iPhone 6 – Apple’s Strategic Opportunity

8 September 2014

We are likely to see much innovation in the iPhone 6, but I suspect there is even more innovation that we won’t see. Purpose of blog today is to help my friends navigate through the coming tsunami of press, to what really matters. What are the things I’m looking for? If you are looking for a list of new iPhone 6 features in this blog.. you will be sadly disappointed.. I’m much more attuned to payments, network strategy, commerce, security/Auth.. admittedly myopic. Note payments stuff is in last paragraph

Tomorrow

Don’t get caught up in buzzwords like NFC, payments, tokens, BLE, Secure Enclave. Will it have a new security architecture? Yes, industry leading from hardware through firmware, OS and Apps.. Will the iPhone be able to do payment? Sure… Emulate a hotel door room key? Yep, in fact it could virtualize and emulate any chip card including the GSM SIM. Yet focusing on this stuff is kind of like talking about what the internet could do…  can I email my Aunt in Singapore? Buy a book from a seller in Seattle… The key questions for investors and start ups in the Valley is: HOW WILL THE iPHONE 6 CHANGE COMMERCE?.

Why am I excited about the iPhone 6? It is the dawning of a new age of mobile “platform”. This leads to the obvious question of: what is a platform, and how can anyone lead it? My favorite book on platforms is Platform Leadership: How Intel, Microsoft and Cisco Drive Industry Innovation. The authors provided a great model to assess the 4 Levers of Platform Leadership

  1. Scope of Firm: What is done inside, how they encourage outside investment and focus
  2. Product Technology: Architecture, Interfaces, Modularity, What do they expose to partners?
  3. Relationship with Complimentors: Support of Complimentors, acting on ecosystem needs, path to consensus and standardization, profitability
  4. Internal Organization: What is the “core”, and how are resources allocated to core activities vs support for partners.

Apple has a massive check mark in #2 (Product Technology), as they are 3-5 years ahead of every handset maker (integrated hardware thru OS and Software). How do we measure this lead? Admittedly technology is a little harder to quantitatively measure than financials and market share, so for the later: Apple captures 70% of industry profits (from 18% market share), #2 in consumer brand (behind Google), and #1 in retail sales per square ft. Most would agree its hard to get to these stratospheric numbers on crappy hardware.

On the technology side, Apple is the only vendor (since RIM) to have developed a secure mobile platform for biometrics, encryption, smart card emulation, …etc. All using a proprietary architecture from A8 Processor, Secure Enclave, OS, Apps and integrated into cloud services. For example, Apple has thrown the GSMA’s NFC under the bus in favor of their own unique design. I think of it this way: RIM started with security in mind and then tried to bolt on a browser and other features consumers wanted beyond secure e-mail. Apple started with the consumer and is now (with the iPhone 6) rolling out the most secure mobile platform in history. I believe Google is 18mo-3yr behind (with ARM/TEE and SE Linux) primarily because they don’t have the same HW control as Apple (see Secure Element, NFC, HCE, EMV, Tokens and Cards).

From a platform perspective the REAL question is Can Apple pull levers 1, 3 and 4?

Platform Leadership

Most all of us know the Microsoft/Intel Story (see reference). WINTEL’s pace of innovation crushed Apple by creating industry standards (ex PCI Bus) and allowing hundreds of companies to specialize on many subcomponents (dives, processors, applications) which further increased performance, decreased price and expanded usage… which in turn drove more investment. Intel’s Architecture Lab (IAL) was centerpiece of this success: an investment in defining and supporting the platform (ex the common infrastructure “bus”) that allowed for specialization and defined interaction (and accelerated Intel’s dominance). No one asked Intel to lead.. they TOOK IT (with great success). Leadership is not creating APIs and taking a 30% cut of revenue, it is recognizing that a business where 100s of companies can succeed is a much bigger business. This is particularly true in Commerce.

In physical commerce, I look at Visa and Mastercard as the best “commerce” platforms. This comment will draw ire from all my merchant friends, but it is factual (total volume processed). The beauty of the V/MA business model is that 1000s of banks invest (and merchants pay) billions of dollars to make this work. They have struck a tremendous balance between bank, consumer, and merchant. They have become the standard for interaction. One that will start to shift significantly toward merchants in next decade (for another blog).

With respect to platforms and mobile, I was in Hong Kong last year constructing scenarios with a major investment bank, with the key question: Where will value flow in mobile once handset hardware is a commodity? (Battery life, processors, screen resolution, are all good enough). What are the FACTORs of competition today? Can someone else change the game? I went through this analysis in my blog on Stage 4 Value Shift.

As we look for where the form of mobile competition may change, it would seem to be outside: hardware, software and network bandwidth. If hardware is good enough, and not the primary factor of competition, it must be software, services or data that will drive competition in the next phase… If platform is decided on software only.. then software platform with most open standard and most users (ANDROID) should dominate as any connected devices (handsets and everything else) have lower cost and more ability to “specialize”, particularly if intelligence is in the network (not the device).  But software is currently not the point of competition either… If not DEVICE software, or hardware, or network connectivity.. then what?

 

… Orchestration and Trust:  mobile phone transforms into the networked device “bridging” the virtual and physical world then value (and profitability) will shift from platforms executing transactions to coordinating interactions.

Apple’s greatest asset is its ability to change consumer behavior (see blog Apple and Physical Commerce, and Consumer Behavior). Apple’s reputation is well deserved and earned “the hard way” by remaking: phones, music, mice, computers, apps, …etc.  Through consistent delivery of value within fantastic hardware delivering great (and fun) consumer experiences they earned trust for their products and brand. The greatest NEW opportunity for Apple to influence consumers beyond the individual (music/contacts/calendar) and eCommerce (browser, apps) to the real world: Commerce. Apple’s core gap? How will it allow for investment, specialization and define interaction of aligned participants.

Commerce Platform

I’m assuming Apple will get its consistent A+ in hardware, and there will be a bundle of new capabilities in the phone and connected devices (ie iWatch). But commerce is between a consumer and a merchant/manufacturer. What “platform” will exist to assist Merchants? What is Apple’s role in mediating platform (and consumer) with the merchant (beyond the app store)? How will Apple enable 100s of other companies to invest billions of dollars to make its Commerce Platform the centerpiece of value orchestration? Beacons (see Apple iBeacon Payment Experience)?

