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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  • JoeBorn

    This will surely be disruptive to conventional distribution/retail channels as well, and there’s a very big tipping point issue here. Right now, many manufacturers still continue to go to pretty big lengths to protect the retail channels (and retail margins). At some point there’s critical mass behind direct sales and established brands make the jump to this kind of commerce in greater numbers.

  • Cliff Gerrish

    The goal of advertising isn’t to ’cause a transaction,’ it’s the industrial large-scale production of desire. Once the desire is created then the transactions will flow from there. A transaction without emotion is what a machine does, not a human. Software engineers are constantly trying to write humans out of the equation to create a more efficient set of database transactions. Perhaps they should ask themselves why they wanted the car they’re currently driving. What made them want it.

  • Alex Tolley

    Isn’t Amazon already doing this? You enter the details of the object you are interested in (e.g that bottle of wine), search locates the object with near misses, you select the target, view the details/ratings to confirm that is what you really want then add it to the cart/wish list. I do this with the iPhone Amazon app all the time.

  • David Lance

    Advertising and marketing are not about manufacturing desire. Donald Draper and his team do not create desire. Rather, they have an uncany ability to accurately read the desires that people already have – and then respond to them.

    I remember when I was introduced to Amazon.com via a Superbowl ad. My response was “Wow! That is a very good idea.” And then I made a mental note to go to the URL after the game.

    Maybe some Vogue magazine ads make me subconsciously want to buy a watch or a brand of shampoo. Maybe a banner behind home plate makes me feel confident about an insurance company. But when it comes time to shell out cash for a new car, my desire is stoked by Consumer Reports.

    When it comes time to buy a book, my desire is fueled by customer reviews and sneak peeks.

    How would Madison Avenue evolve if it had to begin from scratch today? Ours is not a world of folks on the farm dreaming from the black and white pages of a Sears Catalog. Life magazine has been supplanted by cnn.com. Research and blog posts and “yelp” reviews are everywhere already, and the Internet is only eleven minutes old. What will it look like in a year?

    Why create artificial (read short-lived) “demand” and sell to it, when you can uncover actual, real demand – and provide quality goods and services to meet it? Instantly. Real time.

    How much longer will I have to waste half a Saturday morning driving to Home Depot to scout out a blade for my lawnmower? Why isn’t the URL for the replacement stamped right onto the engine?

    Life is advertising. Tweeter is advertising. Jerry Seinfeld episodes are advertising. When I like Jerry’s shirt, I should be able to order one and have it sent to me without leaving the couch.

    It is a huge disconnect to make me hold a brand logo in my short term memory until I can get to a store where I may or may not remember it. If a beer ad strikes a cord, I should be able to use my remote control to reserve a six pack at my local market with no greater effort than pressing the mute button.

    It is no longer a question of inventing the infrastructure to do these things. It is now a simple matter of growing into the existing infrastructure – before your competitor beats you to it.

  • Michael Holloway

    @David Lance:

    “Why isn’t the URL for the replacement stamped right onto the engine?”

    Great idea!

    Better yet, how about a smart chip embedded in the lawn mower blade that you can scan with your mobile, then the ‘do engine’ aggregates you to the nearest store or shipper? :)

    I disagree that advertising doesn’t create a meme of consumer desire, I think this is central to modern marketing and as such is a ‘big secret’ you won’t see revealed in primetime. The magical way the TV character sees through the ‘public you’, to your desire is a psych game. That we are in denial, and suffering a collective psychosis is nearer the truth. The psychosis we are unconsciously aware of is cured momentarily by the act of purchase. Add a drug like sugar and you have the perfect widget.

    But the point is a fine one. What ever the genesis of the transaction, the fascilitaing of it with these new tools is the point of this comment.

    I don’t think software engineers are constantly trying to get rid of the human element – I think they’re constantly trying to include it. The problem is our brains are still two dimensional, the math three dimensional – and people, at least five dimensional.

    Michael Holloway
    FiterBlogs

  • Tim O'Reilly

    Alex -

    Yes, this is indeed what Amazon is doing with their app. My argument, though, is that this feature is so central to the future of the phone that it will become “part of the operating system” (to borrow a concept from the old days of Windows dominance.)

  • Brian K. Wharton

    Tim,

    Amazon has this as “part of the operating system” on the kindle. All seamless ecommerce all tied into the overal experience. And they are doing it now.

    One thing that I see as missing is to tie the ecommerce engine into the built in dictionary. IE: you see a reference to something else in a book, hit the dictionary button and it shows you options to purchase additional books on that topic.

  • Tim O'Reilly

    Brian -

    I agree. But my point is that this has to be more than vertical apps. The kindle app lets you buy books. The amazon app lets you scan bar codes and buy (if Amazon has the product.) On the kindle it’s part of the OS, but on the phone, it’s just an app – and thus vulnerable to a platform offering.

    Apple lets you buy music, apps, ebooks, and third party apps let you find other products (but not buy them.)

    Google Goggles finds products, but then you have to fill out a form to buy them. What’s wrong with that picture?

