The Convergence of Advertising and E-commerce

With hundreds of millions of users paying to download music, applications and ebooks on mobile phones, with reports of Zynga generating hundreds of millions of dollars from selling virtual goods in social games, with startups like Square making mobile payment systems the hot new startup category, it’s clear that e-commerce is poised to supplant advertising as the business model of choice for new startups.

But that’s only the beginning. A few weeks ago it occurred to me that there’s a very real possibility that the next breakthrough in advertising itself is its convergence with e-commerce. Buying an app from the Android Market, I realized how those of us with smartphones have become accustomed to seamless purchases on our phone. That is, we search for an app, and then we buy it, directly from our search vendor.

Isn’t that after all the goal of advertising? To cause a transaction. So why not do away with the intermediate step of sending someone to a website for more information? Especially with the limited screen real estate on the phone, there isn’t really room for the contextual text advertising that made Google its billions. Interstitial or popup ads are intrusive and unwelcome. But how much search activity on the phone is tied to commerce already? Find a restaurant nearby and make a reservation? Why not pay as well? Point Google Goggles at a bottle of wine you enjoyed at that restaurant, and have a few bottles more show up on your doorstep?

This line of thought led me to the conclusion that Google, Apple, Microsoft, will soon be announcing e-commerce programs akin to Adsense, in which retailers will register with “app stores” to allow physical goods and services to be bought as easily as apps. We can also expect announcements of partnerships between phone providers and Amazon or Wal-Mart or other big retailers who can fulfill e-commerce requests from the phone. I have no inside information to support this contention, just the logic of the marketplace.

Interestingly enough, it was only a few days after I had this thought that I met with the folks at Siri, which bills itself as “Your virtual personal assistant.” Siri does pretty much what I was imagining for Google or Apple: it searches, and then does something. In our conversation, one of the founders referred to it as a “do engine” rather than a search engine. Right now, Siri mainly interfaces with services that provide APIs for reservations, like OpenTable or TicketMaster. It isn’t a general purpose e-commerce engine. But that is clearly in the future, if not from Siri, then from some other startup, and then, inevitably, from the big guys.

E-commerce is the killer app of the phone world. Anyone whose business is now based on advertising had better be prepared to link payment and fulfillment directly to search, making buying anything in the world into a one-click purchase. Real time payment from the phone is in your future.

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