Google, Amazon, Facebook, all organize millions of businesses, and billions of consumers. Apple is missing the business side… in a BIG way (remember iAd). From a network strategy perspective, Apple has created a consumer focused nodal platform (vs hub centered orchestration). They certainly have the opportunity to create a hub (ie iCloud), but their hardware centric organization may keep this from maturing (Lever 4). Thus Apple is 5 years behind Amazon, Google, Facebook in delivering value to merchants, and orchestrating Commerce. As I stated above, handsets are becoming a commodity, Apple’s new handset will not lead in screen resolution or battery life.. consumers will start to look at the VALUE it provides in connecting to other REAL WORLD businesses.

A January 2001 Harvard Business Review Article: Where Value Lives in a Networked World put it this way:

In more general terms, modern high-speed networks push back-end intelligence and front-end intelligence in two different directions, toward opposite ends of the network. Back-end intelligence becomes embedded into a shared infrastructure at the core of the network (cloud), while front-end intelligence fragments into many different forms at the periphery of the network, where the users are. And since value follows intelligence, the two ends of the network become the major sources of potential profits. The middle of the network gets hollowed out; it becomes a dumb conduit, with little potential for value creation. Moreover, as value diverges, so do companies and competition. …. In a connected world, intelligence becomes fluid and modular. Small units of intelligence float freely like molecules in the ether, coalescing into temporary bundles whenever and wherever necessary to solve problems.

where value lives

Apple’s strategic opportunity is to orchestrate these information bundles and consumer insight in a way WHICH THE CONSUMER CONTROLS. This was the focus of my previous Apple Strategy Blog: Apple’s Platform Strategy: Consumer Champion.  Unfortunately, it seems that Apple’s management team may be so hardware focused that they are missing this opportunity. Retailers like Nordstrom, Macy’s, CVS, and Starwood will show (tomorrow) how excited they are to work with Apple. But Apple needs a version of Intel’s IAL, that is focused on Retailers, Gimbal and Commerce.  Actually, I believe Apple’s gap here is so large that they must find a way to partner/acquire someone else in this space (not paypal). This is a $100B opportunity, and if Apple doesn’t move on it, it will be left competing on screen resolution, and hyper sensitive affluent consumers seeking data privacy.  (Note to Apple, one of my companies would love to pitch you a few ideas here).

My top strategy questions for tomorrow

  • Does Apple see strategic growth for iPhone as working in real world (Commerce)?
  • What level of investment/support will Apple give to “community”? How (IAL)?
  • Where does Apple “Stop” and partners “stop”
  • Apple’s organization.. anything changing? Is it still H/W dominated?
  • Apple’s phone is no longer differentiated by external features.. so what is different and why is it valuable to consumers? Merchants? (Can Tim articulate)
  • Does Apple see itself as the Consumer data/privacy champion? How do you monetize anonymity?
  • How will retailers work with Apple?
  • How will beacons be supported?

Security, Authentication and Anonymity

The biggest features we will see (IMHO) surround  how Apple is completely reworking the role of authentication and security in the platform (see iPhone 6 Secure Enclave, great article from Networked World). Apple’s proprietary mechanisms for “smart” card emulation (credit card, hotel door key, transit pass) will impact many, many industries (see Authentication in Value Nets).  Apple has ROCKED THE CART substantially with this capability. My guess is that they will demonstrate the obvious tomorrow with contactless card emulation (V/MA/Amex) and security keys (Starwood hotels). The much more sensitive area is virtualizing the GSM SIM. I believe the iPhone 6 is capable of virtualizing the SIM, I have no idea if they will demonstrate the capability.

From a consumer perspective, the big changes will surround Apple’s efforts to limit ad tracking will significantly impact advertisers (see Tech times ). I believe there is hidden genius here as they turn themselves into the ultimate consumer protector… both online and in the physical world.  They are the gatekeeper and orchestrator… the only entity that can know what a consumer is doing. Question is can anyone else work with Apple (and the consumer) to request that the gate be opened. For example, will Apple be the primary publisher (please send phone ID 187349387 the following message .. and Apple approves).

Payment Stuff

Most of my readers are in this area.. so sorry for saving this till last. I described how payments will work in the new iPhone back in March: Apple’s iPhone 6: GSMA’s NFC thrown “Under the Bus”. The key innovation in iPhone 6 should be credited to Visa and Mastercard: tokens. No longer will Primary Account Numbers (PANs) be sent in the clear as we have with EMV, and NFC today (I know, hard to believe.. see this blog for background). Now if someone steals your phone.. and breaks Apple’s unbelievable security.. they have a number.. that is COMPLETELY worthless.. they can’t use it anywhere.  At time of manufacture and OS load, Apple has loaded 6 tokens: Visa credit, Visa Debit, MA Credit, MA Debit, Amex, China Union Pay, (and perhaps a few backups).  These numbers are locked up in the secure enclave, they are 16 digits long and are BINs that processors can route to the appropriate network. The networks operate as TSPs (Token Service Providers) and map the Tokens to the Actual Bins. The primary key for the mapping is Token, plus Token Assurance Information, plus Phone ID.  Technically.. everyone of us could have the same exact 16 digit token and Visa/MA/Amex could still map the correct card based upon the other unique information.

My biased view is that the networks emulated what Google (under Osama Bedier) put in place 3 years ago as Google also operates this Token environment within their TXVIA acquisition. The big plus for Google is that the consumer can register any card they want, as Google does not charge the banks anything.

The biggest “surprise” over last 2 months is that Apple has squeezed 15-25bps from the 5-6 participating banks at launch (C, BAC, COF, JPM, Amex and perhaps WFC). The challenge for phone wallet companies has always been there is no economic model for them. Banks know that wallets will not work without cards.. for example Apple has little chance of success if Chase, Citi and Cap One don’t participate. Thus someone must have “blinked” and the others followed. No one wants to be left out of the Apple launch. Thus to participate in the Apple wallet, Issuers will need to cough up the fee to Apple. There are 3000+ issuers in the US.. so this may be a little challenging on the consumer side. I also have firm G2 that BAC, C and possibly WFC will enable debit cards (have no idea how these will be priced).

My G2 tells me that the Issuers refused to give on CNP interchange, so even though Apple has tokens and can sign them with same assurance information a “tap” at the POS will have a different rate than an eCommerce/mCommerce CNP transaction. One of my bigger unknowns is how Paypal will play in all this launch. I understand Apple is near launch of an “off Apple” eCommerce payment scheme (?EasyPay?).. will Paypal be the merchant acquirer and white label a PayPal like button (pay with “Apple”).

