Commerce intermediaries are nothing new.
In fact, they are at least 557 years old.
The first commerce intermediary to operate at scale was Istanbul’s Grand Bazaar, which opened for business in 1460.
The Grand Bazaar was the mastermind of the ruling Ottoman Empire, which thought that organizing thousands of merchants into a single location for shoppers to visit would establish Istanbul as an important trading center, boost economic development in the region and add to the ruling party’s wealth.
For centuries, it did. The Grand Bazaar served as the primary commerce hub for most of Europe and Asia. It didn’t hurt that the Ottoman Empire spanned three continents and controlled access to the commercial roads throughout Asia and Europe at the time. Quite literally, all roads having anything at all to do with commerce more or less led to the Grand Bazaar.
That market power gave the merchant guilds who organized trade inside the Bazaar license to set the rules of engagement for the merchants who wanted to be part of it. The head of each guild was a ruling member of the Ottoman Empire and decided if a new guild could be opened inside the Bazaar, how many and what sellers would be permitted to participate and where in the Bazaar those shops could operate. It also standardized pricing and hours of operation.
All jewelry sellers, for example, had to set up shop on the same street and sell their products for the same price. Sellers were competing not with each other but on being one of a curated selection of merchants selling a product that shoppers couldn’t easily get elsewhere — all inside a one-stop shop where those buyers could efficiently conduct other business.
That worked well.
Until it didn’t.
The Bazaar That Suddenly Didn’t Rule Them All
Earthquakes in the late 1890s weakened the Bazaar’s physical market structure that had already begun to feel the destabilizing impact of the growth of the textile industry in Western Europe decades earlier. Advances in technology improved the mass production of textiles there and gave rise to new merchant centers outside Istanbul. Suddenly, shoppers had more options to buy the same things at more competitive prices closer to home.
That newfound competition gave European merchants the ability to become tough negotiators with Bazaar sellers on price and delivery, often slow-rolling the sale of raw materials to the sellers who needed them to produce items sold in the Bazaar. Less inventory and new sources of competition at more competitive prices also slow-rolled buyer visits to the Bazaar. Fewer buyers meant fewer sales for merchants. Fewer sales drove sellers out of business, and a growing number of empty stalls forced rent prices way down.
The Bazaar’s most serious blow was the capture of Istanbul by the Allied Forces during World War I. That further opened commercial access to other commerce centers, formed the Republic of Turkey with a new regime and moved the government’s capital from Istanbul to Ankara.
And so went the Ottoman Empire.
Having lost its position of market power and influence, the Grand Bazaar was forced to reboot, and sellers had to adjust. Buyers, they discovered, still came to the Bazaar, given its iconic status as a commerce center, but the profile of that buyer was different.
Instead of the merchant crowd making the trip to buy things at volume to resell in their shops, buyers were mostly tourists — taking in the sights and buying as many things as their luggage and bank accounts would permit. Sellers began vigorously competing on price and merchandising. Advertising, promotion and personalization became essential buyer acquisition tactics.
Sellers also demanded more from the Bazaar itself to satisfy this new type of buyer, prompting renovations that added restaurants and modernized restroom facilities over the decades to come. The emphasis shifted to doing what was needed to make the 250,000 or more tourists who traipsed along its 67 streets and more than 5,000 shops every day feel welcome and want to spend money — buyers who those sellers might never see again.
In 2014, the Grand Bazaar was named the world’s No. 1 tourist attraction after hosting — and selling to — 91 million visitors from all over the world that year.
Just three years later, the future of the Grand Bazaar once again hangs in the balance.
With tourists as the primary buying trade, the Bazaar faces a new kind of threat. Concerns over terrorist attacks, military coups and the Russian ban on charter flights into Turkey fueled a drop in tourist visits to Istanbul by at least a third. That decline shaved more than 1 percent from Turkey’s GDP. Many Grand Bazaar shop owners say they’ve lost as much as 80 percent of their business and don’t know how much longer they can hang on.
The Grand Bazaar and its diminished importance as a commerce intermediary is a rather fitting analog for the very uncertain future facing many of today’s established commerce intermediaries.
