The Coming Clash Of The Commerce Titans

Pop quiz on this Monday morning, so grab your coffee and look alive.

True or false: Thanks to mobile devices and apps, American consumers spend more time today shopping than they did in 2003.

If you said false, pat yourself on the back, tell everyone in the office you’re a genius and make them buy you lunch.

In 2003, the Bureau of Labor Statistics reported that American consumers spent roughly 48 minutes a day shopping offline and online. Thirteen years later, in 2016, American consumers now spend 46 minutes a day shopping, with women dedicating about 35 percent more of their day to retail pursuits than their male counterparts.

As I hinted when I was doing my best to lead the witness, what has really changed over those 13 years isn’t how much time is spent shopping since it is more or less the same. But the set of tools that consumers now use in support of their shopping journey has changed – and a lot.

In 2003, the majority of the online shopping was done at the desktop at the office when the boss wasn’t looking, and that experience included laboriously typing in card credentials at every site. Thirteen years later, smartphones make shopping an on the go/anytime/anywhere experience. Buy buttons and digital credentials, where available, make the experience frictionless and less time-consuming. That said, we still have a very long way to go to make buying online and via mobile a totally frictionless experience for the consumer.

But a whole new wave of ecosystems and players have emerged to lay claim to as many of those precious 46 minutes as is possible. A decade from now, each would like nothing more than to hold those 46 minutes constant but to pack more retail punch (and monetization opportunities) into each and every one of them on their platforms. Most players, in fact, feel their very futures depend on creating an experience that maximizes the opportunity for commerce at every connected endpoint they can reasonably control, across any shopping channel or platform that the consumer may want to use to conduct a transaction. And we’re beginning to see a sneak preview of those roadmaps as players jockey for a position as frontrunner.

That includes the two mobile giants who started this massive wave rolling to shore: Google with Android and Apple with its iOS-based mobile devices.

A LITTLE WALK DOWN SHOPPING’S MEMORY LANE

In 1987, there were 30,000 malls in the U.S. Fifty percent of retail spend happened there. The mall was the original “closed commerce ecosystem” — an efficient way for consumers to search and discover what to buy when all that existed was a physical store. Consumers – often with friends or family in tow – walked past store after store, a deliberate design consideration by mall operators to maximize the number of stores that consumers had to walk past to get to the anchor store that originally pulled them in.

On rainy days, malls were also a great place to hang out and entertain the kids – and shop even more. All you millennials out there, ask your parents what they used to do as teenagers on Saturday afternoons. Chances are they hung out at the mall.

But walking around the mall wasn’t the only way that consumers found out about stuff that they might want to buy. Postal workers were kept busy delivering catalogues and direct mail pieces hawking a variety of products. Paper boys delivered newspapers that landed with a thud on front porches each morning and evening since they were stuffed with circulars and coupons enticing consumers to use them at those physical stores.

You get the picture – it was an all physical world, all the time.

Sir Tim Berners-Lee helped change all of that in 1990. The web built on his innovations opened up a whole new world for consumers to search and discover things. Browsers plus search engines made it easy for consumers to explore this big new online world, and they found a treasure trove of stuff waiting for them there. OK, by today’s standards the experience online was pretty lousy, but over time, technologies and platforms emerged that made it more tolerable to sit in front of that second screen and poke around. Keep in mind that, at that time, TV was the consumer’s first screen.

In the mid/late 1990s, two things happened to make commerce on that second screen more of a reality. Amazon was born – as was one-click shopping on the web – and eBay brought PayPal into its marketplace to make paying for things easy and secure. From there – slowly – commerce on the web began to take hold in the U.S. As more users with access to the internet from their laptops – and more realistically their desktops at work — gravitated to the web as a place to discover new things, check prices and be exposed to ads to influence their buying decisions, more merchants and more advertisers followed. The virtuous circle of commerce online began.

