O2O — Is It A Fad Or A Real Opportunity?
O2O (online to offline) is a buzzword in China right now. Almost every company talks about it. Big companies such as Baidu, Tencent, and Alibaba invested millions of dollars into O2O companies — dianping.com, nuomi,etc. This article focuses on analyzing unique value proposition of O2O and key business verticals considerations within O2O ecosystem.
O2O — A Vague but Hot Concept
The word O2O starts to mature in early 2012, when mobile internet becomes really hot in China. O2O means online to offine and I believe it is create by China market. Simply speaking, O2O means a business model or product that can connect online users to offline merchants. For example, Groupon, a daily deal/group buying site, connect internet users to offline merchants by providing huge discount on products. The merchants who used to have challenges of getting enough users now can get access to thousands of millions online users.
Back in 2010, John Doerr , Bing Gordon, and Chi-Hua Chien started to referring those type of thing — online to offline — as SoLoMo, Social, Local, Mobile.[1] It makes a little bit more sense than O2O, and capture some key aspects of this new technology trend.
However, this O2O concept is very vague. It can cover everything. Strangely enough, people think of O2O as a industry. But it really is a business model or a technology wave that makes undoable things doable.
What O2O / SoLoMo Really Means
Actually, O2O refers to a technology wave/trend/capability that provides better information to people — information that is more personalized, more context orientated, and more device agnostic: provide right content to the right person at the right time, and it doesn't matter what device you’re using.
There are four factors that enable this better information organization:
Powerful mobile device: mobile devices have become so powerful that they can do complex tasks that used to be on PCs. People shifts some work from PC to mobile, and some tasks particularly fit better on mobile than on PC, such as instant communication.
Mobile internet: Always online. this differentiates itself from PCs, which means whenever users want to get information, they can get it by pulling or pushing through the internet. Mobile internet also provides better user experience for tasks on the go: send and receive messages, navigation, instant search, socializing with friends.
Location service: This enables context-oriented information, using your location to feed more relevant information, such as getting nearby information like restaurants, or sending coupons when you get into a shopping mall.
Big data: More data and better predictive modeling enable providing better information( relevant and being at the right time) to the right people.
Right now in China, any business that is related to providing more personalized, more context orientated, and more device agnostic information can be categorized into O2O business.
Why O2O
This new capability of organizing and providing information has profound impacts on business. For example, retail business can now target users by sending context awareness Ads / offers when customer walk into the store, taxi business can now better meet supply with demand by allowing almost every driver and user to submit and receive request, healthcare business can now user personal data to offer personalized advices for their users, or even tracking users habit in long term.
Choose the Right Business Verticals
Almost every business will benefit from this new technology wave. But some business verticals(industry) position better for O2O than some other verticals. On a very high level, consumer-facing business positions better than enterprise-facing business. Actually I wonder if I see some so-called enterprising-facing O2O companies.
The first thing to think about right verticals is to think about customer needs and behaviors. what’s their needs in mobile era and how their behavior will change in future. For example, people will do more and more shopping on their mobile phones. The way they choose a product and interact with a brand will be different from that of PC era. Customers will be more likely to use their friends’ purchasing info as a refernece to choose brand or product, and will be more likely to accept an Ad or offer if presented to them at the right time and place. Also, people will be more likely to pay their bills through mobile phone. On the other hand, people probably won’t purchase their cars through mobile phone in the very near future. But they would be more likely to schedule a test driving appoitment through mobile phones. As a result, tasks that can be easily done on mobile devices or that can be done better on mobile devices are good verticals, i.e. e-eCommerce, payment, local food business, ticket buying.
The second thing to think about an O2O vertical is to think about the TAM(total addressable market, in terms of size and growth rate). The market opportunity is important: is this market big enough? is this market growing fast and will grow fast in future? Are customers adopting mobile fast in this business area? As a rule of thumb, a good market opportunity should have at least $1B TAM, and 20% Y-to-Y growth rate. A big and fast growing market usually means (1)you solve big customer frustration and problems; (2)big opportunity for new players to get a big piece of pie to build a large business or company;(3)long durability from which you generate future cash flow.
The third thing to think about an O2O vertical is to think about the business model(how do you generate revenue from your business). There are basically 6 business model for mobile internet right now: E-commerce(transaction), SaaS(subscription), Mobile App/Game(in-app purchase), Online Media(Ads selling by providing content), Two-side Marketplace(commission),User Generated Content(Selling Ads by forming large user community). Think about how you can generate revenue through your business model. For big companies, such as Tencent, Baidu, Alibaba, it’s also important to think about how the core business can integrate with those business models. For example, Wechat tap into O2O business through UGC and e-commerce model: selling Ads within friends’ circle, derive transaction fee by feeding traffic to other e-coommerce websites.
The fourth thing to think about an O2O vertical is to think about the product(how can you create a product that provides personalized, context-orientated, and device agnostic information). If people are going to use mobile device or apps to organize their life, such as schedule a trip, call a taxi, pay the bill, do shopping, how your product fits into their lives? Then think about how frequently people will use your product, and think about how frequency impact your business model.
Going Forward
Going forward, I think O2O will still be a hot concept in China, especially under the background that BAT(Baidu, Alibaba, Tencent) all enter this area and try to find their ways to monetize their traffic. Retail/local merchant, e-commerce, healthcare, finance/payment will still be hot, because market opportunity is huge, mobile fits very well within those context, and people tend to use those service frequently.
