Fascinating Article about the Emergence of eBook Bestsellers

Somewhat by chance I recently went to a debate about "New Technologies and its Implications on the Publishing Industry".  The discussion panel was made up of everything from social media experts to extreme skeptics - however, they all agreed that as consumers get increasingly accustomed with downloading content without paying, authors face an uncertain financial future.

Personally, I believe marketeers and their tools are becoming increasingly adept at monetizing content through alternative channels (e.g. ads, product placements and direct sales) and, in this type of mindshare economy, producers of content will be king.  And, authors will have a lucrative financial future ahead.

Interestingly, so far, it also seems that readers are happy to pay for their books.  In the below article (link), Business Insider covers Amanda Hocking, a 26-year old author, who sells her books directly on Amazon Kindle, and is making millions.  By cutting out the middle men and other costs associated with the traditional publishing industry, such as printing, Ms Hocking is able to sell her books for $3.  This in turn, enables her to sell a much higher volume - reportedly around 100,000 per month.

Clearly, people are still willing to pay for their books and authors who stay on top of new marketing trends will be able to profit very nicely.

http://www.businessinsider.com/amanda-hocking-2011-2

Interesting Interview about Mobile Payment with Dan Schulman at Amex

In this interview with Dan Schulman, President of Enterprise Growth, the emerging payments group at Amex.  He talks about the importance of smartphones and how they are set to transform payments and commerce. 

Particularly he is concerned with how smartphones will blur the lines between online and offline experiences and create an entirely new commercial ecosystem. 

In this new, commercial ecosystem, payments will not simply be a separate part of the purchasing process, but an integrated part of the shopping experience.  This experience will include marketing messages and offers, product information, loyalty & reward programs, payment and more.


http://www.pymnts.com/exclusive-interview-dan-schulman-of-american-express-talks-payments-innovation-and-regulation/?t

TfL to Accept Contactless Bankcards by 2012

Transport for London yesterday announced that it is preparing to accept contactless bankcards at its Oyster Card readers by next year's Olympics.

The payment option will be available for the tube, buses and the Docklands Light Railway.  TfL is also in discussions with National Rail to accept contactless bankcards for the railroad routes that already take Oyster. 

Will Judge, TfL's head of future ticketing said: "As more people use their bank-issued cards to pay for their travel directly, TfL's costs will reduce, delivering better value for money for London's fare and taxpayers". 

With 12 million contactless bankcards already in circulation, expected to grow to 20 million by 2012, there should certainly be demand for the option.  Still, the statement does not say if the system will accept payment with NFC-enabled mobile phones - the device that is most likely to accelerate NFC-adoption in the coming years.

Interesting article: how is mobile payments changing traditonal banking?

ComputerWeekly.com today published an interesting article by Jenny Williams on mobile payments and its implications on the traditional banking industry. 

Barclaycard, which is launching the UK's first mobile payments network, Everything Everywhere, with Orange later this year, certainly expect that mobile payments will have profound implications for the banking industry and that retail banks will need to lead this innovation to stay competitive. 

The most obvious threat comes from mobile carriers, such as O2, which is applying for an emoney license that will enable it to operate a payment network without partnering with a bank. 

Vodafone, on the other hand, is focusing on M-Pesa, its mobile payment network in Africa.  Having launched in 6 markets and achieved very impressive take-up, M-Pesa has provided large portions of the population, who were previously unbanked, access to basic banking services.

However, I do not personally believe that mobile carriers will have a disruptive impact on the banking industry unless they partner with other players for three reasons; (1) they have no experience in operating a payment network - a complex business, (2) they will offer only basic payment services, and will be unable to enter the savings or investment areas and (3) they are unlikely to introduce disruptive payment technologies.

However, disruption in the payment industry is likely to come from another area - Apple and Google.  A number of  manufacturers launched NFC enabled handsets for Android at the recent Mobile World Congress in Barcelona and Apple is expected to include NFC on the iPhone 5. 

The article quotes Rachel Hunt at IDC Financial Insight; "As Apple and Google are considering NFC as part of their offering, they might get a score of applications that leverage that. This is an area where the bank cannot compete as it cannot act quick enough. Start-ups will be quicker to create apps".

