Why blockchain is the next big innovation for e-commerce
Retail is quickly becoming a major use-case for blockchain. E-commerce has changed the shopping experience for consumers and blockchain is set to disrupt it again.
Shopping isn’t what it used to be.
From the first cash register in 1879 to a sophisticated point of sale systems. From family-owned mom and pop stores with all the goods behind the counter to self-service department stores. Then came huge shopping malls, with shopping becoming an all-day outing and part of the entertainment industry. Big category names began to squeeze out smaller businesses.
Everything was put on its head with the introduction of e-commerce. Shopping habits have been revolutionized as people can shop anywhere at any time. International borders have been removed and there’s almost unlimited choice. Consumers expect offline channels to have an online presence too.
What will be the next step in this evolution of retail?
This article looks why blockchain is expected to be the next big change on the shopping scene and shows why retail has become a major use-case for blockchain.
Move over the bricks and mortar retail model
The number of retail operations in the USA that have filed for bankruptcy since 2015 makes for depressing reading. They include some with worldwide recognition, such as Sears, Rockport Shoes, Nine West, Remington and ToysRUs. In 2017 alone over 7,000 stores closed, with more than half being apparel and electronics stores.
Sears was once the biggest retailer in the US, known as “the everything store”. It has been in business for 125 years. Its CEO, Eddie Lampert pointed to changed consumer behavior: consumers have become more price sensitive, doing more research and shopping online, and there has been a shift away from shopping malls.
According to a CBInsights report, this “retail apocalypse” is part of a trend towards the death of physical retail and the move to e-commerce.
A second trend identified by CBInsights is what they call “digital laggards”:
“Many big-box retailers either failed or were too late to establish an online presence. With the rise of Amazon and digitally native direct-to-consumer brands, retailers that don’t adapt quickly enough inevitably fail to compete.”
As a result, many of these formerly highly successful companies are being overwhelmed by debt and are being forced to close their doors.
The battle in the e-commerce space
E-commerce has changed the face of business. Previously, successful trading hinged on the strategic location of a business. Now it’s a global marketplace where even a small retailer from a town or village can have a global business.
E-commerce is a multi-trillion-dollar market and is extremely competitive. According to BigCommerce, over 2.1 billion people are expected to be shopping online by 2021. 96% of Americans already shop online.
The industry is dominated by major players such as Amazon, Alibaba and eBay. Other big players are providers of ancillary services such as warehouse logistics and fulfillment, customer relationship management and payments. For example, UPS and FedEx are looking to provide logistics to service the shopping baskets of international orders. Everyone is trying to own the payments side — this includes Apple, Samsung, Google, Visa, PayPal and multiple others.
It can be very difficult for new or smaller players to break into the market. In fact, even big players are struggling to compete.
When Amazon bought up Wholefoods, Walmart and Kroger were forced to invest in an online presence.
· Kroger has been in the retail business since 1883, has nearly 3,000 outlets, over 400,000 employees and annual revenue of over $115 billion.
· Walmart is a retail giant with 30 years start on Amazon; it has more than 2 million employees and had a turnover above $500 billion in 2017.
Despite their size, they are under pressure and are being forced into a different business model.
Walmart has been moving out of its bricks and mortar stores around the world, as it takes up the online retail war against Amazon. Walmart recently partnered with Google to acquire 77% of Flipkart, India’s biggest online retailer. It needed $16 billion to outbid Amazon!
And, of course, everyone is watching Alibaba. It was established in 1999, and by 2013 was delivering 5 billion packages in China alone. It works with a network of logistics providers across the country, all linked to sellers and buyers through Alibaba’s “Smart Logistics” platform. Its revenue increased by an incredible 61% in 2017 — and it is now making acquisitions to expand into South East Asia, starting with India and Pakistan. At last count, it had 443 million annual active buyers.
Big companies are looking to form partnerships with Alibaba to tap into changed shopping habits. An example is that Chinese consumers make up a third of all luxury goods purchased globally — but are now wanting to shop from home. So a luxury goods company like Richemont would want to tap into this market.
Richemont has subsidiaries for luxury goods such as Cartier, Van Cleef and Arpels, Chloe, Dunhill, Montblanc, Piaget and others. It has an annual turnover of about $12 billion and a market cap of over $40 billion. Despite its size, Richemont would struggle to set up an e-commerce presence in China, and in 2018 has entered into a partnership with Alibaba.
According to Anton Rupert, Richemont’s Chairman, “Quite frankly there’s not a luxury goods group in the world that can catch up with where Alibaba is at in terms of so many of its ecosystems.”
Is there a place for blockchain and cryptocurrencies in e-commerce?
Despite its strength, the e-commerce model is not perfect. There are problems faced by e-commerce that quite easily can be addressed by blockchain.
Five of these are:
1. The time and cost of cross-border transactions
2. Security of payments
3. Order fulfillment and transactional risk
4. Ownership of data
5. Ownership of customer relationships and vendor-IP
In another article, we have discussed blockchain solutions to these problems in more detail.
“5 powerful blockchain solutions that will disrupt E-commerce”
In brief, here are some of the solutions and the disruption to current e-commerce practices that they will cause:
· Cross-border and cross-currency payments can be made in seconds rather than days, making some e-commerce sites uncompetitive, and making some intermediaries such as banks, clearing houses and special online payment solutions (and their fees) redundant.
· Credit card details and other personal information are not required as peer-to-peer payments can be made from one secure wallet to another. Again, intermediaries become unnecessary.
