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The marketplace has been a very influential social and economic construct for a very, very long time.
It has been a central concept to commerce all over the world since the dawn of man kind. In time, the marketplace has been refined and evolved to include ever more complex structures. During the past century it morphed from temporarily trade gatherings to large permanent structures such as shopping malls and eventually it evolved into what we now know as the online marketplace.
Ebay, Alibaba, Etsy, Amazon and others have one thing in common – they get sellers and buyers in one place. These online marketplaces are fueled by a business model that has seen a steep increase and proved excellent in the past years. But now, it's time for the next step:
I believe the times they are a-changin', like Dylan would chant. The Online Marketplace is not enough any more. The markets demand something more.
That something is the Functional Online Marketplace, a virtual hub that combines the features of a marketplace (buyers and sellers, reputation management, transaction handling) with functions that improve the lives of either sellers or buyers.
The Functional Online Marketplace goes beyond just letting sellers and buyers trade. It helps the seller run its business better and the buyer benefit more from the product purchased.
And some of the biggest tech companies we know have created this type of Functional Marketplaces. We've used them and most customers love them. We just didn't put a name on it. Have a look at some examples:
Steve Jobs envisioned the PC as a digital hub, a central unit that connects the user's digital activity. From email to web surfing, from music to pictures and more. It than proceeded to create this vision and along the way he built much more.
By launching the iPod and than the iPhone, Apple moved the digital hub inside the consumer's pocket. With such a valuable real-estate in the reach they've had to build a system that shipped music, video and applications from third parties to these devices.
The iTunes Store and the AppStore were born. Apple built the platform to consume apps, the place where customers could download these apps, empowered developers to build these apps but did something else too.
It built Xcode (the development tool for iOS developers), it launched Objective C and than Swift (the programming languages used to build apps) and helped developers create useful apps.
Apple went beyond the marketplace paradigm. Yes, it allowed media and software consumers to meet developers but it also created the platform where they could be consumed and the tools to build them. It built an extraordinarily effective Functional Marketplace.
But Apple is not the only one …
Uber is an extraordinary successful company that connects freelance drivers to those in need of their services. It connects buyers to sellers. It is technically a digital marketplace. And more.
First of all Uber empowered a set of freelancers that didn't know they've actually had a market. The driver app allows drivers to see potential riders and provides GPS-linked functionality inside a simple mobile device.
The functional side of Uber not only improves the way sellers (drivers) provide their services but actually it makes it possible.
For customers, the app makes hailing a driver an easy task, it allows direct payment on mobile phone and brings the comfort previously unattainable. The functional marketplace at its best.
Google is many things. Search giant, mail provider, mobile os developer and robot builder among others. But at its core, the business model is quite simple: Get people to pay for ads. Show ads to customers. Make people click on said ads.
Google ads revenue (billion $). Source
Advertising accounts for 89.5% of Google's total revenue so it's safe to say that ads are its bread and butter.
To achieve these levels of revenue Google has to place together "The Sellers" (Advertisers) and "The Buyers" (Customers clicking on ads). Though customers don't technically buy on Google, those that generate the company's revenue end up as leads or buyers on advertisers' websites.
To do this, Google built its ad market on top of its primarily function: Search. Users searching for information of interest are effectively buyers in the Google functional marketplace.
The marketplace, therefore provides functional support to buyers. The search, Gmail, Android – are all basically functions that lock in the ad-clicker and in turn generate revenue through these types of transactions.
These are just three functional marketplaces examples but they illustrate the concept. To be successful, a newly established marketplace has to provide more than just a connection between buyers and sellers. It needs to provide function beyond the commercial. By improving the lives of buyers and sellers beyond the commercial, Functional Marketplaces provide the type of lock-in and effectiveness previous models don't.
Here we are. The fifth and final part of the guide to starting your online store. It's been a fun ride for me and I hope it hase been fun and informative for you. Before we dive right in, let's take a moment and go through a quick recap of the steps we've covered so far.
As you remember, Part 1 covered planning and finding the right business model. Part 2 was focused on registering your business, finding and negotiating with suppliers. Fulfillment operations and making your back office work were the main subject of our third part and last week we've covered branding, ecommerce software and content in part 4.
Now … it's marketing and sales time!
During this section of the guide you'll discover how to expand your reach through additional sales channels, market your brand and products and finally – how to test the main areas in your online store.
So let's go ahead and have a look at…
First of all – what is a sales channel? The answer is quite simple: any method of getting products to the market so customers can purchase them. For example, your online store (the actual web store) is a sales channel. It showcases products, it tells their price and allows customers to purchase these products.
Let's assume that by now you have already started your online shop. The web store is up and running and customers start showing up. But the web store should not be your only sales channel. Your customers are complex and their habits diverse. One day they're browsing your store, the next they're hanging out on Facebook and meanwhile they search product info on their mobile phone. You should be there also.
You could have your products lined up in a Facebook store. You could build a mobile app that engages customers outside your store and collects orders.
It's not just online, either. Offline engagement shouldn't be a taboo either. Maybe a brick and mortar showroom for your main products is not cost – effective. But you could set up a pop-up shop occasionally.
There are numerous ways you can add sales channels to increase your market reach and some are really easy to set up. Others are a bit more complicated but in the end it's mostly about your product, your brand and of course your budget. Let's see which are the most popular sales channels and how you could benefit from them.
Out of all the sales channels you may choose, one really complements the online store. The call center can be a simple line you for customers to demand information on products.
(Zappos' call center is legendary and effective. It's both a sales and suppor channel.)
It can just as well be a full fledged call center with operators answering calls and helping customer choose the right product, handling orders and managing complaints. It can also mean people calling prospects or indecisive potential customers or just plain cold calling sales leads. No matter the choices you will be making, the phone is a great connection to the customer and you should build a smooth phone support operation.
