Belly is a startup focused on loyalty. It launched in 2011 and has since grown to be active in 18 markets and more than 6500 locations. It aims to reach 10 000 locations by the end of this year and as things look, it might just do so.
The product works by allowing customers (aka “Belly Members”) to “Belly” every time they visit a “Belly Business”. That basically means scanning their unique QR codes every time they visit a partner location. In exchange, customers receive loyalty points that can be used to claim rewards.
The system is part old-school loyalty program and part gamification. Belly Businesses can encourage customers to keep coming back by adding increasingly valuable rewards, redeemable with an increased number of points.
The product is free to use for customers. Locations that feel the product is right for their marketing efforts pay a subscription fee and get fitted with the nice iPad used to interact with visitors, belly cards and access to digital features in the app.
Features include data on visitors, social media marketing options, access to reputation management on Yelp and the ability to attract new visitors with the help of Belly Bites. These are special rewards offered by locations targeting new customers. By gathering data on users, Belly can recommend the right customers with special rewards based on previous behavior.
The company has been among the first to be featured in Apple’s Passbook and is also integrated with Google Wallet and Samsung Wallet. With these integration up its sleeve as well as its game-like approach, Belly can become one of the leading solutions in loyalty programs.
But to do that, it will have to connect both offline and online experiences, providing a truly omnichannel loyalty approach, ready for the next of innovation. That is not going to be easy as what may today means payments , tomorrow can include loyalty. Apple, Google and PayPal are hitting each other hard in this market. They can surely tackle smaller companies.
But the other way around is also an option. Loyalty can turn to payments so maybe there’s more than meets the eye for Belly.
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.
There is no shortage of logistics needs in the world. As the world gets smaller, more products have to be moved. Recent changes in consumer behavior helped increase the volume of moved goods. Almost $19 trillion worth of goods were imported and exported in 2013, 5 times as much as in 1990.
This 19 trillion market is stuck for the moment with two very big problems leading to ineffectiveness. The first one is technology infrastructure. As goods move to and from very different countries and cultures, there is no unified backbone for making shipments happen. As such, logistics are somewhat slow, compared to other areas in the commerce landscape.
The second big problem is the last-mile delivery. The likes of FedEx and UPS are great at moving goods from New York to Shanghai and the other way around. They’re not really that great at building local delivery networks, able to ship goods fast and cheap. As you might notice, this is a bit of a problem for ambitious retail companies such as Amazon, Walmart or Alibaba, aiming for global dominance.
But worry not.
Investors have picked up on the opportunity to disrupt the $19 trillion market and have turned their investments to logistics companies. According to Crunchbase, investments in logistics startups went from 0.1% of total investments in 2012, to 1.37% in 2014. The total amount invested in 2014 in logistics startups ($1.8 billions) means an increase of 1370%. That is a sure sign that something big is really just around the corner.
As the market is ripe for disruption and investors are generously tapping into logistics, a lot of companies will be showing up on the logistics radar.
Among all these, here are 5 companies that might be the model these investors are looking for:
No.4: Amazon is trying to ship goods with drones
After Jeff Bezos announced Amazon is building a drone-delivery service, a lot of people (me included) were questioning whether this could be real or just a PR stunt. It seems that not only is Amazon serious about the drones, but it is also very focused on building the model for the next generation of logistics operations. It has invested more than $14 billions since 2010 in its warehouses.
It has invested in robotic fulfillment operations, purchasing and integrating Kiva Systems. Becoming one of the most automated fulfillment and shipping company, it leads the way in large scale ecommerce logistics. As a result, the company is improved its operations vastly. In 2012 it managed to ship 10 million products per day, leading to 1.05 billion products shipped in the last quarter of 2012.
No. 3: Freightos takes a shot at a trillion dollar market: the cargo industry
It may come a shock to those reading this but the cargo industry is really in need of some technology updating. A lot of work in the freight (cargo) industry is done with the help of emails, spreadsheets and … fax machines.