She argues that the biggest challenge for banks is to predict how mobile payments will be used to create value for customers.  While Hunt expects mobile payments to ride on the existing infrastructure and networks, she expects that online payment players such as PayPal can cause serious disruption.

http://www.computerweekly.com/Articles/2011/02/22/245531/Near-field-comms-How-are-mobile-payments-changing-traditional.htm

iPad 2: First Review

All payments enthusiasts are eagerly awaiting Apple's iPhone 5 and any indications if they are including NFC and entering the payments industry.

In the meantime, enjoy this iPad 2 review from Norway.  He could probably have done it in half the time, but pretty funny!

Facebook and Mobile Payments

Interesting article from Giselle Tsirulnik, senior editor at Mobile Commerce Daily.  It asks if Facebook will be able to marry its social network and Facebook Credits currency to become a major presence in
online and offline payments.

http://www.mobilecommercedaily.com/2011/02/17/does-facebook-hold-the-future-of-mobile-payments-in-its-hands?goback=.gde_3214637_member_44065124

Google Launches One Pass

One day after Apple opened iTunes for subscriptions, Google yesterday launched One Pass, a payment service for publishers.  These services are widely viewed as important tools to enable publishers to monetize its content going forward.

In addition to offering publishers more flexibility in terms of pricing models, One Pass is significantly cheaper than iTunes, charging publishers only 10%, compared to Apple's 30%.

Although One Pass, is initially intended as a payment service for media publishers, there is speculation that Apple will use iTunes as an electronic wallet for mobile payments, and Google could easily follow a similar path.

Gemalto Integrates Facebook on the SIM

Gemalto announced today that it has developed a SIM card with built-in Facebook capabilities.  The main implications of this is that users of old-style, 'feature' phones, are able to use Facebook on their phone, opening up a whole new market for Facebook.  Suddenly 2 billion people who currently don't have convenient access to an internet connection, are able to use Facebook on their profile.

Last week I wrote about the upcoming Facebook mobile and its potential as a powerful marketing platform.  Particularly if Facebook managed to integrate on its platform all the behavioral data that will shortly be captured on smartphones (location, purchases, ticketing), it would have an unprecedented ability to map our lives and target marketing messages.

Although, Gamalto's SIM-card development does not enable any of these features, it does demonstrate the increasing integration of social platforms and Facebook on our mobile phones.

The Future of the Internet: a Presentation by Mary Meeker

Mary Meeker, formerly with Morgan Stanley, now with Kleiner Perkins, has long been the most influential analyst in the tech industry and is famous for her insightful presentation.

Although, it is not directly payments related, I wanted to add a link to her most recent presentation, delivered last week, and give an overview of her main points.

Current trends:

• The rise of mobile computing: becoming ubiquitous, affordable and faster
• Increasing personalization: location / preferences / behavior / social relationships all available from information we provide ourselves
• Fun to use: social / casual / rewards-driven / 'gamification' of real life
• Measurable real-world activation: driving foot-traffic to physical stores
• Explosion of apps and monetization: more apps, generating more money
• Rewards influence behavior in real-time: for exactly the right people

On the horizon for 2011 and beyond:

• HTML5 vs. downloadable apps
• NFC: payment / offers / loyalty / ticketing / etc.
• Consumer-led mobile health: monitoring / diagnosis / wellness
• Enterprise adoption of tablets
• Smartphone tipping point > 50% adoption
• "So-Lo-Mo": Social - Local - Mobile convergence
• "Gamification": ultimate way to engage a new audience
• Empowerment: impact of empowering billions of people around the world with powerful, mobile devices has just begun

Meeker finishes the presentation with a quote from John Doerr, partner at Kleiner Perins: We're at the beginning of a new era for social internet innovators re-inventing a web of people and places, looking beyond documents and websites.
  
Go to Business Insight for the full presentation; http://www.businessinsider.com/mary-meeker-matt-murphy-2011-2#-1

Orange Launches its First NFC Mobile with Samsung

Orange launched its first NFC enabled Samsung Wave 578 at the Mobile World Congress in Barcelona today.  This is Orange first step into NFC, which is slated to be its big theme for the 2011. 

In coming months, Orange is set to launch similar phones from LG, Nokia and other manufacturers, in order for half its phones to be enabled by year-end.