You could ask – isn't social media more about marketing and communication, connecting and understanding your customer? Yes it is but it can work just as great as a sales channel.
For example – Twitter is testing purchase options (right now with just a few high profile retailers such as Amazon) and ways to drive targeted traffic to stores through offers. Pinterest is also testing options to drive targeted customers to your online store and they do that through their ads. That is great news as Pinterest is more efficient into turning views to sales than any other social network. It works awesome for industries such as travel, home-deco and fashion.
And let's not forget Facebook. Being the largest social network in the world it is a place you should be digging into. For a while, the network was so popular with retailers that a term was coined to split Facebook commerce from everything else: f-commerce. Recently, the company lead by Mark Zuckerberg has focused more on advertising revenues than helping retailers get close to their customers but it is a great channel to study, nevertheless.
There are some companies that will make selling on Facebook as easy as it gets. And if a Facebook store may look like a great option for your store, this involves apps connecting your store to Facebook.
(Shopify, among others, built options for users to connect their stores to their fan pages and sell directly on Facebook.)
On the previous chapter we've discussed the most popular ecommerce software choices. Turns out most of them get some sort of support for a Facebook store by third party apps. Here are some of them:
There you have it – these applications are easy to set up and you can start selling directly on Facebook thus adding a new sales channel. And once you start adding sales channels, you now you have to look into …
What is the device you think customers use the most throughout the day? It's the smartphone. Mobile usage has gone through the roof lately and its bound to continue.
(Number of smartphone users in the US (millions). Source)
So you want to be close to your customers. Mobile apps provide a special sales channel, one that's personal and it makes impulse buying all the more attractive.
How do you add a mobile sales channel?
There's an app for that. Actually more:
Give mobile apps for your store a try. The more smartphones become a part of our daily lives, the more we will use them. Your store can benefit from users that are not strapped to their desktop or notebook. And speaking of that, a great way to interact with customers are the …
Pop up shops are temporarily stores, in the real world, where online store owners can showcase their products and interact with their customers. The pop-up shop sales channel has really taken off recently and store owners have started adopting this online-offline connection.
(Adidas pop-up shop. Not exactly low-budget but hey – one can dream, right?)
Setting up a pop-up shop is a personal choice but works great if it's posted either in a high-traffic area (such as a popular shopping center) or at an industry event. For example you could set up a pop-up shop at a home-deco event if you are a store selling home decorations. It is a great way to interact with customers and get feedback on your merchandise.
Companies such as Storefront help shop owners find retail space temporarily by connecting them with retail space owners. To help online stores they've put together an ebook that is free for download. I encourage you to have a look at it as it explains the main steps in setting up (pup-up) shop.
Last but definitely not least – the marketplaces. Amazon, Ebay, Etsy, Sears, Buy.Com, NewEgg.com and more. You name them. They provide lots of options to lots of users and chances are your next customers are there shopping right now.
( Ebay – the original online marketplace )
The reason marketplaces are the last on potential sales channels is because I want to emphasize just how important they are. Just like the "old" shopping centers, customers go to marketplaces because diversity means options and options mean they can find what they are looking for.
Diversity drives customers. It drives sales. So you want to be there but plan ahead before you dive in.
As an online store start-up you should be looking for as much exposure as you can get but still try to focus on the right marketplace. Amazon and Ebay are the obvious choice but before you join them you have to ask yourself:
Listing your products on all marketplaces can seem like the right choice but it's usually not. Each marketplace is a sales channel itself. You should be sticking to those that work for you and improve your experience there. Until your business is large enough to allow you to handle orders from more marketplaces, focus on fulfilling orders effective and quickly.
Most marketplaces offer some form of integration with your existing store and you should use those. Product information should be going out of your online store and orders should be synced with your order management system. This way, the order management team can have a single point of entry for orders instead of getting lost in a dozen of order management systems scattered throughout the marketplaces you are using.
Marketplace orders will continue to be a large part of your business. So large that they will, in the future, dwarf those from your online store. The reason is people tend to gather and shop where they will find diverse products and retailers. Just like in the real world. Online is even more so – marketplaces get even more traffic from search engines, have more money to spend on ads and are better at keeping customers returning.
Each sales channel you will be adding will bring you more exposure and more sales if handled correctly. The sales channels I've described so far are the most popular ones right now. But they are not the only ones. As technology evolves, so will commerce. New channels will pop-up and some I haven't mentioned here will probably increase in importance.
Think about the impact Internet of Things will have. Maybe in the future the greatest sales channel for groceries will be smart appliances. Think of a refrigerator than can place orders for customers when it's depleted. It sure is going to be an interesting challenge to integrate those in a sales channels mix.
( Omnichannel means connecting all sales channels in a way the customer finds natural )
By adding sales channels you wil turn from an online retailer to an multichannel retailer and if all channels work seamless together you will become an omnichannel retailer. If you want to know what that means – have a look at Macy's omnichannel strategy. And if that is not enough dive into this omnichannel report I've wrote to help retailers integrate their sales channels.
Marketing is one of those concepts that's so hard to understand and yet so overused. Most of the times its meaning is so cluttered by useless acronyms and buzzwords that people have trouble understanding what it actually is.
I am not saying that marketing is easy. It's not. Yet is not the Holy Grail of human knowledge either. It's just communication. Talking, showing, describing products to the people most likely to buy it.
It's that simple. The basics need to be simple.
If you are going to survive as an online store owner, you need to keep your marketing basics simple. You have a product. Hopefully a great one. There are people who want to buy that product. Most don't know they want to buy it from you. You need to show them why they should buy the product you're selling. You need to show them why they should buy it from you. And then, if everything I've shown you so far has been decently implemented, just let them buy it.