  • bowerbird

    it’s all about the money, isn’t it? money money money.

    back in the good old days, computers were about _possibility_.

    now it’s all about the money; money money money money money.

    -bowerbird

  • Tim O'Reilly

    bowerbird -

    Computers are STILL about possibility. Most of the stuff we cover here isn’t just about the money. But every once in a while it is.

    Would you say, “It’s all about location, isn’t it. location location location” on one of our posts about augmented reality?

    It’s all about rabble rousing, IMO. In the old days, conversations were about _possibility_.

  • Daniel

    In reference to the line was posted on the comment by David Lance “How much longer will I have to waste half a Saturday morning driving to Home Depot to scout out a blade for my lawnmower? Why isn’t the URL for the replacement stamped right onto the engine?”

    I see a lot of optimism and convenience stuffed into the original post. Sorry for being pessimistic but does that mean more job losses in the retail area?

  • Daniel

    I shudder to think this way :(

  • Alain Pierrot

    This shift to e-commerce on mobiles could explain the attention given to — and funding of — companies such as Kooaba.

    Cf. http://bit.ly/b0Kcww [fr]
    http://www.redherring.com/Home/26281

  • Tim O'Reilly

    Daniel -

    Yes, I do think it may mean more job losses in retail. And if I were a local retailer, I’d be figuring out what kind of stuff people want RIGHT NOW. And I’d be using phone based apps to do algorithmic pricing, so that the best price is always RIGHT HERE.

    Of course, that means upgrading your supply chain, which means that the big guys have advantage….unless we can see some virtual supply chains built (something I’ve been calling for for a long time.)

    The future comes in lumps, alas, not with everything all worked out evenly. Eventually, though, there will be another functioning economy.

    Meanwhile, there are big “crossing” factors in the price of oil. Oil goes high enough, it’s more expensive to ship, and local aggregation gets more valuable….

  • Michael Holloway

    @Daniel,

    Yes, I agree, on a re-read of this entire thread @David Lance’s piece is full of optimism. I just think that needs to be tempered with the cold, calculating and often usury subculture of Madison Avenue – which is a bummer.

    When the conversation goes in this direction (post industrial jobs) I always reference Captain Jean Luc Picard in the Star Trek TNG episode, The Neutral Zone, where he says, (paraphrasing) ‘we don’t have money any more, people strive to improve themselves instead of acquiring stuff, and power.’

    The nutter right thinks this is an example of a Marxist world view in Roddenberry’s outline for the Star Trek universe.

    With the the means of production in the hands of the robots, and the renewing of technology proceeding in a constant state (Ray Kurzweil’s singularity), money and profit won’t be relevant.

    Instead we’ll be (are?), back to a discussion of a model for the effective distribution of wealth – intriguingly laid out by Karl Marx in his book Das Kapital (1860).

    (shuddering) :)

    Michael Holloway
    FilterBlogs

  • keith woolcock

    I think devices like the iPab and services like Facebook Connect are going to increase prospects for content and advertising. The key to all this might be the problem of human conscious bandwidth – see Mashlite.blogspotter.com. As iTunes demonstrated, people will pay for convenience and ease of use, even when free content is available. Social sites when married to mobile networks, that have even more contextual information about us, will be able to fine tune ads. Anything that plays to the human bandwidth bottle neck, which when you think about it is exactly why the iPhone is so successful, has a chance. The downside is the web will become more corporate and more content will be paid for.

  • bowerbird

    tim said:
    > Would you say,
    > “It’s all about location, isn’t it. location location location”
    > on one of our posts about augmented reality?

    your posts on a.r. (and location) are mostly about money too.
    it’s just that i would have to trace out the lines of your logic
    in order to make the point there. here it was nicely pretraced.

    > It’s all about rabble rousing, IMO.

    really? you think i’m trying to stir up the masses?
    you think i’m angry?, and trying to be an agitator?

    well, if i am, i’m a huge failure — nobody here agrees with me.

    no, the truth of the matter is that i wrote that comment from a
    position of sadness. i’d love to have some decent conversations
    about the possibilities of improving the human condition today.
    but i don’t see places online where that dialog is taking place…

    even here in the computer arena, where the technology used to
    stay interesting in _spite_ of the fact that it was also profitable,
    the almighty dollar seems to have seized our minds completely.

    my comment was a wail of despair, uttered because the masses
    do not care about possibilities; they only want to make money.
    (yes, tim, i was talking about them, not about you personally.)

    i wish there was some rabble to rouse. as it is, though, my
    lamentations are just the pathetic protests of the powerless,
    washed away by a tsunami of public perversion personified
    in its extreme by the corrupt bankers and their bailouts…

    -bowerbird

  • Tim O'Reilly

    bowerbird -

    If you think the posts on this blog are all about money, you clearly haven’t read this blog very closely.

    See for example:

    http://radar.oreilly.com/2009/01/work-on-stuff-that-matters-fir.html

    But even in working on things that matter, money is a tool. You can use it wisely (consider the bit from Les Miserables quoted in the post above) to create value for others as well as yourself, or you can use it selfishly.