This positions Orange to partner with other players and enter areas that could become important revenue sources in years to come, such as payments, ticketing and transport.

Seamless Receipts: $1.5M to Growth its e-Receipts & Marketing Platform

Seamless Receipts, a New York-based electronic receipts company, announced on Friday that it has received $1.5M funding from various venture capital investors.  The company delivers technology that enables merchants to replace paper with electronic receipts and deliver customized marketing messages.

The objective of SR’s solution is to drive offline customers online, improve engagement and increase sales.  To enable this, they offer basic components, such as email marketing, promotions and social sharing functionalities to more advanced solutions, such as group buying and reviews.

In additionally, SR has partnered with Fitzgerald Analytics to deliver simple but powerful analytics plug-ins.  With these components and with proper POS integration, SR can deliver:

·      Analysis of “shopping basket mix” (“What products do customers buy at the same time? How can they encourage larger purchases?)

·      Optimization of the timing, targeting, and content of messages to customers

·      Measurement of customer loyalty, return-visit incentives, and other data-driven tactics to improve marketing results

This is information that is generally not available to smaller merchants, unless they invest heavily in costly POS systems.

To support distribution of the system, Seamless Receipts announced a partnership with Canadian Retail Solutions (CRS) last year.  CRS provides POS solutions to small and mid-sized Canadian merchants and will integrate Seamless Receipts with its Retail Pro POS solution.  To support further growth, we would expect Seamless Receipts to announce more such partnerships in the time to come.

However, Seamless Receipts is of course not the first company to provide such services.  Apple has long used their email receipts as a marketing platform with customers and Square builds much of its business around the improved analyses it provides smaller merchants and opportunities to use receipts as a communication platform.

Still, not many stand-alone companies offer similar services, and Seamless Receipts’ independence and ability to freely partner with POS providers should provide a great platform for accelerated growth. 

PayPal Opens Up its MicroPayment Solution

Two days after Visa announced its acquisition of PlaySpan, PayPal today opened up its micropayment solution to publishers, game developers or anyone else who wants to monitize their online content.

The benefits of PayPal's micropayment solution, compared to traditional payment options, is its two-click, 'frictionless' convenience and tailored pricing structure. 


For publishers  that are looking to monetize their content, the main challenge of converting sales lie in getting customers to go through the full payment process, particularly as this requires them to interrupt their online experience to make a payment.  PayPal's micropayment solution, is frictionless, in that it enables the customer to complete the payment without leaving the content with which they are engaged.  Autosport.com, the online magazine, was part of PayPal's early release and saw a 75% increase in sales after implementing the micropayment system.

A second challenge in making a micropayment system work, lies in getting the pricing structure right.  Due to the fixed price element that most payment networks apply to small transactions, these have proven prohibitively expensive to merchants.  PayPal therefore implemented a micropayment-specific pricing structure - for transactions of less than $12, PayPal charges a flat 5 cents plus 5% of the transaction amount.

Thanks to PayPal and other micropayment solutions of this kind, we should therefore expect our favourite online newspapers and entertainment sites to increasingly look to charge for premium content.

Vivienne Tam Helps Square Re-Design Payments

So, Square appears to have taken a leaf out of H&M's book and brought in Vivienne Tam as a guest-designer for a special range of its terminals.  This is a great example of Jack Dorsey's approach to the payments industry. 

This is a complex industry, he says, where people have focused on functionality and reliability and no one have properly designed the user experience.  Merchants might have invested much time and money in designing their retail space - still the payment equipment is a clunky piece of machinery that sticks out like a sore thumb.

Changing this thinking and making payments a more user friendly, well designed process, it seems, is Square's core mission.  And the Vivienne Tam partnership is just one of many steps in that direction.

The Facebook Mobile: Why It Could Become the World's Most Powerful Marketing Platform

In October of last year, Bloomberg wrote that Facebook is launching a phone.   According to reports, Facebook is teaming up with INQ, a London based mobile phone manufacturer that got its start with a Skype phone, and is aiming to launch in Europe during the first half of 2011 and US towards the end of the year.  The phone is also rumored to come with Spotify built in.