Everything else is gimmicks. If you've got the basics right, everything else will fall into place.
To get people to buy your product, you need to know who these people are, what they want and how they act. Most likely not everybody will want your product. But if you've done your planning right, you pretty much have know a lot about your market.
Yup, your customers are "the target". Why is it called that you ask? Well, because your communication targets them. Until the internet became the norm and we've started gathering more data than we can handle on customers, we used to define them through demographics. That means basic info on consumers. Age, sex, marital status, location, education … this kind of data.
( Pictured here: advertising in the 60s. Not pictured here: Google algorythms and tabacco advertising ban )
These targeting methods were made popular when mass marketing was just blooming, in the days of TV, print and outdoor ads made by the likes of Mad Men. When you ran your ad in the magazine or on national TV, you needed to know who's going to use your product, make sure you understand their psychology and shout from the top of your lungs how cool the product is. Once the ad was approved, there was no going back. Advertising agencies would research, create and test the ad before the campaign was launched because there was no way you could change, tweak or even pull back a campaign in real time.
So demographics were the bread and butter when you would push your message to the market. But the Internet changed that into …
Basically, if you were a mid-class urban wife with no college education in the 60's there were slim chances you would receive ads trying to sell you repair tools for your car. Even if you were actually a mechanic. The same would hold true if you were a man and would be looking for a sewing machine to fulfill your lifelong passion of becoming a fashion designer.
You would have to find those products yourself. We've come a long way and thanks God, we now have the freedom to fix our own cars and sew our pants, no matter the gender
That happened when contextual marketing (the ads you might see when searching on Google), interactive marketing (information instantly delivered when interacting with say an website) or behavioral marketing hit the shelves.
The last one, behavioral marketing, is probably the single most important aspect in online retailing. Technology now personalizes marketing and responds to customer behavior.
For example Amazon's recommended products ("See what others have purchased") is a form of behavioral marketing that is based on a complex research on previous customers behavior before they purchased something. Simply put, when people would purchase something, their interaction trail (the products they've seen so far) becomes an indication that people taking the same or similar steps would most likely purchase similar products.
The ads you see on Google feature a similar concept. They are shown as to answer your needs. Some ads respond better than others at what you are looking for and thus have a better chance of getting clicked. Google trusts this system so much that they invoice advertising on clicks, rather than how many people have viewed the ad.
So basically we went from effectively targeting people to targeting people's behavior. Still, demographics and customer profiles are very important and a lot of what you will be doing is to try to guess customer responses based on demographics assumptions. Such assumptions might mean you will favor ladies over men if you are selling women's clothing (doh!) or rather more complex assumptions such as "Men over 32, employed and married are more likely to buy a family car".
Indifferently of your assumptions, test them and always quantify your results with …
Here you go … numbers. Charts. Estimates. Hope Miss N., your math teacher, was your favorite back in school, because this is going to be damn complex. Nah, just kidding. Most analytics software is pretty much plug and play and the numbers and charts I mentioned are usually generated on the fly and in such a manner you can easily understand.
You can't have marketing without analytics and research. Fortunately, it is a lot easier now for a small online store than it was 40 years ago for the largest companies in the world. What is not so fortunate is that it's easier for everybody so you'll have to dive deep and understand what your analytics are saying. So will the competition.
Once you have installed Google Analytics or one of these other ecommerce analytics software, you will probably dive in and see what your customers are doing. What you will want to look for is patterns that lead to increased sales. Special products, a certain type of copy, products featuring media versus those that don't have media. Look for what makes your sales increase.
So you know the target, you have the analytics figures, now it's time for the actual marketing. The web is full of resources to fine tune your online marketing understanding. I will show you which are the most effective ways of marketing so you will have a bird's eye view on what makes an online store sell.
As a startup there are really little things you can do better with smaller budgets than writing quality content and optimizing for search engines. SEO (Search Engine Optimization) is a really large concept and many people earn their living through SEO services. You will probably ask a SEO expert to help you find the perfect balance so your store will show up in search engine results. But before you do that, have a look at the basics. These are the things you will need to keep in check so Google will bring the right customers to your store:
Ask your customers to leave you their email address so you can update them on news and offers. This is a great way to get people right back on your store.
But don't annoy them and don't do spam! Everybody hates unsolicited email. Make sure your customers give you their permission to send them emails. You can use apps such as Mailchimp or CampaignMonitor to save customers' emails and then send them newsletters.
Where would you go if you were to market a product? The answer is fairly simple: where people gather and interact. Social media outlets such as Facebook, Twitter or Pinterest are now used by billions of people. That's where your online store should be.
Just like interacting with friends, some things work better than others. Here are some tips on how to use social media to interact with potential and existing customers:
If your social media strategy is not going the way you'd want it to, there are always the ads. Most social networks provide ways for you to get closer to your potential customers, faster. Most people call them ads . Facebook, Twitter and Pinterest – they all provide advertiser with the possibility of engaging fans through ads.
And speaking of ads, one of the most effective way of advertising your store and products is …
Remember those Google ads I've mentioned earlier? That is Google AdWords, a very effective form of advertising that places ads on search results, ads that are directly related to your search.
For example, if you were to search for "cars", you will be shown the natural search results AND special search ads. These ads are fueled by advertisers that pay each time someone clicks one of their ads.
You can be one of those advertisers. By carefully analyzing traffic and allocating search ad budget, you can determine with high accuracy the number of clicks you need to convert visitors to buyers. Because search ads are contextual, this means you can optimize your ads in such a way that only those interested in purchasing your product might click it.
