by Tim Attinger
LESSON 1 DISCUSSION QUESTION: Which of the ecosystems discussed in this section do you believe will be the major driver of commerce convergence, connecting ecosystem participants through mobility solutions? Why? Click here to respond.
For our penultimate course, we will take a final look at the mobile commerce marketplace. Over the course of the past semester, we have reviewed how payments have become more than just the processing of transactions and the movement of money. For a host of commercial enterprises, payments have become the cornerstone of engagement with their customers, the foundation of predicting customer intent, and the linchpin of linking the participants of a networked business in deeper engagement with each other and with the network sponsor. And, perhaps most importantly, payments have become a central engine in the monetization of network participant activity across a range of industries. Network business engagement and activity is converging across industries and is going mobile. Payments cannot be far behind.
In Review: Electronic payments have become an essential component of business model growth for a host of ecosystems. In retail, as we have seen, competition for facilitating consumer access to deposits among the key traditional players in payments is robust. As consumers’ drive to spend the funds they have at hand electronically has grown and intensified, the competitive forces at work to facilitate those transactions have become more acute. Retailers, watching enormous growth of electronic deposit access at their points of sale, have engaged in a range of activities that attempt to harness and directly manage the growth, and cost, of those payments. They have negotiated with networks for rate considerations, built a legal class and litigated for rate relief, innovated to invest in debit alternatives, and most recently, lobbied and legislated to have the fastest-growing segment of electronic debit regulated. (Related Briefing Room: New Retail Delivery Business Models)
All the while, retailers have been building payments businesses of their own to deliver deposit access services and payments capabilities directly to consumers, in a form of “back to the future” payments management. Only today, instead of private label credit, they are delivering debit payments. While investing resources in controlling the evolution of payments provided by others, retailers are converging on commerce opportunities of their own. Increasingly, that convergence point includes information, payment, and mobility.
As they converge on commerce opportunities, major physical location retailers are discovering what eCommerce retailers have known for some time: that building and managing commerce engines may be one of the most important investments a retailer can make to drive new sales, retain customers, and control costs. As online retailers built checkout functions to streamline and simplify consumer purchase processes for eCommerce, they learned that payments facilitation through checkout engines can build a strong portfolio of registered consumer identities and transaction history. In rapid evolution, major eCommerce payments players — both retailers and checkout engine specialists — have begun to drive their customer portfolios and commerce engines into other applications and adjacent ecosystems. Most prominent among those is the convergence of remote “online” commerce with remote mobile information access, with payment investments following closely behind. (PYMNTS U: eCom 301 (elective): Evolution of Online Commerce)
Online advertisers have been seeking, for a long time, the holy grail of new media advertising — that is, the ability to tie an advertising message tightly to a consumer profile and then to prove the consumer acted on the message make a purchase. Online advertising networks learned in the first phase of their explosive growth that the combined power of bringing advertisers and consumers into a networked environment and bringing better information to each of them in that environment was a powerful catalyst to the revenue growth of the online advertiser. In particular, revenues poured into new media from the “old” channels because of the richness of information about consumers that a new media platform could provide to an advertiser. Matching the right message to the right consumer at the right time drove exponential growth in online media platforms from inception.
While some of the those media platforms have stuck with the tried-and-true online advertising network model, others have extended their platform into innovations and investments that are designed to link online messages to online, and hopefully offline, purchases. Investments in checkout engines, in mobile device information and advertising platforms, and in mobile marketplaces populated by identity management and checkout functions are all focused on driving commerce. With checkout engines and mobile investments, online advertisers are finding a way to divine customer pre-purchase intent, enrich the shopping experience with the information necessary to motivate a purchase, and most importantly, execute the payment transaction at the end of the advertising cycle that proves return on marketing investment to the advertiser. In their efforts to close the marketing-ROI loop, online advertising platforms are converging on mobile commerce to cover the last mile to prove a transaction and sale.