Of course, using Facebook on our mobiles is nothing new.  Facebook has long been one of the most downloaded apps for both the iPhone and Android.  However, Facebook’s objective with this launch would likely be to re-define how we use our phones around social media and Facebook.

For starters, our Facebook profiles replaces phone numbers as our primary identity on the phone.  All our communications, from calls, to texts, to IM, to emails would be consolidated on our profile, significantly improving Facebook’s ability to map our social graph.

All other activities that we currently do on our phone could also be organized around our Facebook profile.  E.g. our camera could be synced, so that all photos automatically upload to our profile.

Building Spotify into the phone could also be a transformational move.  Spotify already enable its users to connect through Facebook, making music a truly social experience.  By integrating Spotify in the mobile, Facebook could alter how we listen to music on the fly and directly challenge Apple’s iPod.  If this model was to succeed for music, there is no reason why it could not be extended to other media, such as TV shows, movies and magazines.

Moreover, payment companies have long attempted to leverage the data it captures from their customers’ purchases to develop marketing solutions for its merchants.  Cardlytics has perhaps developed the most advanced solution for this yet.

We are also seeing the emergence of companies, such as Foursquare and Gowalla, that track our movements and target marketing messages accordingly.  Groupon and Living Social have also announced that they are adding this feature to their offers, and Facebook, of course, already has Places.

As we use our mobile phones to conduct more and more of our real life activities, from payments, to ticketing, to key solutions, our phones will capture an unprecedented amount of data about our lives and enable us to map behaviors and preferences with incredible precision.  Ownership of or access to this data will clearly be hugely valuable.

It is therefore no wonder that Facebook is keen to get more deeply involved with mobile phones and attempt to re-define how we use phones around social media and Facebook.

Visa Acquires PlaySpan and Takes a Bite of the Digital Goods Market

Visa yesterday announced its acquisition of Silicon Valley based PlaySpan, a payment processor in the digital goods space.  Visa will pay $190 million cash, plus an additional performance based element.

So what are digital good; these are products or services that are purchased, delivered and consumed in its digital form.  Most common examples are software, music files, online movies and e-books.

Although these categories are experiencing rapid growth, the most exciting category are purchases made on social networks or within online games.  This has become an incredibly attractive space where PayPal has taken an early lead.

PayPal launched micropayment solution last year, with a number of high-profile partners onboard, such as Facebook, the FT, Autosport and Justin.tv.  What sets PayPal’s solution apart is its frictionless, two-click convenience and open APIs that enable merchants to customize the solution to their needs and easily integrate with their systems.

Importantly, micropayments also require a different pricing structure, as the traditional structure is not economical for smaller payments.  PayPal has therefore introduces a different structure that reduces the fees from a $1.00 transaction from $0.33 to $0.10.

And it is exactly this that PlaySpan provides to Visa.  Like PayPal, PlaySpan has developed a frictionless e-wallet that enables consumers to complete transactions across social networks and online games without interrupting their online experience.  It also operates with open APIs, so that merchants can easily integrate the PlaySpan with their application. 

Within four years to launch, PlaySpan is already the number two company in this space, with 28 million users, only after PayPal with its 80 million users.

As TV producers, online game developers and mobile operators increasingly seek to monetize their content through digital goods and micropayments, PlaySpan’s market potential is rapidly expanding.  This acquisition could consequently provide Visa access to entire new markets.  Let’s see how other networks such as MasterCard, American Express and Discover respond!

SNAP: Linking Social Media and Loyalty

With so many entrepreneurs trying to enhance the offline shopping experience by integrating online features through the mobile phone, it was inevitable that a company would link loyalty rewards and social media at the point of sale.  SNAP does that, and after a year-long pilot, it officially launches today. 

Customers receive a rewards card that they link to their Facebook, Twitter and Foursquare accounts on the SNAP website.  Once a customer uses their reward card at a SNAP partner, the purchase is automatically updated on their social media accounts.  In return, the merchant rewards the user with additional loyalty points, Facebook Credits or Foursquare-like badges.

Based on all this activity, merchants receive reports on customers’ visits and profiles.  This allows them to adjust their customer proposition and loyalty program to better target customers.

Although this is all interesting, what makes SNAP really exciting is its open APIs.  Not only does this enable merchants to integrate SNAP with existing reward programs, it also allows them to introduce their own innovations on the SNAP platform.