    Take another post: http://radar.oreilly.com/2009/01/pascals-wager-and-climate-change.html

    This uses economic arguments, but in service of getting people to think about stuff that matters.

    I agree about corrupt bankers and their bailouts. But that’s actually not a problem of money. That’s a problem of morality.

  • bowerbird

    tim said:
    > See for example:
    > http://radar.oreilly.com/2009/01/work-on-stuff-that-matters-fir.html

    well, i can’t expect you to remember that i mocked you for
    highlighting that young man who was selling virtual clothing
    by pointing to this very post of yours. but _i_ remember it…

    so yes, i did read that post. and i expect it got you a lot of
    attention, and you’re very good at turning that into money…

    i hear the t.o.c. conference is almost sold out. congratulations.

    > But even in working on things that matter, money is a tool.

    i can hear a rationalization coming around the corner…

    > You can use it wisely (consider
    > the bit from Les Miserables
    > quoted in the post above) to
    > create value for others as well as yourself,
    > or you can use it selfishly.

    it’s a very smart (and very rich) middleman
    who can find a way to “create value for others”,
    yes it is…

    and i’m quite sure those bankers thought that
    that is exactly what they were doing, yes i do…

    > Take another post:
    > http://radar.oreilly.com/2009/01/pascals-wager-and-climate-change.html

    climate change is a hot topic. lots of money in that these days.

    > This uses economic arguments, but in service of
    > getting people to think about stuff that matters.

    i can hear an old dale carnegie tune faintly in the breeze.

    > I agree about corrupt bankers and their bailouts.
    > But that’s actually not a problem of money.
    > That’s a problem of morality.

    when the masses look in the mirror, the bankers stare back.

    (and once again, my lamentations are concerning _them_,
    tim, not you personally, in spite of the power you wield.)

    and yes, i agree with you completely, it’s a problem of morality.
    so, with that, i have now issued my very last word in this thread.

    -bowerbird

  • Daniel

    Thanks for the reply Tim. This line – “there are big “crossing” factors in the price of oil. Oil goes high enough, it’s more expensive to ship, and local aggregation gets more valuable….” comforts me. Thanks again. Have a lovely day :)

  • Michael Holloway

    Daniel,

    I posted earlier that presently K Marx is a must read. I’ll add, also Adam Smith and this Tweet:

    @m_holloway “Free Fall: America, Markets and the Sinking of The World Economy.” by Joseph Stiglitz on @cbc “The Current”: http://bit.ly/FreeFallAmerica

    (Opens to your player)

    mh

  • Mike Carson

    Great article. It really is amazing how much the industry has grown. Anyone interested in starting their own ecommerce business should check out http://www.payvision.com. They offer a lot of great ecommerce solutions. I’ve pretty much used everything out there, but once I found Payvision I stuck with them. They’re extremely reliable, which I think is the most important thing.

  • Atara Mordou

    Reaching to new Markets by tapping in to Mobile payments

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    When Westminster City Council implemented a pay by phone parking scheme, they were shocked to find out that at least 75% of all metered parking came from pay-by-phone, up from the anticipated 10% to 15%.
    One key component to m-commerce’s potential success is establishing a comfort factor among consumers when it comes to paying for things with mobile phones.
    It’s a fact that most customers know their mobile phone number but not their card number.

    Successful social gaming companies like Zinga who owns Farmville has recognised this and are making a killing out of the social gaming market through mobile payments.

    Although many SME’s are aware of the benefits of mobile payments at a whole, most are unaware of how each would add value to their individual business models or more over how to successfully implement such a winning strategy.
    At Waspit, even if it is a multi billion pound brand or a small taxi company, first thing we do is to understand the client’s present model and cater a unique mobile payment solutions for that business.

    Most SME’s are unclear the about the return versus the investment of implementing such a strategy. Most of the clients who comes to us we offer minimum or no investments (depending on the solution). Not only that, till they achieve their objectives, we will continue to support them.

    We actively encourage pilot programs and if you think that it is time to jump in to the mobile payment bandwagon or you just want to have understand more about mobile payments then please email the author: atara.mordou@waspit.com

    Atara Mordou, Account manager – http://www.waspit.com

  • http://www.blurb.com/bookstore/detail/1435545 Dan Farfan

    “Isn’t that after all the goal of advertising? To cause a transaction.”

    Actually, good advertising has one of two objectives; take action (not necessarily make a purchase) or create associations (aka image). Occasionally advertising accomplishes both at the same time.

    But heck, even if too many ad folks mistakenly follow the tech folks down the path that ignores their own science by adopting a transaction-centric, gadget-clouded view, the other half will eventually be rediscovered by some prodigy who finds and old fashioned (why would any use paper for a) book in grandma’s attic.

    :-)
    Dan

  • http://www.alladavatar.com/ TV Ads Services

    Traditional media is falling apart, thus people in e-commerce marketing have to fight even harder to achieve success and results through advertising on TV, the radio or in newspapers. Before the spread of the internet, there had been four main media channels: TV, radio, newspaper and billboard. By now the internet has become so popular and important that more and more web shops realise that it is inevitable to combine the traditional channels with online media.