Freightos aims to change all that with a SaaS product that connects those in need and those offering freight services. Unlike the previous way of managing shipping costs, Freightos provides a cloud application that can allow for real-time responses.
No.2: GoGoVan connects vans, delivers the last mile
Remember the thing about the last mile the likes of FedEx just can’t handle? It turns out they really don’t want to handle that last mile. Large logistics companies in Hong Kong outsource 70% of their local operations, estimates Gabriel Fong, CEO of Hong Kong GoGoVan.
The company employs Uber’s taxi-hailing model to connect van drivers and those in need of moving goods. They basically replace the old and ineffective call center with a mobile app.
GoGoVan estimated that 35 000 of Hong Kong’s vans are owned by freelancers. These freelancers usually subscribe to a call center which can forward requests and lease radio communication equipment. It’s usually ineffective for both the van-driver and the customer so GoGoVan decided there is a market there.
Right now GoGoVan has 18 000 vans registered with their service so things are going great.
No.1: Uber has transformed the cab industry, it can go further
Uber started as a car-sharing service but soon turned into a multi-billion company, available in 45 countries and 200 cities. It has done that by allowing those with an acceptable vehicle play cab-driver for anyone willing to pay.
The company so far successfully dodged cab regulations and managed to change the way people move in the urban environment.
Lately they have figured out that if they can move people from point A to point B they can also do that with merchandise. After experimenting with a fast delivery service called UberRUSH, trying on a Corner Store service and shipping Christmas Trees, Uber got it: It can do logistics.
Specifically – urban logistics. After all – it really is not that hard to adapt the model to minivans (see GoGoVan above).
I can’t wait to get my online orders delivered in a black luxury sedan. Hear that, Uber?
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?
Improve customer experience with technology
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:
Improve fulfillment and inventory management
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?
Macy’s is winning the retail game
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?
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.
Word’s out that Amazon is planning on opening its first brick and mortar shop. With such news the retail world is now buzzing with questions:
Is Amazon really going head to head with mainly brick-and-mortar retailers? Should the likes of Walmart be paying attention to such tactics? Could this mean a new way of doing business for Amazon?
The answer is no.
First of all Amazon is not opening actual stores. It’s opening pop-up stores. The big difference is pop-up stores are available for just a limited amount of time. They pop-up and then they pop-off. For example the two stores Amazon is now opening will be in San Francisco and Sacramento and will be open just for the holidays.
Amazon will use these stores to showcase its proprietary mobile devices (tablets, ebook readers, the smartphone). Once the holidays are over – puff – they disappear.
There is, however, one report from the Wall Street Journal, not yet confirmed by Amazon, saying the company would actually be looking for more. This report points to a New York location in Midtown Manhattan that would serve as a permanent physical presence. Again, this won’t be your typical store but rather a location designed to respond to specific Amazon needs.
Such needs would include testing Amazon products, order pick-up, returns and local delivery. Maybe even a drone helipad. Who knows?
Seriously now – with the store working as a mini-warehouse, the company could easily offer same-day delivery to near-by customers. That’s a great way to compete with Google’s same day delivery. These type of operations (pop-up shops and drop-shops) could become mainstream in the future as retailers need to bridge the gap in omnichannel retail AND provide faster shipping.
However, Amazon’s offline presence should be scanned from a different perspective:
Amazon is not moving offline. It is already there.
There are no Amazon stores just yet. Except for a few Amazon lockers and the occasional pop-up stores, the largest online retailer remains a pretty digital presence.
Except for its logistics.
Beneath the magic of Amazon’s online retail presence lays an well-oiled logistics machine. Amazon combines advanced IT systems, human operations, robots, huge warehouses and a complex shipping operation to fulfill its daily orders. And some underpaid workers but that’s another thing.
How many products does Amazon ship? Billions.
In 2012 Amazon sold and shipped more than 10 million products each day. The total number of products shipped in the last quarter of 2012 was 1.05 billion. Yes, that is a Billion with a B and it is reportedly the first time in the company’s history when it sold more than 1 billion products in just one quarter.
