How Instant Mobile Commerce Will Disrupt The Way You Do Business

Jay Callum doesn’t like smartphones. “I don’t like being connected all the time,” he told me recently. “I like to have a life.” Yet as co-owner with Mike Bard of Waltham, Massachusetts-based EP Levine (founded 1954), a tech-savvy photographic supply house that works with photographers of all skill levels, Callum understands that there is no viable technological alternative for his business needs. EP Levine is no newcomer to 21^st century technology. It uses eBay extensively and has seen a sharp rise in sales from its Amazon presence. Those platforms, while still critical, are no longer enough.

The key to EP Levine’s sales is “starting the conversation,” Callum says. “It’s crucial. The best form of advertising is still word of mouth, and if we can meet with a customer in person, then there’s a very good possibility of establishing an ongoing relationship, and even more word of mouth. For our business, where one purchase begets another—cameras need lenses; printers need ink—there’s no substitute to personal interaction. None. It’s what takes us viral the old-fashioned way.” This basic, local, human dynamic, however simple, is the secret sauce that will power instant m-commerce.

So why smartphones?, I asked.

“We need people to know at any moment exactly what we are selling and where we are. We need to bring them into the shop.” Callum and Bard now use the QUICK app and Mobile Marketplace to upload in almost no time EP Levine’s wares. Through multi-channel integration, the app allows them to populate other markets such as eBay, Craigslist, Google Shopping, and Facebook. Any buyer who uses the app can find them—and their products—the moment they are posted. Thus, a QUICK user in Cambridge who searches for “Canon camera” using the QUICK Mobile Marketplace can decide that it’s worth driving 8.8 miles to work with experts who will take care of them over the life of their purchase of a high-end Canon. What are they getting? A personal, highly customized, local experience. “Quick is easy to use,” Callum told me. “With a little practice, it’s no problem at all. They understand the salient points of what we need and why.”

Location, Location, Location

Doug Brenhouse and Jeremy Paradise, co-founders of Boston-based QUICK Technologies, have a clear vision of how to disrupt the retail market. The confluence of critical factors—(i) the near ubiquitous adoption of mobile technology, and particularly smartphones; (ii) mobile payment mechanisms; (iii) the explosion of atomized app-based services; and (iv) changing attitudes toward currency—enables them to give retailers “the ability to capitalize on their one remaining primary asset – being local,” says Paradise. Each of these factors is changing the way EP Levine does business.

The transition from (i) a national strategy to one that is (ii) national but with a particular focus on local markets may seem counterintuitive. It certainly did to members of Apple’s Board of Directors when Steve Jobs mapped out his long-term strategy for local Apple stores. The rest is history. Why is proximity so important, especially for high-end products? According to Gartner:

A key advantage of mobile devices over the PC is that mobile devices enable location services, and people can explore the physical world around them. The impact of location is more noticeable in the discovery stage where users develop awareness, collect information and conduct evaluation. For example, they can find out the deals offered by nearby businesses, learn which store has the lowest price and check which store has the product in stock. So mobile devices enable users to access specific information in a location- and time-sensitive manner.

Sandy Shen, Market Insight—A Framework For Mobile Commerce (Gartner Aug. 12, 2011). Brenhouse adds:

Apple proved that if people know that inventory and product expertise is nearby, people in general prefer to deal in person and get help with more technically complex products such as cameras, computers, televisions etc. The biggest challenge for the purveyor’s products is letting people know that they have solutions and the inventory nearby to help satisfy customers’ needs for an immediate solution and after-sales service. The smartphone and tablet solutions being provided by companies like QUICK offer retailers the easiest and most effective way to advertise their wares and communicate with their customers.

Mobile phones thus provide essential context to drive business based on personal relationships with customers. Gartner calls this “content-enriched commerce.” The Pew Center affirms this, noting that the anytime/anywhere, always-on nature of mobile phones magnifies the need for information that is both timely and location-sensitive. See Lee Raine, The State of Mobile America (Webinar NFAIS & Pew Internet Mar. 16, 2012). As Brenhouse puts it:

“Competing on proximity and location, services, accessories, and complements – This is the new name of the retail game.”

THE PERFECT STORM: Mobile Technology, Mobile Payment Systems, Apps, and New Currency Converge.

Mobile Phones

According to superstar Internet analyst / venture capitalist Mary Meeker, the empowerment of people via connected mobile phones is the mega-trend of the 21st century. See Kleiner Perkins Internet Trends (Oct. 18, 2011). Forrester predicts that by 2015, there will be 1 billion smartphones worldwide, including 257 million in the United States. Eighty-eight percent (88%) of American adults already have a mobile phone. For the combined age ranges 18-29 and 30-40, that figure is 95%, and decreases only slightly to 86% for those aged 50-64. See id. Forty-six percent (46%) have smartphones and 19% have tablet computers, which are proving to be vital to retail in terms of both average sales conversion rates and order values. See Allison Enright, Retailers get mobile-friendly (Internet Retailer May 23, 2012) (citing Forrester and Shop.org’s joint report, “The State of Retailing Online 2012”).

