KEY POINTS
Mobile spending will account for nearly $30 billion, or 11.4% of this year's U.S. e-commerce spending. That's growth of 37% over 2012 mobile commerce.
For Web retailers that have pursued a mobile-first strategy, that share will be considerably higher. Flash-sale, online-only retailer Rue-La-La says mobile now accounts for 40% of sales and will reach 60% next year.
Mobile is not only about how consumers buy things, but how they browse and research products. In terms of time-spend, we've already reached the mobile retail tipping point: Mobile now accounts for over half of time spent on Internet shopping, according to comScore.
But mobile on its own is no longer a useful category. Shoppers use tablets and smartphones for dramatically different purposes — smartphones tend to be used in the middle of the shopping process, while tablets are used both at the beginning for high-level research and at the end to finalize purchases.
Although there are far fewer tablets in circulation than smartphones, tablets' higher conversion rates and average order values mean they are driving just as much commerce as smartphones in the U.S.
But retailers aren't ready for the surge in tablet commerce. Most of their tablet sites and landing pages are sub-standard, and consumers report being dissatisfied with their tablet shopping experiences.
In spite of these shortcomings, tablet-focused advertising shows promise. Display and search ad budgets in the U.S. are being allocated about equally to smartphones and tablets, and audiences are surprisingly receptive to interactive tablet ads.
SUMMARY
This year, shopping on mobile will start to make a much more significant dent in the e-commerce total. Despite a couple of up and down quarters earlier in the year, mobile commerce for the full year 2013 will account for a higher share of e-commerce sales than ever before.
Mobile's importance extends beyond direct sales, as tablets and smartphones become the go-to devices for window shopping, price comparisons, and overall research.
In short, the PC is being eclipsed as a shopping tool. In the U.S., over half of the time people devote to shopping online is already spent on tablets and smartphones.
Tablets, in particular, are extremely popular as lean-back shopping devices: Consumers swipe and zoom to get the best possible sense of a product's look and feel, and tablet owners tend to make relatively high-value orders when they do make a purchase. This year, we expect tablets and smartphones to take an even split of mobile commerce sales, despite tablets' lower penetration rate.
In the rest of this report, we’ll look at mobile-powered retail's impact on holiday shopping, as well as the rise of mobile research and its growing role in influencing people's buying decisions. We'll explore differences in shopping behavior on tablets and smartphones, which make it imperative that retailers optimize accordingly. Finally, we'll look at how retailers are increasingly setting aside ad budgets to target tablet shoppers, but how they're lagging behind in building tablet-friendly sites and apps to properly support these campaigns.
Note: To create our estimates for e-commerce and mobile commerce sales, including breakouts by device, BI Intelligence incorporates data from various research firms, figures from the Department of Commerce and comScore, reported revenues at various companies, and knowledge of industry trends.
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Mobile Commerce Growth By The Numbers
We estimate spending on smartphones and tablets will account for 11.4% of e-commerce sales this year, pumped up by a fourth-quarter surge that could bring mobile's share up to 13% between October and December.
Total U.S. consumer spending for the year on mobile commerce will reach nearly $30 billion, while e-commerce will come in at $261 billion. Mobile's share translates to growth of 37% over 2012 mobile-based retail spending. That's down about 14 percentage points from 2012's growth rate.
But it's a natural slowdown after years of feverish acceleration, created by the huge migration of online shoppers to mobile.
Mobile commerce will likely continue to expand in the solid double digits for many more years for a few reasons:
Shoppers in the U.S. and worldwide are still becoming accustomed to the habit of finalizing purchases on their phones and tablets.
Also, e-commerce sites and apps everywhere are getting better about optimizing for a variety of mobile devices and operating systems.
In many emerging markets, adoption of smartphones, and especially tablets, is still in its early stages. Smartphone and tablet penetration will speed up, and cause mobile commerce to accelerate along with it.
While desktop e-commerce is still a much bigger piece of total online commerce, PC-based growth is much lower than mobile commerce growth. Increasingly, retailers are differentiating themselves through their mobile sites and apps, and grabbing incremental sales on smartphones and tablets.
Those online retailers that moved fast into the mobile space are seeing especially big returns:
Gilt Groupe says 40% of its revenue now comes from mobile.
PayPal saw mobile-based transactions over its payment platform approximately triple on Cyber Monday 2012, compared to 2011.
eBay expects to double its 2012 mobile-based transaction volume by the end of 2013 to $20 billion.