The Uncertain Certainty of Commerce Intermediaries
The modern-day department store, the intermediary that’s aggregated brands and buyers in a single physical location for more than 160 years, and the modern-day shopping mall, which has done the same for the last six decades, has steadily lost foot traffic, sales and profits to online competitors since about 2010. Fewer buyers means fewer sales, which means fewer available dollars to buy inventory. Less inventory means fewer things for buyers to buy — and ultimately fewer buyers. Fewer buyers means that brands no longer find those outlets useful for distribution. The escalation of this now seven-year-old death spiral in just the last two years — from May 2015 to June 2017 — has wiped out $230 billion in market value off the top 20 traditional retailers.
Meanwhile, legacy pure-play digital marketplaces, like eBay, who once held sway, struggle to remain relevant.
Facebook, OfferUp, Tradesy, The RealReal, Etsy, 1stdibs and others have muscled their way into the “recommerce” category eBay put on the map when it launched the same year Amazon did in 1995. Aggregators like Wayfair, Houzz and One Kings Lane curate products and services that cater to niche segments, like home furnishings and accessories, and give consumers other options to purchase the new and vintage/antique items that eBay and/or traditional retail once upon a time had locked up.
Search, once the online gateway for consumers and brands to discover each other, now holds short shrift to Amazon, where 60 percent of consumers now say they start their searches for what to buy. The big question is whether those who still use Google to discover new products buy from the stores that Google helps them discover, or if it merely becomes a price and product comparison data point for what those searchers end up buying on Amazon.
Sharing platforms like Pinterest, which has assembled 200 million monthly active eyeballs, struggle to eliminate the friction between enthusiasts who pin the things they like and site visitors who want to buy what they see — and monetize commerce. That makes it hard to attract serious sellers.
Deal aggregators like Groupon and LivingSocial assemble local offers that drive consumers to purchase goods and services from local businesses. Ditto with mobile apps that promise price matching or automatic refunds in an effort to attract buyers and eliminate the fear of missing out by buying too early. The hope in both cases is to convert a deal seeker into a loyal customer — the reality, however, remains less clear.
Meanwhile, buying products inside messaging apps, where captive audiences of consumers abound and where inserting commerce into those interactions sounds like a no-brainer, has also failed to gain any significant traction.
Apps as commerce gateways have stalled too.
Although consumers train their eyeballs roughly three hours of their day on apps on their mobile devices, most users concentrate their time on just 10, which include social (Facebook, Instagram and, to a lesser degree, Snapchat), music (Pandora, Spotify), video (YouTube and Netflix), utilities (Gmail, Chrome) and messaging (Facebook Messenger, iMessaging). Generally, consumers aren’t as app-happy as they once were, with comScore reporting that 51 percent of the population downloads exactly zero new apps each month.
When it comes to shopping apps, it’s not much different. Consumers really only spend significant time on two: Amazon, with more than 70 million active users each month, and Walmart with 22 million, according to App Annie data. After that, the drop-off in average monthly users is as steep as the grade on the slopes of Austria’s Kitzbühel Streif.
Then, of course, there’s Amazon, which has become the dominant online marketplace for the purchase of products — including those once only bought in a physical store, such as groceries, food, clothing and soon prescription drugs. The stats of its Prime members, now about half of all households in the U.S., are well known — they spend two times more as non-Prime members and nearly three-quarters of them shop there at least twice a month.
Like the Grand Bazaar in its glory days, buyers coming to Amazon know that they can buy what they came to buy, from sellers that have the inventory, at a price that’s competitive. Prime members can get those goods delivered in two days and, in some cases the same day, for free.
That certainty keeps those buyers showing up, attracts new ones and makes it appealing to sellers who want a piece of the action. About half of all products sold on Amazon come from sellers who are part of its marketplace. Over time, Amazon has captured more than 50 percent of all book sales, is approaching 10 percent of apparel sales and is nearly a third of sporting goods and toys — while representing only 5 percent of all retail sales, excluding automobiles.