Strategically, Payments are moving to be part of the Operating System. What does that mean? See blog. My favorite payment quote is from Ross Anderson at a Federal Reserve meeting. If you solve for Authentication in payments, everything else is just accounting. This is a key example of how Apple has the potential to completely turn the world of payments upside down. For start ups this means that payment is no longer a specialized function, just as TCP/IP was not in Windows 95 launch.. and became part of the standard stack.. so are payments with iOS and Android. There will be no more Paypals in the future.. A key WIN for Visa, Mastercard and Amex is that Amazon, Apple, and Google are all of one mind: Let consumers pay they way they want to pay.

Arcane payment stuff. I’m more than a little interested in how Apple will actually get paid beyond the honor system. Card emulation applications have no idea who they presented the card to, or size of transaction. Visa/MA/Amex will be able to track transactions, but don’t know of any formal facility to pay a wallet company within the settlement stream, meaning that the issuers will be cutting the check based upon data that only V/MA and/or the issuer themselves have. So beyond the pure “TSP” role, is there also a role for wallet settlement in the overall V/MA scheme. Optimally, issuers would have one way to register cards for participation in any given wallet, this was a significant flaw in the NFC TSM card provisioning flow. It would be very smart for V/MA to take this on. In other words a new V/MA process for registering card/token scheme/Assurance information/approved wallet (ex HCE).

Merchant Acceptance

My view is that the MUCH larger problem for Apple is merchant acceptance. As I outlined in Apple Payment Experience, Apple did not want to launch within network contactless specifications, they wanted certification of BLE.  Apple presented its solution back in August of 2013 and the issuers went “nuts”.. going to V/MA telling them “You are going to let Apple own the PATENT for how a card goes from phone to merchant.. I thought that was your job”. Thus we see the press release on tokenization in Oct 2013 that came out of no where.  The networks did not want to fragment acceptance infrastructure and give merchants the opportunity to accept Apple BLE and not NFC.

There will be 2 or more merchants moving from MCX to Apple tomorrow, one rumored is CVS. Of course they could still accept MCX, but rumor is MCX agreement precludes other forms of mobile payment acceptance. Payment acceptance is no peripheral battle to merchants. This is a VERY VERY big deal and I don’t believe Apple understands it at all. Net margin in retail is around 2.6%, so taking a 225bp card is VERY MATERIAL. Retailers tell me that mobile is the #1 thing they think about in strategy, and they are quite confident that they are in the best position to influence consumer adoption and value creation (ala Starbucks). My hope is that Apple can work out its desired BLE experience directly with MCX retailers.. and let the merchant/consumer decide how all this works. See  Value Creation and Distributed InnovationStatic Strategies and the Rewiring of Commerce and in Future of Retail

How will the iPhone 6 Change Commerce?

Remains to be answered pending Apple’s platform support strategy. Where does Apple see its role in value creation? (Or does Apple just see a role in consumer protection?) The Google, Amazon roadmap is much clearer to me.. I don’t want to buy into a hardware company.. hardware is becoming a commodity, value orchestration is the $100B+ opportunity.

This is not a clean wrap up.. but my football game is on and I want to watch it.

 

 

 

Authentication – In “Value” Nets

March 3, 2014

Today’s blog brings together: the Role of Authentication in Value Orchestration, Apple’s Role in Commerce, Constructs for Compensating Authentication Agents, and Ability of Payment Networks to Adapt. The ability of other parties to assume risk in payment is the key shortcoming of all of our existing payment systems (see last week’s Blog). The recent activities around tokens can best be explained through this Risk Lens.

My use case for today: Assume Apple has the best biometrics system on the planet, and Consumers trust Apple with all their credentials. How can non-Apple Service Providers use Apple’s Authentication service (pay them)? As I outlined in Who do you Trust (Sept 2013)

The “KEY” [prerequisite] in value orchestration is owning the Consumer relationship. Therefore Identifying and Authenticating the Consumer is the first, primary, service that must be owned by a platform.  What was a separate “Trusted Services Manager” in the NFC world has been co-opted by platforms which will take a proprietary route.

This goes hand in hand with my other favorite payment quote from Ross Anderson with respect to payments:

If you solve for Authentication.. Everything else is just accounting

The Role of Payments in Commerce

As I’ve stated before payment is just the last (easiest) phase of a long commerce process that involves design, manufacturing, marketing, advertising, retail, payment, …etc. (see Payment enabled CRM). Payment is the key PROCESS by which these parties measure the effectiveness of their activities (think attribution). To measure effectiveness (and value) participants tie their activity to Consumer and: items, activities, processes, and behaviors. Answering questions like “did the consumer see our ad on facebook?”, “did our campaign influence the consumer’s buying behavior”?

Before we can assess the value of Apple’s Authentication we need to identify the processes and participants that can use the service. My bias is that the greater value to be unlocked is around the attribution than payment (as a side note Apple has constructed a new platform to manage an Advertising Identifier around this “identity arbitrage”). My personal bets are around the hypothesis (outlined in Apple and Commerce): that Apple’s biggest asset is their ability to change consumer behavior, and are working to make the iPhone the centerpiece of physical commerce (not payment). However, since I have no interest in writing a novel on the subject, I’ll give my highly condensed views on authentication in today’s payment instruments.

Value of Authentication in Payments

What is value of authentication in payments? To whom does the value accrue? We should not assume payment methods will change in anything shorter than a 20 yr horizon (analysis of value in existing payment networks). The value flow in a 4 party payment network is fairly simple: Merchant pays with the Issuer receiving 80% of the revenue. Any payment for Authentication must therefore come as “cost” to the issuing bank. There are 5 models for extracting authentication fees from Banks:

  • Bank chooses to pay (or exchange something of value … like data)
  • Network forces payment
  • Authentication provider forces payment
  • Consumers force payment, or Choose to pay themselves
  • Regulators force paymentGAO payment flow

Optimally a service cost would be based upon value (if the value declines … the cost should decline). Of course nothing in payments work this logically. Issuers like to have all the control, so that they can retain all the margin. In fact, Top Issuers would be fine keeping mag stripe with no authentication (see Perfect Auth… a Nightmare to Banks). Perfect authentication would eliminate all risks not credit related (ex ability to pay). It would therefore be very hard for Banks to justify any payment fees (interchange) beyond the cost of operation. Banks make their money on the ability to manage risk (not eliminating it). Mobile Authentication (biometrics) provides a mechanism to reduce risk outside of the bank’s services.

