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.
You might know Andreessen Horowitz as … oh, just one of the most successful investors in the history of tech. They have invested in 231 companies, and managed to exit their investments through 36 acquisitions and 4 IPOs according to Crunchbase. The venture capital company has no less than $2.7 billion under management.
Basically when a16z goes after something – you know the market will soon follow. And guess what’s the latest news?
Why … if it isn’t ecommerce.
Their latest monthly newsletter is dedicated to ecommerce. The venture capital company has mashed together a list of brilliant posts and podcasts on what it considers to be the the future of commerce.
The topics range from holiday shopping to logistics to competing with Amazon. My personal favorite, however, is “The End of Ownership“, an eye opening piece on what happens when people stop wanting to own stuff:
The sudden interest is actually not that sudden. In the past two years investors have increased investments in digital retail and connected areas. For example investments in logistics tech have increased by 1370% in 2014 compared to 2012. Andreessen Horowitz’s investments in ecommerce startups have also picked up. Some may still be working on reaching success (ex. Fab.com) and some may never find it (ex. Groupon). But others are growing by the day. Belly, Julep and Fanatics are doing just great.
Isaac Asimov was among the first to ponder the implications of robotics. In his “I, Robot” collection of science fiction stories, he debates the theme of humans, robots and morality. Asimov wonders how humans would interact with robots, how robots would be treated and why using robots merely as tools could or could not be moral.
The term “robot” was first coined by czech author Karel Čapek, in one of his plays. His “robots” were merely simplified human beings, capable of work but not capable of thoughts or able to express emotions. They did not care for self-preservation and were used for only the most menial of jobs. The absolutely brilliant but rarely quoted play that coined the term “robots” is called “R.U.R.” (Rossum’s Universal Robots) and it’s a must read.
In this play, the robots eventually rebel against human beings, kill them all and eventually restart the cycle of evolution as replacements for humans.
As interesting as both works are, they miss an important part in the trans-humanist evolution – the point where machines and humans have to coexist in symbiosis. While you’re picturing these machines we will once have to coexist with, you should drop the anthropomorphic image. The robots don’t necessarily have to have two legs, two hands and do our simple jobs in the way we would do it.
Picture them as a combination of hardware and software that creates abstract versions of us. Picture screens and buttons. Picture programs and applications.
Picture the mechanical hands that wield automobiles together and the software that controls it.
Picture planes with all their mechanics and the software that manages most of the jobs the pilot doesn’t have to.
Picture automated trading systems that move trillions in capital across the globe each day.
Picture systems that handle most companies’ management.
The fact is that although we have (probably) not yet built Artificial Intelligence, we have built the machine to host it. Still, our lives are not those envisioned by Asimov or Capek. Not completely. Yes, we do manufacture more. Yes, we do work less to produce it. Our lives, however, are not easier. The robots don’t serve humanity. The robots serve a tiny fraction of us humans and technology has not made life far better.
Wealth disparity has increased and it will continue to do so. Technology is unaffordable for most.
Time seems to move faster but this is only because we are now competing against faster and faster machines. Each job is getting transformed. The jobs that were here yesterday are now programmed and sent to automated workers, software or hardware machines that request little pay and offer increased returns.
If you believe your job is safe, you are wrong. The great change the industrial revolution has brought to the world is the assembly line. This assembly line works just as good when building cars or selling banking services. Each uncreative job is but a small piece in a very large mechanism. Ultimately, everything gets abstracted, simplified and robotized.
Industry after industry has fallen victim to the automata. The media, construction, automotive, telecommunications, manufacturing and of course commerce. All have something in common. They need to get better, more productive, yield more results but humans, we are not scalable.
This will continue to go on. We have first built the steam engine, then the assembly line, then electrical and pneumatic robots, then computers, software and eventually the Internet to tie it all together. Each time a new technology comes – it is widely accepted. We live better for a few years and then we need something else as it is never enough.
Now it is time for the robots to take our jobs and mark my words – they will take them.
Do we really need jobs? Is mankind’s purpose to place all its individuals in small cubicles or large factories? After all, these robots that are taking our jobs, they are here to solve problems. The are here for a life of drudgery and they do not care about that. The word “robot” comes from the czech term “robota” – hard work. And hard work they do.
Taking away our hard labor we are left with nothing but the choice to be what we were meant to be – creators, explorers and artists.