Mobile phones are an integral part of our lives. According to a recent Pew survey, 42% of U.S. adults who own cell phones report having “had trouble doing something because they did not have [their] phone with them.” Sixty-four percent (64%) use their phone “to get information they need right away.” Our developed “need” to access such information both anytime and immediately has resulted in a massive shift in modes of communication from email, landlines, and even cell phone calls to texting (e.g., SMS, iMessage) and instant messaging (IM). In many respects, whether used to communicate, shop, or as biosensors, these devices are becoming, for better and worse, nothing less than an extension of ourselves.

Mobile Payment Mechanisms

Mobile commerce is not just about selling products online. Rather, it presents the opportunity to communicate and establish trusted relationships with customers that can be converted into sales either online or in person. Every consummated transaction that is not cash- or credit-based requires trust in the other party and in the security of the payment mechanism.

PayPal is the most prominent online and mobile payment service. PayPal has proven to be extraordinarily valuable to eBay, which purchased the service for $1.5 billion in 2002. In April, eBay reported 20% quarterly net income growth to $570 million. The New York Times noted that eBay’s financials “highlighted the continuing importance of PayPal to [eBay’s] overall profits. The company said PayPal had 109.8 million active registered accounts, 12 percent more than the first quarter a year ago. PayPal revenue increased 32%.” Somini Sangupta, PayPal Strength Helps eBay Exceed Forecasts (NYTimes Apr. 18, 2012).

PayPal’s influence is hardly limited to online payments. GigaOm reports that the company “is organizing its payment products for small business into one larger service called PayPal Payments that is meant to provide an array of tools for online, in-person and mobile payments.” Ryan Kim, PayPal Targets Small Business With All-In-One Tool PayPal Payments (GigaOm Apr. 4, 2012). PayPal’s onsite-relationship with Home Depot is one example, but the real gold lies in the mostly untapped market of local transactions between highly informed buyers and both small retailers and individuals.

Gartner projects staggering growth for mobile payments worldwide, as measured in terms of (i) users, and (ii) technology as measured by both transaction volume and value.

• Users. Gartner predicts an overall worldwide increase in mobile payments users from 141.1 million (2011) to 349.4 million by 2015. The Asia/Pacific region will continue to represent the largest segment, with growth from 69.1 million (2011) to 127.8 million (2015). In terms of growth rate, however, North America is about to explode, with a predicted increase by a multiplier of four (4) from its current figures during that same time frame.

• Technology, Volume, and Value. Short Message Service (SMS texts) will continue to be the primary means of mobile payment. SMS-based transaction values will soar from $50.2 billion (2011) to $216.6 billion (2015). The same applies to transaction volume, with SMS rising from 1.6 billion transactions (2011) to 7.2 billion (2015).

• What People Buy. Of the projected $426 billion (2015) in mobile payment sales, two categories of products and services will dominate the landscape: (a) money transfers and (b) merchandise purchases. Together, these two account for 92.4% of the total value of all mobile payments. The former are projected to rise from $51.5 billion (2011) to $216.6 billion (2015). Merchandise purchases show potential growth from $27.3 billion (2011) to $177 billion (2015).

Sandy Shen, Forecast—Mobile Payments Worldwide, 2008-2015 (Gartner May 12, 2011).

Mobile Applications – A New System of Engagement

If Steve Jobs nailed Apple’s retail strategy, he also understood perfectly the need to allow third parties to build applications (apps) for the very products (e.g., computers, then smartphones, then tablets) that Apple would sell in its stores. There are over 500,000 apps in the Apple App Store, according to Apple’s website. Pew Internet reports that 38% of U.S. adults had downloaded apps to their phone by August 2011. When one also considers pre-loaded apps, 50% of U.S. adults now use mobile applications, an astonishing figure. App stores, including Apple’s App Store and Google Play (formerly Google’s Android Market), have recorded over 35 billion downloads. See Rachel Metz, Betting Everything on Mobile (MIT Tech. Rev. May 11, 2012).

Apps have had a profound democratizing effect for startups. QUICK, for example, can make its vision available to hundreds of millions of consumers just as easily as Amazon. Two of the most popular apps to date, Angry Birds and Instagram, soared because of a niche popularity that went viral, as opposed to marketing by a corporate giant. At the same time, Facebook’s $1 billion acquisition of Instagram demonstrates how an atomized-yet-ultimately-viral app can fit into a much larger company’s corporate strategy.

For startups, the ability to be nimble and adapt one’s app on the fly based on consumer feedback is a decided advantage over competitors. The need to adapt quickly again underscores the atomized nature of successful mobile applications. People want apps for specific functions and needs that may evolve over time. Apple’s own website puts it best: “There’s an app for that. For work, play, and everything in between.” The same applies to consumers’ desire to communicate directly with sellers to obtain the most relevant information possible about a possible purchase. Forrester calls the response to this need “a new system of engagement.”