In 2005, Cyber Monday was more or less one of the official nods to the growing influence of the web as an important commerce channel. But even then, commerce online was still a function of a fixed location – a desktop or PC at work or in the family room at home. Cyber Monday wasn’t Cyber Thursday night because most people didn’t have access to either a computer or a fast internet connection at home.

That made shopping online something that consumers had to find a time and a place to do – in addition to withstanding a checkout process that was incredibly tedious. So, marketing and promotion and search and discovery still primarily happened in a physical world and consumer mailboxes remained stuffed with catalogues and coupon packs. In 2005, online sales accounted for 2.3 percent of online sales, with Cyber Monday sales representing nearly 25 percent of that total.

A few years later, another shift happened – this one taking online, quite literally, to a whole new place and ultimately giving rise to the platform wars that are now simmering.

Mobile devices, mobile operating systems and their attendant app stores emerged to blur the lines between physical and online retail. Innovators quickly seized these new platforms and used them to transform the merchant and consumer experience. Mobile devices that went everywhere the consumer did made shopping anywhere with any merchant possible. Apps and GPS enabled real-time access to offers and promotions, giving merchants and consumers an unprecedented opportunity to influence purchase “in the moment.”

Initially, consumers were like kids in the proverbial apps candy store – downloading apps with abandon, but using very few of them. Over time, those app downloads have declined to a point where, today, consumers download roughly zero new apps. Consumers are app-ed out, feeling that they have all of the apps they really need and want to use and finding new ones come with too much friction and uncertainty.

Even though they may have a couple of dozen apps on their home screen, 85 percent of the five hours a day consumers spend on those smartphones is spent interacting with only a small handful of them: Facebook and Instagram (stalking friends and posting pictures), Messenger and Snapchat (messaging friends), YouTube and SlideJoy (being entertained), and Pandora and Spotify (listening to music).

You have to go pretty far down the list — to position No. 26 in App Annie’s list of popular apps by time spent — to get to the first retail app. There, sitting at position No. 26, is Amazon. A sliver of the 12 minutes of those five hours a day spent in pursuit of shopping is spent inside a small handful of apps already favorited by the consumer: Amazon, eBay, Walmart, CVS, Macy’s, Target, Kohl’s.

On the one hand, retailers today console themselves by saying that only 7 to 10 percent of retail sales happen online – and that only 20 percent of that 7 to 10 percent is driven by the retailer occupying position No. 26 in mobile apps.

But retailers have also seen the studies that claim that more than one-third of all physical store purchases are influenced by the mobile device; in 2015, that was $1 trillion of spend. They also recognize that fewer trips are being made by those consumers to the physical stores. Foot traffic is dropping like a lead balloon, as are number of transactions in those physical stores.

When consumers get to the store, there is good news: They spend more since they show up ready to buy. They’ve done their homework (on mobile devices) and know what they want. Some of them have ordered online and are only picking up stuff in the store, buying a few more things on their way out the door. Average sales per shopper, despite sagging foot traffic, shows a slight uptick.

The one thing retailers can universally feel good about is that they’ve finally lightened the load of the mail carrier. Digital has largely displaced the need to send boatloads of direct marketing materials, coupons or catalogues to the houses of their consumers. They are able to advertise online instead to a captive audience who’s always on and work through a number of offer aggregators to push deals forward.

When taken together, all of these pieces are admittedly unsettling for retailers trying to figure out how to digitally position themselves to claim some of those 46 minutes that consumers now allocate to shopping every day – and do it in a way that helps them reach the greatest number of consumers – any device, any operating system, any digital channel. Should they focus on apps? Browsers and search engines? Other ecosystems?

Some of the above? All of the above?

Thus setting the stage for the clash of the commerce software platform titans now starting to surface, hoping to help them make the most of their digital futures.

DWELLING ON DIGITAL COMMERCE

Dwell time has always been an important metric for retailers in estimating sales.

