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Why The Future of Digital Commerce Is The Omnichannel

2013 November 6
by Greg
Omnichannel

When Bill Gates released his famous Internet Tidal Wave memo, the old media adage “content is king” became a mantra for the video age.  Gates rightly pointed out that “the more users it gets, the more content it gets, and the more content it gets, the more users it gets.”

What followed was almost comical, as media types struggled to understand the new technology and Silicon Valley geeks clumsily navigated the world of content. Somehow, through fits and starts, we all stumbled through and the media world was transformed.

Now, commerce is coming to the fore and we’re seeing many of the same issues as retailers strive to build a true omnichannel that merges at-home, in-store and mobile commerce into one seamless experience.  Much like with content in the early days of the Internet, the transition is a rocky one, but the future holds great promise.

The Rough Early Days

Some years ago, when I was working with KP Media in Ukraine, I found that I’d been locked out of my ICQ account.  Shortly after, it appeared for sale on a Russian hacker site. It was a strange experience, to say the least, but it soon became clear what happened.

We had put some open source code on our news site and a hacker managed to get into our database using a technique called SQL injection.  From there, he wormed his way through our servers to the database that held the ICQ accounts.  We chided ourselves for our carelessness, vowed to stick to our own proprietary code and closed the hole.

In a sense, we were lucky though.  We had invested early, recruited top digital talent to reimagine our print brands for the Web and built the largest digital business in the region. That’s why we had prime partners like ICQ and were a target for hackers in the first place, while most publishers were still struggling to compete online.

Today, while hacking remains a problem, technology is no longer an issue.  19% of the Internet runs on WordPress and there are relatively few problems.  The result is that the media universe has been completely transformed because it’s ideas, rather than technology, which drives capability now.

In commerce, however, the process has just begun and we can expect the impact on how we buy and sell to be every bit as dramatic as how we read, watch and listen.

When “Musee d’Art” Is Really Just A Black Polka Dot Skirt

If you’re looking for cool, vintage style clothing, ModCloth is the place to find it.  It’s a great niche brand, which caters to a small subset of the market that they know intimately. They are experts at sourcing the right materials, picking the right styles and presenting them to their unique consumer.

In the old world of physical commerce, marketing their products would be a snap.  They would get space on a busy street or in a shopping mall where consumers normally go for clothes and they would be sure to stand out.  Those in the market for something different would wander in and be dazzled by the selection of retro styles.

Yet times have changed.  Now, they are lost in a sea of online commerce.  Sure, if vintage came to mind, ModCloth would come up in a Google search, but if a woman was looking for a “black polka dot skirt” she probably wouldn’t start type in “vintage” or “Musee d’Art Moderne skirt,” Modcloth’s version of the standard.

So Modcloth started working with BloomReach, which uses advanced algorithms to identify which keyword “streets” their customers are shopping on and makes sure that Modcloth gets a prime location.  They also generate landing relevant pages so that prospects are more likely to find what they’re looking for once they arrive on the site.

The Smarter Commerce Stack

BloomReach is one of a new breed of companies looking to enable retailers to compete with e-commerce giants like Amazon.   In effect, they are trying to do for commerce what WordPress has done for content—democratize the technology so that retailers can focus on what’s important, sourcing great products and servicing their customers.

However, retailing is a much more complex business than publishing and even a sophisticated company like BloomReach only delivers part of the solution.  So systems providers are hard at work arranging various technologies into “stacks” that can provide an end-to-end solution.

While there are a number of companies playing in this area, IBM is leading the way with their Smarter Commerce initiative which encompasses four pillars:

Buy:  In the old world of retail shopkeeping, buyers would try their best to keep up with industry trends, but mostly they operated by instinct.  After all, they had to put their orders in 6-12 months before the start of the season, so market research was a dull tool at best.

Now, with streamlined supply chains and exabytes of data on consumer purchasing habits, the challenge is to get all of the relevant data in front of buyers so they can make smart decisions about suppliers, trends and products.

