Omnichannel Payments – Battle Between Giants

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.

Paypal bets big on POS integration

Paypal bets big on POS integration

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:

  1. First of all, company president David Marcus has resigned (or has been fired as rumor has it) to join Facebook. His mission – building a new type of … messaging tool. And by that I mean Facebook Payments.
  2. Google is pushing hard on its Google Wallet, a mobile bridge between online and offline sales. It is a fully NFC compatible payment system, which now accepts all major credit and debit cards, loyalty cards and discount cards. It also allows customers to save offers and buy using touch-to-pay systems.
  3. Everyone raved about the Amazon phone but the actual big news is … Amazon Payments. With over 200 million credit cards stored and the ability to pay with one click (for a very long time Amazon held the patent on that), Amazon is probably the biggest competitor to Ebay’s PayPal.
  4. Apple also has a huge database of credit cards stored on its server. It also has a massive database of customer options, customer history and a fully featured Keychain app built into Safari, ready to help customers do a quick checkout. Its wide device adoption allows it to become one of the most important players in the omnichannel payments area.
  5. Let’s not forget Ali Baba Group, the organization that controls over 84% of the fastest growing and biggest ecommerce market: China. AliPay is the group’s payment system, fully featured with the Yue Bao savings account. And now the company is set to have its IPO in the US.

Now this is the real Game of Thrones in the omnichannel world. Five tech monarchies are reaching for our wallets.

 

 

Ad-Supported Mac OS? It could have happened.

steve-jobsIt was 1999. Only three years have passed since Steve Jobs returned to Apple. Britney Spears was climbing the charts with “Baby one more time” and engineers at Apple were a few months into launching the Mac OS 9. They would dub it “The Best Internet Operating System Ever”. It was a visionary product and an awesome precursor to today’s Internet-enabled operating systems.

Unlike its direct competitor, Microsoft, Apple had a simpler way of shipping its operating systems. They would either come pre-installed on purchased computers or subjected to a standard $99 upgrade fee.

Steve Jobs thought he can get more users aboard if he somehow reached out to those yet unwilling to pay for the OS. Ken Segall, the man credited with naming the iMac , recalls how this happened, in his book Insanely Simple: The Obsession That Drives Apple’s Success:

“[...] Steve provided some details about how the advertising would work. At systems start-up, the user would see a sixty-second commercial. This ad could be regularly changed via updates from Apple’s servers. Throughout the rest of the OS, ads would appear in places where they had the most relevance. For example, if the print dialogue box indicated that you were running low on printer ink, you might see an ad from Epson with a link to its store – so you could buy some ink right then and there”. 

The consensus was the main ad, the one running at systems start, would be a premium spot for top-knotch companies. Those Steve admired, say BMW and Nike. Once the ad started running , some system functions would be suspended so the user had to see the whole ad.

Apple engineers and staff were psyched about the idea and they loved the fact that such a new interface could let users try the OS and buy it whenever they felt like upgrading. Apple even registered the patent for this, listing Steve Jobs as the main inventor. Fortunately this system never went public and Apple went on to build its success and later on give out the Maverick OS upgrade for free, but that’s a story for another post.

Apple thought about it, Google and Amazon did it.

Apple was not the only company that thought about the ad-supported OS, but it was the first to seriously consider it.

For starters – like most smartphone users you’ve heard about Android. It’s the most popular mobile OS (or at least the most used). It’s free and it helps Google leverage on mobile ads. So much that it Google now takes in about half of all mobile ads revenue.

Google’s other venture into ad-supported OS is Chrome OS / Chromium OS – the web OS that has Google at its center. And Google’s Ads.

Yeah, both Google and Apple thought about an ad-supported OS. The time-frame, however, is pretty important. Apple thought about the ad-supported OS, it nearly implemented it and ditched it. An year later (2000) Google launches AdWords. After yet another 5 years (2005) Google buys Android. 6 more years passed until Google launched its Chromebooks in 2011.

Amazon, the king of online retail, thought this is a great idea also.It started using it on its Kindle readers in 2011. Later on the Kindle Fire was subsidized through ads. The ad-supported device / OS seemed so good that Amazon didn’t actually bothered to built no-ads versions. Or talk about it.

Apple’s “say no” culture lead to dumping the ad-supported Mac OS

Fortunately Apple scraped the idea and later on figured out an way to give the Mac OS for free (it’s doing pretty well selling apps and music). Its focus on delivering a great user experience finally won. It was Probably Steve Jobs who remembered his own words, spoken at the 1997 Apple World Developers Conference:

“Innovation is saying no to a thousand things”

(II) Ogilvy to Zuckerberg: How did Amazon, Apple, Facebook and Google change consumer research and targeting ?