It’s a measure of engagement – how much time consumers spend in a store is directly proportional to how much they buy when there. An MIT research study done a few years back concluded that for every 1 percent increase in dwell time, sales would increase 1.3 percent. In practical terms, adding 2 minutes to a typical 15-minute visit with an average transaction value of $50 could turn into a $63 sale.

Dwell time has taken on a digital personality now as powerful new software platforms look to insert commerce into the places that consumers now “dwell” online. These software platforms tap into the depth and breadth of a customer base that lingers inside of their ecosystems – ecosystems that they are able to access using any device and across operating systems. Their MO is to use their critical mass of consumers to enable and uncover new commerce experiences for themselves and brands on their platform.

Facebook is one such platform. With its 1.5 billion consumers already spending about an hour a day there, Facebook’s been experimenting with a number of ways to introduce commerce into the newsfeed. So far, it’s been met with mixed results by consumers – even though Facebook as an ad platform drives a tremendous volume of traffic to retailer websites. The expansion of Facebook Canvas last month is Facebook’s latest effort to embed commerce inside the newsfeed that consumers spend so much time perusing.

Messenger is following a similar playbook.

If you’re a Messenger user who’s enabled a few chatbots, popping open the app now looks more like opening a digital inbox than a traditional messaging app. Messenger is banking on the fact that chatbots inside of its messaging platform will inspire brands to sell and service the nearly 1 billion consumers each month who are already there anyway, messaging their friends.

Snapchat is following in the messaging-in-pursuit-of-shopping footsteps, too, by making its ads shoppable.

But the big question for these social and messaging platforms, particularly in the Western world, is whether dwell time on these platforms will convert to sales for brands. Will enough consumers change their behavior and begin to shop and buy in places they’re spending time online, but not necessarily there with the intention to buy?

Enough consumers have in parts of the world where mobile-centric ecosystems like WeChat began as an integrated ecosystem of social networking, messaging and commerce — and emerged first on the desktop in that very same fashion. For those users, mobile just became a more convenient and accessible way to continue to do what they’d always done.

But in the Western world, consumers compartmentalize their activities – or at least they have to this point. They do social networking inside of their social networks, send text messages inside of messaging platforms and shop and buy inside merchant sites. Whether these consumers can be convinced to consolidate shopping into messaging apps or shopping while checking out their friends on Facebook, at scale, remains unproven. The shopping context may not be contextual enough to drive that change in behavior.

And “dwell time” in a digital world may not be a reliable measure of a consumer’s commerce intention. We can’t assume that longer dwell times on apps not related to commerce improve the probability that commerce is a logical extension of their activity there. And when it comes to commerce, as our Checkout Conversion Index reports, the longer that a consumer spends trying to check out on a site, the less likely it is that they will buy at all.

There is, perhaps, one platform where both dwell time and context is more relevant and therefore more appealing to the consumer: inside that other billion-person software platform, YouTube.

More than 1 billion people a day watch hundreds of millions of hours of YouTube content – and since March of last year, brands have been able to make buying from those videos a reality. With an audience that it says rivals “most of the cable networks in the U.S.,” YouTube is an opportunity for brands to serve up commerce that’s contextual and impulse-driven: letting consumers order makeup after watching someone apply it properly or a new team jersey after watching highlights from a big game.

SEARCHING FOR COMMERCE IN ALL THE RIGHT PLACES

There are, of course, software platforms for which dwell time is totally irrelevant, but like WeChat, is about adapting a consumer’s existing behavior to the web to unlock new commerce opportunities there.

When consumers are looking for something to buy, our research tells us that they take one of three actions: they go to Amazon, they go to a merchant website that’s reliably delivered to them in the past, or they use a search engine.

Google Chrome’s billion-person user base commands the largest share on desktop (nearly 60 percent) and mobile (nearly 53 percent) as the front door to search. According to a recent study by Adobe, the use of Chrome on iPhones is growing like gangbusters, outpacing the growth of browsing on Apple’s pre-installed Safari.