But to do this, humanity has to change its ways. It has to lay away the habit of humans enslaving other humans. The disparity in wealth and increased tension in the world stands as proof that some change is about to happen. This change can mean awful things and in our history it always has.
But it can also mean that we could now make free men of all of us, discover the skies and let our spirit roam throughout the stars. Meanwhile – let the robots have our jobs.
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?
1. Apple Pay links online and offline shopping
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.
2. Mobile Payments are happening, whether you like it or not
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.
3. Everyone expects a revolution
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.
4. It’s not just about the payments, it’s about the consumer
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.
5. It actually works
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.
The ex-gay Yelp, ex-gay Social Network, ex-gay Amazon, ex-Design Flash Sales site struggles on its death bed. The company’s spectacular rise and fall is a lesson in how to go from rags to riches and back to rags again. It is a story on how growth can sometimes make investors, founders and management oblivious to threats.
I was never a big fan of the concept of flash sales. I covered it, I studied it but I didn’t like it. It is short-sighted way of running online retail operations. It is a great way to create market demand. It may even be a good way to develop customer base. But it will not handle growth forever.
Flash sales need three things to function: good-to-great products, relatively low prices and consumers willing to try overpriced merchandise at a discount. All of these factors come at the expense of two very “un-scalable” variables:
a people based supply chain. To make products available at a discount, someone has to find great products, has to estimate demand for those products and then negotiate purchasing. This is a tricky bit because these guys have to take into account a price that is relatively small but helps the flash sale site turn a profit and and allows the manufacturer to actually ship the product. This is very, very hard work and can be done only by skilled individuals who can evaluate demand, find products, negotiate prices and make sure merchandise is delivered.
a demand based on human wants, not needs. No one needsdesigner shoes or designer furniture. People needshoes and furniture. Sometimes they wantdesigner shoes because we live in a shallow society that makes people feel that objects buy them happiness. And most business pray on these wants. Flash sales sites promise products that say “I am a successful individual”. They promise brands and designer items at a low(er) cost. As a novelty – it will work for a while (for Fab that meant about 2 years). But customers will eventually want new products, at lower costs.
None of these variables scale very well, because they are human-based. Fab and especially founder Jason Goldberg, the one taking most of the heat have learned this the hard way.
Of course, it easy for me and other bloggers to watch events unfold and point fingers at who done what and why the business model was wrong. It was a bit harder when Fab.com was getting millions and millions in financing and customers were anxious to find new products and buy on Fab in 2012.
But this post is not about pointing fingers. It’s about looking beyond the failure, at what lies ahead for Fab.
Fab.com: the road so far
Fab started as a gay community service that reviewed local business. In 2011 it pivoted and went on to offer daily discounts to its users, later on connecting users in a form of social network. As the model didn’t really took off, founders Jason Goldberg and Bradford Shellhammer decided they need to pivot yet again and rethink their market.
As it seems, the duo thought the company was great at a very specific thing and decided to focus on that: design. Specifically: interior design. They re-positioned Fab.com as a source for inspiration and sales of design-related products.
One can of course notice the stereotypical positioning (being a former gay community) but it nevertheless worked. The response to this new pivot was great. The number of registered users went form 175 000 in June 2011 to 350 000 in just a month. In just 12 days the company sold more than $600k worth of merchandise.
The new Fab.com was available by invite only and when it opened more than 125 000 had already registered to receive offers. The reviews were awesome and in just a short month after the Fab relaunched, Menlo Ventures invested $8 million in the company.
Fab’s usage of social networking and social-shopping features further increased the number of users and sales for the company. In just 5 months since launch (nov. 2011) the company boasted over 1 million registered members. Then came the holiday shopping season and sales skyrocketed. As a result of fabulous sales and increasing media traction, Andreessen Horowitz invested … wait for it … $40 million.
After just 7 months since relaunch, on Dec. 7, legendary Andreessen Horowitz VC’s are chosen by Fab.com foundersfrom 15 willing investors.
At the end of 2012 numbers are in and they show a spectacular growth fueled what went from a 4 people company to a 140 employee design force.
CEO Jason Goldberg then posted on its now gone blog “Betashop” a slideshow detailing the successful year his company had. It shows the brave startup growing from a small yet promising group of passionate people to a company selling in 26 countries, with 10 million members.
