“We will see more change in the next 3 years in the way consumers shop and pay than we’ve seen in the previous 15 years. Offline retail hasn’t changed that much in the last 15 years. Ecommerce has been fairly distinct from the offline experience. Smartphones are blurring the lines between offline and online faster than anyone could have imagined. … We think e-commerce, which is 4 percent of offline retail, will double or triple. … By 2013, e-commerce will be a $10 trillion opportunity.” ~John Donahoe
eCommerce has been mostly a static market for technology in the last few years. Sure there is buzz about “m-commerce” and social shopping, but little has actually come to fruition and overall there have not been any significant technology waves in several years. Last month however, eBay held a conference to introduce their new X.Commerce initiative, which appears to be just that major change. I decided to research this a bit because it sounds like it has the potential to disrupt the technology-for-retail market and thus provide some opportunity. Here is what I found:
X.commerce was introduced confidently as the first “open commerce operating system” at the conference. After spending several billion dollars on acquisitions ($2.4 billion on GSI alone) in the past couple years, eBay indicated their intentions to sew together all of these acquisitions into a comprehensive API that will be fully open and available to developers. Among the acquisitions are GSI Commerce, Magento, Where, Milo, and FigCard. There were hints that further acquisitions may be forth coming in the effort to create a full commerce stack for developers to leverage. There were also announcements that Omniture Analytics would be made available in the stack and Facebook will be doing open graph integrations. Oh and the new PayPal Access will be released, reminiscent to Facebook Connect, to allow more seamless integration as a payment system.
The stated goals behind this major initiative is (a) to provide the building blocks to allow developers to benefit from helping to create a cohesive fabric over the coming years via plugins and extensions (as well as commission for selling Magneto Go subscriptions). Also (b) to enable retailers to rise above the technology and spend their money on ROI generating projects, rather than technology infrastructure.
In speaking to the audience, Donahoe expanded by saying “It’s intended to put together the full suite of services, so developers can drive innovation for merchants … I feel this more than ever before, you will play an important role. I know that no one single company can provide all the solutions. Retail is a complex market, and they need different services by vertical and geography, and we need you to help with that.” He further made his point by saying “I can’t tell you how many conversations I’ve had with retail CEOs over the past 12 months that go something like this: We need to be multi-channel. We just figured out Google AdWords, and now we have to figure out things like Groupon and LivingSocial.”
Here’s a related statement from John Donahoe:
So, what are the unstated implications? First, eBay must surely be feeling the heat looking at what Square is doing to go after offline transactions. Apparently this is a 10 trillion dollar market and dwarfs what Paypal currently has. They don’t want to miss the opportunity to solidify the industry behind them, and ensure themselves as the rightful beneficiaries, as the market drives toward multi-channel integration. I also read a few musings that perhaps eBay separately is looking at how they can compete directly with Amazon, either with their eBay brand, or with some other open community-driven marketplace. These thoughts were fueled by looking at the massive fulfillment and infrastructural value that comes with the acquisition of GSI commerce as well as a their published pledge to never compete with merchants, an obvious dig at Amazon who has come under fire for competing directly with merchants who have listed their products in the Amazon marketplace, only to find Amazon competing to sell their best performing products shortly after.
There are implications for developers too. First, an article I wrote about the commoditization of technology, I mentioned that the best opportunities in technology are when the technology itself is a competitive advantage. When proprietary technology shifts to standardized and openly available functionality, the technology has essentially become a commodity. So it will be very interesting to see how companies that compete based upon proprietary technology perform in coming years.
As for smaller developers, the plan to open up and expand upon Magento’s extensions market place is an obvious attempt to replicate the success of Apple’s App store in the commerce B2B vertical. Developers will write modules that can be purchased for nominal amounts of money and solutions providers can aggregate these modules into a solution for merchant clients for a relatively low cost.
