Monday hit $608 million. This beats out last year’s Cyber Monday by 26%.

Growth isn’t just limited to this one day, either. U.S. online retail sales are expected to more than double over the next few years, reaching $316 billion by 2010, according to Forrester Research.

Online sales are expected to account for 12% of total retail sales in 2010. To put this in perspective, online sales were less than 7% of total retail sales in 2004.

But throughout all of this growth, major problems persist in the online retail industry.

Customers are abandoning their shopping carts online at a rate of 50% or higher. In other words, plenty of people are shopping online, but a lot of websites are having trouble when it comes to closing the deal.

Some online businesses are looking to change these gloomy statistics. And they plan on doing this by targeting their online shoppers with more personalized experiences when they are logged on to their stores. In a 2005 survey, 96% of executives from 176 North American companies said they planned on increasing online interactions, and 78% percent of these same executives anticipated the increase in volume to be significant.

This brings us to our smart small-cap play on this sector. It’s safer than risking capital on a fledgling online retailer that would have to compete against the likes of Amazon or Overstock.com. Why? Because this is a company that helps some of the biggest online retailers in the world make more money.

The company is LivePerson (LPSN: NASDAQ). LivePerson provides software that helps online retailers better assist and communicate with customers.

Here’s a real-life story about how LivePerson’s software works…

An outdoorsman named John is looking for a specific kind of backpack. He calls all the nearby stores that might carry his item, but ends up on hold for countless minutes. And after all his troubles, the salespeople tell him they can’t find what he’s looking for.

Then, John decides to search on the Web for his backpack of choice. He stumbles upon a site called Backcountry.com and notices they have a live chat feature. John clicks on the icon and gets to chat with a real-life expert. In about 30 seconds, the expert gives John a link to the backpack he wants and he makes his purchase.

It’s that simple.

If this seems silly to you, just look at how Backcountry.com improved its online sales rates after becoming a LivePerson client.  The conversion rate for online shoppers who chatted with sales associates grew to ten times greater than self-service shoppers. And the Backcountry “gearheads” who chatted with customers helped increase the average order value by 54%.

And as if these numbers weren’t enough, the company conducted post-chat exit surveys. More than 80% of customers said they were satisfied with their experience. Also, customers who chatted with Backcountry’s sales associates said they would be more inclined to purchase from the site again.

The idea to help these online stores boost sales has been a successful one for LivePerson. The company achieved profitability in September 2003 and hasn’t looked back since. The business is on track to bring in about $32 million in revenue this year, compared to a little over $22 million last year.

And as retailers continue to look for ways to find new customers and invest in better marketing tools, companies like LivePerson will grow and prosper.

Best,

Greg Guenthner
December 4, 2006

Investing in the Internet was originally featured in the Penny Sleuth.