However, paid search campaigns are usually better managed by professionals. Even though you might spend a little extra for someone to handle your ads, just leave it to the professional.
Performance – well that sounds nice. What is it?
Performance marketing is a broad term that means advertisers pay a fee depending on how well an action is performed. This action can mean showing an ad a certain number of times or making that ad transform into a special action. The standard actions you might want to encourage are:
And because marketing people happen to love acronyms, you might find the info above coded in three-letter words:
Performance marketing is sometimes used interchangeably with affiliate marketing. That is more of a misconception, as affiliate marketing, though popular, is a subset of performance marketing. It works as a shared revenue deal, where the retailer shares a portion of the revenue with the publisher (the one displaying the ad), whenever advertising turns into purchases.
Affiliate marketing is ran through affiliate marketing services, that cover three very important aspects: they connect advertisers to publishers, they make sure all sales are registered and attributed to the right publisher and they handle transactions between advertisers and publishers.
If you decide to go along the affiliate marketing path, here are the most important affiliate networks that can help you sell your products:
A great way to get your product out there is place it in comparison shopping engines. These applications gather information from more online stores and show potential customers what is the best way to shop in terms of pricing.
It basically works for those that are price competitive so before you join such a program, make sure your prices are aligned with the market.
(Shopzilla is one of the most popular comparison shopping engines)
Most comparison shopping engines are CPC based and you will pay anytime people click your products, arriving at your web store. The top four most popular are Google Shopping, Shopzilla, Shopping.com and Pricegrabber. Getting listed can draw targeted traffic and can mean a very scalable way of converting traffic to sales.
So there you have it – these are the most effective ways you can market your new online store. But don't stop here, don't settle. Marketing in the digital world is usually a matter of imagination. Be curious and try new things that might be fit for your online store.
For example you can attract relevant bloggers to mention your store and review the products. You can put out press releases and talk to the media. You can run contests and sweepstakes to increase reach and turn fans into loyal customers. Once you have the basics up and running, you will be ready to add more and more marketing options to your online store.
Remember: your work is never done. If you want to keep your customers happy and sales growing, you need to constantly optimize and tweak your store. To do so you can run tests that determine what works and what does not. When testing you will be looking for either errors, bottlenecks or usability issues. Do so through:
A great way to see how customers interact with your company is drawing customer journey maps. These "maps" show your existing sales channels and how customers interact with them. Customers may find you on social media, browse products on the web store and place orders through the phone. This is a customer journey map.
When these journey maps get too complex you have to constantly test and look for signs of problems of sources of frustrations for your customers. It may be a poorly designed checkout cart or the voice of your phone operators. By understanding your target customers and their journey maps you can have a guide to testing what works and what doesn't on your store.
( A blank example of potential sales channels. By connecting the channels you can draw journey maps )
Testing means improving and you should strive to make your store better and better. Little improvements and constant focus on making the customer experience better turns your store into a success. So keep testing :).
We've got this far. Wow! Testing is the last section in our guide to starting an online store. It's been a great ride and I hope these posts will help you build the store of your dreams. If you've managed to get this far I believe you are ready to start your own store. Give yourself a pat on the back for having the patience to get through all this data. It's not easy, I know, but it is a lot easier than just starting a store and then figuring it all out along the way.
I am more than happy if I've managed to help you on your path to becoming an ecommerce entrepreneur. If this guide was useful to you, please refer it to someone else who may be in the need for know-how.
You've taken a large step ahead to running your own business and online store. You may be anxious and a bit scared but rest assured. So was Jeff Bezos when he started Amazon. Knowledge, hard work, innovation and persistence will get you far. Have a safe trip in reaching out for your dream!
Featured image source. Modifications made to the photo.
Twitter seems bullish about its place in the omnichannel retail arena. After hiring Nathan Hubbard, former Ticketmaster president, the company started seriously developing ecommerce features for its users.
It all started with rumors leaked online about Twitter dipping its toes in ecommerce. The news were soon followed by a “buy now” button tested for a while and a few months back the “#AmazonCart” partnership was announced. The Amazon Cart project allowed customers to add Amazon products to their carts by linking their accounts and adding them to their carts via Twitter.
Twitter now launched Twitter Offers, a way for advertisers to drive social media traffic directly to brick and mortar stores. The process is pretty straight forward or Twitter users: they link their credit cards to Twitter, claim rewards from advertisers and then redeem said offers in store.
As it seems Twitter sees commerce not just online but offline as well. The vision includes online and offline shopping, social media, Amazon accounts linked to Twitter and … payments.
Long story short: everything Twitter has done so far is outlining a strategy where the company targets more than social media. It’s targeting omnichannel retail as a way to increase its revenue. It has the user base and it’s building the payment infrastructure. Its focus and drive may lead it where Facebook failed – setting foot in commerce land.
Think about this – is there actually such a thing as an online customer? Or an offline customer? Or even a mobile customer? Definitely not. Consumers like to skip sales channels and fulfill their goals in the best way possible. Your customer can research for products online, ask friends for references on social media, test them in the brick and mortar shop and finally purchase in the web store. So it makes no sense treating customers as stuck in a sales channel. The Omnichannel experience, where every consumer can use given sales outlets as she sees fit, is now pretty close to utopia for many retailers.
But others are dedicated to making omnichannel a reality for their customers.
“Our goal remains to help our customers shop whenever, wherever and however they prefer, and to use the entire inventory of the company to satisfy demand,” Terry Lundgren, Macy’s CEO
As other retailers are facing declining sales and decrease in customer loyalty, Macy’s seems to be thriving. The company has seen recent increase in sales overall and a sharp increase in online sales (48% in 2013).
How did they do it?