In 2012 Fab sold over 4.3 million products. During the holidays that meant a rate of 17 products sold per minute. While other companies still try to cope with the idea of mobile commerce, Fab’s sales in 2012 had 33% of all sales coming from mobile. During holidays, 56% of sales came from smartphones and tablets.
The customer lifetime was great and two out of three purchases came from repeat customers. In 2012 sales grew 600% over 2011 and Goldberg boasted that Fab’s 15.000 products were 33% more than IKEA’s. Fab was the largest design store.
In hindsight, past the astonishing numbers, some statements showed something was not exactly right. There was a sense of too much pride: everything Fab was doing was absolutely great and everybody else was just the loser left behind. Jason felt like Fab was the only company with the right attitude and operations. Even Amazon and IKEA didn’t seem like a match for them.
The company was so incredibly self-assuring that it was doing everything internally. In 2012 it employed more than 600 people across the world, it built and operated its IT systems in-house, it even built its own warehouse. How ’bout renting, man?
The 2012 presentation goes on and on about the greatness of Fab, about superstar employees, about the huge vision ahead, about how Fab has to beat IKEA and Amazon at design and deliver more than $30 billion in sales. In the end Jason shows a 6 point plan on how they’ll achieve that:
Sell stuff they don’t
Lead on mobile
Lead on social
Be the best company to work for
These 6 points up there – these are the reason Fab failed. What they leave untapped is just what matters. They are all great for rallying the troops but they lack substance. Amazon and IKEA’s steady growth happens from the ground up. The infrastructure these companies rely on to build, handle, ship and sell products – these are their secret weapons.
Marketing is just the illusory panacea startups reach for when hoping it would suffice in their struggle against the big guys. It doesn’t. That’s where they get their smaller competitors.
Retail, even if it happens online, is a logistics game. Walmart, IKEA and Amazon manage to stay on top with a lot of help from their supply chain. Everything moves smoothly behind the scenes and that’s what Fab failed to acknowledge. By spending too much time on social media, mobile and interviews, the management failed to see the large logistic wall that suddenly halted their growth.
In 2013 things got from great to bad and then to awful. The company did raise an additional $150 million in venture capital in July 2013 but as CEO Jason Goldberg these were definitely not great news:
“What a lot people don’t know is that we set out to raise $300 million. […] And when you set out to raise $300 million, and you raise $150 million, you have to change your business plan. And that’s what we did.”
The change of business plan meant a lot of things that hurt the company’s credibility. Layoffs throughout its offices left employees unhappy. The company had to reconsider its position. At the turning point it was burning through $14 million each month and still not reaching sales projections.
The job cuts took Fab from more than 750 employees to less than 380 at the end of 2013. It started in Europe and than spread through its offices. Every office was restructured to help the company reach a balance point. It didn’t. Even C-level executives had to take a hit. It’s unclear if they left willingly or have been laid off but Co-founder Bradford Shellhammer and COO Beth Ferreira left the company.
Meanwhile traffic came down abruptly and so did sales. The company was heavily relying on ad spending to reach customers. Its 2012 marketing costs were $40 million. In 2013, the figure dropped to $30 million. But as the chart on the right shows – that was not the only factor that lead to the drop in traffic and sales. People were just not interested in Fab’s products anymore. Buzzwords and social media didn’t cut it anymore.
Hem.com – The rebirth?
All these bad news took the company by storm. A lot of people took shots directly at Goldberg for shifting focus, delaying layoffs and generally the could-be death of Fab.com. It was not surprising: he was the one taking the spotlight when Fab was growing, he would be the one taking the heat for the fall.
The media took turns at hitting Fab.com whenever it could and it was obviously an easy task. There were plenty of laid-off employees out there to leak inside info about how bad the company was being ran. They were jobless, pissed-off and needed someone to take the blame.
How could a company with $336 million in funding fail so bad? Where did the company on everyone’s lips go? What happened with all that value investors just … lost?
All these questions left out some seemingly uninteresting investments Fab was running in Europe. While dealing with layoffs, decreased sales, management layoffs and media hits, Fab acquired custom furniture companies MassivKonzept and One Nordic Furniture Co..
