As in all markets, the principles of supply and demand apply in e-commerce. However, it's very important to understand what we mean by "supply" and what we mean by "demand." Let's discuss these terms in reverse order.

Demand. In e-commerce, demand is measured by the number of people who search for a particular product online each day. But we can't just look at the raw number of searches. We need to consider a) how targeted the search is, and b) the searcher's intent.

A targeted search is a search that is specific and "on target." Generally, targeted phrases are 3+ words long since it usually takes 3 or more words to zero in on the target. For example, the phrase "kenmore gas stove" is a lot more targeted than the phrase "stove." Targeted phrases often include brand names, product specifics (size, color, style, etc.), and/or model numbers.

When we talk about the searcher's intent, we are focusing on the searcher's purpose for searching. Does the searcher plan to make a purchase? Or is he kind of just browsing or window shopping? Or perhaps he is merely researching a product. Use common sense to evaluate a search phrase and determine how likely the searcher is to be in "buying mode" when he performs the search. A good indication that he is ready to buy is when the search phrase includes "buying words" such as buy, discount, for sale, free shipping, etc.

Putting it all together, a product in high demand is one that a lot of people with the intent to buy are searching for each day by doing targeted searches. Don't underestimate the importance of the searcher's intent and how targeted his search is. I'd take 100 people who searched for "buy kenmore gas stove online" over 1,000 people who searched for "stove."

Supply. A lot of people tend to think about the quantity of retailers (the number of competitors) when they think of the term "supply." But in e-commerce, it is NOT the quantity of competitors that matters; it's the quality of them. Specifically, we are concerned about how strong they are and how challenging it will be to pass them up.

You may have heard the phrase "location, location, location" that is often quoted when talking about real estate. If you're trying to get exposure and draw customers, you want a nice building on the corner of 1st and Main Street, not an old warehouse tucked away on a dingy side street.

What does that have to do with e-commerce? Location is basically how your store ranks in big search engines like Google. Having your website show up in the top 2-3 spots in Google when somebody searches for a product is like having that nice building on 1st and Main. In contrast, having your site come up on page 40 or page 10 (or even page 2) of Google is like having an old warehouse on a side street.

So, when we talk about supply, we're talking about how strong the top competitors are... the ones who show up on page 1 of Google. How good are they? How much time and effort will it take for you to outrank them?

Coach's Keyword Tool makes it unbelievably easy to measure both supply and demand. It shows the number of daily searches for any phrase so you know what the demand is. And it calculates a "Market Opportunity Score" for each search phrase, which tells you how challenging it will be to outrank the sites that currently rank at the top of Google.