Why Local is the Future of Commerce

This is the introduction to “The Local Stack,” a five-part series on local commerce that will appear on Mondays. The full series is being underwritten by Yext.

The local marketplace is under renovation: Out with the yellow pages books that cluttered our homes; out with the cash registers. Goodbye punch cards. In their place: location-enabled smartphones; iPad transaction devices; and consumer behavior that, thanks to the ordinariness of e-commerce, has come to expect a wholly different way of interacting with stores in the real world.

Powering this transformation is a sprawling network of technology companies at play below the surface, replacing an outdated infrastructure with a digital foundation, or “stack.”  A stack that finds its roots in e-commerce.

Local Commerce and the ‘Experience’ Economy

E-commerce paved the way for the revolution taking place in local. The stack of services that e-commerce companies have built created a better buying experience for the consumer and changed the way they interact with businesses, whether digital or bricks-and-mortar.

With smartphone penetration reaching 133.7 million consumers, a full 52.5% of the U.S. population, mobile is taking over the shopping experience. Whereas desktop computing relegated the internet to access points in our homes and workplaces, mobile adoption, and the explosion of internet connected devices, has brought the web to every moment in our local shopping experience. It’s with us on the train when we remember our toaster shorted that morning; in the store as we compare products; and back home years later when it breaks again.

(Re)defining the Local Stack: Find, Buy, Retrieve, Engage

The past decade has seen a slow but persistent transformation in the set of services consumers use to navigate the local marketplace. One by one, technology firms have recreated or reinvented various layers of the local shopping experience, disrupting industries and opening doors for new ones to emerge. The transformation began in search, but companies have since started to rethink the way we buy and retrieve these goods and services as well as the way businesses reward, and retain, past customers.

Siloed early on, these industries are starting to coalesce, working together to form layers in a coordinated stack. Our search habits begin to influence our buying experience, which instructs the way in which businesses engage us as consumers. As each piece of technology builds around the other, the whole starts to become greater than the sum of its parts.

In many ways, innovation in the local stack has developed according to the stages of consumption, beginning with finding products, an area that has been dominated, of course, by search. But consumers are evolving their behavior beyond search’s relative comparison to the yellow pages to other ways of discovering local products, through social channels and mobile apps.

The consequence is a rapid changing of the guard in local search and discovery. Yellow pages revenue is expected to drop 4.1% over the next five years, an actual slowdown in decline compared to the previous five years’ 8.9% dip in revenue. Local search revenues, on the other hand, are skyrocketing, expected to increase annually 10% over the next five years. User-generated reviews and ratings have dramatically improved our ability to determine the quality of a businesses, altering, more than replicating, the consumer’s experience in the local marketplace.

Below the surface of the consumer properties, there’s a host of infrastructure companies supporting local search and discovery services, providing the data and content needed to make these properties valuable. Companies like Yext help coordinate the flow of content and information coming from local businesses, then automating distribution across the fragmented landscape of consumer-facing search and discovery services.

A big part of the ease of online shopping is the seamless and personalized buying experience a digital platform affords. And a programmable buying experience also provides a wealth of information for businesses, allowing them to analyze, tailor, and upsell consumers in real-time based on previous purchase or recent activity.

Who is powering such new marketing techniques? A whole host of emergent companies have built new ways to personalize, process, and analyze the way in which consumers buy offline. That includes the payment software that actually process the payment, the point­-of­-sale and CRM systems that help merchants customize the buying process, and the analytics services, which help business optimize their business.

Improvements in logistics software have opened new opportunities for technology companies to expand out-of-store fulfillment options for brick-and-mortar stores. Online ordering services like Seamless and Grubhub, which merged last month , have dramatically improved the user’s experience ordering food by bringing it online.

But it’s a growing set of local logistics firms that could present a substantive threat to Amazon in getting products to people. The availability of same-day delivery allows brick-and-mortar businesses to offer a viable, and vastly superior, alternative to the traditional e-commerce model, and even take back a share of sales that Amazon siphoned off over the past decade.

With a new windfall of customer data, brick-and-mortar businesses have an unprecedented ability to vastly improve their customer relationship management efforts. Evolutions in technology and consumer behavior in point-of-sale and smartphone adoption have spawned a growing set of next-generation loyalty and CRM companies capable of helping businesses add a degree of personalization and incentives that e-commerce companies use to grow their customer base and retain their best customers.

A Unified System

These layers of the stack are laid out separately, as innovation is taking place with a specific focus on each level. But after years of incremental growth, local commerce is set to see a dramatic uptick in innovation as the layers of the stack start to work together. Services like Uber, which collapse search, buying, fulfillment and retention into a single integrated experience, demonstrate the potential of a programmable local commerce experience.

For the next five weeks, Street Fight will take a deep dive into each layer of the local stack, detailing the dynamics and key companies that will help to build the future of local commerce. The series, which is underwritten by Yext, is aimed at educating industry players new and old on the inner workings and ecosystem of the new local stack.

Steven Jacobs is deputy editor at Street Fight.