Macy’s has lots of experience in customer service but the digital revolution took most retailers by surprise. Macy’s has dedicated a large portion of its yearly budget to improving customer experience through technology.
The company’s cost of sales rose to $139 million in 2014 second quarter. This increase was caused by “omnichannel business and the resultant impact of free shipping” which means Macy’s is betting big on its customers’ experience.
The results are great. Just short after Apple Pay was announced, Macy’s announced it will implement the technology in all stores. The company already allowed customers to store their coupons on the Mobile Wallet, that could be accessed anywhere – online, on mobile devices or in store.
Macy’s also partnered with Shopkick to increase brick and mortar traffic in its New York and San Francisco stores and now the company is rolling out the shopBeacon technology. The beacons give retailers the ability to push information directly to the consumer’s mobile device. It can welcome shoppers as they walk inside Macy’s stores, send out specific deals and recommendations and can be used as a way to redeem loyalty rewards.
Interactive kiosks were used to improve customer experience throughout brick and mortar stores. The kiosks vary in size and complexity, ranging from simple browse and order applications to more complex features. The “Beauty spot” kiosk, for example, improves Macy’s cosmetics section with an electronic make-up consultant. The system advises potential buyers on makeup and skin products that are best fitted for their needs.
Even store associates are empowered when answering customer needs. The company is now testing mobile and tablet POS that can connect to real-time inventory and offer quick responses to customer needs.
And if we’re talking about real-time inventory, you should know that Macy’s has been working hard at improving cross-channel operations:
In 2010 Macy’s piloted a store-fulfillment program in 10 stores. The idea was that if the company can connect inventory from individual stores, it can manage inventory better. As merchandise was sold sold online, stores would be able to ship orders directly, depending on their inventory levels or allow for in-store pick-up.
The program was a success and the company increased the number of stores that could ship orders. 13 more stores were added to the program in 2011. In 2012, 292 stores were shipping orders. In 2013 – roughly 500. The process will be finally completed in 2014 when all 800 stores will be able to fulfill customer orders.
As these stores began fulfilling orders two things happened. First – orders could be shipped faster, with the ultimate goal of same day delivery, thus improving customer experience. The second big change in Macy’s fulfillment was that using stores meant inventory turnover greatly improved.
With store associates empowered with real-time inventory data, orders began to increase. The store associates could locate items in other stores, and ship that item from that point, directly to the consumer’s requested address.
Macy’s discovered that the nearest store may not always be the best choice to ship the product. Sometimes a product sold in point A could have a really slow turnover so it should be shipped whenever possible. On the other hand, the same product could be in high demand at point B, closer to the customer.
The company didn’t stop here. With stores able to fulfill orders, the Order Online / Pick Up in Store program began in 2013. It was first tested in 10 stores during fall 2013 and began rolling out to all stores in 2014.
It’s not just the stores that improved their fulfillment functions. Macy’s is now expanding its direct-to-consumer fulfillment center in Goodyear to a mega-facility of 960 000 square feet which will be soon followed by an even bigger fulfillment center in Tulsa, in 2015.
So Macy’s is quick to implement omnichannel policies but is it worth it?
It’s worth it, all right. As you can see in the chart below, Macy’s revenue has been steadily rising, as opposed to some of its main competitors. It seems that 2010 was a real turning point for the company. And what year is that? Right, the year the company began to implementing omnichannel retail.
Apple Pay is Apple’s take on mobile payments. It works by storing credit card data and then charging consumers with a simple tap to NFC payment devices. Most important: it’s a huge game changer in payments.
With this product, Apple unveiled its grand vision of a simple, secure payment process. It can store multiple credit cards, it’s linked to the biggest card processors AND big banks such as JP Morgan & Chase or Citigroup. For now, not all Apple devices support Apple Pay but just give Apple a little time. The iPhone 6 and the iPhone 6 Plus come equipped with NFC technology. So will future products.
The big news: Apple is betting big on this product and you know what this means…
The retail industry hates it.
That’s right, even though Apple Pay registered 1 million credit cards in the first week and users love it, some retailers decided they know better.
Retail chains such as Walmart, Rite Aid, Target and many more chose to bet on a different technology, called MCX. The acronym stands for Merchant Customer Exchange and it is a network of retailers offering mobile checkout options through a product called CurrentC.
Seems a bit complicated? Well the short story is that even before Apple Pay was nothing but a rumor, some retailers thought – “hey, why let Apple have so much influence on our sales? Let’s build our very own mobile payment system!” (not an actual quote)
So the MCX people built CurrentC. And by built I mean they have been struggling for years to come up with something that says Mobile Payments. When Apple Pay was announced, they went on and announced their own product.
The product is sliiightlty different from Apple Pay: it works only in the MCX network and works with QR codes. Plus it stores consumer personal info and connects DIRECTLY to the consumer’s bank account. No way that storing consumer data in the cloud and accessing consumer bank accounts could ever go wrong. Just ask Target (among those in the MCX) and Home Depot.
As the public decided they are not going to wait for CurrentC to show up, retailers such as Walmart and Rite Aid went on and blocked the technology that made using Apple Pay possible.
Now why would they do that? Why is Apple Pay such a big thing and why are these retailers so afraid of it?
Ever thought of buying online and picking up in store? Or searching for an item in a physical store and asking store associates if it is available at another store? If you have you’ve probably noticed that service is lousy when it comes to connecting channels. Omnichannel retail is still in its infancy. To make things work companies have to rewire their IT infrastructure and get ready for a future where it doesn’t matter if orders are placed online, offline, in the mobile app or on the phone.
And that’s hard.