One could imagine merchants partnering with each other to offer combined promotions; bars could partner with restaurants to offer customers bonus rewards if they go to both in one night or bookshops could partner with coffee shops.  

Another opportunity would be for merchants to base their reward programs not only on a customer’s individual purchases, but also on their friends’ purchases.  E.g. customers would receive incrementally higher rewards according to how many of their Facebook Friends have visited a merchant.

Clearly, SNAP is a young startup and its product is still a work in progress.  However, the opportunities in this area are undoubtedly very exciting and SNAP seems to be going about it in the right way by sharing its API and enabling merchants to develop innovative twists on their platform.

Assa Abloy: NFC Enabled Keys

Last week, I posted a video that showed BMW's NFC key solution.  Below I have included an animated demonstration of Assa Abloy, the key manufacturer, vision for NFC enabled keys - very cool!

Below, I also included a demonstration of a pilot that Assa Abloy ran at Clarion Hotel in Stockholm towards the end of last year.

Mobile Banking: Who's Driving the Innovation?

According to a Forrester study, 12% of the US online population, or 10 million Americans, currently use online banking.  Usage has more than doubled since 2007 and is expected to reach 50 million people by 2015.

The numbers illustrate that mobile banking is still very much in its infancy.  Most banks offer only standard features, such as check balances, transfer funds and pay bills, and 37% of respondents say they don't see any value in mobile banking.

To move the needle, the industry must figure out how they use the features of mobility to make mobile banking a unique experience.  This could come from mobile payments, location-based offers and coupons, peer-to-peer transfers, etc.  However, there is a lot of value in delivering these services, and we see new companies enter the space on a daily basis - posing the question of what role banks will play.

Increasingly we see banks put the faith of their mobile banking solutions in the hands of specialist providers.  Monitise is the most prominent example and has shored up much of the UK market, is growing fast in North America and expanding in Asia and Africa.

Although Monitise and similar companies have developed impressive solutions, it is clear that  innovation in mobile banking is unlikely to come from the banks, which may be ceding control of this very important customer service channel.

Square: Great Interview !

Square's great-looking POS device and simple sign-up process is attracting 50-60,000 new merchants every month and recently helped raise $27.5 million in fresh capital.

However, it is their vision of re-imagining the payment processes and providing merchants with analysis and marketing programs that makes Square one of the most exciting companies around.

Read the great All Things D interview with founder Jack Dorsey in the below link.

http://emoney.allthingsd.com/20110207/squares-jack-dorsey-wants-to-replace-everything-from-the-receipt-to-the-register/?mod=twitter&utm_source=twitterfeed&utm_medium=twitter

TSYS & CASSIS Partner to Provide Mobile Solutions

TSYS, the world's second largest credit card processor, and CASSIS, a mobile payment and NFC technology provider, has announced a partnership to provide secure mobile payment, loyalty and commerce functionality.

This will enable TSYS to provide its bank and merchant customers a full range of mobile solutions, from NFC payments to loyalty programs to coupons.

http://www.thestreet.com/story/10998316/1/tsys-and-cassis-international-enter-into-mobile-nfc-partnership.html

Shopkick: Re-Inventing Retail and Rewards?

As I described in Friday’s entry, the online deals business has taken off and will transform a number of industries, from retail to marketing to payments.  Groupon has achieved nearly 50 million subscribers and a $15 billion valuation in just over two years and is being joined by Google, Facebook and Amazon (Living Social investor), which are all entering the market.

My prediction would be that the next big opportunity would be to overlay traditional offers with location-based services – this would make offers more immediate and relevant.  Imagine walking out of the gym and receiving an offer for a freshly squeezed orange juice from the café next door or leaving the cinema and being offered a 2-for-1 deal at the restaurant across the street.

Still, the most prominent location-based service providers, Foursquare, Facebook Places, Gowalla and Scwngr, have mostly focused on social and gaming features. 

Shopkick, on the other hand, is taking a far more retail-focused approach – it aims to be “the Foursquare of shopping”.  However, what makes Shopkick so interesting is not only its commercial focus, but its approach to rewards and shopping.  Unlike traditional reward programs, it does not only reward the actual purchase, but every step the customer takes towards the cash register, from entering the store, to checking out merchandise to trying clothes on. 