In my last post I talked about the shift in consumer targeting that happened once the Internet went mainstream. Several highlights were the short history in consumer targeting, information regarding Amazon’s personalized recommendations and Apple’s usage of consumer data to increase music and app sales.

Now we’ll have a look at how two of the largest and fastest growing technology companies use consumer data and behavior to deliver ads. As Facebook and Google’s business model heavily relies on advertising they have to make sure ads are delivered efficiently to increase revenue.

However, trying to increase ads relevance and user experience can sometimes lead to unexpected (?) outcomes. Both companies had had their fair share of legal troubles regarding users privacy. For example last year Facebook user tracking practices lead to a request by US congressmen for the Federal Trade Commission to investigate the company. Apparently Facebook would track users web traffic even after they logged out. By linking browsing history, location and time of visit  to account information (list of friends, preferences, browser) the company could potentially extend its user profiling to some very intimate data. Apparently the issue was corrected and now Facebook stopped linking browsing data to user profiles. Even so, the anonymized data can provide the company with some very good insights.

What are Google and Facebook’s revenues?

As stated above both companies rely heavily on advertising revenue. 96% of Google’s 2011 $37.9 billion revenue came from advertising. Industries that pumped most money in Google’s Adwords program were Finance and Insurance ($4 billion), Retail ($2.8 billion), Travel and Tourism ($2.4 billion) – source.

Meanwhile Facebook reported “only” $3.1 billion in advertising revenues last year. Even though the numbers are visibly lower than Google’s, Facebook advertising revenue increased 69% and topped Yahoo in 2011.

Just to give you a perspective on how big this figures are Publicis, the largest advertising group, a 86 year old company, operating in 104 countries reported a $7.7 billion revenue in 2011.

Having established that online targeting leads to generous revenues, let’s have a look at how Facebook and Google manage to efficiently target consumers using technology:

How does Facebook target users?

facebook logoFacebook increase in popularity coined the term “social media”. This term describes web and mobile platforms where organizations or individuals communicate through different types of media (text, image, video etc.). As more and more users started using Facebook the available content increased, social links improved as users added more and more friends.

Facebook recognized the opportunity in consumer targeting using social preferences (Ex. “Your friend likes X Brand. You should too.”). Interestingly Facebook managed to give user profiles a real – life feeling by encouraging people to bring their friends along. Of course few people could recognize nicknames such as “MickeyMouse1982″ so users started adding their real names, than their birthday, location etc.

Soon enough Facebook had a few hundred million demographic profiles at hand. These profiles were interconnected so influence groups could easily be determined. In a genius move Facebook introduced the “Like” button and later “Share”.

By using the “Like” button users would essentially hand over to Facebook their personal preferences.

As publishers saw that articles posted on Facebook were more likely to become viral and increase traffic they adopted the Like/Share widgets and later the Facebook Connect signup system. As these widgets could track user behavior by transferring traffic data back to Facebook the social network now knew what users were interested outside the platform.

Combining this data Facebook launched and improved in time their Facebook Ads platform. With more than 20% of all web traffic plus data on web traffic outside its social network, the company could potentially target ad delivery better than most other media companies. Let’s review what kind of data Facebook has at its disposal to target users:

  • consumer demographics: users enter their demographic information during signup or later as they use the social network
  • social networks: Facebook knows who is a friend of who, who is more likely to have his or her posts liked, shared or commented on. Basically it knows who is most likely to influence their peers actions with a granularity almost impossibly to achieve by others
  • consumer preferences: every time a user clicks a like or share button, comments, posts a status, photo or video it basically signals Facebook on some of his or her preferences regarding a wide array of things (music, products, news) that could later be used to show relevant ads.
  • web traffic: by tracking user behavior through like, share or social widgets Facebook registers data that even anonymized can show insights on a scale that no other company can

These are the most important factors in Facebook efficient ad targeting. Weather advertisers choose to use classic ads, sponsored stories or promote several posts the company takes into account this data to maximize exposure and engagement.

How do Google ads become “contextual”?

google logoProbably the most disruptive technology company in the past two decades, Google relies on user data, behavior and semantics to deliver the contextually targeted ads.

To deliver ads, Google needs data. Where does it get it from?

Where does Google get data from?

  • indexed and ranked web pages: even though the number is not really known as Google is secretive about its data centers, it’s estimated that indexed data is stored in more than 30 data-centers. These data centers hold 35 to 50 billion pages at any given time. They are ranked according to an algorithm initially designed by Larry Page and Sergey Brin and improved in time.
  • web page analytics: Google Analytics is used by more than 10 million web sites. As Google hosts data regarding traffic and user behavior on these sites it can predict user behavior and ads most relevant to potential consumers.
  • email information: even though information is anonymized Google makes good use of mails hosted on it Gmail platform. With more than 350 million users in Jan 2012 the data flow through Google’s emailing platform is astonishing.
  • searches: Google responds to almost 3 billion searches every day. By analyzing searches and user paths Google can determine what are the most popular search results and how can this information be used to optimize ad targeting and delivery.
  • Google+ is the company’s response to Facebook’s rise in popularity. It already has more than 170 million registered users (mostly active). Having answered the need for information in social networking targeting Google further improved its advertising targeting capabilities.
  • Android is Google’s mobile operating system. Though buggy at start, Android is now on its way to world domination in terms of mobile operating system.

