The Apocalypse in Retail is on-going. 10 years ago many brick-and-mortar retailers went online. From the outside it may look like they are catching up with the winners, the eCommerce players like Amazon.
But is it not enough, catching up ? Not everyone would have read about the Canadian Retail Apocalypse. Over the last two years major retailers and brands such as Target and Sears have pulled out or went bankrupt.
Despite millions spent on building their eCommerce play, their omni-channel model doesn’t seem to last. To understand the downfall one need to go behind the scenes
More Patch Work Ahead
At omni-channel retailers, on a technology level, there’s a patchwork of dated technology platforms, unreliable data, as well as a mishmash of systems with many gaps. The data is usually not clean. Their stock isn’t managed as intelligently as it could be. With new digital technology coming in and more data sitting in the cloud, more patchwork is ahead.
On a strategic level, they don’t build business platforms where interaction and communication drives the engagement. They build technology on top of an outdated business pipe model.
Many retailers who have an e-commerce platform would rather rip up their whole creaking digital offering and start again. However the risk to start again is perceived as too big.
It seems easier to make a decision to renovate a big (flagship) store of Target for $10 million dollars. Even if the business case turns out positive for the one store, there are plenty of other stores to renovate with depressing old lay-outs and many of them located in huge malls becoming dead zones.
Meanwhile dozens of blogs are still trying to demystify the $ 14 billion Amazon spent on Wholefoods. Going in reverse from a pure eCommerce player into brick-and-mortar is very surprising and for sure will provide opportunities but it may handcuff them and provide them with similar budget challenges. Amazon will need to spend considerable millions of dollars now in building an efficient omni-channel play.
Another retailer (quoted in my previous post) re-platformed their eCommerce technology platform, which took 3 years and $20 million.
These are decisions made in the comfort zone and at the expense of building a new digital model to win in eCommerce.
Let me quote a retail insider from a Fast Company article on what’s happening in retail:
“The retailers we meet, they don’t do anything all day! Their give-a-shit factor is way down; they’re not on the floor every day like we are. Now that they’re making less [money], what do they do? The same thing as before, over and over and over again.”
So where is the future of eCommerce ? Lets first get rid of the ‘e’ since eCommerce is too much associated with the web and web technology is a dated technology in the context of other, upcoming digital technologies, their cost and their customer engagement potential.
The better question: where is the future of Commerce ?
In this blog I will outline a future of Commerce in an integrated business model which facilitates a platform strategy integrated with new experiences enabled by an intersection of new key digital technologies like social, mobile and AI (bots). Add Blockchain and cryptocurrencies in the mix and the gold of future commerce is in the hands of a new set of tech players, some very small, one very big.
Having worked on digital transformations both in the banking and retail industry it’s so interesting how both industries have so many parallels in how they are being disrupted ! With in the core, power (and profits) shifting to the small techs, fintechs, (no name yet for small techs in retail…’rettechs’ ?).
The big one is not Amazon. Ofcourse Amazon is getting ready for the future, spending lots of money building new shopping experiences enabled by drones, voice (Alexa) sensors (IoT) and machine learning (Amazon Go). But Amazon is not the only one holding the poisoning arrow.
Look East, Not West
To understand the future of Commerce lets look East! Not (in the) West. In China, shopping is dictated by an App !
Chinese retail giant (already global) Alibaba has an appscentric platform model.
WeChat is another one and I find it the most interesting. Why its so interesting ? It shows how a single app can actually establish a whole new ecosystem, an economy, a new internet nation through the smartphone.
There is no such business model in the Western world. Despite cultural differences there are far more other reasons why those Chinese appscentric platform models will define the future of Commerce.
Let’s do the Math first
Amazon has now about 120.000 people employed. Alibaba ‘only’ 25.000. From a financial perspective the turnover of Ali commission is around 15 billion which boils down to 11 billion profit ! That is about $450,000 profit per employee.
Amazon recorded roughly $5 billion profit of which 50–60% is accounted for by AWS. Roughly this means Amazon yields around a $21,000 profit per employee (taking AWS profits out of these calculations to address Commerce earnings only).
It shows how an app can be a platform (essential for building a successful digital strategy) and the future business model makes billions of profit in a way, Amazon can only dream of. Sure Amazon has an app but the app is built as a channel, extrapolating the web, not as a platform.
For anyone understanding the tech KPIs, the ARPU (average revenue per user) is an important success indicator in Commerce. The WeChat model drives on the messaging platform. Comparing with the West’s most popular chat platform, Whatsapp, the current ARPU for the Wechat app is $7. Whatsapp is currently on a $1 ARPU.
So from another angle the future of Commerce is well connected when build on top of a messaging platform. Conversational Commerce. Lets deep dive on this one !