Startups.. this is the challenge in selling banks improved risk management or identity solutions that are not in their control. It is also why Banks want their services manifested through applications they control (not others). However, Banks must live in a world where their payment product does live outside of their environment (not that they like it, but Amazon does have a little potential to sell :-)).

A recent example of external network driven services: Verified by Visa (VBV) and Mastercard Secure Code (MSC). VBV/MSC rolled out in 2003 (Europe) and shifted eCommerce CNP risk to Banks. It was a complete and utter failure, not just from a tech view but also from a customer experience and business model. Merchants were incented to put the technology in place (10bps and fraud shift to Banks). VBV/MSC failed to catch the fraud… who was motivated to fix the flaws? Not the merchants.. they had given the fraud loss to the Banks and received a discount. It was rather the Banks, which were left with declines as their only tool (as I outlined in Perfect Authentication – A Nightmare for Banks). In other words, Banks had no way to pay the merchant to do a great job at managing risk in VBV/MSC, but only penalize a merchant for poor performance (through declines). This is why we don’t see VBV or MSC running in Amazon, Apple, Paypal, … etc.. Merchants fear declines much more than they do managing the fraud.

But how do a Banks pay external parties (ex Experian, EWS, …) for assisting in the risk management of payments? Usually a per transaction fee of $2-$5 in account opening, and then 10bps for transaction risk scoring (think check verification, although not all transactions need to be scored). The Networks themselves offer services for authentication and account management.

Authentication Fee Structures

Issuer Controlled

  • Interchange Rate Reduction ~15-30 bps based upon performance
  • Fraud Shift (for CNP + Auth in eCommerce)
  • Data Sharing (quid pro quo)

Network Controlled

  • New Category – Mobile Card Present with Authentication (30bps below current)
  • Network Enhancement Fee – Charged to Issuer (for Token and for Auth)

Platform Controlled

  • Authentication Fee (Nothing gets passed to Issuer unless they choose to use service)
  • Network support of new field(s) for Authentication information

My preference (for Authentication) would be for last item in the list, where Apple and Google assess an authentication fee to Banks which choose to leverage Authentication. This allows for performance based pricing. If the service is not providing benefit to the Banks, it is stopped. Issuers which invest in using the service will receive benefits that can be passed to consumer.

Oddly enough the danger in this approach is for Visa and Mastercard. As Issuers work with Google and Apple directly, it provides them an opportunity to end-run V/MA and define their own rules for CP/CNP, as well as Tokenize their existing portfolio and gain access to data.

Mobile Auth and Payments – Today

The scenario on biometrics and tokens is happening today… Apple’s new iPhone will have both biometrics, a secure enclave, and  patented Point of Sale Interaction. Host Card Emulation has evolved so quickly because Banks were told by Apple that they would have to pay for their cards operating within Apple’s scheme. As I outlined in Token Acceleration, the Banks responded by telling V/MA “we are not going to let our Cards operate under an Apple Patent… you guys killed our TCH project and said you would own this… so are you owning it or not?” Hence we have this Press Release.

The networks are committing a fair amount of brain power here. Clearly the benefits and control of a token led scheme will flow quickly to issuers unless there is a solid process to lock up the token standards and token translation. For example, assuming V/MA certify an HCE scheme that provides for “transparent” EMV compliant Paypass transaction.

This is why NO ONE has seen the token spec… and why it is not evolving as quickly as hoped. Not only must V/MA/Amex make the Spec functional, they must also work to control the token creation, authentication and routing rules. Arrggghhh…

Big Picture Thought

What we REALLY need is a payment network where risk and data can be owned by non-banks (selectively). This was my input to the Federal Reserve, and the driver behind last week’s post Risk: Carving it up in Payments.  Real time payments is not holding up innovation, the ability to take risk and manage it is (just as it is in our economy). While I believe Ross Anderson’ view that Authentication is the key to value, the dumb pipes are all owned by non-aligned Banks.

What if American Express created a new payment network that allowed for merchants to selectively own risk for clearing? In this model, Amex could operate as charge card, Bank, prepaid card, or link to another banked account. Merchants could assume risk depending on consumer history, payment type, purchase type, reputation, … Some merchants would choose to allow the consumer to decide. Others (like Grocery and WalMart) would encourage the consumer to choose the lowest cost instrument (selective settlement risk), or even change their relationship (banking, data sharing, … ).

If the value of authentication and the value of “payment” is not in settlement and risk but in the attribution, then we must have much more flexibility and consumer participation.What will glue together these new Value Nets?

 

Apple Services

 

Rewiring Commerce: Four Phases

18 Feb 2014

One my most often repeated lines is mobile payments are not about payments.. but about everything else. We have no payment problems today. When was the last time you left a store without your goods because the merchant doesn’t take your form of payment? Payments are the easy part, and experience has shown that it takes a VERY VERY long time to change consumer payment behavior (20 yr plus, see my blog on Behavior Change).  My personal bets are all around mobile’s future role in commerce….  I call it Rewiring Commerce (previous Blog).

As an engineer I like to take a control volume approach to systems. To some extent, marketing is a measure of inefficiency… heat or friction in a mechanical sense. Marketing spend makes up almost 19% ($750B) of total US Retail sales (around $4T), with most of that spend untargeted and non digital. Even these astounding numbers do not begin to touch the total opportunity in Commerce Efficiency (ie  transportation costs, spoilage, mark downs, discounts, and inventory write offs). Rewiring Commerce is much more than Apple’s beacons talking to you when you shop, it’s about how local suppliers/producers could meet needs locally, providing manufactures with tools to better estimate demand (eliminating waste and transportation), mass customization,  resource optimization, value orchestration..  yada yada yada.

Who is impacted by rewiring commerce? Everyone that buys or sells. What is key? Data, trust, identity, platform.

rewire impact

I see disruption of Commerce (ie rewiring) occurring in 4 phases.

rewire commerce phases

The First phase of mobile commerce disruption was focused on improving information flow (ie Showrooming).  Second phase is underway, experimental and highly fragmented with one my favorite companies being Blue Kangaroo. In this phase there is context to the mobile interaction without the consumer’s direct input. This is where Apple’s beacons will play (see blog Apple and Physical Commerce earlier this month).  Perhaps the best categorization of Phase 2 is in shopper marketing from Booz & Company.

shopper marketing

Third Phase: Intent

Theme here is consistent with a physical world version of Google’s search word marketing advantage. In this phase retailers and manufacturers work to influence your behavior before you are in the store (as opposed to in store beacons in phase 2). One of the start ups I’m incubating is focused on helping any company purchase intent information.  For example, when someone turns their car off in a mall parking lot they may be intent on shopping. Or when you buy suntan lotion you may be intent on a beach trip. Google is light years ahead of everyone in physical intent… why do you think they want to put up all those free wi-fi hot spots. But their information is extremely limited.. much more location based than behavioral.  In this phase retailers use their consumer insight in combination with others to provide relevant information to specific consumers.