Shopkick addresses the challenges of the retailer in a far more fundamental way than traditional reward programs, by enabling them to engage with the customer at every step of the purchase process and could be the beginning of a re-invention of retail and rewards.

The enabling factor behind Shopkicks approach is the precision of its tracking technology.  Traditional GPS tracking has a relatively large error margin and does not give the precision required.  Shopkick’s tracking technology relies on small boxes that it installs in retail locations.  These boxes emit an audio signal that is inaudible to humans, but is picked up by mobile phones on which the Shopkick app is installed.  Using this technology, Shopkick is able to determine if someone has entered a certain store or changing room.

This technology saves the customer from having to check in, as they do with other location-based services, and automatically rewards them with loyalty points, or Kickbucks.  Kickbucks can then be redeemed across all partner stores for gift card rewards or for Facebook Credits.  Retailers can also install several Shopkick trackers within their stores and reward shoppers for browsing, while they provide promotions and information about products along the way.

Since launching in August 2010, it has made some very impressive progress.  It has entered partnerships with national retailers, such as Macy’s, Best Buy, Target and Simon Malls.  It’s installed at 1,100 stores and 100 malls across 18 US markets and has reached 750,000 customers, doing more than 1 million check-ins per day.

Still, the most encouraging metric relates to walk-in promotions.  By boosting the rewards that users get when they walk into the stores, Shopkick has been able to increase walk-in by 50-100%.  This is particularly encouraging as tripling Kickbucks awards only costs the retailer 50 cents to $1.  With single transactions in specialty retail being worth $10 – 15, this could be a very good investment.

So, Shopkick can continue on this trajectory? To a great extent, this will depend on its ability to develop its product to engage customers during the shopping process.  Can it introduce features that make products come alive, suggest additional products based on the customer’s taste and connect them with friends while shopping?  Will it make shopping a more exciting experience and help us make better decisions along the way?  If so, Shopkick will surely be a transformational force across retail, marketing and rewards.

History of Visa in 6 mins - great ad !

Buyster: Doomed from the Start ?

Three French telecoms, Orange, Bouygues and SFR, yesterday announced that they are launching Buyster, a mobile payment solution, to compete with PayPal, Google, Apple and others in the French market. 

While I believe there to be enormous scope for innovation in mobile payments and opportunities for new entrants to take a leadership role in the industry, I am quite dubious to this effort.  The basis of this venture is clearly that these telecom giants want to leverage their combined market position to take a cut of the payments market.  But, Buyster does not seem to offer anything in terms of innovative or improved features.

Although they have signed a few big-brand online retailers and may see some initial traction, I would be surprised if this partnership is around 3 years from now !

http://www.ft.com/cms/s/0/29fe9788-2fec-11e0-a7c6-00144feabdc0.html#axzz1D62AI4yo

Starbucks' Payments App and how it could Disrupt the Industry (SAI)

Business Insider has written an interesting piece about the Starbucks payments app and its disruptive potential for a number of payments players. 

Although, I don't agree with much of what they write, I like the idea of a relatively small change/innovation having widereaching implications for an entire industry (and beyond), illustrating the level of uncertainty and number of moving parts in the payments industry right now.

First of all, I should point out that Starbucks' solution is not NFC - it relies on barcode scanning, a much more basic technology, not dissimilar to what FaceCash has introduced.  Whatever form of mobile payments that eventually wins out, I don't think it will be this, and that Starbucks will soon need to upgrade the technology.

I also think Business Insider over-exaggerates the impact that Starbucks will have on the payment industry overall.

Still, if we were to take the article to be about the emergence of mobile payments, rather than simply about Starbucks, it is absolutely worth the read!


http://www.businessinsider.com/starbucks-mobile-payments-2011-1#first-heres-how-starbucks-mobile-payments-work-its-really-straightforward-1

Offers: How Groupon, Facebook and Google could Disintermediate the Payments Industry

In my post about Cardlytics earlier this week, I laid out the reasons for why the transaction-based marketing approach could displace, or at least severely weaken, the interchange model, which the major payments companies rely on today.

