Contrary to Marc Andreessen’s recent claim, offline retail is not going to die, said Mike Ghaffary, VP at Yelp, during the morning keynote at Street Fight Summit West in San Francisco Tuesday. Ghaffary argued that the majority of the over $3 trillion in commerce will stay offline — and subsequently, the largest opportunity isn’t in bringing commerce online, but in using the web to support it offline.
Using a formula he devised to understand the variability of the disruption of the local space, Ghaffary calculated what he calls “the local coefficient,” which takes a pulse of how likely it is for various major offline industries to be moved to digital. The formula combines multiple attributes of a sale process, including tactility of the transaction, pre-sale experience, and post-sale experience. The lower the local coefficient, the greater the chances of that business moving online.
The formula determines the various risk that offline local merchant might be disrupted. For example, the post-sale experience of reading is critical for books. In addition, the presence of digital equivalents (think Kindle and iPad) give books a low local coefficient of 0.287. By contrast, restaurants and clothing stores have a relatively high local coefficient: “I look forward to the day they can deliver food right to my mouth,” said Ghaffary.
According to Ghaffary, $2.5 trillion dollars of the $3 trillion in offline commerce will stay offline over the next decade, a majority of which are service industries like restaurants and home care that account for a large portion of commerce spending today. For Yelp, Gaffary said that 80% of the businesses on its platform are service-related.
While there is no clear cut roadmap for success, Ghaffary said the local coefficient pointed to a few models that could last. There is the Warby Parker model which relies on a combination of online store with supply chain logistics. There is also the model that is being tested by Health Tap, an online provider of medical services which uses a network of doctors to dispense online advice. but even within that, There are, of course, limitations. For example, mental health advice can be dispensed online while dental treatment requires onsite visits.
“This is less about software eating the world and more about online influence of local commerce,” said Ghaffary. “There’s a lot of opportunity to provide a lot of value [without disrupting it]. ”