Looking back at the history of the Internet and successful categories emerging, we have always seen a parallel commoditization of pieces in the ecosystem in each of those emerging categories.
Instant access to information and ubiquitous connectivity has helped to drive innovation on top of new categories like e-commerce, social networking and within these major categories allowed to establish niche plays.
Early entrants in new categories sometimes fail to recognise the power of a network and hold on for too long on the early mover advantages. Trying to defend the inevitable; the democratization through networks, which leads to the building of a level playing field, where connectivity and access is a utility and innovation utilising the connectivity and the delivery of problem solving solutions become the value drivers.
Looking at the Online to Offline Commerce Category from the Daily Deal perspective, we currently have a fairly stale model that is driven by two early entrants (Groupon and LivingSocial) and you see hundreds of “me too’s” trying to succeed with a business using the same building blocks as the market leaders, who at the same time defend their position vigorously.
In contrast, Amazon and Facebook have recognised the importance of participating in developing an ecosystem and rather than defending data, they started to share data and open up infrastructure.
Facebook’s core value is derived by the aggregation of connections and the effect created by these social network connections, rather than defending their position and creating a monolithic structure, they created the Facebook platform with Open Graph, API’s to access and utilise the information across any application. In addition Facebook Connect transported the user’s identity to other applications. The result after these changes was an accelerated user growths curve across the world. The Facebook Developer Platform was launched on May 27, 2007, a point in time where Facebook had about 30 million users and about a year later we have seen the impact of the open platform with an accelerated user growth for Facebook around the world to today 800 million users.
Offline data needs to be “freed” and turned into a utility to drive more accountable Online to Offline enabled commerce transaction. We will need the current closed structures to change and break them into data consumable bits. Our society has changed perception of what is acceptable private and public information, we will need to get a similar paradigm shift in retail and consumer commerce data provisioning. The democratization in this process has different options, as we have two parties at the table; the merchant and the consumer. We may see some sharing resistance from either party based on the data topic, but the establishment of companies like Offermatic, Truaxis and Cardlytics will drive consumer involvement in providing the sales data stream or purchase data, while merchants opt-in with companies that drive models like Zappedy (acquired by Groupon) to gain more insight on consumers behaviours based on the merchant’s processing statements.
The beauty in this waltz is the ability to get both sites to dance and contribute, which I believe will ultimately speed up data availability and will make data access a commodity.
There is a variety of data sets that need to be freed:
1. Data: Consumer Data
Credit Card processing companies hold the data of their merchant’s transactions. The merchant has access to the data and can analyse monthly statements based on customer spend, repeat visits, etc. This data can already be obtained by a merchants marketing partner with the merchant’s consent from the back end processors like First Data, TSYS, Chase Paymentech and others or can be obtained directly from the consumer gaining access to their statement.
2. Data: Level 3 SKU Data
Today merchants and retailers point of sale (POS) and business management systems have SKU level data with rich transaction history and inventory levels. This data can be extracted from the POS in most cases, and some systems today provide an actual data feed. Milo has started to attack this problem and has inventory levels online.
3. Offer Content
Merchant and Brands create various types of offers, coupons and promotions for a variety of chanels. For each online to offline or offline to offline promotion partner they are working with, they use a different process to set up the promotion, how to settle, track and measure it. Access to the offline retail content and offer content should be standardized and the content should be made readily available.
Brands and merchants use a variety of systems to manage redemption, their existing POS, mobile redemption applications, web enabled redemption and card linked redemption. The access to these redemption methods should be a standardized gateway.
Commoditization leads to democratization; some of this data and functionality is already available, other data still needs to be freed. All of the data needs to be normalized, aggregated and made available via a single access point to drive innovation.
The point of democratization is not to kill competition, it’s usually to enable competition and innovation to take place at a higher level than was previously possible. utilising free access to POS data, simplified fully integrated redemption, accessible distribution for offline commerce products and services online will create a level playing field. This will quickly empower application developers and online content providers to increase the discoverability of available offline products, services and events.
The Beneficiaries of Democratization
New entrants will be able to tap into these data streams as a utility and create new products and services that will help the consumer and merchant to find and transact with each other.
Ultimately the readiness of data will bring not only opportunities to new entrants, but will increase the overall market size of online enabled offline commerce and will bring new growths to existing companies ready to help facilitate closer connections between merchants and consumers.
One of the many beneficiaries will be Daily Deal White Label Platforms. Companies like Nimble Commerce, Groupcommerce, Blue Label (formerly Townhog) and Dealised will focus on the online commerce capabilities and data intelligence for their publishing partners. These platforms will evolve into very specialised commerce engines that support online publishers to manage online to offline commerce transactions, analyse user data and as full-service providers fill the experience gap that their large publishing partners can’t fill on their own. The value proposition here is similar to the one of GSI Commerce, one of the largest e commerce outsourcing firms which helps brick and mortar companies to run their e commerce stores. GSI Commerce was sold to EBay earlier this year for $ 2.4 Billion.
Below is a slide from an EBay presentation to Wall Street Analysts and it shows the commerce opportunity at different levels. EBay is preparing to move upstream to large merchants, and the GSI acquisition was just the first step. In order to connect offline and online commerce EBay bought Magento, one of the largest ecommerce platforms today, and Milo a shopping engine that utilizes inventory data from over 140 larger offline retail partners.
The group that will benefit directly the most though are application developers, who will gain enormous capabilities with instant available data connections and will be able to focus on extracting value through their applications for their audience, rather than dealing with building diverse connection points into retail on their own.
The Developing Ecosystem
A majority of the ecosystem is already built. Online commerce has led the way and established a surrounding ecosystem that will gravitate to include online to offline commerce. The next phase is the enabling of the ecosystem with a network. There are hundreds of islands out there, retailers, white label providers, e commerce players, merchant dashboards and all are isolated without connections. Finding the common denominator in online to offline enabled commerce and providing a standardized process for communication of the activation, authorization and redemption for these transactions will be the accelerator in overall growth of this category of online to offline commerce that is ripe for the taking. With a size of 1 trillion in online to offline enabled commerce today, it will just be a matter of time that the market will shift, participate and build an ecosystem that will be the foundation of the future of commerce.
The Rise of the Commerce Network
Before we come to the part where we talk about the tremendous power of the evolving and connected Commerce Network, we have to soften the enthusiasm a little, recognising the very fragmented network of platforms and systems. This is not another Facebook, this is cross platform connectivity and data exchange at a new level. Now the exciting part, the required data to account for online to offline commerce can be reduced to a single, unique identifier.
The Commerce Network will recognise online-to-offline enabled commerce via an equivalent to Credit Card rails, we will see gateways that will slowly connect the commerce islands of the world, one by one.
Participation and connectivity will be easier as more and more of the services are moving to the cloud. The first step is the availability of the data in the cloud, the next step is to open up the data across different cloud services and provide nodes.
Once these connections are made, we will see a rise of what I call the Commerce Network, a new infrastructure of rich data for both online and offline transactions. The combination of the social graph with the new Commerce Network will enable marketers to move the purchase closer to the purchase intent, we will have real time accountability of transactions and with that monetization capabilities for any kind of application that helps a consumer to navigate their offline surroundings.
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