And whether or not consumers ultimately make purchases on their smartphones or tablets, mobile is becoming the first, and in some cases only, method they use for research.
xAd found that more than 42% of those who research retail on mobile do so exclusively on smartphones and tablets (in other words, they don't use PCs). Tablets are more likely than smartphones to be used throughout the research process, rather than at a specific stage.
As of June, Amazon found that 29% of its shoppers accessed the store exclusively on smartphones and tablets.
And that's actually less than some of the traditional bricks-and-mortar mass retailers. Target (37%), Best Buy (35%), and Wal-Mart (33%) have an even higher percentage of mobile-only digital consumers. Of course, many of these shoppers may visit the retailers' bricks-and-mortar stores.
Mobile has now officially overtaken the desktop in terms of overall time spent on retail, according to comScore data for the U.S. market. Fifty-nine percent of time spent on the Internet engaging in retail activity now happens on mobile.
Tablets As A Device For Power Shoppers
But it is increasingly unhelpful to think of mobile as a single category.
Behavior on smartphones and tablets is notably different, and this is particularly true when it comes to online shopping.
This difference plays out not only in terms of the overall volume of mobile commerce generated by each device, but in how consumers engage with retail sites and apps, and whether or not they ultimately make a purchase.
This year will mark a milestone for U.S. tablet commerce. For full-year 2013, we estimate that tablets will reach parity with smartphones in terms of the total value of retail sales made over the devices.
Various sources report different breakdowns for the proportions of mobile commerce happening on tablets and smartphones. Taking all the data into consideration, we think that tablet activity, much of it on the mobile Web rather than apps, has caught up with smartphone-based shopping.
This, despite tablets' lower penetration rate.
In the U.S. there are nearly 60% as many tablet owners as there are smartphone owners.
How is it that tablets are beginning to overtake the smartphone for retail, despite being less widespread?
Average order values, retail traffic, and conversion rates are higher on tablets, which is helping them punch above their weight class.
Order values: MarketLive found that the average tablet transaction over its e-commerce platform was $151, compared to a smartphone average order value of $124. Tablets also accounted for more than four times as much revenue over the platform as smartphones.
Overall traffic: Tablets account for more overall Web traffic than smartphones. The Adobe Digital Index found that tablets accounted for 9.1% of total U.S. Web traffic in February, compared to 7.4% for smartphones.
Retail traffic: Internet users prefer tablets to smartphones when visiting retail and e-commerce sites, according to the same study. Adobe's research discovered that about 15% of total traffic to retail and e-commerce sites was from mobile devices, and more than half of that traffic was from tablets. No other Web category measured by Adobe — including entertainment, travel, and technology — had as high a proportion of tablet traffic.
Conversion rates were also nearly seven times higher for paid search clicks on tablets versus those on smartphones last year, according to U.S.-only data from Kenshoo. The iPad accounted for the overwhelming majority of tablet conversions.
Propensity to buy: Just as tablet owners are more likely than smartphone owners to convert, they are also twice as likely to buy. In a separate December 2012 Adobe survey, 55% of tablet owners said they use their device for purchasing, while only 28% of smartphone owners said they did.
Weight on peak sales days: Adobe found that sales on tablets on Cyber Monday in 2012 were double sales on smartphones, and we expect a similar breakdown to prevail in the 2013 holiday season.
Tablets simply seem better engineered for browsing e-commerce sites, mainly because of their larger screen sizes and friendliness to mobile Web browsers. The large screen and ability to jump between sites simply make shopping easier.
The tendency of shoppers to browse more also means that tablets are particularly valuable in terms of driving interactions in general.
Savvy digital retailers increasingly see mobile marketing not just as a means for driving more purchases, but also as a medium through which they can drive future sales offline and on PCs, and harvest information about shopper preferences and habits.
“We know people aren’t buying as much on smartphones, but they’re researching,” Jessica Scheibach, group product manager at Nordstrom Direct, was quoted as saying in Mobile Marketer. “They may be buying on other channels. We focus on engagement. It doesn’t really matter if they buy from that channel as long as they are using it.”
The Mobile Web vs. Apps
There's another important difference between tablet and smartphone users. Smartphone owners tend to be app-centric, tablet users not as much.