Market:  While marketing used to be mostly about awareness and messaging, today’s retailers need to shift from grabbing attention to holding attention.  That means that marketers need to track consumer behavior, deliver relevant messages and manage their customer relationships in real time.

That’s a tall order, so it’s no wonder that by 2017, CMO’s are expected to spend more on IT than CIO’s.  What’s more, all of this new technology needs to be integrated with the other systems in the organization in order to maximize effectiveness.

Sell:  Most organizations are set up to optimize internal processes, not service.  That’s because it’s human nature to simplify tasks.  So if you are in the business of selling things in physical stores and you need to build a digital e-commerce capability, you tend to build a new system rather than go back and make all of your old systems compatible.

As digital usage has grown, that’s become a problem, because many people like to browse online and purchase in-store and vice versa.  Making desktop and mobile fully compatible with legacy POS and inventory systems is a challenge, to say the least, but that’s what needs to be done if retailers are to provide a truly seamless experience.

Service:  Probably the biggest challenge to omnichannel commerce is service.  Your customers don’t care how your systems are set up, but expect anyone in the organization to be able to solve their problems.  A bad experience in one area will affect how they feel about the brand as a whole.

So your systems need to be fully integrated to provide insights across all channels and everyone in the organization needs to be able to access information about the full customer experience.  In theory, that’s pretty basic, but in practice it’s extremely difficult to make everything work as one integrated hivemind.

The Future of Digital Commerce Is In-Store

Hovering in the background of all this, of course, is Amazon.  The e-commerce giant has an enormous advantage in digital technology, just like we did at KP Media.  While traditional retailers struggle to integrate legacy systems—some of which are decades old—with new digital capabilities, Amazon has always been an digital company.

However, what is often overlooked is that e-commerce is a very small part of retail.  A recent US Census report puts it at less than 6% of overall sales.  While some estimates are as high as 10%, the simple fact is that the biggest opportunity for merchants is to merge digital insights with in-store physical experiences.

There has already been some impressive work on the back-end.  Wal-Mart recently announced same day in-store pickup of items bought online and Macy’s installed a system that will integrate all of its inventory systems and give store associates almost complete visibility of the items available across all channels.

These are, admittedly, still baby steps but glimpses of the future of retail starting to break through.  Nordstrom stores now have displays of most pinned items on Pinterest and Neiman Marcus developed an app which lets salespeople know when a regular customer enters the store and gives them access to purchase history, preferences and other data.

So, in a very real sense, commerce is the new content in that it has become the center of digital innovation.  As the technology continues to democratize, it will fade into the background and traditional skills will once again come to the fore.

- Greg

 

 

9 Responses leave one →
  1. November 6, 2013

    Great post Greg. As the “Omnichannel” continuously develops, it will be interesting how the almost instantaneous availability of information, inventory, and relevance will play out with businesses online and offline. This post really reinforced my belief of a coming “digital divide” in business, especially small business. Small businesses will have to embrace so much technology (i.e cost in manpower, time, solutions) to keep up, that they will be overwhelmed and not be able to compete with mid-large size companies, especially in e-commerce. Commerce may be the new content, but at what “cost”? Although I think that those who embrace and invest in technologies to further their business will grow, the question is who will be able to afford these advanced technologies / integrated solutions? What happens when the price of relevance is too high? Technology will continue to democratize for some, but for others it will be very difficult to survive and be a crushing blow…

    [Reply]

    Greg Reply:

    Bob,

    You make some very good points. However, I think what’s even more important is the “data divide.” Some companies have become very smart about data and some haven’t. Surprisingly, it doesn’t seem to have anything to do with size or IT budget, but approach. I wrote about the data divide awhile back, if you’re interested, you can find it here: http://www.digitaltonto.com/2013/the-data-divide/

    Another interesting trend is the amount of technology available to small businesses at low cost, especially with the ecosystem growing up around QuickBooks (I’ll have an post about that coming soon). More and more, technology is not so much a matter of capital expenditure or availability, but simply the will to use it. So overall, I think the trend benefits small companies over large ones.