 

In order for consumer adoption to take place there must be real value. Value requires:

  • knowing the customer (historically),
  • knowing the customer now (intent),
  • having the ability to touch the customer before they shop (publishing),
  • trust (consumer permission),
  • ability to run an advertising campaign,
  • ability to target consumers based upon insight,
  • ability to track consumer behavior after the campaign (redemption/purchase)
  • tracking requires ability to work with retailers

Yep.. that is a long, long list. What companies can do this today? Google, Apple, Amazon and Facebook.. with Google and Amazon 3-5 years ahead.

There are several strategies at play here today, but the biggest challenge is in obtaining real world intent. Several “Omni Channel” plays leverage online intent to create off line behavior to get around the real world data challenge (only if the consumer starts online).

  • Platform: Amazon, Apple, Google, Facebook
  • Retailer Focused: Square, Amex/Loyalty Partners PayBack Card, OminChannel, Paypal
  • Big Data: IBM, …
  • Big Government: NSA (meant for a laugh, please don’t add me to Echelon/PRISM)

Third Phase Summary

In this phase the Retail environment is not changing substantially, we are better using mobile to interact with consumers within the current retail and advertising constructs. Junk mail and random push messages are gone. Consumers are choosing to “trust” entities that consistently deliver RELEVANT VALUE. Services will be focus toward affluent consumers, as the focus of value will be around discretionary purchases. As efficiencies improve, we will begin to see a massive shift in advertising spend toward digital channels and specifically mobile.  The key for mobile monetization will be in Consumer Identity Arbitrage.. with Apple’s framework the clear leader.

Fourth Phase – Value Orchestration

I discussed this in Value Creation and Distributed Innovation, Static Strategies and the Rewiring of Commerce and in Future of Retail.

In this phase we will see real world changes to how Commerce is conducted, including: store formats (footprint, layouts, inventories), advertising, online/omni channel, customized products (by region and individual), local sourcing of goods, new intermediaries, brokering of: trust, identity, anonymity,…..etc.

Retailers and Mobile Network operators will begin to translate their distribution and data advantages into new platforms. Big data will be used to project your behavior, and recommendations will be targeted to you. I’m not going to go into much detail here, as this is where most of my big bets are…..

This is not a good wrap up.. but I have work to do.

Next Blog: Targeting and Attribution

Commerce and Banking – What is the Difference?

21 Nov 2013

Warning… long blog.. random unstructured thoughts

This is the question I came up with in a lunch chat with my friends at Omidyar Network and not exactly something I can adequately address in a blog, a book, or a lifetime.. but hey some idiot like me may as well throw it out there.

Why am I asking this question?

My investment hypothesis is that Banking and Commerce will be undergoing a fundamental rewiring. Therefore I’m wondering who the winners will be? What needs to be built? What are the signs that progress is coming? These are my selfish drivers.

On the altruistic side, how can we massively expand the global economy? Enable millions of businesses and billions of consumers to participate in the world economy? Within emerging markets, which is more important to invest in? Banking or Commerce (see blog Expanding Global Economy).

Where am I coming from? Network View

Well I’m certainly no economist, but I do know a few things about networked businesses. How are Banking, Commerce, Society, Government influenced by network effects? How has it evolved?

One of the most influential books I’ve read on this topic is Weak Links by Peter Csermely (viewable on Google Books here). If I had one book for you to read during the Holidays this is it. This book is tremendously arcane, detailed, technical, deep.. but I guarantee you that you will have a new view of commerce, banking, advertising, social networks, payments, and society after reading it. Example below on Peter’s insights into how the creation of money altered society, established “weak links” and Capital Markets (p 263)

weaklinks

Wow… just when I thought I knew everything about payments. The advent of money led to the development of concept of PERSONALITY!? (Certainly a new way of thinking about networks). The idea that increasing use of money drove new social and economic structures is obvious; less obvious are the connections formed, the “weak links”, beyond the flow of funds: non monetary data, relationships, reputation, …etc. I prefer to think of this “personality” dynamic, within weak links, as behavior (as influenced by Malcolm Gladwell).

These “weak links” represent the world’s most complex network, and this network is going through a FUNDEMENTAL change as communications networks have greatly improved the efficiency of network creation to a near frictionless flow information. There are 2 fundamental questions for me here:

  1. What is the cognitive limit to networking (ie. associations, data, ..etc)? and what are the tools to improve them (ie Platform which I will cover later), and
  2. How do we connect the unconnected?

Most surprising to me, within Peter’s work, was the idea that scale free distribution (completely open networks) is not always the optimal solution to the requirement of cost efficiency. For example, Peter states in his book

in small world networks, building and maintaining links between network elements requires energy…. [in a world with limited resources] a transition will occur toward a star network [pg 75] where one of a very few mega hubs will dominate the whole system. The star network resembles dictatorships in social networks.

Therefore, there is a case to be made for specialization and “semi open” networks when it comes to COST efficiency. Logically, the boundaries for star network size are associated with the value of connection exceeding the cost.

Given the complexities of weak links discussed above, we can see (from a networked view) why managed economies (like the old USSR) lost to social structures where dynamic networks could be formed on value.  We can also see how consumers at the bottom of the pyramid are more heavily influence by the the few links they have (ex social programs, corrupt dictators, populists, …etc).

This all leads to a question for us, as a society, where should we try to “centralize” services and functions? Would it be better to provide the tools to “connect” and educate the mass market on how to discover services (ie value, reputation, price, …)? Or force everyone into a network with no other options? (Sorry for the Healthcare tangent).

Star networks naturally occur, but they also occur artificially. Banking has both dynamics, as connectivity and strong links are required for efficiency. Banking System’s network dynamic is also strongly influence by regulation that manages the connection and the information flow. What would an unmanaged banking system look like? This is what we see today in BITCOIN.

US Bank regulation impacts participation, services, value, location, communication, … etc. In a world of free information flow, should consumers have a choice? What choices should they have? The need of government is to track financial information for the purpose of taxes and management of economic activity. The need of consumers is to connect to the economy efficiently.  Thus star networks exist both as natural (self organized communities) and unnatural (regulated services, dictatorships) phenomena.