The purchase of Whole Foods Market, and the simultaneous launch and expansion of its own private label brands, is already disrupting the $600 billion-plus grocery market — online and offline. What it means to be an omnichannel grocer is now being defined by Amazon, and traditional grocery stores have seen their own market caps shrink by about $12 billion, according to analysts, since the Whole Foods acquisition.
Amazon and Whole Foods, though, are just getting started.
With Amazon Restaurants and Pay Places, Amazon’s share of the consumer’s food and entertainment budget has the potential to swell further. Amazon’s announcement last Friday that it’s likely to offer the online purchase of prescriptions sent CVS, Walgreens and Rite Aid stocks down sharply.
All of this is happening against a backdrop where a consumer changes her behavior only when something is seriously broken.
When consumers visit a store that doesn’t have what they went there to buy, they move online to save time and avoid frustration. Or, as I wrote a few weeks back, they continue to visit the stores they always have, even if they don’t love that merchant’s ability to serve them across all of the channels they shop with them. The avalanche of real-time and geo-targeted promotions and push notifications from competitors hasn’t moved the needle much in the direction of the competition.
The devil the consumer knows seems better than the devil she doesn’t.
Up until now, though, the battle of the commerce intermediaries has been mostly over online versus offline — whose app gets downloaded and used, who’s delivering the least friction-filled checkout experience inside an app, who’s got the best curated products and can assemble the most buyer eyeballs.
And all where access to the device of choice for the consumer is the smartphone and apps or the mobile-optimized sites she uses.
In this world, commerce intermediaries use a variety of tools and technologies to get the attention of the consumer — push notifications remind consumers they’re within striking distance of a store with a sale, buy buttons short-circuit checkout abandonment, email marketing lets a consumer know that new merchandise is in or a sale is starting, with text messages from sales associates with pictures of new products.
But that’s not the set of commerce intermediaries or the access device that will drive commerce tomorrow and effect every player that touches it — and in ways that we’ve not seen in a very long time.
Commerce Intermediary Redux
A decade after the launch of the iPhone, and twenty-two years after the birth of Amazon, we have thousands of apps, hundreds of aggregators, millions of merchants, dozens of digital payments players and thousands of innovators working overtime to optimize for the mobile commerce experience.
That’s happening at the same time that consumers are being introduced to an entirely new way to access the brands they want to buy.
This new way uses voice activation and a virtual assistant connected to an ecosystem that powers a set of connected devices that can embed commerce into venues and ignite use cases that extend well beyond the phone: speakers, speakers with screens, portable speakers, cars, appliances, wearables and televisions — just for starters.
These new commerce opportunities are fresh and new. They satiate the consumer’s appetite to have commerce mesh seamlessly within their day-to-day lives. They drive consumers to buy and use a suite of artificial intelligence-enabled (AI) devices that can power them and remove the tedium and frustration associated with shopping and paying today.
That burgeoning consumer demand will encourage developers to turn their attention away from mobile apps — since no one downloads them anyway — and to create skills or optimize websites to enable access to those virtual assistants and the new ecosystems they command.
These new commerce intermediaries will disrupt the existing commerce ecosystem, because they will disintermediate key parts of it.
Say Hello to Disintermediation
Voice searches, like online searches today, will start with a product.
“I need a new pair of snow boots; it’s Boston, and winter is coming.”
My virtual assistant might ask me a few qualifying questions about my requirements, show me a few styles with high ratings and prices on a speaker with a screen or maybe even send me a link to open in an app. Maybe I’ll even send her a picture of a pair that I’ve seen in a store window on one of my morning runs and ask her to find them for me, since I don’t remember the name of the store and didn’t get close enough to see the brand of the boot that caught my eye.
I’ll pick out what I like and ask her to place my order while I’m doing other things — cooking dinner, taking Annie or Charlie for a walk or going to work.
Never once have I asked my virtual assistant about the store selling those boots or what payment method I want to use.
That’s because my assistant already knows that, has my payment credentials registered and is able to authenticate me — using a variety of methods — depending on where I am and the device I am using to interact with her.
She has decided for me what store will fulfill my purchase. Maybe my virtual assistant offers me a certain option if that store has paid to prompt her to make one — or has a deal with a local outlet that’s convenient to me so that I can pick up those boots or have them delivered in an hour.