By doing so the company combined the MassivKonzept’s mass customization tools and One Nordic Furniture Co.’s talent and technology. The new company took over Fab’s sales in Europe and now leverages Fab’s customer base, experience and of course – cash.
Fab’s European venture received the name Hem (Swedish for “Home”) and now employs 150 employees in Berlin, Helsinki, Warsaw and Stockholm. Some of them are previous Fab employees, some are new hires.
Hem is a designer, manufacturer and retailer and it is an integrated company. It is the technology company that Jason Goldberg wanted to build for a long time.
But most importantly, Hem is something Fab never was: its own company. An unique organization that goes beyond comparing itself to others. It is not the Amazon of Europe or the IKEA of online. It is Hem. It allows its customers to build custom, beautiful furniture and products for the home and it can now deliver on this promise. It seems to be a company that may lack sales and the buzz Fab had but it has something more important: purpose and substance.
It seems that a more mature Jason Goldberg has finally decided to leave marketing and PR aside and focus on building a real company. An unique company that goes beyond buzzwords and solves real problems, in a real environment, where the team is not made of superstars but rather a group of passionate people that put the product ahead of their own egos. And it started with its leader.
I believe Hem has a bright future, unlike Fab. It is built to last, just like its products. I must say that when I set out to write this post, it was going to be yet another bashful take on Fab’s fall. But the more I read about it, the more I found about Jason and his company and the more personal it felt. And a lot of it resonated through this interview he gave at TC Disrupt. A sense of grit and humility echoed through this talk. As an entrepreneur I know what it feels to fail. I too made mistakes and I too delayed laying off people. I too mistook marketing for product and company development. I too believed sky was no limit and failed. So there is a lot of Jason’s actions that I get from being in a similar, yet smaller scale, place.
Yes, Fab is dying and it’s a great thing. Hem now takes its place and it has the potential to be a far better company. In the end this might be not a cautionary tale of entrepreneurship gone bad but a lesson in resilience and willingness to adapt.
Jason Goldberg took some courageous steps into transforming the company he’s built and it will probably pay off in the future. After all, he runs a company that is pretty close to break even, with $120 million in the bank and a large customer base. And now it has a real business model. How hard can it be?
We’re reaching that point in the world where technology has evolved to a micro-level. Computers that used to be the size of large walls are now as sleek and light as a stack of papers, and what was once a brick-sized mobile phone has become the size of a small child’s palm. By now, computers are practically mobile phones.
More people in America use and own mobile phones than toothbrushes. Fifty-four percent of these phones are smartphones, and by 2017, there will be over 10 billion mobile devices. As mobile traffic rises, so too does the need for mobile apps. With 90% of Tweets and 40% of Google searches coming from mobile phones, the way to get and spread day is becoming handheld. While two years ago most of this traffic was coming from teens with cell phones (teens increased mobile consumption in 2012 by 256%, with the standard teen sending an average of 3339 texts per month), mobile usage has extended far beyond teens. Most recently, with the continual creation of mobile apps reaching out to various targeted consumers, many companies have begun a new form of marketing for the mobile online shopper.
In fact, four out of five consumers use their smartphones to shop, and the majority claim that shopping from their phones is more enjoyable than shopping in person. No more long lines, parking tickets, unnecessary purchases, or exhausting traffic jams – consumers can buy what they want, when they want, how they want. And it gets shipped straight to their homes. 56% of consumers use their smartphones to search for a store’s location and directions, 51% to look up product information, 59% to do price comparisons on products, 45% to write up product reviews, and 41% to search for coupons. Smartphones make shopping easy and reliable, even more so than shopping in person. With many stores creating apps or green “Buy Now” buttons, shopping no longer requires physical salesmen.
Not only do mobile apps make shopping easy, but it also allows for information about products to be spread more reliably. 78 – 84% of consumers rely on social networks when researching new products. By 2015, it’s predicted that the amount of goods and services consumers purchase through their mobile phones will total roughly $119 billion. Mobile coupon usage is expected to rise to 53.2 million, and retailers say that 67% see a greater value in having their customers use mobile apps to shop rather than shopping in person. Overall, mobile apps bring five times more engagement – both in the product being sold and in the dialogue between targeted consumers.
Ivan Serrano is a web journalist and infographic extraordinaire from Northwest California. He particularly likes to write about the technology world, social media and global business.
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.
