The Commerce of Things

You might be forgiven for thinking that Internet of Things stands for adding apps to a watch, or connecting a thermostat to the internet.

This is where IoT stands today. More broadly, IoT is about adding computing capabilities to a physical object, and allowing it to interact with the world around it. But this is only the beginning. As we argued earlier, IoT is fast escaping both Internet and Things. And it’s about to change e-Commerce in ways we never expected.

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An unconnected ‘thing’ is a missed business opportunity

Today, it’s well understood that adding computing and Internet to a car, a watch, a thermostat, or a chair can allow the manufacturer to capture value beyond the purchase of that object and into data-driven business models. Car makers can now offer post-sales services, like vehicle diagnostics that alert you when it’s time to have your car serviced by a dealer. Or smartwatch apps that alert you when you’ve forgotten to put your seatbelt on. Watchmakers can create stickiness as you can now use your watch to unlock your front door, or control your thermostat without leaving the couch. Thermostat makers can now expand into energy management. Office furniture makers can now extend their business into productivity management.

[tweetable]Makers of connected ‘things’ can subsidise them to make money from data-driven services[/tweetable]. We suspect that new norms will form in industry after industry, as goods manufacturers and services vendors experiment with these new business models. What is clear is that selling unconnected ‘things’ will increasingly look like a missed opportunity.

Amazon’s wake up call

But there is a much bigger revolution at play. We believe that [tweetable]IoT will fundamentally change the shape of e-Commerce[/tweetable].

With IoT, washing machine makers can now not just deliver detergent just in time by knowing when your supplies run out. They can also recommend the right detergent, based on your usage, type of clothes, on demand. Car makers can recommend where you buy your gas, by understanding your drive journey, availability of gas stations, pricing on-demand discounts, and gas station commission. Watchmakers can command a commission from health insurers, as they can monitor your heart rate, temperature, fitness habits and determine what risk zone you are in. In short, IoT makers can now afford a negative BOM (bill of materials) “a la Dell”, by subsidising the cost of hardware with the revenues from bundled e-commerce services.

Internet of Things will allow any connected “thing” to become an affiliate for e-Commerce goods that are consumed together with the “thing” – what in economics are termed complements. Any connected object could become a distribution surface and customer acquisition channel for e-Commerce goods and services of every kind and description. IoT extends e-Commerce affiliate and user acquisition schemes beyond websites, mobile and apps, into every physical object.

Amazon’s Dash offers an early glimpse of this model. Place a Tide button on your washing machine, a Huggies button next to your baby’s changing room, or a Gillette button in your bathroom and pronto, your supplies are at your door the following day. More importantly, Dash acts on your intention to buy before you change your mind and pop over to the 7 Eleven convenience store. Similarly, Amazon’s Echo, allows you to order anything from the comfort of your living room, and without lifting a finger. What’s interesting is that nor washing machine neither FMCG companies are directly involved in Amazon’s effort. Amazon’s moves should be a wake-up call for the white goods industry.

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The Physical Affiliate

e-Commerce affiliate sales can happen in two ways: firstly, by pre-sales hardcoding of the e-Commerce service into the physical object. Think how Mozilla was able to make over $200M annually by preloading the Firefox browser bar with Google search, before moving to Yahoo. Affiliate sales can also be dynamic. Think how BMW can recommend a different brand of oil for the maintenance of the car based on price, oil efficiency observed on the car and many other similar cars, and the driver’ analyzed behavior on the road. Naturally, makers like BMW who can create value by tracking user behaviour will also be able to capture more value as an e-Commerce affiliate.

White goods manufacturers can now extend their business models across the product lifecycle. They can also own the device real-estate that offers e-commerce discovery and distribution, and act as a customer acquisition channel for e-commerce goods and services. More likely, this customer broker role will be seized by more agile e-Commerce players.

And all of this while adding value to the customer. Think: I’d like to buy a watch and improve my fitness at the same time, and get better health insurance cover. Or I’d like to buy a car and save money from fuel, every time. Or I ‘d like to buy a thermostat and have the peace of mind that I’m never spending more on energy bills than I need to. All these Jobs To Be Done are not for the few, the wealthy or the early adopters. In this smarter world, they are for the many.

Closing the attribution loop

More importantly, [tweetable]Internet of Things will allow e-Commerce to stretch across the breadth of the customer journey[/tweetable]. Consider how limited e-Commerce is today in understanding the customer journey: you search on Google for something to buy, click on what fits your purchase intent, including advertisement link, then lead to a purchase on the device being used. Along that path, Google receives a kickback (typically on a cost-per-click, CPC) from the advertiser on the assumption that a small percentage of those clicking the link will buy, making the business case for paying the CPC. There is no way for advertisers to know when a real purchase was made in a brick-and-mortar shop, let alone make someone with purchase intent visit that physical shop in the first place. This is the holy grail of advertising business, i.e. being able to track consumer behaviour from awareness to intent to purchase to purchase, and across web, mobile and increasingly number of physical connected touch points. By embedding the e-Commerce discovery and distribution surface on physical objects, and more connected touchpoints across the customer journey, you are now able to cross the last mile from awareness to purchase intent to purchase.

Put simply, connected devices will become the optimum point-of-sale for e-commerce, search boxes and app stores for services, at the ideal place and ideal context of a purchase intent.

The rise of programmatic e-Commerce

Moreover, consider billions of “things” doubling as e-Commerce points of sale (PoS). This will result in the unbundling and extension of PoS for e-commerce outside the web (think Amazon.com), app and product (think Kindle) silos controlled by e-commerce players. It will lead to programmatic auctions for e-Commerce Call To Action (CTAs), as the most market-efficient way for matching demand with supply. This will mean that the programmatic, real-time bidding (RTB) for ads today will carry over to e-commerce and into the real world.

More importantly, by retaining attribution across the customer journey and touchpoints, programmatic e-Commerce will be able to monetise by Cost-per-Action (CPA) in the physical world while providing enhanced value experience beyond what the comparable but unconnected appliance could ever bring. We can clearly expect a major reshuffle of the advertising industry and a further cycle of VC investment and consolidation that it will entail.

–Andreas Constantinou
As CEO and Founder, Andreas oversees the growth and strategy of VisionMobile. He has twelve years experience in mobile, having worked with the top brand names in the mobile industry including Telefonica, AT&T, Telenor, Vodafone, Deutsche Telekom, MTS, Nokia, Sony, RIM, HTC, Qualcomm, Ericsson and Microsoft. Over the last five years, Andreas has grown VisionMobile into the leading, most respected research firm on app economy and developer economics, with a client base and reputation that out rivals companies many times the size.
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–Nicolas Sauvage
Nicolas Sauvage is a “Software guy”, since first programming at 8 years old, and forever passionate about Software contributing to a better Connected World. He joined the management team of NXP Software in Feb 2011, and took various responsibilities over time including leading the OEM Business Line, worldwide sales, product management, Head of Korea, Head of Greater China. He is an Alumni of TTPCom, OpenPlug, London Business School and INSEAD.
Nicolas Sauvage on LinkedIn