The number of listed products is also huge. Its top 5 markets all list more than 100 million products, with the US totaling a whooping 253 millions, as reported by Export-X:
Amazon Fulfillment: 83 million square feet of storage and fulfillment centers
You’ve probably guessed that shipping 1 billion products per quarter to more than 200 million customers worldwide requires a bit of work. What you probably don’t know is that such a large-scale operation uses 50 million square feet of storage in the US and 33 million square feet of storage outside US (source).
There is no other ecommerce competitor with such storage and fulfillment potential. Its dominant position allowed for two interesting business models to evolve: The Amazon Marketplace and Fulfillment by Amazon.
To reach sales as those shown above, Amazon lists and sells both its own products and those from 3P (Third Party) merchants. Merchants can join its Fulfillment By Amazon program, ship the product to Amazon’s Fulfillment centers and than leverage Amazon’s Logistics.
This means the company can count on its sales AND influence to shape the future of retail. Its logistics are probably the most useful and under rated tool in expanding globally. While everyone wonders if Amazon will set foot in the offline world, the company has already laid the foundations to what will probably be the future of retail.
Of course, the numbers listed above can only show a small bit of what is required to keep Amazon moving and growing. The operational tools Amazon employs and the processes behind this amazing machine will be uncovered in an upcoming ebook. Until then – check out “Understanding Omnichannel Retail” – a comprehensive report on how online and offline sales are now connecting.
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:
1. PayPal can mean more than just payments
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.
2. PayPal should be more than an accessory to Ebay
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.
3. PayPal could grow even faster as a separately traded company
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.
Is there a cyber war out there?
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.
A chart based on US Census Bureau and Comscore data was published by Business Insider. It shows Mobile Commerce growing three times faster than Ecommerce overall.
The numbers behind it are very interesting:
mobile commerce is on the rise and has registered a 48% YoY growth, in the second quarter. It now accounts for $8 billion in online spending.
overall ecommerce (including mobile commerce) grew “only” 15.9% year over year in the second quarter and totals $70.1 billion in online sales.
Stop betting on (just) mobile. We’re not there yet.
Smartphones and tablets have brought forth a revolution in computing and social interaction. Unfortunately for overenthusiastic mobile-only fans, mcommerce usage is lagging behind mobile device adoption.
If you look at the chart above you’ll see there’s a linear growth in mobile commerce. Not a hockey puck growth. Not even an accelerated growth.
Even more – ecommerce accounts for only 5.9% of all retail. Mobile commerce itself is just 11.4% of ecommerce. This means mobile commerce, however ambitious is pretty much insignifiant. It accounts for just 0.67% of total US retail.
Smartphones and tablets are extremely popular. Mobile commerce – not so much.
And hey – it’s not the fact that people don’t like smartphones. Oh no. People love smartphones:
They also love tablets. Almost 42% of all US adults own at least a tablet. Remember – this is a product that went on sale only 4 years ago, when Apple introduced the iPad. In just 4 short years, the tablet has become a virtually ubiquitous computing item for US adults.
So – people are buying mobile devices like crazy. PC sales are dropping yet the mobile commerce is just 0.67% .Why?
The short answer – there is no mobile commerce.
Mobile is the bridge. It helps connect the physical world to the virtual world. The act of purchasing happens on multiple channels. Mobile is not “the future”. It is the present yet the present comes in a form we have not met before – a bridge across channels.
If we take the time to see matters from the consumer’s point of view things are not as black and white as we expect them to be. Few if any consumers think in terms of mobile OR desktop OR brick and mortar. The consumer will spend time in a B&M store, browse the web to search for the right products, do a little showrooming to find the be best pricing. In the end, the whole purchasing experience stretches across channels and some are more popular than others.
But the customer has only one perspective where channels blend in. The omnichannel perspective. To provide the ecosystem for this perspective, the new retailers will try to understand and implementomnichannel retail because mobile, however massive, is just a piece of the puzzle.