Big retailers have a problem adapting to this new landscape where the consumer is at the center of every transaction and operation. Everything is moving faster and the giants are not really that agile. For example have a look at how much faster Amazon is growing when compared to Walmart.
A large part of this change has to do with payments. Consumers now have to pay one way in the Brick-and-Mortar store. Another way in the online shop. Mobile shopping has yet another payment process. It’s frustrating and the challenge to connect all payment systems is a really rewarding area.
The mobile payments market is estimated at $90 billion and expected to grow. That’s why Google, Apple, Amazon, PayPal and even AliBaba want a piece of it.
So far Apple has managed to connect online and offline channels best. Apple Pay’s ease of use, integrated payment in Safari through the Keychain and many others make it a reasonable bet for the future.
Mobile Payments may seem like a no-go right now. After all PayPal is available for quite some time on the mobile and Google has already launched and failed once with its Google Wallet. What change the future holds as to make Mobile Payments such a big thing?
The answer is Millennials.
The up and coming generation is now just beginning to earn and spend their cash but soon they will be a driving force in the economy. Unlike elder consumers, they have no problem bridging the gap between sales channels and they definitely don’t have a problem paying with their smartphones. IF it’s easy and secure.
In a recent Accenture study millennials were found to be ready to accept mobile payments. They were, in fact, driving the adoption in mobile payments. Among those surveyed, 60% did NOT use their mobile phones to pay. Their main worries: privacy (45%) and security issues (57%). Apple Pay solves both.
Remember the iPod, the iPhone and iTunes? They are just three of the most disrupting technologies from the past decade. And they were all introduced by Apple.
The scenario is always the same: a large market in need of change. Market leaders were stuck in exploiting existing technologies. Everyone from label records to Nokia and RIM learned a hard lesson. When Apple goes after a large market, it will revolutionize it.
Apple Pay is a revolution and the MCX retailers know it. Right now they are negotiating their place in the future of retail.
Omnichannel payments is all about the consumer. Everything happens around his or her habits. The retailer doesn’t get to dictate what the consumer wants, when it wants it and how the product should be bought.
If you look at Amazon you’ll find that it’s just a very very large store. But is it? In fact, Amazon is a marketplace. An instrument for the consumer to choose from lots and lots of products (240 million in Amazon US), sold by lots of merchants.
At the core you’ll find the consumer account. The preferences, the brand loyalty to Amazon, the saved shipping addresses and others. For each Amazon user, Amazon is a PERSONAL deal.
But for now, those products can only by accessed through Amazon’s infrastructure. The big thing that Apple Pay does is putting your personal account for millions of products and hundreds of merchants where it should be: in your pocket.
By doing this Apple will take out Amazon’s and the likes most precious asset and liberalize it: The personal account. Walmart and the likes have misinterpreted Apple’s message. Their product is not an enemy: it’s the best tool they have right now against Amazon.
Consumers love the fact that Apple Pay feels easy to use and most important – secure. It works online, offline, on the iPhone and on the Apple Watch.
Unlike Apple Pay, previous products were introduced as standalone products, not as part of an ecosystem and seemingly without any clear strategy and vision for the future.
Google failed and now it’s trying again with a new Google Wallet.
PayPal has maybe missed its opportunity to become what Apple Pay will probably be. Internal company battles and unclear strategy made the company lose sight of how the market is shifting.
Amazon too launched Amazon Payments but its focus on online payments makes it a NOW product. It really isn’t future proof.
Apple Pay works great and it works great for a large audience. Apple has a huge user base and this user base trusts Apple. They use the company products and are willing to allow the company to store their credit cards. In turn, Apple has not let them down: Apple Pay just works.
Ebay and PayPal have been together since 2002, when Ebay decided to acquire PayPal for $1.5 billion. At that moment both companies were heavy weights in their respective fields and growth was booming. Ebay struggled with a previous solution, called Billpoint, until deciding to give in and purchase PayPal.
Since then, both gained a lot from the other. Ebay benefited from PayPal’s ease of use and helped its customers send money to one another. This helped streamline and secure the purchase process, thus increasing transactions. PayPal, one the other hand, piggy backed on Ebay’s massive user base and international exposure. Its revenue increased by the year and in the second quarter of 2014, it amounted to 45% of Ebay Inc’s total revenue.
The fast growth of PayPal, as well the whole “payments revolution” potential lead Carl Icahn to propose a split between Ebay and PayPal this year. Icahn’s proposal / attack was then fended off by Ebay CEO John Donahoe and PayPal ex-leader David Marcus. Since february 2014, a lot of things happened. David Marcus left the company to join Facebook and biggest of the biggest, tech mammoth Apple launched the Apple Pay. What seemed like a closed case soon turned into a huge split between the companies.
Now – John Donahoe will still run Ebay Inc until the split is official. As of that moment he will step down as CEO and Ebay will be lead by Devin Wenig, now president of eBay Marketplaces. PayPal will split into a new company, directed by Dan Schulman, now president at American Express, Enterprise Growth Group.
PayPal benefits from Ebay Inc. spliting. The split means that PayPal will be able to roam free, grow and develop independently. On the other hand Ebay will be able to … well … do everything it was doing before. The marketplace division is not gaining much from the split. It loses a revenue stream, its shares will drop and it will have to find a new way to keep up with its growth in the future.
However PayPal needs independence to keep up with increasing competition in the omnichannel payments landscape. It needs to innovate, it has to connect online and offline and it has to do a bit better on mobile devices. The split will help the company evolve and here are three reasons why:
Banking as we know is shifting from an old, rigid system to a new way of doing business. That means more than wiring money. It means deposits, it means financing, it means Peer 2 Peer Lending and more. Under Ebay, PayPal was bound to stick to payments and money transfers. Now that Ebay is no longer the umbrella that fosters PayPal innovation, we may soon see more financial goodies from PayPal.
