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By Mark Ward
Technology Correspondent, BBC News website
08:52 GMT, Wednesday, 26 March 2008
Running an online shop can be a brutal business because the net is the
ultimate level playing field.
The sheer number of competitors selling any and every product or service
means shop sites can struggle to make themselves stand out in the crowd.
In a bid to keep up with the pace an increasing number of websites are
turning to insights that have emerged from studies of how to gamble on
fruit machines.
Running an online store and gambling on a one-armed bandit may seem to
have little in common - beyond the near certainty that you are going to
lose money - but there is an affinity that might not at first be
apparent.
Research into the so called "bandit problem" has produced techniques
that ensure theoretical gamblers get the best possible return.
These techniques funnel most cash into the machine giving the current
best payout. But they hedge this bet by pumping some coins into other
machines to see if they produce a higher return.
Money pit
In the case of websites, visitors take the place of coins and the fruit
machines are the different webpages that can be presented to them as
they spend time on a site.
"Five to 10 years ago websites were seen as online catalogues more or
less," said Peter Ahl, managing director of Serenata Flowers. "Now it's
something living and breathing, an entity that responds to visitors."
Serenata is one of a growing band of online businesses that changes what
visitors see as they navigate through the site. It means the site can be
adapted to those different expectations and experiences.
"We look at the time they are visiting," said Mr Ahl. "We know there's a
difference when people surf from office or at home over the weekend."
"There are other forces that drive differences in behaviour such as
where they come from," he added. "If they came from a search page what
did they search for? And if they know us they might be willing to spend
more than if they are a first time visitor."
Paul Phillips, technology boss at Omniture which has built
website-tuning software out of solutions to the bandit problem, said
reacting almost instantly was a big change for many web shops.
Before now, he said, many firms analysed data gathered over weeks and
months to get insights into how to target marketing campaigns to improve
responses from customers.
"In the online world that's just not fast enough," he said. "A model
based on last week or last month is no good."
The insights from work on the bandit problem help make the most of what
customers want now, he said, but also explore other ways to entice them
to spend more.
"It's not just based on history but it continuously appraises all they
are doing and makes judgements about the risk of being wrong and the
consequences of being wrong," he said.
Crowd control
Other behavioural monitoring goes beyond using insights into the bandit
problem. Swedish firm Avail Intelligence aims to do a similar job by
consulting the wisdom of the crowds that visit a site.
The web-tuning system created by Avail plunders information about what
people are doing and how they make their buying decisions as they use a
site.
It notices when someone has embarked on a particular path through a site
and remakes a site to feed them relevant information, be it adverts or
prompts to other webpages, to get that transaction finished.
"It's not offline or post facto," said Rolf Elmer, head of Avail
Intelligence. "It's about transferring directly the power of the
purchase process. What is most relevant for that consumer."
Companies such as Barclays, BT, HBSC, Capital One, Lloyds TSB, MSN and
many others have turned to behavioural monitoring systems, said Mr
Phillips, because of the harsh realities of doing business online.
"Online is a very low friction, highly interactive environment," he
said. "And it's natural for people to be in comparative shopping mode.
All competitors are challenged because it's so easy to buy elsewhere."
The importance of this is underscored by the old business maxim that it
costs far less to get an extra sale from an existing customer than it
does to attract a new one. Because of this getting, keeping and getting
more out of customers become hugely important.
This meant that any website that consistently gave people a marginally
better experience than their rivals was likely to see a big boost to
their business.
"As with any type of service small marginal gains are a very big deal
and cause a large flip of business in your direction," said Mr Phillips.
Critics have pointed out before now that the web management systems of
many websites have been so poor that almost any system would produce
tangible improvements to sales.
But, said Mr Phillips, the real-time decision systems may one day find
their place in a very different arena.
The push to develop such systems came from the AI community, he said,
and eventually robots could use this approach to become more
intelligent.
"This type of real-time learning technology is going to be very
important for other domains. It's about the trade off between what you
believe to be true while exploring what might be your risk," he said.
"This is where machines start becoming generally intelligent."
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/technology/7132588.stm
Published: 2008/03/26 08:52:42 GMT
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