A very select group of companies lead the way when it comes to omnichannel retail solutions. Intershop is one of these companies. Having unveiled its first online shop in 1994, it’s also one of the most experienced and innovative. Now more than 500 mid-sized and large companies benefit from its solutions. Among these you can find Hewlett-Packard, BMW, Bosch, Otto, Deutsche Telekom, and Mexx.
We’ve reached out to mr. Jochen Wiechen, Intershop’s CTO, for a few thoughts on the future of retail. Previously a VP of ERP powerhouse SAP, mr. Wiechen holds a PhD in Physics and has a very interesting view on the future of retail.
Netonomy.NET: What are the biggest changes in retail you have noticed in the past 5 years?
Jochen Wiechen: Clearly online is the main disruptive technology that has fundamentally reshaped the entire industry, not only retail by the way. Ubiquitous bandwidth availability, multi-media developments and mobile technologies allow for completely new business models and customer experiences.
The customer journey nowadays starts in the Internet, around the clock and everywhere. Sophisticated online marketing activities trigger more and more personalized buying processes that start with extensive research and lead to process innovations such as click and reserve or collect.
Rising online stars such as Amazon, Zalando and Alibaba grow extremely fast and challenge classical retailers who simply cannot ignore these developments and start embracing those concepts by embodying online into their cross-channel concepts. The winners in this game will be the ones who understand the changing customer profiles and associated behaviors as well as the potential of integrating online into an optimized omni-channel system instead of shying away and sticking to the old offline world.
N.: Which retailers do you believe are leading the change in global retail?
J.W.: Out of the blue Amazon has developed to the leading global online pure play as well as a relevant player in the retail industry. By consequently embracing the online concept into their channel strategy Walmart is currently showing an even faster growth rate of their online channel than Amazon and is a perfect example of a winner in the overall online transformation. Other relevant players in this game are Nordstrom, John Lewis or House of Fraser, for example.
N.:Do you expect Chinese retailers to increase their market share globally? Do you believe Alibaba Group’s expected IPO in the US is a step in that direction?
J.W.: Alibaba is projected to pass by Walmart in overall sales this year, the latter being the largest retailer worldwide. In the US alone, Alibaba is expected to grow 30% this year and although its development in Europe is still in its infancy, also here surprises will have to be expected.
N.:How important is technology in addressing the consumer needs now and in the future?
J.W.:As stated above, nowadays most customers start their journeys in the Internet which is a profound change compared to classical retail. Already at this stage they are able to browse for any categories and products from anywhere at any time with any device, to compare prices, select within huge collections, take advantage of intelligent recommendations and potentially use fitting engines before they buy either online or in the store where they might collect the selected product.
In order to provide large target groups with these services a highly complex, highly scalable, and highly available IT-infrastructure is a prerequisite. Viewed from the other way around, technology is simply key in the paradigm shift that is currently taking place in the retail industry.
“[…]technology is simply key in the paradigm shift that is currently taking place in the retail industry.”
N.:Which technologies do you believe are shaping the future of retail?
J.W.:Based on the speed of the disruptiveness that the combination of high Internet bandwidth availability and the development of multi-media capabilities on a plethora of end-user devices has caused in the retail industry it is expected that the evolution of further technologies will continue to reshape the industry.
While Big Data has already gained substantial market share in order to analyze and predict consumer behavior we also see a rapidly growing demand for indoor proximity systems in order to support omni-channel transformations. In general, we agree with analysts that the Internet of Things is the next big thing in not only this industry. Devices, gadgets and sensors of all sorts interact amongst each other as well as with human beings in order to reach a new level of communications and interactions. The winners in the upcoming retail industry battle will be the ones who take advantage of this technology development that will lead to today possibly unimaginable customer journey innovations.
N.:How will mobile devices impact retailers and shape consumer behavior?
J.W.:On the one hand, mobile devices allow for ubiquitous browsing and shopping which removes any local stickiness of the consumer, who can even choose the best offer while walking through a mall. Recent search engine analytics reveal astonishing portions of regional references in search requests.
On the other hand, this is an opportunity for retailers thereby taking advantage of location-based services by sending ads or promotions to consumers walking by a store, in which a sales person might then use a mobile shop assistant app in order to lure the customer into a well-educated sales pitch that is not only consisting of more or less good guesses based on gut feelings or superficial conversations that help shying away the customer.