Social media platforms have built large and diverse populations of heavily engaged users, who interact on the platform across a wide range of activities, interests, and uses. Operating from an “open platform” model of development and distribution, social media networks have become the new darlings of the tech age in both their explosive growth of participants and the level of that participant engagement. Consumer share of time online is shifting dramatically from online advertisers to social media platforms, and a host of businesses have taken note. Gaming companies, marketers, advertisers, and consumer services application developers have all gravitated to these large distributed networks and their open platform models.
Social media managers are investing in commerce engines to help maintain and extend that user engagement into the commercial transactions that have begun to grow from participant interactions on the platform. And, of perhaps greatest interest for this section of our PYMNTS University curriculum, the profile of social media users is one of high engagement and remote access. The large and growing share of social media sessions now take place through a mobile device. As social media platforms converge on commerce opportunities in their business, they are increasingly converging on mobile platforms in response to the highly mobile engagement of their participants. (Related Article: Social Commerce: Who’s Turning Visits into Cash?)
Meanwhile, mobile operators and broader mobile ecosystem participants are converging on commerce as well. As operators of one of the oldest and most well-understood network platform business models — networked telecommunications — mobile industry players understand well the strong fundamental dynamics of driving participants into a networked platform, and once they are there, building as many ways for them to interact as possible. In particular, mobile operators have seen the core revenue and profit growth of telephony challenged by the very ubiquity of access and use in their core businesses. Recent lobbying efforts by some of the largest users of networked telecommunications for “net neutrality” have further challenged the revenue outlook for telecommunications operators. Namely, the online advertisers and social media platforms who need networked telephony ubiquity for their business models to thrive have managed to convince legislators and regulators to begin treating core communications as a utility rather than a commercial enterprise.
(Anyone in this PYMNTS U class who fails to see the alarming parallel between this development and the recent legislative intervention into commercial payments with a regulatory recommendation for public-utility “par” transaction settlement may feel free to repeat the first course in the semester).
With a core business under siege, mobile operators have watched the major ecosystems listed above begin to converge on commercial opportunities at the intersection of their respective industries. And the mobile operators have looked down to find themselves standing, quite literally, at the crossroads. Almost every business model in which the other ecosystems are currently investing has, at its core, a mobile execution of information or value exchange that serves as the catalytic cornerstone of the innovation. Determined to actively participate in and manage the evolution of the mobile ecosystem in this context, a number of the largest U.S. operators have banded together to build a joint-venture that will help them manage the evolution of mobile commerce in the context of the coming convergence.
Race for the Prize. So the stage is set for a race to the white space in the middle of all these ecosystems — a place where commerce and mobility converge. In our next class, we will conduct a high-level review of the major business model innovations and services that are converging on this middle space, including a review of the participants in each and their economic motivations. In our last class, we will build some predictive conjecture around how this convergence may play out, including a view of the potential winning models and players.
(And, to motivate you to come back for the very last class next week, we will look at how payments businesses can innovate to stay relevant and thrive in the coming convergence).
But for now, let’s discuss the major ecosystems above and their motivations to converge on commerce.
LESSON 1 DISCUSSION QUESTION: Which of the ecosystems discussed in this section do you believe will be the major driver of commerce convergence, connecting ecosystem participants through mobility solutions? Why? Click here to respond.
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Driving Payments Innovation through Education- PYMNTS University
Durbin Debit 101 (required): Retail Deposits Have Changed Radically Overnight
Debit 201 (Required. Debit 101 prerequisite): Is Prepaid “Debit-Lite?”
Point of Transaction 201 (required): Competition for Consumer Choice
Mobile 205 (required): GPC Payments Value Proposition
Mobile 206 (elective. Mobile 205 prerequisite): Emerging Payments Value Proposition.
Cloud Payments 210 (required): Building Value in the Network
eCom 301 (elective): Evolution of Online Commerce
eCom 302 (elective): Emerging Competition
Mobile 305 (elective. Mobile 205 and Debit 201 recommended): Emerging Markets Mobile Prepaid
Cloud 310: Adding Value to Network Transactions
Cloud Payments 311 (Cloud 210 prerequisite): Monetizing the Information from Payments
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