On one level that sounds like a good thing, but for developers on another level, consider what has happened to consulting and development rates for the WordPress framework. It seems if you’re charging any more than $500 for a website built upon the WordPress framework, you are likely to be deemed “expensive”. That’s the effect of commoditization in an industry. In fact, in case there is any doubt where we’re at in the cycle with X.commerce, there was this announcement last month that the official developers network directory for merchants will be powered by oDesk, a well known outsourcing job board, where developers commonly post hourly rates of $10-15 per hour. That’s not to say money cannot be made by being a solutions provider, but it does mean solutions providers either need to be aware of commoditization and move on when they see it coming, or look at how they can re-tool their solutions to service the masses and make money on volume, which is usually more of a solution or product rather than client work.
Clearly this has the potential to be a major disruption to the eCommerce marketplace and will provide some good opportunity to early moving developers to provide good solutions to fill voids in this fabric. Similar to the Facebook and Apple apps however, the opportunities will likely be most significant for those that get in very early, and opportunity will exponentially fall off from there. If you can find opportunity to inject yourself (first year or two) into the early discovery and solution sequence then you may be nicely rewarded.
Anyway, just a quick look at each of the companies that were acquired for a better understanding of with the initial outline of the X.Commerce fabric will look like:
i. Magento – By far the most popular open source shopping cart framework and a very active developer community. They provide a community edition open source solution, as well as enterprise solutions and a recently launched low-cost SaaS edition called “go” for small businesses. They also have a popular extensions market place that will be the beginnings of allowing developers to offer sellable modules that provide for extended functionality in the X.commerce ecosystem. It seems they were purchased for around $50-60M.
ii. GSI Commerce – purchased for 51% above prevailing share prices, or roughly $2.4 billion dollars, this is clearly the biggest acquisition. GSI is famous for providing full service solutions for major brands, including fulfillment solutions. Theyr fulfillment capabilities include 3 million sq feet of floor space in 7 strategically located facilities, and advanced systems for managing this fulfillment. They themselves are a rollup of previously acquired brands, including the Pepperjam affiliate network.
iii. Where.com – Where provides connections between local brands and consumers to allow them to receive deals from their favorite brands. Perhaps most important however, they were awarded what TechCrunch called the “mother of all geofencing patents” in 2010, which gives them an exclusive lock on the ability to detect that a user is within a certain geographical location and send them offers from nearby brands. Access to this patent and technology unlocks the promise of hyper-local promotions via mobile for the X.commerce platform, and assures other platforms cannot compete without going through X.com.
iv. Red Laser – RedLaser has been popular for a couple years because users have been going into stores, scanning bar codes and then finding the cheapest deal online. This one is important as retailers begin to think about their multichannel strategy and how they will merge online and offline commerce for merchants. Purchase of this technology is a clear effort to take what was once consider rogue behavior and embrace it as part of a bigger multi-channel strategy.
v. Milo – A purchase of $75 million, Milo tracks and provides real-time data about inventory and pricing for over 50,000 stores, including several major brands. Again, this is clearly directed at the multi-channel solutions Donahoe was talking about. This seems to be a big theme as retailers figure out how to grapple with the price competition online.
vi. FigCard – Okay this is an interesting one. There was speculation that this may have just been what’s recently been referred to as “acqui-hiring” in which a small company is purchased for the sake of bringing talented people on-board. Nonetheless, the basic premise here is allowing consumers to pay using their iPhone instead of credit cards. Retailers can accept payment by purchasing a simple $5 USB device to extend the functionality of their point of sale device. So imagine what could be done by integrating PayPal with this sort of technology.
vii. Hunch.com – This is an interesting one. Hunch is an early play on the emerging Semantic Web. Semantic Web is billed as the underpinnings of the future Web 3.0/4.0, in which computers can intelligently consume and understand web pages and act as virtual assistants, based upon their knowledge. True to this promise, Hunch is looking at semantic data already embedded in the HTML docs from many of the largest retailers such as BestBuy and OverStock, and using this awareness to observe shopping patterns of you and your friends. It then makes recommendations to help you cut through the noise. The upside for retailers is simple – if you can reduce the noise of too many products to just a few meaningful choices, you increase actual conversions. It will be interesting to see how eBay layers this into their x.commerce offering.