Here are a few stories that caught my attention this week in the commerce space.
The cycle of commerce
Jeff Jordan, general partner at Andreessen Horowitz, wrote a guest post this week over at All Things Digital. He focuses on the disruption ecommerce is causing in the physical retail space — what he calls a “sea change in retail” — and makes an argument that ecommerce is going to wipe out physical retail across industries.
Jordan shares some statistics from the U.S. Census Bureau’s Annual Retail Trade Survey and takes a look at big box retail’s decline in comp store sales. He offers the bankruptcies of Circuit City, B. Dalton, Waldenbooks and Borders as examples and highlights the situation Best Buy has found itself in, with its No. 1 and No. 3 sales categories down 11% and 37%, respectively, over two years. Jordan writes:
“Relatively small declines in comp store sales, if sustained, can quickly prove fatal to physical retailers due to this leverage. The Circuit City example is instructive here. Its bankruptcy was preceded by just six quarters of declining comp store sales. … Continued share gains by e-commerce players shrink the pie available to physical retailers. Marginal physical players go bust, providing only a temporary boost to the remaining offline players and a sustaining boost to online players. But the underlying market dynamics stay the same, and pressure again builds on the remaining physical players. When their top-lines drift below their highly leveraged water lines, they too drown and liquidate. At that point, e-commerce becomes about the only place where consumers seeking a broad selection of merchandise can go. It’s essentially unopposed.”
In a similar vein, Michael Hsieh over at Pando Daily took a look at the rise of ecommerce from a supply chain perspective. He argues that online retail isn’t a new sales model, but a return to the catalog commerce model that Sears used to revolutionize retailing in the early 1900s. As Hsieh describes the cycle, Sears stocked items typically purchased at high prices in local general stores and made them available at cheaper prices and by delivery both to city and rural populations alike. This model crushed the local general stores. Sears then opened large format stores, which together with the rise of the automobile crushed the catalog model. Today, online retailing is circling back to begin the cycle again. Hsieh writes:
“[W]hen we look at online retailing, it is actually not a new phenomenon but the re-emergence of a previous catalog model with new and more powerful capabilities. The digital format offers unlimited product selection, and more importantly, the scale and coverage of logistics companies like UPS and FedEx have significantly driven down the cost of home delivery. Today, most online merchants deliver products for free, and this makes online shopping much more compelling.”
Deutsche Telekom positions its mobile wallet platform
Several stories over the past couple weeks have indicated NFC technology may be heating up in the U.S. This week, it’s Europe’s turn. On Monday, Deutsche Telekom (DT) and MasterCard announced a mobile payment partnership that will allow consumers to make purchases via NFC-enabled mobile phones and devices. Ryan Kim at GigaOm reports:
“The mobile payments system will incorporate a SIM-based chip and will work with a mobile wallet. It will roll out first in Poland while in Germany, DT and MasterCard will start with a trial using NFC stickers and cards this year before a launch in the first half of next year. Eventually, the service will spread out across DT’s European footprint.”
Kim also notes this wallet partnership is attempting to address many of the issues that have been plaguing the NFC ecosystem so far. First, the “mobile wallet service will be open to other banks and partners, who will be able to access the wallet,” so it looks like it won’t be a closed, proprietary platform. Analysts also told Kim that DT is “acting as a sales partner for NFC enabled Point of Sale terminals” and is issuing NFC tags for consumers who don’t own NFC-enabled mobile devices.
Additionally, Bloomberg reported this week that DT is in talks with Google about partnering with DT’s mobile payment system. Thomas Kiessling, DT’s head of innovation, confirmed discussions with Google in the Bloomberg interview, but declined to offer further details. It’s unclear if Google’s Wallet product will figure into the system.
NFC for phones with no NFC
China RFID released a new line of NFC keychains this week designed to work with iPhones and Android phones that lack NFC technology. The shelf life of this particular product may appear to be short, given the growing list of smartphones shipping with NFC technology and the likelihood that a new NFC-enabled iPhone will arrive this fall. Nonetheless, this type of product could be an answer to a global mobile commerce and mobile wallet conundrum: most worldwide cellphone users aren’t carrying smartphones.
I’ve written here before about this dilemma, quoting Nick Hughes at TechCrunch, that though 85% of the world’s population carries cellphones, 4.5 billion people aren’t using smartphones. If the technology used in these keychains — or some other sort of item that commonly accompanies or even attaches to one’s cellphone — were designed to work with any cellphone, perhaps one hurdle to worldwide mobile payments could be overcome.
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