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

Visa – New Mobile Payment “Rails”?

Word on the street is that Visa is set for a major mobile payments announcement in next 6-8 weeks. Separately, US MNOs are also rumored to be collaborating on Near Field Communications (NFC) payments with acquirers. Could it be that the log jam on NFC is about to be broken? Is Visa developing new rails to support mobile payments?

25 November 2009

Word on the street is that Visa is set for a major mobile payments announcement in next 6-8 weeks. Separately, US MNOs are also rumored to be collaborating on Near Field Communications (NFC) payments with acquirers. Could it be that the log jam on NFC is about to be broken? Is Visa developing new rails to support mobile payments? Let me say up front that this blog represents “connecting the dots” more than a definitive market projection.

The US market is ripe for a break from the 6 party political “fur ball” that is hampering delivery of mobile payment (Card Issuers, Acquirers, Network, Merchant, MNOs, Handset Mfg). For those outside the US, MNOs have substantial control over handset features and applications, and have been leveraging this “node control” to “influence” direction of payments. The central US MNO argument being: “it is our customer, our handset, our network we should get a cut of the transaction rev”. Unfortunately existing inter-bank mobile transfers/ payments are settled through existing payment networks that provide limited flexibility in accommodating a “new” MNO role and the network rules leave much room for improvment in: authorization, authentication and consumer “control”. 

Outside the US, the situation is much different, as consumers have great flexibility in switching MNOs, have ownership of their handsets, and are largely on pre-paid plans. The MNO challenge for payments in this environment is largely regulatory. Many countries (EU, HK, Korea, Japan, SG) have open well defined rules for MNOs role in payments (example: ECB ELMI framework within the EU), while other countries are highly restrictive and are in the midst of developing their legal and regulatory framework. Even in the countries where MNOs participation is defined, they have largely benefited from the complimentary role that the service plays with pre-paid plans (not in interchange at POS).

Globally, MNOs are looking for a payment platform where they can benefit from interaction between consumer and merchant, with flexibility to deal with a heterogeneous regulatory environment. The competitive pressures on Visa/MC are much different then they were 5 years ago (when both were bank owned). The network fee structures and rules were written with banks and mature markets in mind. Emerging markets present a much different set of opportunities, as MNOs lead banks in brand and consumer penetration within every geography.

All of this leads to the case for a new “Mobile Payments Settlement” network, a network which will alienate many banks. I expect to see Visa roll out the initial stages of this network in the next 2 months with an emphasis on NFC. Quite possibly the best kept secret I have ever seen from a public company. I’m sure many Silicon Valley CEOs are crossing their fingers (with me) on this, as a “new wave” of innovation is certainly close at hand that will drive growth (and valuations).

For those not keeping up with the 50 or so product announcements a day on NFC, handset manufacturers committed to have NFC enabled phones to consumers in mid 2009 in the GSMA 2008 congress. NFC capabilities are numerous (Vodafone YouTube Overview), and may represent a true disruptive innovation surrounding payments. There have been many very recent product announcements that will enable existing phones to use NFC, and P2P Capability. All of which will blossom in a more “fertile” mobile settlement environment. See one example “future” Visa mobile service here: http://tomnoyes.wordpress.com/2009/09/24/googleoff/

Side note: This is not all bad news for Banks, as the structure will certainly provide for existing cards (debit/credit) and may deliver substantial revenue through cash replacement (small < $50) transactions. More details on structure of MNO in settlement 2 weeks….

Select Product/Alliances Below:

[youtube=http://www.youtube.com/watch?v=2AmeM33r7wM]