    Thanks for a great comment.

    - Greg

    [Reply]

    Bob Strassel Jr. Reply:

    Greg,
    Great feedback, thanks. I agree that the cost of data has significantly dropped, and that many companies are making significant strides in implementing techniques to analyze their data and use it effectively, no question. But isn’t the real cost of data the skills and time to analyze that data and use it wisely. I think one of the real challenges is implementing the labor and managing the cost to effectively analyze that data and use it.

    Yes, there is a lot of technology available to small businesses, but implementation, training, and the growing complexities of keeping up with the “large online Jones family” seem significant and daunting. Technology like QuickBooks narrows the gap, but other technologies, like BI, web analytics, on demand merchandising, and supply chain integration provide a competitive advantage that many can’t afford to implement. This is not so much from a cost perspective of the technology itself, but from a time, ownership, and implementation perspective. I think the will to use it may be there, but managing the complexity of ownership is the real issue. Who will “own” the Omnichannel data, manage it, and analyze it within a business, and at what cost? The trend does benefit small businesses, but only the ones who have the ability to grow and use it. That is the growing complex nature of business, all business.

    Thanks again, for the thought-provoking post! I had read the digital divide article a while back. I reread it, some great points.

    How about a follow up post? “The Omnichannel and Small Business Digital Commerce?”

    Best,
    - Bob
    Bob Strassel Jr.´s last blog post ..My Quick Recap 2012 Internet Trends Updated Report

    [Reply]

    Greg Reply:

    Thanks Bob! I’ll have a post out about the QuickBooks ecosystem soon.

    - Greg

    Sergei P. Reply:

    “complexity of ownership” – transition and control of ownership (real products or digital content) has solution within the e-commerce ecosystem. But really it can not be solved within the national legislation because of cross-border relationships.

  2. November 7, 2013

    Greg,

    Very nice post and great topic.

    It seems to me that Digital Commerce should not be regarded as the replacement of retail or as the transition to distinct new area. E-commerce simply is the expansion of retail to new digital opportunities.

    It is the very early stage because e-commerce context (relationships, feedbacks, emotions, etc.) is primitive and far away from in-store physical retail. Tedious and boring interfaces of e-catalogs, problems of Big Data and interoperability, waste of the time for analyzing non-structured data, etc. Augmented and virtual reality and BI interfaces are in perspective yet. It looks like the old monochrome computers versus the modern gadgets communicating within the single ecosystem.

    E-commerce remains rather in technological area than in social, business or economical spheres. In Great Britain e-commerce has 13% of overall sales because is regarded as economical issue based on appropriate legislation.

    E-commerce is widely democratized already. It is the time to humanize it : – ))

    Sergei

    [Reply]

    Greg Reply:

    Very true. Thanks Sergei.

    - Greg

    [Reply]

  3. Patrick Wallace permalink
    December 30, 2013

    Just one minor point: you are misinformed about security and hacking in general. You are blaming OpenSource code for your own company’s failure to validate input before sending it to an SQL database. Apache and MySQL are not responsible. You free to make that kind of rooky mistake using proprietary code, open source code, or any overpriced vendor’s code.

    OpenSource is generally more secure than proprietary code because a thousand knowledgeable eyes look at everything and are constantly evaluating security issues with it while you and three or four other employees are prone to make group-think assumptions about what kind of input user’s will present to your interface. Hackers look for and exploit just that kind of stupidity. Microsoft-style “security through obfuscation” just doesn’t work.

    [Reply]

    Greg Reply:

    Patrick,

    This was some years ago when OpenSource code was still an issue. But you’re right, today most OpenSource code is very secure and usually more secure than proprietary code.

    - Greg

    [Reply]

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