Elon Musk explained best why Ebay should not hold PayPal back: “It doesn’t make sense that a global payment system is a subsidiary of an auction website… It’s as if Target owned Visa or something”.
The fact is PayPal outgrows Ebay. It can and should be a global financial company, a field that’s obviously larger than Ebay’s marketplaces can ever be.
It’s no secret that Ebay has already done what it could to help PayPal. Now it’s just living off PayPal’s growth. As a separately traded company PayPal can become a larger company, more attractive to investors, which in turn can help the company finance its expansion, growth and fight against Apple, Google, Amazon and even AliBaba.
Carl Icahn is known as a corporate raider and maybe there’s more to this story than meets the eye. There is a possibility that he and others are just splitting the company to later organize a take over from companies such as Visa, MasterCard or one of the larger banks. What could be a profitable short-term strategy could hurt PayPal in the long run and kill one of the most promising financial companies in the world.
Home Depot, the largest home improvement retailer, has announced that 56 million credit card numbers have been compromised. In what is now known to be the biggest security breach in corporate history, Home Depot has been the target of an attack that lasted from April to September 2014.
Home Depot managed to beat the previous record, held by Target with 40 million compromised credit cards. As a result of Target’s security breach, the company laid off its CIO. Chairman, President and CEO Gregg Steinhafel then announced his resignation as a result of the security breach and previous unfortunate events, like losing $941 millions in a failed Canadian expansion.
September 2nd: the same man that announced Target’s breach, Brian Krebs, announces a new security breach. This time on Home Depot. The same day, Home Depot starts digging through its POS systems and on the September 8th announces that indeed, a breach has happened.
Krebs reports that the same group of Russian and Ukrainian hackers that managed to steal Target’s data were responsible for the hack. The same day a new batch of credit cards shows up online. The batch’s code name: European Sanctions.
16 days later, Home Depot announced that it managed to clear all infected systems and has “has completed a major payment security project that provides enhanced encryption of payment data at point of sale”.
The company worked with security firms, banking partners and the Secret Service to find out as much as possible about the breach. Results show that hackers used custom built, never before seen malware. This was not the work of some isolated hackers group, acting on its own. A very well organized attack has been put in motion.
Home Depot has worked with banks to provide customer support to those in need. A small local bank, Dollar Bank, as well as larger banks such as JP Morgan Chase and Capital One, have started replacing credit cards.
Although Home Depot has not been hit by the market just as heavily as Target, one can still feel the tension looming over the retailer’s security actions. Consumers are more careful in how they use their credit cards and banks have jumped on board the Apple Pay system, which promises better security.
The fact that the same group of hackers seem to have been involved in attacking Target, as well as Home Depot points to a maybe. But then you have the Secret Service involved. You have an ex-Homeland Security contractor acting as CIO with Target. You have the FBI investigating whether Russia is behind the recent JP Morgan Chase cyber attack.
But most of all – you have Edward Snowden, defected to Russia with a few gigs of classified information on US cyber intelligence actions. Some of those actions may have included packing backdoors and security flaws into US digital infrastructure. Too bad.
Yes, there there probably is a cyber war going on and the US and Europe are extremely exposed. Retailers should pay a lot more attention to their security backbones and check each potential backdoor, should they not want to suffer the same unfortunate events Home Depot, Target and others have faced.
Apple announced its newest products and everybody focused on the much awaited iWatch or the iPhone 6 and 6 Plus. The real news, however, both business-wise and from a consumer point of view is the launch of Apple Pay, an NFC (Near Field Communications) ready payment system. Simply put, Apple’s payment system allows customers to store credit card data on their iPhones and when the time comes, just tap to pay.
The product launch was not unexpected. With the previous operating system launch, Apple packed several features that would allow for better mobile commerce. The iCloud Keychain was introduced to Safari in order to allow both faster logins to known websites as well as, in the future, a faster checkout.
With Apple Pay, the Cupertino company joins the omnichannel payment war as was predicted in this previous post. Google, Amazon, Ebay (through PayPal), AliBaba and even Facebook are trying to get a piece of the $15 trillion payments market. As banks and established financial institutions have failed to meet customer expectations in mobile payments, the gap between needs and available options will probably be filled by one of the tech titans.
Google tried its luck with the Google Wallet, Ebay’s PayPal is now crossing the bridge into offline teritorry and Facebook recruited Paypal’s former CEO David Marcus. Marcus is the man that helped Paypal grow from $750 million in 2010 to $27 billion in 2013, so one can only assume Facebook is also serious about payments.
To help the product take off, Apple signed 220 000 merchants onboard its Apple Pay project. Among them: Mc Donald’s, Babies R Us, Macy’s, Staples, Sephora and of course, all Apple retail stores. The 220 k merchants are just 2.4% of the total 7 to 9 million merchants in the US but it is a great start given the fact that Apple has a habit on pulling seemingly impossible feats, starting with close to nothing.
For example the iTunes Store launched with not more than 200 000 songs and only Mac Users could move the purchased songs to their iPods By September 2012, it was home to more than 37 million songs, 700,000 apps, 190,000 TV episodes and 45,000 films. By February 2013, the iTunes store had sold more than 25 billion songs worldwide.
So yes, there is a pattern here and there is probably a whole lot of room for improvement in the payments area.
Apple Pay’s security
Although recent iCloud security issues clouded the product launch, the security behind the payment technology looks great. First of all it allows customers to save credit card data on their phone without exposing sensible details to potential hackers. It also features the Touch ID identification technique where users sign payments with their biometric input (the fingerprint).