The WeChat model
A year ago, Wechat had over 700m users. It only exists in China and through the app, more Chinese reach the mobile internet than the US, Brazil and Indonesia combined! Half of all online/internet sales comes from mCommerce where in the US this is max a third of all online sales.
Similar to how underdeveloped countries leapt from traditional banking into mobile banking, lots of Asian nations, have now seen dramatic growth of similar models where mobile messaging apps define a new future of Commerce.
In Indonesia , ‘good old’ Blackberry Messenger rules in a similar way as WeChat in China. The potential for growth in different directions is therefore bright for Blackberry in the messaging space. It explains also that Blackberry even left their data-centers in Canada and built a new Cloud infrastructure in Asia.
The Wechat model indicates the potential of mobile commerce. No other Western (tech) company has yet been able to transform themselves towards such a model.
The Wechat model provides a clear business case to any retailer, even on a more macro-economic level towards a new economy and how to leapfrog over the web era, directly into the mobile internet.
A mobile lifestyle for a whole nation.
Its interesting to unravel the growth path of the Wechat app to above magical numbers. The app started simply as a social communication platform to send text, photos and voice to friends and family.
After the platform had a solid user base (end 2016 over half a billion MAU), it started expanding by adding more functionality and content and very importantly by adding more digital services. Now you can hail a taxi, make a doctor’s appointment, order food, send money, buy event tickets, pay utility bills, follow celebrities, get coupons, track your health and of course shop. The app addresses daily needs. It has become a lifestyle, a mobile lifestyle.
Commerce is driven by its own appstore. Within the app, every retailer, brands, manufacturers, startups, celebrities, can apply for an account. Once approved they get access to APIs (payments, location, messaging, userIDs) basically to open their own store.
Users don’t have to download apps for low frequency services as opposed to the West where apps are often single-categorized, full featured apps. Within WeChat millions of other apps live, usually a single webpage where brands can create their own UI. The model operates like a browser, an appstore and an operating system in one. A platform where everybody wins.
Last but not least, other hidden secrets are happening behind the scenes; An army of mCommerce product managers help brands through the Commerce processes and the available marketing options.
Alibaba is thriving on a similar model and calls it even a mall in an app.
Both companies created mCommerce ecosystems driving the Chinese economy, all from one App.
Although Alibaba has more a web presence than WeChat, the Alibaba app is central in its digital strategy. Their payment systems form an important pillar of Chinese retail payment infrastructure.
Traditionally, in the west you start Googling if you need something, you search and you click on a link and you order.
At WeChat and Alibaba search starts with their App. They also make shopping far more social. The experience is very interactive, a two way street whereas in the West it’s merely one direction following the pipemodel, a linear flow of value-creation.
In China shoppers have conversations with friends about e.g. health products or they follow a livestream from their favorite brand.
Shopping is a social experience, universally. The apps are discovery platforms and latest shopping discoveries gain network effects by letting your friends know you just discovered/bought. An impactful marketing tool for a brand, similar what once was mouth-to-mouth marketing. And the result: Alibaba is now worth over 250 billion. Eat that Amazon.
Facebook is known to monitor the WeChat model. WeChat inspires Facebook and more western companies, even startups should look east as well.
Along the WeChat model Facebook also aims to use their social platforms (Facebook, Messenger, Whatsapp) to communicate with businesses and let people buy things. Just a few weeks ago Facebook shipped Marketplaces. It looks horrible now but I am sure they will get it right and take-over from traditional digital players like eBay and shaping the future of Commerce.
Another interesting huge user benefit is the integrated payment system. Wechat has integrated a Wallet service which is simple and a cornerstone of the App’s success.
Obviously with all sorts of digital services available through the app, the wallet allows seamless transactions flows throughout the app to cater for transactions for the entire ecosystem. Users don’t have to leave the app.
Authentication is taken care of through the ID and sensor technology. The wallet is like a portal within the app where you can upload your credit card or banking card.
The most interesting is how the wallet provides new monetization opportunities for all the accounts and through the in China popular QR codes, allowing offline payments in stores and at events. For merchants and event organizers, WeChat delivers an end-to-end digital services, including transactions, processed through the app.
Mobile-first is still a major challenge for Western Companies
Another disadvantage of Apps in the Western world is that most of those apps are a replication of the web model (e.g. Amazon) and thus they are lacking mobile-first experiences. The Smartphone has the promise to personalize, be context aware and offer seamless interactive and sensor features. The camera has been mainly used as a photo-maker initially, just recently Western (Commerce) apps start expanding by using the camera to scan.