N.:Will 3D printing technologies be used in improving tomorrow’s supply chain?
J.W.:While the usage of the technology on the consumer side is still in its infancy, Amazon just recently already opened a shop for products coming out of 3D printers and has again proven its leading role in the industry. It is hard to say how far the technology will be able to be pushed in terms of product complexity which then will determine the extent to which it will be used in supply chains.
N.:What are the next steps in Intershop’s evolution, in terms of innovation?
J.W.:Based on a research project we have been carrying out together with local Universities we are currently rolling out a commerce simulation engine (SIMCOMMERCE) that falls into the category Predictive Analytics and that allows for outstanding optimization capabilities for commerce operators.
Apart from that, we are closely working together with our customers and partners to explore various process innovations by integrating new technologies, devices and gadgets with our platform. With our SEED initiative, with which we scan the market for commerce-relevant leading edge technologies that we can incorporate into our offering we are looking for ways to help our customers to substantially improve their traffic, conversion rates as well as sales and delivery processes. We agree with leading analysts that the Internet of Things will play a dominant role in those developments.
Online retail is a fast moving sector and there are lots of outstanding business leaders out there. Among the best of the best, some really stand out. The way they’ve founded their companies and directed their investments have placed them in the higher echelon of influence in online retail.
Jack Ma, a former English teacher in China, got his first taste of internet entrepreneurship in 1995, when he founded China Pages, a directory of Chinese businesses. He previously worked as a lecturer in English and International trade in the Hangzhou Dianzi University.
After founding and running China pages he briefly worked for the Chinese Ministry of Foreign Trade and Economic Cooperation, between 1998 and 1999. In 1999 he founded Alibaba, a B2B marketplace connecting Chinese manufacturers to the world.
Alibaba’s spectacular growth pushed Ma and his associates to add new companies to the group. AliBaba Group now owns Alibaba.com, Taobao Marketplace, Tmall, eTao, Alibaba Cloud Computing, Juhuasuan, 1688.com, AliExpress.com and Alipay.
The company is now only outmatched by Walmart in terms of revenue. Recent developments and an increase in online retail spending have made the Chinese market the largest online retail market in the world. The big winner: Alibaba Group. Through its subsidiaries, the AliBaba Group now handles $248 billion in transactions, 84% of the total online retail market in China.
You wouldn’t think of the fifth wealthiest man in the world as one of the most influential persons in online retail. But he is. Through it’s flagship company and different personal investments, he is in control when it comes to online retail infrastructure and software.
For once, Larry Ellison is Oracle and Oracle means, first and foremost, databases. Ellison started his career working for the Ampex Corporation in 1970, on a relational database for the CIA. His designs were based on a paper written by Edgar F. Codd, called “A Relational Model of Data for Large Shared Data Banks”. The same design was implemented by IBM, but the company didn’t have time to solidify its dominance on the market. Challengers soon began to emerge.
One of those challengers was Larry Ellison’s Software Development Laboratories (SDL), founded with two partners and later renamed Oracle, based on the database Ellison developed when he was working for the CIA database.
After a long struggle against the largest competitor, IBM (which would push its DB2 and SQL/DS products) and other challengers (Informix, Sybase, Microsoft) – Oracle eventually took lead in the database war. In 2010 the European Union approved Oracle’s acquisition of Sun Microsystems. One of the most important assets Oracle got was the wide-spread, popular MySQL database.
So for one – Oracle now dominates the database market, the underlying infrastructure of connected systems and retailers worldwide.
And that’s just the begging – Oracle is currently on a purchase streak, aiming to build a strong multichannel retail presence. It is second only to Adobe Systems, with its customers registering over $200 billion in revenue in 2013.
It’s presence is split between Social marketing, ecommerce platform software, site search, customer service, personalized content and transportation management.
To give you a glimpse on how serious Oracle is about its investments in multichannel retail – they paid $1.5 billion in 2011 for Right Now Technologies, a company providing customer service software and services to the likes of Overstock.com.
Larry Ellison is also one of the major shareholders in Netsuite and Salesforce, two companies shaping the global B2B and B2C commerce future.
1. Jeff Bezos
Net Worth: $30.1 billion Company: Amazon
Jeff Bezos is the one man we all picture when we think about ecommerce. He is a Princeton graduate with a degree in Computer Science. After graduating from college he pursued a career in investment banking in Wall Street, which he left to found Amazon, after noticing the fast growth in Internet usage.