· A complete record of all transactions, including orders, dispatch, payments, etc will be on the blockchain as a single authentic record that is visible to everyone. Smart contracts will record agreed details and automate actions when conditions have been met. A whole army of supply chain, accounting and administrative staff will not be required.
· Individuals own their own data on the blockchain and they can share it if and where they want to. E-commerce companies that rely on collecting and analyzing customer information will no longer be able to monetize it.
· Transactions on a blockchain-based platform are peer-to-peer. The platform facilitates the interaction, but the transactions are P2P. This can be business to customer (B2C), business to business (B2B) or even customer to customer (C2C). The seller owns the customer relationship, not the e-commerce company.
· Business materials and vendor-IP like photographs, product descriptions and product videos can be digitized and remain the property of the vendor. If the e-commerce platform wants to use these images to compare with other products (and very often with their own products), they would have to pay for them.
It is clear from this list that current e-commerce businesses would have to make some significant changes to their business models if they want to remain competitive.
Current adoption of cryptocurrencies and blockchain for e-commerce
Several companies are taking note of the changes that blockchain will bring and are adapting their approaches, either through accepting cryptocurrencies as payment or in implementing their own blockchain solutions.
Companies accepting cryptocurrencies as payment
Several established e-commerce sites are starting to accept cryptocurrencies as payment. They are seeing a gap in the market where owners of cryptocurrencies don’t have real-world places to spend it.
Some of the better-known ones include
· Microsoft: You can use cryptocurrencies to make deposits into your account to buy movies, apps and the like.
· Shopify: This is an e-commerce platform that allows vendors to organize their own online stores. They have recently introduced the option to accept cryptocurrencies.
· Expedia: This is a large online travel booking agency that accepts crypto for flights. They will also allow crypto payments for hotel bookings,
· Overstock.com sells furniture, bedding, jewelry and more. It has been accepting Bitcoin since 2014.
· PizzaForCoins: The coins are linked to major pizza outlets like Pizza Hut, Dominos and Papa Johns.
Blockchain and cryptocurrency adoption by eBay, Amazon and Alibaba
eBay
eBay has joined the Enterprise Ethereum Alliance, an open-source consortium, with a view to better understanding blockchain technology, and how it could impact customer to customer transactions.
eBay is particularly at risk from a customer move to the blockchain, as a significant portion of its income comes from PayPal, which it acquired in 2002. Both customer and vendor comments on the eBay site attest to dissatisfaction over the high fees charged. Fees are also quite difficult to calculate. It would seem that many people stay because they have some security in knowing who they are dealing with, rather than because they are happy with the service. This is risky for eBay.
A number of startups are particularly targeting the eBay market. They are advertising blockchain solutions that are “as safe as eBay” (Nauticus) and that will be the “eBay of Blockchain” (BlockMarket).
Amazon
It’s interesting that a Bank of America research analyst has specifically identified Amazon as a company that would benefit from the widespread adoption of blockchain. While Amazon itself seems more interested in the use of blockchain for its Amazon Web Services (AWS) business, the analyst says that blockchain-based supply tracking would make the retail business more efficient.
Any competition to Amazon would come from buyers and sellers who don’t want to be in Amazon’s control. For buyers, this is mainly about retaining control of their personal data. For sellers, it’s about not having to be concerned about being “uninvited” if Amazon decides to launch its own private label products in competition to theirs. And it’s also about having control of customer relationships.
A German e-commerce company, GAMB (Global Alliance of Merchants on the Blockchain), is setting up a platform to allow sellers to do just this and to fight against monopolies and centralization in e-commerce.
Alibaba
Alibaba is known to be a supporter of technology, including blockchain. This was spelled out in its BASIC strategy paper released in 2017, covering “Blockchain, Artificial Intelligence, Security, Internet of Things and Cloud Computing”.
It has 43 of the total of 406 blockchain patents registered in 2017. Only IBM has more, at 68. Ant Financial, Alibaba’s financial arm, has launched version 2.0 of its own open platform blockchain.
On the e-commerce front, Alibaba has recently filed a patent to speed up international payments when there is a third party payment vendor. It is designed to verify account balances in the vendor’s mobile wallet, to check on compliance with any applicable regulations and then to trigger payments based on smart contracts encoded on the blockchain.
Alibaba is already using blockchain technology in its supply chain to fight food fraud. It is also part of a consortium of companies including Kroger, Walmart, Nestle, Unilever, Tyson Foods and others to track food from producer to consumer on a global basis. Its logistics subsidiary, Lynx, is using blockchain to track cross-border shipments. This keeps an immutable record of all sorts of shipment information, including customs, transportation, inspections and any third party verification. Another subsidiary, T-Mall, is using a similar system to track shipments of products from over 50 countries.
Given the total ban on cryptocurrencies in China, Alibaba does not support payments in cryptocurrencies.
What is the future for blockchain in e-commerce?
It would seem that Alibaba is the only one of the e-commerce giants that is really taking blockchain seriously.
However, there is a groundswell of concern about monopolies, centralization and, most importantly, the invasion of privacy that large companies are starting to represent. If blockchain can add speed, security, peer-to-peer interaction without intermediaries, privacy and reduced costs it is not difficult to believe that people will start to move in that direction.
Start-ups all around the world are coming up with ideas on how to compete in the e-commerce world. It remains to be seen which, if any of them, will become the next Amazon, eBay or Alibaba!