WeChat is using them all — the camera, the accelerometer, bluetooth, sensors, voice, to bring entertaining and interactive services to their mobile crowds including finding their friends in their vicinity. And to redefine advertising: their Moments ads are based on relevancy for people, e.g. a coupon for a Starbucks coffee at a Starbucks nearby based on a certain time in the day.
As a social network, Wechat is providing much more possibilities for brands to engage with users. At social networks where content is king, Wechat offers marketers a much larger array of options to interact with brands and drive commerce to new levels. In the West platforms like Facebook, Instagram and Snapchat offer static content, only to share comments and likes.
Within the accounts’ ecosystem of WeChat, data is floating around people’s daily lives and personal needs. It creates tremendous possibilities for personalization and interactivity for brands, influencers and artists. It increases conversation and as such conversion rates are much higher than any channel in the west.
Create mobile interactive content
Once agencies push themselves to think beyond the web and discover and understand mobile-only creativity, the app model of Wechat will finally transform also the digital marketing industry where advertising potentially takes a real-time, laser-fine, interactive journey. Instead of pushing information that has the risk to be user-irrelevant for a majority of displays, e.g. because its not clean enough or stems from other less dynamic media.
Think about an artist or sports franchise holding exclusive chat (meet and greet) sessions with players/artists and their fans, exclusive access to pre-recordings or concert tickets, discount coupons to music streams, in-game or post-game experiences, etc.
Run the enterprise on communication
Similar to Slack, the WeChat app also integrates with enterprise systems for document sharing, sales support, CRM and of course enterprise team and project communications.
As an example in the banking industry, BNP Paribas in France, uses AI to augment the sales support processes for account managers while chatting with certain customers. As a result more accurate sales pitches and relevant (personalized) product and services are offered.
Rethink the digital model
So does every company and brand need to replicate these platform apps or embrace Facebook as the potential WeChat of the West ?
Companies and brands, with their large, growing digital agenda, have the opportunity to rethink their digital models based on the WeChat model meaning — Provide Commerce within a communications platform.
Step away from information-push thinking and embrace the interactivity-pull model and take full advantage of using the smartphone and all of its capabilities.
For a couple of tech companies in the West , the Wechat model shows they have gold once they transform their communications platform into an Commerce ecosystem.
Not only to lead in mobile technology, rather start using new digital technologies like AI and Blockchain to create completely new digital ecosystems. As a matter of fact some have already taken such disruptive roadmaps to dictate the future of Commerce, stretching, even leapfrogging the WeChat model.
How does adding more digital tech look like ?
At a special stint for one of the below mentioned startups, I have designed a mockup how the various use cases of the future of Commerce may look like:
In the below paragraph I am painting more of this future and which apps may hold the gold !
The next big thing in Commerce — C2C (Chatbot to Consumer )
Those that believe WeChat is not something peculiar for China are among those re-thinkers and get the digital strategy right. It’s an opportunity especially for the outside-in thinking startups.
Startups owning a chat/messaging platform are in pole position to emulate the success of WeChat. Not only because they own a platform with millions of users. Startups hack growth not based on a great idea….
They solve problems of users and the WeChat model shows that there is a model to drive Commerce and (monetized) Content better in the mobile era. Combined with rethinking the Maslow model in the digital era brings to light a new array of digital services for which there is a high need whether it’s in Asia or in the Western world.
Another fact is that WeChat (and Alibaba) as a mobile app, is one of China’s largest mobile gaming platform. Not only in China, all over the world, the most time spend on mobile phones is on mobile games. One of the most popular features at chat apps are stickers. Stickers and games represent 50% of WeChat revenues !
Therefore it’s no wonder that Facebook launches a gaming platform at the Messenger app so less people leave the app !
If we extrapolate this to other apps in the Western world, Discord, Teamspeak, Mumble and Ventrilo, own already a platform of gaming users and a chat function and when they stretch the app to the ‘Golden Dragon’ business model, they could be the WeChat or Alibaba of the West.
The same for popular messaging apps like Stack, Kik, Viber and even Skype hold the potential, similar to BBM in Indonesia, to compete with Facebook.
As a matter of fact, Facebook is not the only one monitoring, inspired by and building along the WeChat model.
Kik is on a very interesting mission (with Wechat’s owner Tencent as strategic investor), even leapfrogging from mobile into AI. They reuse their chat platform and….
- replace the appstore for a Bot store, transcending from mobile into AI
- replace mCommerce to conversational commerce
- replace wechat Pay and Wallet with a blockchain-based wallet and cryptocurrency (kin)
It’s amazing how they envision a new ecosystem where digital services on their platform become available, transactions are being processed by the Kik Wallet and even their own cryptocurrency Kin will be circulated in a new ecosystem after a succesful CIO. It’s a great new business model where new digital technologies like AI, Blockchain and Mobile intersect to create the new Commerce model of the future.