He set up his company in the proverbial garage with few employees and in 1995 launched the beta version for 300 friends. Days after the launch the book selling eshop managed to ship books across US and 45 foreign countries. Yearly sales in the first year reached $510 000, much more than Bezos envisioned. The company grew and grew, survived the dot com and went on to register $74.5 billion in 2013 revenue.
By expanding the initial book selling operations into CD’s, videos and later clothing, toys, electronics, home & garden, jewelry and even art, Amazon essentially became the “everything store”. Amazon is now the biggest online retailer and a disrupting force in retail.
Everything from the ecommerce revolution to online payments, shipping and marketing has been heavily influenced by Amazon and guided by Jeff Bezos, both a star-gazing visionary and a focused micromanager.
But beyond his influence in online retail and retail at large, Bezos is a special human being. A libertarian, he invested in projects most of us would consider unreal and unattainable. He was one of the first investors in Google, financed a clock that would run 10 000 years and a company that’s working on lowering space flight costs, to allow humanity to explore the great unknown.
This short list, headed by Jeff Bezos, is prone to change. The world around can change as well, partly due to these people’s and efforts. To get a deeper glimpse on how they did it and what motivates them, have a look at Jeff Bezos’ Princeton graduation address, “What matters more than your talents”:
Henry Ford said “People can have the Model T in any color – as long as it’s black”, in the early 20th century. That’s when Ford’s innovation, the assembly line, vastly improved productivity thus reducing production costs. Lower costs meant companies could manufacture cheaper products and still be profitable.
The assembly line made possible the mass production of goods. Things that were previously custom-made and unique soon became available to the now emerging middle class. Clothing, food, even cars and houses became accessible to the mass market.
Industries were built around product manufacturing. The customer was no longer the center of the universe. Companies focused on the product. Products were manufactured in large quantities, distributed and sold, with a lot of help from advertising companies. Even though advertising was around, it wasn’t the type of organized industry we now know until the television set became a part of consumers’ daily lives. By borrowing some concepts used in WWII propaganda, experimenting a lot and innovating, advertising quickly evolved in a mature tool to push mass – manufactured products to the market, globally.
Mass manufacturing becomes the standard
After 1970 two trends started to emerge. First one – the mass-manufactured product becomes the norm. Faster assembly lines, improved productivity with better management and companies going global – it all lead to bigger manufacturing facilities and more money poured into advertising. In the western world people were spending earned and borrowed money faster than ever before to buy mass-market products.
The second trend was improving production with help from computers and networks. It all started small and kept growing. Innovation in the IT industry allowed companies to improve manufacturing productivity further. Soon cars stopped being built by people and robots took over. They were faster, better, less prone to error and cheaper in the long run. They also learned new things a lot better. With automated assembly lines, the mass produced goods could be reprogrammed to build new products fast.
The product development cycle was shortened. The fact that now BMW or Mercedes are able to launch a new model every month is possible because of advancements in management and IT. These companies can now target customer groups. Ford’s Model T was a “One Size Fits All” product but now everything’s changed. The auto companies can split their customers and they can build products for increasingly smaller niches.
Mass customization becomes a reality
The internet changed everything. When Michael Dell decided he would create a special PC for anyone willing to pay for it, he probably had no idea what his actions meant. Now Dell is a global company and one of the largest online retailers. When the company decided it was going to offer mass market customization features, it seemed like a really risky move. At that time, computer manufacturers were already engaged in a price war to market accessible computers. It didn’t seem like a good idea to turn a mass produced, mass marketed product in a customizable one.
Dell offered their customers what they wanted: the ability to choose between different options in terms of design, software and hardware. The order, assembly and shipment processes were streamlined using software designed to minimize human input and error. Today’s devices (be it desktop computers, laptops, tablets or smartphones) are available in many formats. Most of them are a hybrid between mass produced and customized products.
The future of mass customization is already here and the company that helped most with making it a reality is the largest online retailer in the world: Amazon.
Amazon lead the way in mass customization with Print-On-Demand
First off, Amazon made possible a type of personalized experience for customers by providing personal recommendations and notifications based on purchase history. Its second biggest innovation was print on demand. With Amazon, books were no longer published en-masse for long-tail items. Rather, for a small amount of extra cost, they were made available as items printed on demand.
