Yes, it’s another business model acronym – we’ve all heard B2B and B2C and B2B2C. No, it’s not a new element of the Periodic Table. Yes, it’s value has been pegged by eBay CEO and President, John Donahue, as a $10 trillion opportunity. It is Online-to-Offline (O2O) Commerce. According to the Pew Research Center, 78% of American customers research products online before purchasing. So, the question is: Is O2O a necessity for the continued breath and ultimate survival of local brick-and-mortar business? I say, yes.
At the end of the day, a local retailer does not want to pay for a click that stays on the Internet e-commerce highway or results in a loss of interest and closing of the webpage. They are however willing to pay for a consumer to walk through the door, interact with a sales associate, and make a purchase. This act of closing the redemption loop is what O2O aims to do. The question of how this space will look in the future is not as clear as a simple yes or no answer.
Online-to-Offline (O2O) Commerce is the use of online and mobile to drive offline local sales or redemption. More simply put, it is offline purchasing propelled by the web.
With the rise of e-Commerce and the Internet shopping boom back in the 1990s, the general thought trended towards a demise of physical in-store shopping. Fast forward fifteen-plus-some years later, and it turns out that we still stroll through malls and street storefronts to spend money. The online retail world is growing by the minute, but will the traditional way of shopping ever truly die? That’s one question that probably doesn’t have a direct yes or no answer. Predictions are only predictions at the end of the day. What if Congress does pass legislation for online sales tax (Momentum Builds for Internet Sales Tax)? Today, this is not a uniform process across states, but it could have the potential to negatively affect e-commerce as well as its subset, m-commerce.
For now, the answer lies in the merger of these two trends -technology and brick- together at last. This is good news for the hundreds of thousands of local brick-and-mortar businesses that have felt left out and gasping for air with the rising popularity of e-tail and Internet marketing. Now, they can breath again – O2O to the rescue.
When taking a bird’s eye view of this rather large, continuously evolving space in the market, which is not yet clearly optimized or defined, I came across six particular themes (some of them revolving around trendy buzzwords, but still important in my mind) that I would like to discuss below.
Mobile, Mobile, Mobile! Apps, Apps, Apps! So-Lo-Mo? Everything is going mobile, and with this m-takeover comes a social as well as a local component. (SoLoMo=Social-Local-Mobile). Buzzword overload? Probably. However, the question in the O2O world becomes how will the ad, the deal, or the promotion link to more quality costumers and the actual purchase transaction? There are a number of different ways to link the two, the vast majority of which involve Smartphones and/or Social Networking. Forrester Research estimates that mobile commerce will be worth $31 Billion by 2016 (see growth chart below). The point is that consumers already have, and will continue to have, more choices at their fingertips today than they did yesterday. With that, local retailers will also have more ways to bring in business and keep consumers happy, and hopefully, consuming.
Knowledge Base. O2O has the power to enable local businesses to track, monitor, and measure what works and what doesn’t. This is an important element of digital marketing, which offline businesses do not have the tools to capitalize on. What if you couldn’t fully quantify or evaluate the ROI of a very expensive marketing campaign, or a promotional deal? Where should you invest next? Which local markets are saturated and which demographics are buying which products? What is driving the actual foot traffic to your storefront? And, more importantly, how can you drive more?
Real-time. Think about it. Everything we do online is triggered in real-time, based on what we are doing, who we are, and where the all mighty Internet thinks we may look next at that special moment in time. We search for a keyword and ads pop up related to our search or our previous browsing history. Bing even marries this to our social likes and friendship circles. Local needs to get a piece of this pie – it’s too valuable not to. If you are strolling down Union Street in San Francisco, stopping in a boutique here or a coffee shop there, you are going to be inclined to seek out a specific local store or stay a little longer to look around if there is a promotion that pops up on your mobile device as you’re walking by. The technology exists. It just hasn’t entirely caught on yet – the O2O start-up space is crowded, and regardless of whether the end result is a “winner take all” scenario, it will soon be the new norm. Real-time triggering exists in union with geo-location targeting, which again, could be seen as an invasion of privacy to some and completely genius to others, and check-ins. You want to know who a costumer is when they walk in the door. How do you target that costumer if you are a local business with little online presence? By sending real-time push-notifications to the user, the local retailer is able to not only get into the user’s pocket (literally), but also track how effective this type of location-based marketing truly is through data analytics and a product knowledge base that has the power to steer local businesses toward ultra-targeted and performance-based marketing techniques.
Accountability. By compiling a data base of consumer behavior and product knowledge, the local retailer is much smarter. Additionally, the retailer now has access to reviews and metrics that help him or her take accountability for the business. If a specific promotion didn’t bring in any repeat costumers or a number of consumers returned a specific product or a review was written about a specific sales person, the local business now has the tools to collect this data, evaluate it, and improve, without delay. This helps the local business stay competitive and innovative, while hopefully increasing its consumer base loyalty.
Closing the Loop@POS. Early movers, like Groupon and LivingSocial, capitalized on the daily deals O2O market. This specific element of O2O was successful, but is also experiencing a lot of local level criticism due to revenue shares skewed towards Groupon and lack of retaining LTV costumers. LTV matters, and it can be difficult to create loyalty with a deal-a-day model. Start-ups and technology companies have gotten creative in terms of new ways to close the redemption loop while creating loyalty and a quality consumer base along the way. Transaction level targeting or point of sale (POS) targeting, which uses card-linked and mobile payment technology, to recognize a customer and offer him or her the most relevant deals is huge. Some companies are even partnering with banks to have deals and savings show up on the actual bank statement. With mobile payment companies linking to financial institutions and credit card issuers, plastic is about to become a whole lot smarter. This has huge implications for O2O, so much that I could fill an entirely new blog entry.
Physical Business Model Adaptation. This is one of the most interesting innovation areas that I have seen in the O2O space. Companies like Bonobos, an e-commerce men’s retail site, are setting up “skeleton” guideshops in order to offer the offline retail experience with less fixed cost than a full store experience. This technique allows the consumer to come into the store for the benefits of trying on clothing and testing fit before buying. Though Bonobos is an online retailer, they are actually innovating in the opposite direction of most, making sure to create a presence offline while keeping their primary e-business online.
The O2O industry is expanding by the day. O2O platforms are affecting purchasing habits, expanding both human and plastic memory, and giving consumers more options. O2O is also giving the local brick-and-mortar retailer not only the tools to seal the deal from online searching to offline purchasing, but also ultimately the opportunity to survive and compete in an increasingly e-dominated world.