Or offers an incentive to use a particular payment method that she is able to monetize in some way.
Otherwise, the store didn’t carry much weight in my decision about what boots to buy.
What did was the ability of my AI-enabled, voice-activated personal assistant to save me time, allow me to connect with her in a number of ways — via an app on any smartphone or a slew of devices that she now powers — and to get me what I wanted without a lot of friction, securely. And maybe offer me a few extra incentives that made an already great experience that much better.
In this scenario, brands trump retailers, unless they are one in the same or I am offered an incentive of some kind to make them part of my decision process. Payment methods are influenced by the personal assistant I am using. So what if she doesn’t take my favorite digital wallet; I have issuer-branded cards — and one in particular that I’ve already registered with her anyway that I am perfectly happy to use. Devices become interchangeable commodities that I toggle between since the magic of the virtual assistant is the combination of software and services that get me what I want.
But that alone won’t get these virtual assistants to scale — and scale is critical for success.
What will is the ability to tap into and leverage an existing ecosystem of buyers, with registered account credentials, and sellers that offer products that consumers want to buy across platforms — operating systems, handsets, devices and shopping channels.
In doing that, these new commerce intermediaries won’t simply further blur the lines between the online and offline worlds of commerce; they will make operating at that intersection commerce’s new imperative.
As things stand today, that puts two players in the pole position — the two commerce intermediaries that might just be the only significant intermediaries left standing:
Amazon with Alexa and Google with Allo
Google’s suite of product releases signals they’re dead serious about leveraging Android, which runs most smartphones in the world (sorry, Apple), massive advertising networks and online search platforms, deep learning/AI expertise and a monthly active Chrome user base across the iOS and Android platforms — all to make Allo a relevant player in commerce’s next big frontier.
Google’s tie-up with Walmart to enable voice shopping via its devices is a tacit admission that competing with Amazon online via online search and a single device called Google Home isn’t cutting it.
And Walmart’s admission that it needs one.
It’s entirely plausible that Walmart’s physical footprint, the 100 million buyers who visit Walmart every week in the U.S., its Jet.com and related online assets (including Walmart.com), its growing loyal Walmart Pay user base and roster of third-party sellers — all accessible via Allo at the beck and call of a consumer across a number of devices — could pave the way for an entirely new commerce experience for consumers and participating sellers.
Amazon and Alexa — well, that’s something that I’ve written extensively about, and often. But Amazon’s starting in a totally different place — and with a totally different consumer: 85 million largely affluent consumers in the U.S. who know it, use it and spend a lot of money with it in the pursuit of commerce. A report published last month says that 76 percent of voice-activated speakers sold so far are Alexa products. Analysts estimate that 15 million units are now in homes, up from 10 percent at the start of the year. And Amazon’s new deal with Sonos captures the high-end speaker market that Apple had hoped to secure with the HomePod (when was the last time you heard Apple talk about the HomePod?).
Amazon’s proven that it can successfully scratch the consumer’s online itch. But its acquisition of Whole Foods and its more recent tie-up with Kohls is also a somewhat tacit admission that having a physical footprint in retail remains relevant — and they’re using them to, among other things, sell more Echo devices.
Voice commerce and the intermediaries that they are spawning are still very early days. But everyone who touches commerce in any way must think seriously about life in a world that could very well be driven by the consumer’s relationship with her virtual assistant — and those two commerce intermediaries that could determine your relationship with that consumer.
Remember, those who thought online would never amount to much or who are playing catch-up with mobile are out of business or struggling to survive. Those who pooh-pooh voice as impractical — and who can’t see where the combination of voice and visually connected devices will take consumers and commerce — are doomed to the same fate.
Whether you are a payments player, a digital wallet, a retailer or one of the many solutions providers that touch or power a commerce experience, if figuring out where you can play — and where someone may not want you to play — isn’t top of your 2018 strategy, then there won’t be much to celebrate in 2019 and the years to come.
The Grand Bazaar, hundreds of years ago, never saw it coming.
And I bet the merchant guilds never thought the Ottoman Empire would collapse or that one day all roads might lead to Alphabet and Amazon, either.