Data shows that this is true in the context of online commerce, too. Separate recent studies from Deloitte and comScore found that tablet users tend to gravitate to mobile Web sites to shop, rather than apps.
Fifty-six percent of retail time on tablets occurred over the mobile Web in June, compared to 44% over tablet apps, comScore found.
Whereas smartphone users are more likely to stick with the apps of a few favored retailers, tablet users are more disposed to shop around.
They also tend to engage in deeper product browsing, rather than simply price-comparing and searching for specific product information.
Deloitte's survey found a clear bias among tablet owners for what retailers call “top of funnel” activities, which occur early in the shopping process. The survey found that the number-one planned retail activity among holiday tablet shoppers this season was “shopping and browsing online,” at 69%. That's 11 percentage points ahead of the next most-popular activities, checking and comparing prices, and getting product information. These responses were followed immediately by reading reviews, at 57%.
Browsing is what people tend to do on the Web, not apps. So it makes sense that Web-friendly tablets are often used for virtual window-shopping.
On smartphones, in-and-out shopping behavior on apps is the more common pattern.
Demographics also play a role in propelling tablets forward as commerce devices, as we'll discuss below.
Tablet Shopper Demographics
Tablets are no longer a niche device. They are now in the hands of more than one-third of U.S. consumers. And retail is a favorite activity among users, whether they are merely browsing or actually buying.
Tablet user demographics help explain why retail is so popular on these devices:
High-incomes: Tablets are now used by 56% of higher-income households making $75,000 or more, according to Pew. These are the consumers likeliest to have more disposable income.
Gender skews toward women: Female online shoppers, often the chief shoppers of the home, are also now slightly more likely than men to own a tablet.
Families: Also, notably ahead of holiday shopping, tablet ownership has grown fastest among parents with a child living at home. In the U.S., 50% of families with children have tablets at home.
Interestingly, many popular mobile social apps known to be used for inspiration on what to buy also have a skew toward women.
Pinterest is particularly relevant in this context since it is known to be a tablet-centric social network, and drives the highest average order values among social media referrals to e-commerce sites. According to comScore, Pinterest now has more mobile monthly unique visitors than desktop unique visitors. Our social media demographics report found that 68% of Instagram's users are women, and 85% of Pinterest's users are women.
Tablets now play a significant role in the increasingly mobile-based “path-to-purchase” — the series of decisions and actions consumers take from the point when they first have an idea for a purchase to when they actually make it. Consumers are jumping back and forth between devices, and retailers are tasked with tracking those interactions and making the research journey as seamless as possible.
How Tablets Are Used For Shopping, And In What Contexts
Tablets seem to occupy niches at the beginning and end of this process. They are used for early-stage discovery products, and often are used to complete e-commerce purchases, too.
This pattern makes sense given the tablet's place in the daily media diet. There's a good reason why tablets have been coined “lean-back devices.” They are most often used at home, at night, while watching TV.
The couch and the tablet pair nicely together. And it's also an ideal time to do some virtual window shopping ahead of holiday sales, or to make that final decision to complete a purchase and enter your credit card details.
Nearly all those who make purchases on their tablets do so at home, Nielsen found. Mini tablets haven't yet led to significant amounts of in-store or on-the-go tablet shopping.
And, in keeping with their at-home device usage, tablet users show peak engagement on tablets in the evening, with eXelate finding tablet usage highest at 11 p.m.
Interestingly, this behavior means that a significant amount of tablet-researched shopping ends with an in-store or PC-based purchase. An xAd study found that among those who bought an item researched on their tablet, nearly 49% bought in person, while 32% completed the transaction on the PC, and 24% bought on the tablet itself.
Smartphones occupy a more significant role in shopping's middle stages, as consumers do follow-up or last-minute research, or locate stores where they might make a purchase.
Seventy-seven percent of smartphone-researched purchases were made in-person, according to the xAd study.
Are Retailers Ready For Tablet Shoppers And Buyers?
Retailers have an important concept known as “cross-channel continuity,” which is the idea that no matter how they access your store or brand, shoppers should be able to find consistent product and pricing information, and easy-to-use shopping interfaces.
So far, retailers at the local level are decidedly lagging behind on tablet sites and apps.
This year's Local Corporation survey found that fewer than half of tablet users were satisfied with their ability to do shopping research on the tablet, up only six percentage points since last year.