The Future of Money

Cash and credit are no longer king, although both will survive in the short- (and probably long-) term as a result of concerns about privacy (e.g., anonymity) and security (e.g., cybercrime). As smartphones have become increasingly advanced and ubiquitous, consumers now look to them to serve yet another function: their wallet. According to Pew, consumers are now “increasingly comfortable using their phones to transfer money, purchase goods, and engage in other types of financial transactions.” Aaron Smith, Janna Quitney Anderson & Lee Rainie, The Future of Money: Smartphone Swiping in the Mobile Age (Pew White Paper Apr. 17, 2012). This trend is hardly unique to the first world. In Kenya, for example, where there is no well-established banking system, the country has leapfrogged to new technologies in dramatic fashion. Users of Kenya’s M-Pesa system now exchange 20% of that country’s GDP via text message. See Deidre van Dyk, The End of Cash (Time Jan. 9, 2012). A Q1 2012 study conducted by ACI Worldwide in conjunction with Aite Group surveyed 4,200 consumers in 14 countries and identified these savvy, mobile-wielding payors and payees as smartphonatics—"consumers who change their shopping, financial, and payment behavior as a result of owning a smartphone." The Global Rise of Smartphonatics: Driving Mobile Payment and Banking Adoption in the United States, EMEA, and Asia-Pacific (ACI Worldwide, Aite Group 2012). The Economist adds:

In India, where only 35% of adults have an account at a formal financial institution and less than 2% have a credit card, 60% are smartphonatics. In Canada, where nearly everyone has a bank account and most people own a credit card, only 7% are smartphonatics.

Financial Services (The Economist May 22, 2012).

Pew predicts the end of regular commerce by 2020, with mobile payments “an obvious choice to replace established modes of payment in day-to-day commerce.” This paradigm, while profound, represents a natural evolution of human behavior. Harvard Professor Susan Crawford, who served in the Obama administration as a Special Assistant for Technology Policy, adds:

There is nothing more imaginary than a monetary system. The idea that we solemnly hand around printed slips of paper in exchange for food and water shows just how trusting and fond of patterned behavior we human beings are. So why not to take the next step . . . to even more abstract representations of value?

Instant Mobile Commerce Has Arrived

The early days of eBay were a little bit like the Wild West. Pricing was inefficient; placing wares on the site was (and remains) cumbersome; and auctions took days (and still can) before eBay introduced its “Buy It Now” feature. Individual sellers have for the large part moved away from eBay, leaving the site populated by retailers who sell at lower margins and can’t sell the complementary accessories or sales support—not to mention expertise—that they could were the buyer to visit their stores. “Retailers can still use eBay to cycle inventory. Making money is another matter,” says Paradise.

The key to establishing an effective relationship with potential buyers is quick and even instant access to mobile messaging services embedded directly within apps. Buyers want information, communication, and location, and it must be at their fingertips. In this respect, buying and selling is now most effective when it resembles bartering, which humans have been doing for millennia. All other means of effective communication—landlines, laptops, PCs—have been displaced. See Van Dyk, The End of Cash. They are simply too slow and do not allow sellers to provide potential buyers real-time pre-sale value (information).

In this era of being “connected to everyone” all the time, any mobile commerce strategy that does not provide instant communication between buyer and seller will fail. Buyers already have cameras that can scan bar codes and provide both the quantity and quality of information that result in rational pricing and informed decision-making. Yet that’s not enough on the seller side. As discussed, the next logical step is to incorporate location-based services in order to invite buyers to purchase locally based on personal relationships and dynamics. Sellers can thereby increase their margins and upsell with accessories – imagine a bicycle shop or EP Levine. These recommendations take root based on personal, face-to-face communication that establishes sellers as trusted sources.

Brenhouse reiterates the importance of both instant communication and an atomized mobile strategy. A wise app strategy for instant m-commerce is to serve as an initial intermediary and provider of (a) instant messaging-based communication and location services, and (b) a platform-agnostic means for sellers to upload their wares once and instantly populate multiple marketplaces, while also complying with the regulations of each of those marketplaces. QUICK refers to this as its Power Multiplier. QUICK then lets market dynamics do the rest. Every sale requires payment, so QUICK uses existing payment structures such as PayPal that already have legal protection and regulatory compliance in place.

Conclusion

The Internet Age has witnessed technology enable distinct phases of commerce. I-commerce gave way to B2B markets, which in turn led to e-commerce. The results have been profound for buyers, sellers, and traditional brick-and-mortar business concerns. When you shop today at the iTunes Store or Amazon, or rent videos from Netflix, remember also the days of Tower Records, Borders, and Blockbuster. With a few remaining exceptions, those models are dead.

When Apple launched its iPhone (a smartphone) in 2007, the first seed was planted for the next paradigm shift. Then came apps. These allow buyers and sellers to leverage the power of mobile payments and location-based services to exchange the most valuable market commodity – information. The result is instant m-commerce – technology-inspired face-to-face transactions. Ask Jay Callum at EP Levine. His already tech-savvy business won’t ever be the same.