Basically Google knows a lot about a lot of potential consumers and uses these data to increase efficiency in ad targeting.

Having a look at how the likes of Amazon, Apple, Facebook and Google use research and targeting , we can surely say that conventional (old ?) knowledge on the matter is becoming increasingly obsolete. As technology replaces human input research and targeting becomes real-time.

Unfortunately some privacy issues arise when people become “users” or “consumers”. On this matter – soon.

From Ogilvy to Zuckerberg: How did Amazon, Apple, Facebook and Google change consumer research and targeting ?

Conventional (TV, print, radio) advertising often relies on research and targeting methods such as focus groups or demographic targeting to increase brand awareness and sales. These methods seem to be more and more outdated as targeting technology is already delivering better results.

A (very) short history of advertising research and targeting

In the past, as media was unidirectional (broadcaster to consumer), there were few ways retailers could efficiently target potential consumers. Advertisers would use consumer profiles and split purchasing options through demographic indicators (age group, location, education, sex etc.). By using statistic results they could outline marketing opportunities for certain demographic groups (Ex. “Women between 25 to 35 years, urban, having higher education are more likely to buy Product X”).

Having (theoretically) discovered a potential consumer profile they would then buy media in newspapers, radios or TV stations that would best appeal to that certain demographic group.

David Ogilvy

David Ogilvy

Of course this is just a skeletal description of the whole targeting process but it explains the process pretty well. Many companies have benefited greatly from this targeting and advertising system. Most of the brands we now know and buy were built this way. Even now, decades after the likes of David Ogilvy were setting up the rules on research-based advertising, the system is virtually unchanged.

“I notice increasing reluctance on the part of marketing executives to use judgment; they are coming to rely too much on research, and they use it as a drunkard uses a lamp post for support, rather than for illumination.” – David Ogilvy

How did the Internet change research and targeting?

Few could have predicted the impact Internet was to have on commerce and economy. Even less would have guessed how this initially “exotic” media would impact research and targeting.

20 years ago there was no marketing concept that could explain AdWords targeting and not be considered science-fiction.

Internet targeting and advertising renders most of conventional knowledge on research obsolete as technology has achieved what was once impossible. 30% of all human population is now in reach of all advertisers and they can now target more than just demographics.

Behavioral marketing is a concept that could not be possibly be achieved with conventional media. Using consumer behavior rather than demographics advertisers can target real time preferences and individuals rather than demographic groups. Say a user is known to have previously visited a car dealership website. He then browses websites in search of reviews on different car models. The car dealership could potentially target this exact user and serve him the most informative ads. Advertising ROI is sure to increase this way.

Some companies have become increasingly good at Internet research and targeting. One of them is now the most valuable company in the world in terms of market capitalization. Let’s have a look at how Apple, Amazon, Facebook and Google use large data to target and monetize consumer traffic.

How did Amazon, Apple, Facebook and Google changed consumer targeting ?

Amazon personalized recommendations

amazon logoAmazon is well known for its personalized products recommendations. How can it do this? Short answer: large data on consumer purchases and mathematics. Longer answer: Amazon holds a patent on its product recommendations which you can have a look at here (issued in sept. 2006). Although rather technical it focuses on certain key elements:

  • user profiling: Amazon holds valuable data on user demographics and previous purchases. Using this data it can map users in specific consumer groups. User profiling combines shopping cart contents, item ratings and recent purchases as purchase intents seem to change in time.
  • similar products information: say you bought three SF books. Similar products would be other books in that category. Some of these books would be more popular in terms of item ratings, reviews, views and purchases.
  • item affinity is the probability of some products to be purchased together. Say you are buying a Kindle on Amazon. You are very likely to buy a cover or case to protect your device. That means these products have a high affinity index
  • driver items are those products that are most likely to drive traffic to store. Again – the Kindle, Amazon’s best seller is not only a driver item but also a platform that insures further product purchases.
  • user path: the consumer will follow a certain path until it ads a product to the shopping cart or confirms a purchase. These paths are very important as they can be used to “guide” consumers to products they are most likely to purchase.

Using these information (and probably more) Amazon can first map users in consumer groups (1), extract popular, affinity and driver products (2), compile most profitable user paths based on previous history and other users actions (3) and than recommend the items most likely to increase basket size.

