The Commerce Graph: Some Thoughts on the Future of Physical Exchange
You do not have to listen closely to notice a change in the syntax we use when speaking about Internet. Today, there’s less talk about the Internet as a capitalized pronoun. Instead, we use words like “connected” or “smart” — terms meant to modify existing structures as much as to create new ones. More than ever, technology types want to “blur” and “bridge” as much as “disrupt” and “displace.”
The semantic turn offers a window into a much more profound shift in the role of digital networks in our lives. The rapid adoption of smartphones paired with the emergence of a stable and scalable cloud computing infrastructure has created an environment in which consumers and businesses can interact off of a single network wherever they go. Whether that’s on a website or in a store, the systems on which we rely are increasingly part of the same network.
Nowhere is that shift more evident than in our conversations around the future of commerce. Typically, we’ve pitched brick-and-mortar retail against ecommerce in a winner-take-all clash. And the story typically did not play out well for local stores: ecommerce companies were consuming physical marketplaces, sucking up busy malls and bookstores and spitting out empty megaplexes and vacant retail space.
But recent data suggests otherwise. According to a report released in May from Accenture, consumers in the U.S. are using digital tools and physical exchange in conjunction with each other rather than simply ditching one for the other. For instance, the report found that 78% of U.S. shoppers said that they bought in-store after browsing digitally in 2013. Inversely, 72% of respondents said they browsed in-store and then bought online — or “showroomed.”
The industry numbers underscore the story even further. Ecommerce is projected to grow at an exceptional clip over the next few years, jumping from $263.3 billion to a little over $491 billion by 2018. That’s phenomenal growth, but still fractional compared to overall retail spending in the U.S. So here’s the question: If we know the internet affects a majority of purchases, but ecommerce still only represents 10% of retail, how do we mind the gap?
Introducing the commerce graph
At Street Fight Summit West last week, I presented some new research around the “Commerce Graph,” a framework we developed to think about the future of physical exchange. The model offers an alternative to the dominant narrative about the commerce landscape that frames digital networks as an adversary of physical exchange — a force that will inevitably drive us to buy and sell nearly everything virtually.
We developed the commerce graph around two familiar components of the shopping experience: decisioning and fulfillment. Decisioning refers to everything that helps us move to the point where we are ready to buy a product or service. It’s comparing reviews on yelp, watching a TV commercial, trying on shoes in a store, window shopping, calling a business to see if they’re open. Meanwhile, fulfillment represents what happens afterwards: it’s getting the product into our hands. That could be by picking it off a shelf ourselves, UPS delivering it a few days later, or a restaurant delivery guy bringing it to our door.
Then, we’ve weighted each axis with a range, with in-person interaction on one end and remote interaction on the other. On the decisioning axis, whether we decide to buy a product by interacting with it in person or using some form of digital or analogue representation (catalog, website etc.) In terms of fulfillment, its whether we retrieve the product or service ourselves or rely on a third-party to bring deliver it later (e.g. UPS or a delivery guy.)
What’s left are four quadrants. The first two are fairly well established. There’s traditional local commerce, in which we decide in person and fulfill in person.
And there’s remote commerce. That’s where we buy remotely and fulfill remotely. Think Amazon.com or the Sears catalog.
But what we’re really excited about, and what poses the most promise over the next few years, are the two categories where remote and physical interaction intersect. It’s where the power of digital networks — the ability to transmit huge amounts of information — and the richness of personal interaction come together to create a better way to buy and sell goods and services.
The explosion of local service marketplaces
The blistering ascent of Uber and Airbnb over the past couple of years underscores the breadth of the market opportunity around these “hybrid” services. In addition to the collaborative dynamics of the sharing economy, the companies have tapping a common value proposition for consumers in their respective markets: they allowed consumers to purchase a service remotely, which by its nature need to be fulfilled in person.
Their success has spawned a spate of startups, which have applied a similar approach to other industries. This year alone, we’ve already seen a number companies raise double-digit funding rounds: ZocDoc for healthcare ($55 million); Homejoy for cleaning services ($38m); ThumbTack for contractors ($30m); and earlier this week, Washio for laundry ($10.5m). These services each use the power of digital networks to not only reinvent the way in which we shop for these services, but create a better experience receiving the service by adding clarity and trust between the client and service provider.
Tesla and Bonobos rethink the showroom
Last year, Bonobos, the upstart apparel brand that exploded by selling pants to young professionals online, did something that seemed to go against its digital roots: it opened a physical store. The Guide Shops function like any retail store with one major exception: nothing in the store is for sale. Instead, customers place an order with a store associate, and the product is delivered days later like a normal ecommerce purchase.
Tesla has done the same thing. The electric car maker has opened a series of showrooms, equipped with a sample of each model and interactive screens through which customers can design and order a car which is delivered weeks or months later.
So here’s my bet: the companies that will drive value creation in the commerce technology industry over the next decade will build products that help sellers and consumers move between these systems, and use connectivity to improve physical exchange. That’s the challenge.
Overall, we will see more lumping, and less splitting — and that’s good. As digital networks increasingly impact the stability of seminal social institutions such as commerce, technology can’t live in the valley anymore. We need to understand how connectivity can improve — at times supplementing and at times replacing — the systems we already have in place.
Steven Jacobs is Street Fight’s deputy editor.