Previously, I have also covered other deal intermediaries, such as Groupon and Google, and highlighted the similar threat they pose to the interchange model.  As offers are increasingly delivered on mobile devices, it will be a small matter for deal intermediaries to add a payments solution to the backend of their service, and effectively disintermediate the traditional payments networks.

As the deal intermediary business develops at lightening speed and new players surface on a daily basis, we are starting to see different business models emerge. 

Below I will try to lay out five main categories that I have seen so far and try to make some sense of where the industry might be going.

Group-Based Buying

The group-based model pursued by Groupon and Living Social has seen the most traction so far.  Groupon is often referred to as the fastest growing company of all time, having received a $9B buy-out offer from Google within two years of launch.  It mainly offers deeply discounted deals from local service providers, such as hair dressers, restaurants and masseurs, and has proven a highly effective marketing channel for these business to attract new customers.

On the downside, their deals are not targeted or customized to potential customers beyond being in the same city.  This undoubtedly leads to low conversion rates and potential Groupon fatigue, in that people don’t even read their ads.  By exclusively focusing on deeply discounted deals, they also limit their offers to one-off services.

Social Group-Buying

Last week, Facebook announced a new feature called “Buy with Friends”.  The feature enables users to share their purchases and “unlock” deals for other friends.  Facebook has found that more than 50% of test users chose to share a purchase they made on the social network with their friends and a number of other studies show demonstrate the power of recommendations from friends to impact our purchasing behavior. 

Initially, the feature is focused on purchases within the network (e.g. games and apps) and only one purchase is enough to unlock deals.  However, over time, one could imagine how this feature could extend across the internet and require more than one purchase to unlock deals.  For example, I could imagine going to any online store and being told that the ordinary price for a product is X, but if I buy with 5 friends, we get a 15% discount, if I buy with 10 friends, we get a 25% discount, etc. 

This feature clearly has the potential to rival Groupon and could potentially transform pricing models across a range of industries.

Transaction-Based Marketing

Transaction-based marketing has been seen as Eldorado for card companies for years.  However, intermediating deals is far from the core business of a credit card company, and we have not seen a successful implementation until third-party players recently entered the market. 

The benefit with this model is that it provides retailers unique insight into their customers’ and prospects’ purchasing behavior and enables them to target their offers very effectively.  Seeing as the reward or discount is automatically redeemed when the customers use their registered cards, they also avoid the hassle of coupons, promotion codes, etc.

A key challenge associated with transaction-based marketing is the complexity of integrating the system with banks’ technologies and implement the program.  Cardlytics and similar providers also need to develop tools that effectively leverage the treasure chest of data to which they have access and enable merchants to easily and effectively target customers.  Finally, they must move away from delivering offers through online bank statements, and develop more timely and convenient delivery channels.

Location-Based Marketing

Location-based services, such as Foursquare, Gowalla, Facebook Places and Scvngr, are receiving a lot of attention and seeing explosive growth.  So far they have mainly encouraged ‘check-ins’ with social updates on online badges, and only sporadically offered deals. 

However, the potential to for these services to offer deals is undoubtedly huge.  Imagine leaving the cinema and being offered a dinner deal at a local restaurant or bar.  Seeing as location-based services, by definition, are mobile, it is also easy for them to integrate with a payment interface.  The benefit of doing this would be that they would have access transaction data and be able to overlay transaction-based marketing on their location-based services – powerful!

Preference Based Marketing

Earlier this week, a Seattle-based startup named Thoughtful, launched a new service that generates gift recommendations based on the recipient’s taste as indicated on their Facebook profile. 

The beauty of Thoughtful’s business is that it offers uniquely customized gifts for which its customers don’t expect deep discounts.  This makes it possible for a broader range of retailers to participate, in comparison with Groupon, which is primarily limited to smaller service providers that are willing to offer 50%+ discounts to get people in the door.  Still, by focusing on gifts, Thoughtful’s potential in terms of total volume is of course more limited that Groupon’s.

Although a gifts-business faces some limitations, there is clearly plenty of potential to leverage the preference-based model for other opportunities – e.g. Groupon or Google could perhaps benefit from adopting this approach to better target their offer.