Over the years, Chrome has made it easier for consumers to use it and transact on websites using its form fill feature, even storing credit cards – all independent of the device, or the channel that a consumer is using. Chrome’s MO has been to make the experience of navigating the web a less painful one, especially when it’s done via mobile device and especially when consumers are engaged in a commerce activity. This also creates an interesting “back door” into the Apple iOS ecosystem for Google and Google-enabled commerce. IPhone users can search the mobile web using Chrome, find a merchant’s website and transact off the iOS platform – no iOS strings attached for the brand or the consumer.

All of this could be music to the ears of the 99 out of 100 retailers who never make it to the consumer’s mobile home screen but who want to maximize their chances of getting noticed – and shopped. But only if consumers feel comfortable having their browser store their payments credentials. In this day and age of one cyberattack after another, consumers won’t take that bait unless they feel that it’s absolutely rock solid safe to store their card credentials there.

‘ALEXA – SHOW ME A NEW ECOSYSTEM’

Amazon’s Alexa is an entirely new ecosystem that began as a personal assistant that told consumers jokes, played trivia games with them and organized shopping lists. Nearly two years and 1,400 “skills” later, Alexa is a voice-activated ecosystem that any developer can access and create a skill that makes commerce a voice command away.

Alexa can not only build a shopping list, but she can order the things on it, pay for them and arrange to have them delivered. PYMNTS hosted an Alexa Challenge last month and watched over five weeks as 12 companies pushed Alexa to her limits, including using voice biometrics to authenticate the consumer when making a purchase, even in public.

Amazon and Alexa may have started out tethered to a piece of hardware, but today she and her skills ecosystem can be found in lots of places: as part of a car’s operating system, and even now accessible via the browser. Alexa’s intention is to go anywhere that a consumer and any type of connected device wants to take her.

PLATFORM WARS

All these platforms have a couple of things in common, as different as they are from each other. They are trying to innovate and make it easier for people to do commerce and many other things in a world where every bit of space has, or could have, an internet connection. But perhaps more telling is what’s behind all of this and what I alluded to at the start. All of the companies behind these platforms want to make sure they don’t get boxed in by one of the current mobile titans. They’re using their platforms and their attendant innovations to create an ecosystem of their own that’s attractive for consumers and brands to engage in commerce and that they get to call the shots and control, and not the other way around.

Here’s how the war-room gaming going on right now may look.

Everyone – as in everyone — wants to make sure they aren’t dependent on Apple’s iOS and Apple’s App Store, because Apple completely sets the rules there and has the ability to make sure it gets all or most of the profits. That includes Google. Even though Google has an exclusive with Apple to use Google Search in Safari, which enables Google to make a ton of money from people using iPhones, it has to be shaking in its shoes over what would happen if Apple decided to give it the boot.

Amazon, on the other hand, also doesn’t want to be beholden to Google, even though Google and Android is all about spreading its wings – and giving a whole lot of freedom to those who want to be the wind beneath those wings. That said, Alexa has tried its darndest to make sure it isn’t dependent on Google Android either. OK, the FireOS was a flop, but Alexa is beginning to look like a winner — a whole new platform that isn’t at all dependent on anyone, really, but the consumer to fall in love with her.

My guess is every significant player — and that means Facebook and Messenger, too — is trying to figure out ways to have its own platform drive commerce with as few dependencies as possible on anyone but itself. That will get harder as enabling commerce to any connected endpoint becomes more complicated and dependencies become essential. How payments and security ecosystems connect into and among these platforms is another series of maneuvers that will keep all of us on our toes and likely many of you wide awake at night since many of those players are themselves platforms with their own commerce flanks to protect, merchant interests to manage and consumers to attract, retain and delight.

Of course, just because everyone wants to minimize dependencies on everyone else, doesn’t mean they’ll succeed. Not everyone wins wars.