How do consumers select a Bank? Well back in 2006 we commissioned an analysis and found that branch location (convenience to home/office) was the number one factor in consumer bank selection. In the last 2 years we have seen a SEA CHANGE as US banks now work to thin out their branch network. Many drivers here, but it certainly doesn’t help that the fee restrictions from Durbin led to a consumer banking environment where the bottom 40% of consumers are no longer profitable (see Future of Banking).

Where are these bottom 40% going? Pre-paid (see Bluebird). Although Banks don’t want the bottom 40%, they also don’t want Walmart to succeed. Retailers like Walmart love these consumers, as they are their core. Banks products are becoming “banking lite” services productized and sitting on a retail shelf to buy. Pre-paid “specialists” have thus materialized, and established players hate the idea that consumers will to think of bank services in this light (a product which can be bought.. and switched). Of course it makes sense to ask your regulator from protection against consumer choice, but this is certainly not to benefit the consumer.

How do consumers select a retailer? Not all commerce is retail, and I can’t possibly do justice to answering this question. The CEO of Safeway also outlined how 80% of any given Store’s customers were within a circular proximity of his stores, and that store location was driven by density/competition/demographics.  However, this is convenience selection process is NOT the dynamic with Amazon or Walmart. It would seem that the value of connecting to Walmart and Amazon is different for certain population groups. (see Future of Retail).

Quantitative Data

Big picture first. How can we measure “networks”? Perhaps the real question is what are we trying to find. We could look for efficiency of the network itself, or the financial health of the nodes, or the scale (number of nodes). The last one makes little sense as everyone participates in Commerce and Banking to some extent.

With respect to Banking and Networks, NYU’s Thomas Philippon published jaw dropping research detailing how Payments and Banking are one of the few network businesses in the HISTORY OF MAN to grow less efficient (rail, telecom, energy, …). Consumer banking examples are plentiful: is how can the banks justify paying 0.2% interest on your savings, but charge you 15% on your card? (See Future of Banking: Prepaid..?). Obviously regulators are protecting bank margins, with some Bankers ACTIVELY discouraged from rate competition. This is the DEFINITION of regulatory capture (regulators DISCOURAGING philippon_newfig1consumer competition).

Commerce is far too broad to generalize. It encompasses manufacturing, services, retail, infrastructure, rules, codes, …etc. Logically improved information flow should improve transparency, improved transparency should lead to improved consumer choice and growth of specialists focused on serving ever smaller niches of demand. We certainly see this dynamic today in HighTech manufacturing (Cisco, Samsung, Apple, …), US capital markets, telecommunications, professional sports, ..etc. How can we measure this? One of the best scholarly articles I’ve read on networks and global commerce is from Humels, Ishii and Yi (See paper as published by US Federal Reserve). From the abstract

Using input-output tables from the OECD and emerging market countries we estimate that vertical specialization accounts for up to 30% of world exports, and has grown as much as 40% in the last twenty-five years. The key insight about why vertical specialization has grown so much lies with the fact that trade barriers (tariffs and transportation costs) are incurred repeatedly as goods-in-process cross multiple borders. Hence, even small reductions in tariffs and transport costs can lead to extensive vertical specialization, large trade growth, and large gains from trade

From a Commerce (Manufacturing) network view, over 30% of export growth was fueled by network effects associated with specialization. These effects (growth) were highly correlated to trade barriers (ie, network friction) and  infrastructure (payments, commercial banking, transport, logistics, communications, …etc).

How has information flow impacted Retailers? Net Margin in retail has taken a nose dive (from 4.2% in 2006 to 2.8%, see data by industry from CSI market). Retailers have no one to protect them from the forces of competition (ie Bank regulators) and therefore have a much tougher job as they work to sell commodity goods at the highest possible price, in a world where they don’t know the consumer’s name (see Retailer CRM).  It seems obvious that data transparency (ex show rooming) and new networks provide price and reputation information and that consumers are changing behavior.retail margins 2

Commerce and Banking

Summary: the only difference between Commerce and Banking is REGULATION. Banking is a highly regulated activity…. Commerce is not. Providing access to financial services is a much harder problem to crack because of local regulatory hurdles (see my notes on MPesa and Reaching the Unbanked).

If commerce, networks, banking, government and society are evolving how SHOULD we change our artificial structures (ie regulation, government, …etc.) to support? Have we reached an apex where the pendulum will swing quickly from centralization to hyper democracy? And hyper capitalism? Where SOCIETY creates and evaluates rules which are established based upon their aggregate network effects, not on lobbyists, politics and junk science?

The most immediate areas impacted are those networks that do not deliver value, as barriers to entry and switching costs are overcome value and scale of alternative networks and new business models. 200 years ago we could walk into our local country store and ask the shop keeper to put our purchase on our account. We could barter for goods and services.  Today, the regulatory hurdles for a store to provide this simple service are substantial.

Banks, manufacturers, retailers, service providers are all capable of issuing credit based upon identity, reputation, history, use, …etc. A home builder could take on the ability to sell, lend, lease and repair a home. Yet the enormous regulatory requirements on selling, lending, leasing inhibit the viability of this vertical service integration.

With respect to payments, as my friend Osama outlined to Tim Geithner, what if the future of payment profitability was driven not by interchange, but by the flow of data? What if Apple were to give away new iPhones, with free connectivity, with the provision that they share data on preferences and behavior? This is NOT some future state, these discussions are happening today. We tend to view these discussions in context of the companies, products and structures that exist today (ex. how could Visa enable this?). Yet existing networks have proven an inability to adapt, as they were formed around an existing value proposition in which each node became “attached”. If you change the core service, you change the entire network.

The inability of other networks to adapt is FAR less concerning to me than regulation that will destroy innovation and create artificial PROTECTIONS around existing structures. In the example above, what if the government mandates controls around PII making the prospect of free phones and free data non-viable. Who wins? Consumers gain increased protections on their PII, but loose a service. Should they not be able to make this trade themselves?

Another example is Prosper in social lending. A great example of innovation which was “guided” by the SEC to become a securities dealer (see Wikipedia, Crowd Sourced Credit, and my blog on Reputation). Now every loan must be registered as a security (see example) . This may be the right thing for us to do as a society, transparency and auditing are valuable functions which increase the flow of capital and efficiency of a market. But must we be required to submit to these regulations when we want to take on another type of risk? Having the government certify “accredited investors” or “accredited borrowers” may be best as an optional service that must prove its value.