Final thoughts

Having reviewed five emerging models, it is clear that none of the current players have total cracked the code, and despite their staggering success, there is plenty of potential to improve even further.  In addition to developing new approaches to the industry, the most obvious potential comes from developing hybrids from the already existing models.

Particularly the location-based model could be overlayed with any of the other models.  Being able to deliver deals based on a customers’ location adds immediacy and should increase conversion rates.  It is therefore no surprise that most of the big players, such as Facebook and Google are positioning themselves in this space.

Another interesting observation is that Facebook plays an important role in most of the models, perhaps with the exception of transaction-based marketing.  As social commerce matures and is likely to make up an increasingly important piece of Facebook’s revenue stream, they are sure to be a front-runner in this space.

Still, other players such as Google, Groupon and e-Bay will undoubtedly give them fierce competition and make this industry one of the most exciting to watch over the next few years.

Starbucks Interactive Storefront - very cool !

Great Article about NFC Deployment by Non-Payment Players (Fast Co.)

In the below article, Fast Company lays out plans for NFC deployment by a range of non-payment players.

• BMW: introducing NFC technology in their keys, enabling the owner to open doors with NFC, store train and flight tickets on the car key and receive a multitude of data about the car, such as; is it locked?, how much fuel does it have?, where is it parked?, etc
• LG: developing both NFC enabled phones and point of sale terminals.  By getting involved with POS terminals, it is involved with the whole ecosystem and may better carve out a meaningful role
• Google, Apple and Nokia: as we I have previously covered, these guys are all developing NFC devices

Beyond payments, Fast Company also make some interesting suggestions for the potential use of NFC in retail and advertising.

http://www.fastcompany.com/1723276/companies-battling-to-make-your-nfc-wireless-credit-card-dreams-come-true

Cardlytics: Merchant Funded Rewards for Debit and Prepaid

Red Herring, the business and innovation magazine, yesterday named Cardlytics among its 2010 Global Awards Winners.  Previous winners include Google, Skype, Netscape, Salesforce.com, YouTube and eBay.

Cardlytics is a deals intermediary that connects retailers and potential customers through their online bank.  Cardlytics leverages its proprietary technology to target offers according to customers’ actual card transaction data, enabling a more targeted marketing approach – a “market-of-one” approach, as Cardlytics refers to it.  The retailer is charged only when a customer actually acts on an offer and purchases the goods.

Cardlytics partners with banks and integrates its technology with the online banking platform. Cardlytics analyses customers’ transaction history and displays offers on their bank statements.  For interesting offers, customers simply click a button on the statement to activate the offer.  Once they complete the transaction, the discount is automatically transferred to their account, rather than the customer having to worry about coupons or promotion codes.  According to Cardlytics their campaigns consistently generate activation and conversion rates that are 20 – 50 times higher than other marketing channels.

So far, Cardlytics has implemented its programme with more than 100 banks, through which it reaches more than 30 million customers with offers from more than 100 merchants.  Unlike, other deal intermediaries, such as Groupon and Living Social, Cardlytics’ merchant partners are primarily national retailers, rather than local service providers.

However, the transformational aspect of Cardlytics is its impact on banks’ debit card programs.  Through Cardlytics, bank customers get a reward program for their debit cards.  Retailers attract new customers with a transaction-based marketing program with a pure pay-for-performance model.  Banks generate additional revenue from debit, an already low-revenue product, which has recently come under even more pressure from the Durban regulation.

Transaction-based marketing could have a fundamental impact on the revenue model of the payments market, which has historically relied heavily on discount revenue funded by merchants.  American Express is the primary example of a company that has pursued a premium discount rate strategy.  They justify this premium by giving merchants access to affluent cardholders who are more likely to spend with merchants that accept the card. 

However, under the discount rate model, merchants are asked to blindly trust that they will see incremental revenues and are generally not offered data to track the impact.  Transaction-based marketing turns this on its head, as merchants pay a much lower discount fee and a fully performance based marketing fee for incremental transactions. 

As Cardlytics and similar providers expand their networks of bank partners and extend their services to other parts of the payments industry, such as prepaid and credit, one could imagine that merchants would increasingly favour this model and shy away from traditional discount rates.  It is therefore no surprise that the payments networks have long tried to implement their own transaction-based marketing services and that industry observers and investors view the emerging market leaders with much interest.