Recently Amazon announced the launch of its Kindle Fire product. This product is built on a Android platform and uses a proprietary web browser called Silk. The browser optimizes web traffic by routing it through Amazon’s servers. As Amazon already holds information on user profiles (users will have to login to synchronize their book collection) and now data on web traffic it can further improve its recommendations.

Apple Genius recommendations

apple logoAlthough Apple does not explicitly state it monitors iOS user actions it doesn’t deny it either. If it does, however, it might access a huge pool on users data such as web traffic, mobile purchases, locations, call history, social networking information (through access to contacts information, call history, SMS and iMessage history etc.). Basically everything there is to know on its customers profile.

For now the most visible way Apple uses data to increase sales is iTunes Genius, the music and video recommendation system. iTunes Genius uses purchase history and iPod activity to recommend potentially interesting songs, albums or videos.

Although iTunes Genius probably uses a system similar to Amazon’s it is not yet known to be as accurate. The performance issues are probably connected to the number in customers and items on sale. Amazon has a wider products inventory and a larger pool of potential customers. This leads to a larger database and increased accuracy.

Technology based companies have changed the way we think of consumer targeting and advertising. Innovation lead to profits and behavioral targeting will probably develop in the future. Tomorrow we’ll have a look at how two of the largest advertising – revenue based companies, Facebook and Google, use large data to improve consumer targeting. Stay tuned.

5 consequences of the Apple vs. Samsung trial

In a historic decision the San Jose, California courtroom ruled that Samsung did infringe in some of Apple’s patents. The court ordered Samsung to pay over $1 billion in damages for patent infringement.

steve jobs thermonuclear android

Steve Jobs wanted to go thermonuclear on Android. Image source: SiliconAngle.com

The court ruled that Samsung did, at times willfully, infringe on some of Apple’s iOS patents: the bounce back on lists, pinch to zoom etc. As a post-trial response Samsung announced it will fight this decision and that the court ruling affects the consumers.

While it’s pretty obvious that Samsung borrowed, to say the least, some of Apple’s hardware and software design and interface elements the decision is clearly going to have negative consequences on the mobile phones and mobile applications market.

The court ruling changes everything. Again.

1. Apple will continue its growth, having secured its proprietary hardware and software design – Apple is already the biggest company ever, in terms of market valuation. After Steve Jobs’ demise many wondered if the company will continue to grow. It did. This year saw the rise of incumbent Android based mobile devices which were growing at a faster rate than iOS based ones (Android is the dominant mobile OS in the US) and threatening Apple’s hegemony. Samsung was the biggest challenger in terms of hardware development. Having taken a massive shot at the opposition Apple can continue focusing on innovation and expanding its market share.

2. The mobile market will suffer from this decision. Samsung is one of the biggest competitors to Apple. As the smartphone market is ever increasing Apple just made a very large step to a de facto monopoly on this market. While they couldn’t do that by economic means, they showed they can do it through legal arguments. The decision to punish Samsung on adopting the interaction methods Apple “invented” is like ruling that only one PC manufacturer can ship PC’s that use keyboards and mice for user-to-computer interaction.

3. The target is not Samsung. It’s Android. Apple doesn’t care that much about the fact that Samsung has copied its products. It was just the easiest target. Otherwise they could have just sued every other smartphone manufacturer – it’s easy to see that the iPhone shifted the entire mobile industry to a different direction. One that Apple holds patents on. What Apple is really worried though is the Android OS. It’s popular, reliable and it is growing way faster than the iOS. Of course Apple still rules the market in terms of revenue but not for long. Amazon is already generating 89% of Apple’s App Store Revenue through its own Android store. This leads us to…

4. Everyone sees the jury decision as Microsoft’s chance to shine. But it’s Amazon that will benefit most. Microsoft can try and try to reinvent themselves. They won’t. It’s a corporate dinosaur that lacks innovation and courage. You know who  does have those things, plus a ton of cash? Amazon. Amazon has had an amazing trajectory the past 5 years having reinvented reading with Kindle and now challenging Apple’s reign in the mobile app area. They are closing in to Apple in terms of mobile – generated transactions. With Samsung out of the picture they will be able to lead the Android revolution.

5. Apple’s actions might backfire. Remember the days when Microsoft ruled the IT world with a iron fist? The were used to buy smaller competitors, drive them out of business or sue them out of the game. It didn’t work so well after all. Right now people are buying Apple products because they love the brand. If the brand shows its money hungry face, the feelings towards the brand might be affected and turn into decreased revenues and company valuation. After all – the market is all about perception.

In my opinion the Apple – Samsung dispute should be resolved by the markets and the consumers, not in a courtroom. It is a dangerous precedent that harms an young and fast-growing industry. Patents or no patents there are millions of Samsung users that will suffer from this decision.