In the emerging markets we see the MASSIVE success of MPESA. With few exceptions (Philippines, PK, Colombia, Peru, Ghana), we see every other country working to ensure this DOES NOT happen in their market. India is at the top of my list of offenders, where entrenched bureaucrats and regulators work to protect domestic banks at every level, regardless of the potential macro economic benefit (review IMPS for example).  Beyond banking the same dynamic plays out in Commerce as well capitalized companies like WalMart are hammered for making unapproved INVESTMENTS in infrastructure (see WSJ).

Clearly the pain point is around banking, but it is not something that banks alone can address as they themselves are regulated, it is a regulatory issue (see US Payment Innovation and Regulation).  Europe has done a fantastic job addressing the regulatory issue (within the ELMI construct, SEPA, …etc.), their problems are around nanny state consumer protections and EU rules do not make their way into domestic law or regulations. A government that protects against everything, inhibits free association, consumer choice and the assumption of risk. (now I sound like Milton Freedman).

“Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.”
― Milton Friedman

“Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government– in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.”
― Milton Friedman

“The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both”
― Milton Friedman

Platforms

Just as use money enabled a specialization and concept of “personality”, telecommunications is opening up a new world of free form association, both business and societal.

Open Source is a model most of us are well familiar with. (further reading… I ran across a very nicely done paper from 2 MIT students: Implication of Open Innovation and Open source to Mobile Device Manufacturers).  Given that mobile, advertising and payments are all networked businesses… business models supporting distributed innovation should advance at a faster pace than those controlled by a single entity. For example, Amazon, Samsung, Motorola, LG, HTC, Verizon, ATT, Vodafone, .. all make much larger investments in the Android platform (than in IOS). (I would love to see an analysis of combined capital investment in android platform)

From my blog Stage 4 Value Shift

…this distributed innovation hypothesis is NOT playing itself out (ie Apple). Apple’s 1Q12 showed iPhone revenue alone was $24.4B, which is bigger than all of MSFT revenue combined.  Analysts have shown that Apple now garners 75% of mobile handset profits, with only 9% of handset market share.  So while Samsung alone has outsold Apple in Units this quarter (41M vs. 32.6M), and Android just topped 50% market share (vs Apple’s 30.2%).. Apple’s handset business PROFITABILITY dwarfs that of all of the competition (COMBINED).

So… What are the factors of competition today? Can someone else change the game?

The big downside in distributed innovation is complexity, there is a need for a “channel master” or chaos reigns. Many Android users witness this chaos when an app won’t work on a new hardware/OS combination.. Distributed innovation is not something that established businesses are good at. It has proven most successful in product PLATFORMS where the pace of change in each component is changing at a rate where no one company can make the capital investment to remain competitive (ex. Moore’s Law, PC architecture through present day). Intel played a very important role in this process, as it worked outside the scope of the CPU in areas such as: Intel Architecture Lab (IAL, developed common standards like PCI),  stimulated external innovation (developer training, testing, Intel Capital), industry marketing, patent/licensing. Intel defined what the PLATFORM was.. something that is common sense to us today.. but rest assured it was not given to them, rather it was something that they stepped into and took leadership of.

From Delivery to Discovery

Commerce and banking have many effective platforms to coordinate supply chains and payments. Today the nature of commerce competition is on quality, price and distribution (delivery). What if the nature of competition shifts from delivery to discovery? Shifting the model by which “weak links” are established today.  Today an individual must sift through mountains of search results and travel sites to find the best deal. We see complete garbage in banner ads and TV.

Who can proactively help you form networks of value, and expand how consumers manage their network, identity, personality? Most would agree that Google is best positioned here. I’m also very excited about the prospects of a company I’m incubating in this space. Ok.. this is getting off track quickly

Summary (I just finished reading a few of the federalist papers last night.. so pardon in advance).

The key for global economic growth is allowing individuals, and companies, to assume risk. The lines between Commerce and Banking SERVICES should blur, and start from the Commerce side as regulated intuitions have an unfair advantage in their protection. New networks provide for free form associations, and will improve in their ability to organize as platforms mature. These networks are capable of higher forms of risk mitigation, but are throttled by bespoke institutions and regulations.  Bitcoin is perhaps the best example of a disruptive force to hit banking. Europe is proving to be a role model in banking regulation, but their innovation in financial regulation has been offset with a local enforcement and complex environment where consumers cannot assume risk.

My message here is for Governments and regulators as much as it is for innovators. We must allow consumers to make decisions for themselves, and avoid regulating every behavior or government centralization and control will tend toward tyranny that is unaccountable and unchangeable.

Reputation – Commerce Implications

9 January 2013

I’m sitting in NYC waiting on my plane..  thinking about reputation, not only explaining the importance of a “good one” to my 12 and 8 yr old boys, but also thinking about its broader importance in commerce. Where do I have reputations today?

  • Commercial: Bank, Credit Bureaus, Card Issuers, Local Merchants, Employers, Customers, Suppliers, Amazon, Linkedin, eBay, Blog, Google, …
  • Community: Friends, Neighbors, Schools, Church, Organizations,
  • Personal: Hospital, Government, Police, Government, Friends, Colleagues

Throughout history reputations were 100% dependent on relationships. These personal networks were the primary conduit of reputation information.  Financial services have benefited greatly, over the last century, from improvements made to reputation portability and standardization.

In this modern era, eBay offers many lessons in relevance of reputation, demonstrating what great things can happen when tools exist to manage it.  There are also many negative lessons here. For example in 2004, eBay launched into China. Prior to launch eBay’s risk organization wanted to keep the China community separate from the US. Community separation was a logical recommendation given that reputations take time to build, and dependent on community context. In the US buyers and sellers work for years to build trust and “confidence”. Reputations forged by self-dealing, or other fraudulent practices, were ferreted out. Unfortunately Meg didn’t want this community separation… she wanted one big community.  Within weeks Meg saw the downside of operating these 2 together, as fraud shot through the roof..  thus separating the communities and opening the doors for other competitors (See this Stanford University Case Study).

Reputation has a very strong societal and community context.  I told my sons that a Chef with a great reputation in New York or Paris means something completely different than a great Chef in a community of cannibals (… well it made them laugh). Markets hold people and money accountable, and the ability to measure and convey a commerce reputation is critical for network growth and efficacy. Banks have long held a central intermediary role in commerce as both a “reputation authority” and a manager of the corresponding risk. For example, letters of credit (LOC) are an instrument extended to a supplier receiving an order from an unknown buyer. After all, receiving an order for 100,000 widgets from a known buyer carries a far different weight that one from one that is unknown. Thus an LOC reduces the risk to the supplier by allowing money to be held by a 3rd party bank while the order if fulfilled.