This innovation spawned a new breed of self-published authors, leveling the field for publishing. In turn, readers were now able to read books otherwise unavailable and writers could skip pitching to publishing houses. The effect was so dramatic that some large book retailers had to close their brick and mortar stores.
Top ecommerce companies selling mass customized merchandise
From shoes to t-shirts to art-prints it seems like anything is game when it comes to online-powered mass-customization. Many companies jumped the customization wagon, but few stand out. Have a look below at these companies:
One of the most popular platforms in the world for Built-To-Order, customized products is Zazzle. Its mission: “To Enable Every Custom, On-Demand Product in the World On Our Platform.” It is a mix between self-curated product designs that can be customized by customers, and a wide variety of products submitted by designers and entrepreneurs in the marketplace.
The company partnered with large brands to provide customizable products for companies such as Disney, Hallmark, DC Comics or even Google. It is growing fast, outpacing its competitors and bringing mass customization for the wide market.
Zazzle’s success is based on two main factors. The first is its ability to customize products that are manufactured separately and customized at the end, with input from the end consumer. This allows for a minimum slowdown in manufacturing capabilities.
The second factor helping Zazzle tackle its competitors is a patented color print technology that allows it to manufacture multicolored items, without signifiant increase in costs and manufacturing time.
It does also help that Klein Perkins Caufield & Byers, a well known Silicon Valley VC firm, backed Zazzle with $48 million. The VC’s have also backed up a couple of companies you might have heard of, such as Google, Amazon, AOL or Electronic Arts.
Ladies – ever felt like you could be the world’s best shoe designer? Felt like you’ve hadn’t had the chance to show what you’ve capable of? It turns out you are not alone. Founders Rumbert Kolkman and Judy Chin believed they could make shoe design a mass-customizable market. In 1999 they’ve built a B2B company that would allow shoe retailers and designers to access a rich supply chain with ease.
In 2013 they’ve opened this option to the public, unleashing the power of mass-customization to end buyers world wide. Prices are ranging from $230 to $1200 and Chiko Shoes allows customers to chose between 1300 material swatches.
The company was founded in 2007 in the Netherlands. It moved to NY, where it received a $5million founding from VC’s including Andressen Horowitz. It now runs a fully operational marketplace where designers can sell their 3D designs and customers can create their own.
As of June 2012 is sold over 1 million user-created objects. Production was provided by its Queens, NY 3D Printing factory that uses 50 industrial printers to manufacture millions of user designed custom projects.
Threadless started as a marketplace for t-shirt designers and quickly evolved into providing other customized merchandise. Users can purchase clothing items (such as t-shirts, hoodies or tank tops), art prints or phone cases.
Although Threadless does not allow mass customization per se it does allow users to submit designs. These designs can be featured and sold to consumers afterwards. What makes Threadless different is the fact that not all designs are accepted and marketed yet those who do are chosen by the community.
Ethreads allows customers to create their very own bags, starting with a blank model and adding options using the online design tool. The shop also offers options to see what others have designed and the ability to buy directly on Amazon.
Fab started as a flash sales online store. Its approach proved very lucrative for a while. The company decided to take another path by providing customized design options for furniture and home deco buyers. Although the change affected only its european operations, it seems the company is heavily interested in developing its customization options. It completely stopped marketing its products and flash sales options in the EU and is fully engaged in providing customized furniture.
The furniture is made-to-measure according to users’ needs. It allows customers to design their own products in 5 main categories: shelving systems, tables, sofas, beds and wall shelves. A complex yet easy to use configuration system allows potential customers-turned-designers to create the perfect match for the home. Inputs allow customization of size, materials, colors, finishing and others. A 3D visualization engine allows customers to view their newly created product before ordering.
This new pivot in the company was made possible after Fab purchased Massivkonzept, a company founders declared was already profitable and growing. It seems Germany is a great place to look for companies focused on customized furniture design. Woonio, a german ecommerce startup, offers customized furniture like tables, beds, lounge stairs.
The future of retail is mass customization
Examples above show any industry can allow mass customization and is prone to change. Individuals need to feel empowered when purchasing and technology has made this possible. Whether is next year or 10 years from now, mass customization will become massively popular.