The credit card information is not beemed online but rather stored in a special chip, on the iPhone, a hardware – software combination that Apple named Secure Element. When a transaction is processed, credit card details are not sent to Apple’s servers and the retailer can’t see the data. Instead, a proxy account number is issued that the retailers charges. Each transaction is secured by an unique security code that authenticates it. Apple has laid more layers of security then we came to expect and that should work just great. But take it with a pinch of salt because everything is secure untill it is not anymore.
The company states that it does not store transaction data regarding location, products purchased or the amount the customer has spent. That certainly leaves room to question why exactly would Apple choose not to store these valuable data. The answer lies with data from Bloomberg sources. According to these anonymous sources, Apple has partnered with banks in the system to receive a percentage from each transaction.
The banks involved are JP Morgan Chase & Co, Bank of America and Citigroup Inc. They agreed to integrate their cards into the system and alongside came three of the biggest card networks – Visa Inc., Mastercard Inc. And American Express Co.
So we have a great lineup for Apply Pay and although NFC payments where slow to take off, it seems that Apple’s incredible effort to bring every important player on board will be the push mobile payments needs right now.
As the company promissed it won’t charge users, merchants or developers, one of the biggest issues (the cost issue) seems to be out of the way. With customers using their mobiles more and more, retailers will be forced to adopt some form of omnichannel payment system.
How does Apple Pay benefit retailers?
Retailers and merchants in general receive several incentives to adopt NFC payment compliant technology.
First of all, the Apple Pay system allows a greater connectivity between online and offline sales channels. Customers can order products on the web store, in the brick and mortar stores or within a mobile app. The security and speed allow for greater ease of use.
The second big advantage is payment speed. By just tapping the phone, customers can pay within a 10 second timeframe, improving sales speed. This allows merchants to move customers through almost instantly.
Third big advantage Apple brings is an improvement in mobile purchases and payments. Although customers are so far browsing for products, they rather pay on the web store or order and pick up in a physical store. The biggest bottleneck is the mobile payment experience, one that is just awful for most retailers.
Famously Amazon has solved this issue with its One-Click Payments, where registered customers can use previously stored credit card data to move as fast as possible through the checkout process. Amazon’s patent sits at the heart of Apple’s payment system within iTunes, an extraordinarely usable example of mobile payments.
Actually that’s one of Apple’s strong points when implementing Apple Pay. The company will leverage almost 800 million iTunes accounts, most of them having their cards linked to the account. The magic of paying with a tap will now probably become mainstream.
What comes to mind when you think digital payments? That would probably be PayPal. We all know Ebay subsidiary PayPal leads the game in digital Payments but now the game is set to change.
Although it does have the first mover advantage and has been going strong into omnichannel retail, PayPal is threatened by the largest tech companies in the world:
Now this is the real Game of Thrones in the omnichannel world. Five tech monarchies are reaching for our wallets.
Ebay subsidiary PayPal is dead serious about taking on a $10 trillion market: the Multichannel Payments Market. To do so it will have to prove its worthiness against older companies, especially in offline commerce.
With more than 140 million registered users already, PayPal has the sweetest spot in the online payments today. Its acquisition of global payments company Braintree secured an additional 35 million registered users. As President David Marcus puts it – this is a part of an effort to redefine money and payments into what he calls “Money 3.0″ – a new way of looking at payments and how customers use them.
PayPal owner-company Ebay is at the front of what some would call a commerce revolution led by technology. Its three main branches (The Marketplaces, Ebay Enterprise and PayPal) all work together in this changing landscape.
The Marketplaces (including Ebay.com, Shopping.com and Rent.com) enable C2C Commerce, while Ebay Enterprise caters end-to-end multichannel commerce technology. Ebay Enterprise is the tech, operational management and marketing vendor for the likes of Toys’R’Us, Radioshack, Sony ant many others.
Between these two, the payment processing subsidiary PayPal leads the way in online payments. The company is Ebay’s most promising subsidiary, growing at 20% in 2013. As of 2011, it decided to go offline, allowing customers to handle their money, cards and PayPal wallets in one place.
To increase offline usage, PayPal now offers point-of-sale solutions, mostly targeted at the new tablet-based counters. Store owners can easily implement its apps and start charging right away.
Among its benefits for store-owners, Paypal lists security, quick implementation and an all-in-one approach to accepting payments, scanning barcodes, tracking inventory and sending invoices.
Customers willing to take their PayPal Wallet to an offline store account can pay by swiping their PayPal paycard, using their account or by paying online and picking up in store. Having a larger pool of companies accepting PayPal payments allows the company to securely handle all transactions, allow customers to receive loyalty points and handle all personal information.
Since Ebay purchased PayPal, both companies listed a successful increase in revenue. Ebay powered PayPal’s adoption to its marketplace users and in turn PayPal grew up to become one of Ebay’s most profitable subsidiaries, amounting to 41% of total revenue in 2013.
With the help from Ebay, PayPal grew from $600 million in mobile payments to $27 billion in just three years. The figures are posted on the 2014 annual shareholder meeting website, in response to Carl Icahn’s demand to spin PayPal off into a separate company.
Carl Icahn, one of the most notorious corporate raiders in the tech industry, demanded PayPal to be split into a separate company and become listed on its on. The board of directors fought his demands showing that even though the company is open to changes in the future, right now the two are working better together.
Luck would have it that shareholders reached an agreement to keep the companies together and handle the incoming commerce revolution as a whole.
“[…] we have moved aggressively to leverage PayPal’s integration with eBay to expand PayPal’s reach to millions of online retailers and to offline transactions. PayPal remains one of the fastest growing elements of the company – which helps explain why others are targeting the payments business but are far behind PayPal.”
John Donahue, Ebay CEO. Source.
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