Tuesday, April 15, 2014

The next frontier of digital services

Six secular trends will shape the future of ecommerce in the coming decade: mobile becoming a dominant channel, emergence of one click services, rise of the sharing economy, deep personalization, instant delivery and Asia becoming a major market.

I remember when the first ecommerce sites launched in the late 90’s with poor dial up connectivity and everyone thinking that a few years down the road everything would be bought online. Fifteen years later, ecommerce has gone a long way and changed our way of life, representing a $1.3T market globally. However, ecommerce represents only 8-12% of total retail sales and there is still a lot of room to grow from here. The fact that companies like Amazon or eBay are still growing at 20-30% annually despite their massive scale illustrates this untapped potential. Looking forward, we are seeing 6 trends that will fuel this growth and shape the future of online commerce:

Mobile supremacy: coming as no surprise, the main trend that is changing ecommerce today is the relentless growth of mobile. Mobile represents 15% of internet traffic, growing at 150% per year but users spend 87% of their time on mobile on applications (vs. mobile internet), so this underestimates the actual penetration. In addition, consumers are spending a lot of time searching for information that they use to buy in retail stores and mobile is a very powerful tool for this use case. The level of engagement on mobile is changing the game of online commerce and already on the path to becoming the dominant channel: Etsy is seeing close to half of traffic and 30% of GMV on mobile. Showroomprive is experiencing similar numbers. Supercell reached 10m mobile users in less than 4 months (it took 27 months for Facebook). HotelTonight is selling last minute hotel rooms exclusively on mobile with more than 6.5m users, growing 300% year over year and the list goes on…

One click services: have you tried to find a cleaner for your home or a sitter for your dog? Today, the process is cumbersome, including multiple phone calls, quotes, sometimes onsite visits…Tomorrow, you will be able to go online and book the service at a convenient time in just one click. Companies like Homejoy, Handybook, Dogvacay or Rover.com are already making this future a reality in the US and we should expect to see these services developing in Europe soon.

The rise of the sharing economy: when Rachel Botsman published “Collaborative consumption” in 2011, many peer to peer services were emerging but eventually many of them did not reach scale as the friction to deliver the service or product often offset the value received. However,  peer to peer had proven to work and is getting massive scale in several areas: home sharing with Airbnb (10m “guest stays” since launch) and Housetrip, ride sharing with Blablacar (close to 7m members in 10 countries), fashion with Vinted (14m listings) and lending with Lending Club and Funding Circle. Peer to peer marketplaces are here to stay and redefining several areas of online commerce.

Personalize or die: the day of a “one size fits all” for ecommerce are counted. The development of new business intelligence platforms is now making the analysis of large amount of data possible in real time and this intelligence can be used effectively to personalize user experience. Criteo pioneered this field with ad retargeting and we are now seeing a new breed of companies like Monetate or Sailthru pushing personalization further to content, search and email.

Instant delivery: ecommerce has reduced delivery time from a week to next day but to continue eating into retail sales, the limit needs to be pushed further down while keeping shipping price low. Tough challenge that is hard to overcome with traditional courier services but technology is here to help and new services are emerging even though it is very early days. Companies like Uber are floating the idea of using their car fleet to deliver goods, Amazon is experimenting with drones and Netflix is making fun
of it (this may not happen in the near future!) and online/ mobile delivery services like Postmates are starting to grow in the US. Who knows what the future holds but there is a lot of investments and creativity working on this problem.
Asian Tigers turning digital: In 2014, for the first time, consumers in Asia-Pacific will spend more on ecommerce purchases than those in North America, making it the largest regional ecommerce market in the world. China represents 60% of this market with companies like JD.com (212m orders and $14B GMV in the first 9 months of 2013), Alibaba ($160B sales in 2012) and IQiyi ($2.6B revenues in 2014) expected to go public in the US in 2014.  India is following with companies like Flipkart which grew its revenues 5x last year. The e-gold rush is happening in Far East!