Another excellent reputation example is in serving the poor at the base of the pyramid. In 1976, Muhammad Yunus created the concept which led to Grameen Bank, a success which resulted in the 2006 Nobel Peace prize (see Wikipedia). Muhammad recognized that lending must be tied to a reputation which is critical to maintain: that within the local community. The Grameen model lends money to a community group, whose individual members are mutually responsible for the loan. This is a fantastic model. What further opportunities could exist if participating individuals could expand their reputation outside of the community?

Modern markets have demonstrated that improving the portability of reputation expands the capital attracted to that market. For example financial markets expanded by specialists operating in a securitized model where risks could be aligned to capital. In retail banking, local markets evolved from local banks to national. Each bank could make rational decisions on where to participate and specialize in this market.

In business-business commerce reputation is a critical factor in the success of JIT inventory, virtual supply chains and vendor managed inventory. Few companies would be willing to let an unknown participant into their network. In the online world, eBay and Alibaba have done a tremendous job building communities around reputation. Wouldn’t it be nice if you could take your reputation with you? For example if Prosper or Zopa could get through regulatory hurdles (see here on their issues), lending could be done in an ad hoc community of investors without a banking license.  Commerce would be done based upon your community reputation (eBay/Amazon), and risk would be managed through non financial data from retailers, facebook, MNOs, …

Unfortunately few of the holders of your reputation are incented to share it (in a positive sense). Few people know that there are roughly 4 times the number of negative credit bureaus as there are positive. In other words, every bank and supplier are willing to share their negative customer information (ie didn’t pay their bill), very few are willing to share their positive customer information. In most OECD 20 countries, positive bureaus are not the result of commercial initiative, but rather a legal or regulatory one (Wikipedia Equifax).

In the US we have more of an aggregation problem.. how do we manage multiple reputations. In emerging markets the problem is much different: How do you build any kind of reputation? One of the first problems to crack is identity. How do you assign an ID that sticks? We see many government initiatives around National ID, but this takes time. Is there another number or ID that we could use in the interim? It certainly seems that a cell phone number makes the most sense given its global penetration of 5.3B consumers (75%+ of the worlds population). Could emerging market carriers enable an opt in “reputation” consumer service?

I’d love to see a few companies work toward this end.

In the US, I’d love to see a consumer service that just measures my reputation in all of these places (beyond banking).

Sorry for not finishing this blog cleanly…

 

 

2012: Remaking of Commerce and Retail

Unlocking the “commerce” capabilities of mobile will reshape the $2 Trillion advertising market and $14 Trillion retail landscape, as new customer shopping experiences are created which leverage consumer data. 2012 will be a key year where retailers, mobile operators, handset ecosystems, banks and consumers make choices which will affect outcomes in future years.

8 January 2012

I’m recovering from a nice Holiday.. successfully marrying of my only daughter.. keeping a smile on my wife’s face (most important) as well on those of my children. I never thought all of that family time could make me look forward to work..  Many of my bank friends seem to be making new year’s resolutions to do something different and I’m fortunate to have them share their opportunities. What are the really big opportunities?

For those that read my blog.. I’ve been very locked-in to the concept of value proposition, and the challenges of creating a new “network” for exchange of value… with my often repeated “every successful network begins with exchange of value between at least 2 parties”. In addition to sharing ideas on new opportunities with former colleagues, I’m also about to take a trip to the Far East to meet with institutional investors.  In Asia, I’m preparing for discussions which will be focused on: What are the REALLY BIG opportunities out there?  Where are the sustainable bets? Where are the risks? My bias in this new year is Commerce.. and the influence that mobile will have in reshaping it.

My Investment Hypothesis:

Unlocking the “commerce” capabilities of mobile will reshape the $2 Trillion advertising market and $14 Trillion retail landscape, as new customer shopping experiences are created which leverage consumer data.  2012 will be a key year where retailers, mobile operators, handset ecosystems, banks and consumers make choices which will affect outcomes in future years.

In the US alone, we spend over $750M in marketing. Any guess how much of that is “targeted” to a specific consumer? Less than 10%.. !!

It’s not that top advertisers don’t WANT to target, but that they have no Platform to do so in the Physical World. In the virtual eCommerce world, there are many facilities for engaging influencing, incenting and paying (for performance). Data is shared from the first click… to the point of purchase across many intermediaries. In the physical world, life is much different. For those interested in this space, let me strongly recommend reading the Booz Shopper Marketing paper (just fantastic).

$14T of retail represents over 22% of the $61T global GDP.. How often do we get to talk about rewiring 25% of the global economy? This is why I’m so high on Google right now. Google currently gets only $14B of the US $750B in marketing spend, and is making strong inroads to the physical POS.  (please see my legal disclosure above).

As I’ve stated before, Retailers are frequently assumed to be a bunch of back water idiots.. as a former banker I admit my mistakes…  this simplified view of retail could not be further from the truth..  Retailers are on the cutting edge of competition. Competition drives data based decisions, customer centricity, daily focus on margins (as they are razor thin) and a toughness matched only in professional sports.

Retailers had to be tough and innovative… after all how do you sell a commodity on more than just price? This week’s WSJ story on Best Buy perfectly illustrates the challenges ahead for many retailers.

“I will buy it in your store…use it while I order another one for 75% less on Amazon and then return the new in the box one at your store,”

The mobile handset is uniquely capable of serving as a bridge between the virtual and physical world.. giving individual consumers access to unlimited information while they shop, not JUST price transparency, but information on quality, fashion, community reviews, availability, AND the opportunity for merchants and manufactures to reach the customer in the buying process BEFORE AND DURING their shopping experience.

What companies have the platform today? Amazon, Apple, Google, eBay, Visa.. all have elements, but the value propositions of each are widely disparate. If Commerce is to be remade, there must be a new value proposition to manufacturer, retailer and consumer. Notice I left out banks..  The problem with virtually every platform on the list below is that they have started life as bank friendly.. which destroys their merchant value proposition. Groups like ISIS are focusing on payments.. and not on a larger mobile value proposition (focusing on advertising for example, also see ISIS: ecosystem or desert).

How will commerce (and retail) be remade? I have no idea… but this will be the year which we see platforms start to gain momentum. You can guess what I’m telling my bank friends…..