That compares to 68% of respondents who were satisfied with the smartphone, up nearly 20 percentage points since last year.
Clearly, retailers have adapted to the smartphone revolution, but have not kept up with the transition of shopping to tablets.
A tablet retail report from L2 Think Tank, also focused on online retailers, found the following considerable deficiencies in their tablet offerings:
Retail sites on tablets take longer to load: an average 2.5 times longer than the same sites on desktop.
They have also failed to leverage the touchscreen: The study found that only 13% of retailers supported touch-and-swipe functionality on tablets.
Retailers' tablet apps can't complete a purchase: Eighty-three percent of retail apps require a hand-off to the browser to complete the transaction.
For now, the iPad is still the dominant device for retail activity. It is also the tablet owned by the greatest share of high-income consumers. If tablets post the highest mobile order values and conversion rates, the iPad posts the highest of all. If retail sites are optimized and tested for iPads or iPad apps are available, that's a good start.
As the iPad loses market share to Android tablets, device fragmentation will start making the tablet space even more complicated for retailers. Lack of device- and operating system-specific testing means that many retail sites will not perform well on certain Android tablets.
Retailer Mobile Ad Trends
Tablets, with their larger touch screens and increasingly common HD screens, offer fertile ground for display advertising, as well as innovative and rich media ad formats.
However, it's important to realize that tablet advertising dollars will be misspent if there's not a nice tablet-optimized landing page for a shopper to arrive on if they click on an ad.
The market for tablet ads faces something of a chicken-and-egg problem in this sense: A lack of investment in tablet sites and apps means that tablet-specific ads don't lead consumers to great shopping experiences. Conversely, many retailers won't be plowing money into a tablet-friendly site or app if there's no big ad campaign to lead shoppers there.
Even so, retailers are investing in tablet-targeted advertising.
The split in paid search campaigns is already almost even, with equal budget being allocated to tablet and smartphone paid search. About two-fifths of retailers say they “will invest heavily,” in both smartphone and tablet paid search ads, according to Shop.org's eHoliday survey.
Tablet display ad campaigns will also see heavy use from 15% of retailers, while 55% say they will give tablet display ads “medium use,” according to the same survey.
Tablets are also becoming a testing ground for more innovative advertising that maximizes the devices' interactivity and screen size, as well as the close relationship between tablet users and shopping. A study from CreativeFeed found that iPad owners in particular, and likely tablet owners overall, are more open to ads with extra features than other mobile users. Nearly half of iPad owners surveyed said they enjoyed ads with interactive features, compared to only 27% of total device users.
For those advertisers buying traditional display ads on tablets, eye-tracking studies find that leaderboard banners outperform other standard formats on tablets, including big box and skyscraper ads. The study also found that the PC outperformed the iPad in terms of overall engagement on ads.
For both tablets and smartphones, it will be important to make sure that emails are responsively designed for mobile devices. Retailers see great results with email offers and newsletters and these emails are increasingly opened on tablets. However, Shop.org's survey found that only 60% of retailers plan to use mobile optimization extensively.
Google's product listing ads were the big search development of 2013. These will allow retailers to purchase paid search ads that show a picture of the product and pricing details.
Now, the addition of local data, which will provide details on a nearby store where consumers can purchase the product, means these ads will also be relevant for local bricks-and-mortar and chain retailers.
Product listing ads will pair well with tablet search. Tablet search results will offer enough screen real estate to include these ads.
Google executives have often voiced their opinion that tablet search user behavior does not differ very much from that of PC-based users.
For now, buying these ads is by-invitation only.
THE BOTTOM LINE
Mobile spending will account for nearly $30 billion, or 11.4% of this year's U.S. e-commerce spending.
In terms of time-spend, we're past the mobile retail tipping point: Mobile now accounts for 59% of time spent on Internet shopping, according to comScore.
Smartphones tend to be used in the middle of the shopping process, while tablets are used both at the beginning for high-level research and at the end to finalize purchases.
Although there are far fewer tablets in circulation than smartphones, tablets' higher conversion rates and average order values mean they are driving just as much commerce as smartphones in the U.S.
But retailers aren't ready for the surge in tablet commerce. Most of their tablet sites and landing pages are sub-standard, and consumers report being dissatisfied with their tablet shopping experiences.
In spite of these shortcomings, tablet-focused advertising shows promise. Audiences are surprisingly receptive to interactive tablet ads.
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