Six Key Trends that are shaking up the Internet Economy

Professor Mohanbir Sawhney is a globally recognized scholar, teacher, consultant and speaker in strategic marketing, innovation and new media. His research and teaching interests include marketing and media in the digital world, process-centric marketing, collaborative marketing, organic growth and network-centric innovation. He has been widely recognized as a thought leader. He spoke to the founders of Founding Fuel during a recent visit to India. Some edited excerpts from part one of a two-part interview:

Q. What are the key trends that are firing up the next generation internet economy?

A. Let me talk about the key trends that I find interesting.

Trend#1: The rise of Asia and the emergence of e-commerce as a viable, large-scale operator-driven entity out of China and India. This phenomenon is a watershed event, given that Alibaba's market cap is now greater than Walmart's. For nearly 10-15 years, the infrastructure, the platform, the critical mass was just not there in Asia. But now, for the next 10 years, it will be an Asian revolution in e-commerce. Out of the 10 biggest e-commerce companies in the world, half a dozen may be from China and India. And you'll see the pattern of acquisitions reverse now. You've already seen Alibaba make its moves.

Trend #2: The rise of the mobile-only customer or consumer: In the Western world, it is a mobile- first culture, where the mobile is becoming the primary screen. But in emerging markets, the mobile-only customer, who has never experienced the internet before, is taking hold. The default mode of interaction is becoming the mobile device.

Even in the US, two years ago, Facebook’s mobile revenues were close to zero.  In Q4 2014, it was 69% percent. That’s the same for Google, Alibaba and others. The mobile device is, therefore, the new centre of gravity.

Now that does a couple of things. Mobility isn’t just a smaller screen. It brings in geo-targeting, location, it brings in the possibility of targeting offers, based on their individual profiles and preferences, but also on the basis of their situation and location. It also makes commerce ubiquitous, or commerce on-the-go, so that users instinctively and compulsively remain connected.

Trend #3: Mobility in payments: We are likely to see the logjam in mobile payments finally being broken. Mobile payments have been around for a long time, be it Google Wallet, and so on. But with Apple Pay, the phone will emerge not just as our port of navigation, media player and movies, but also your bank, your retail store and your financial services institution, bundled into one. And here, the emerging markets will take a slightly different path, like we saw with M-Pesa in Kenya.

Trend #4: The rise of intelligent devices: New forms of interaction are starting to emerge with gesture, voice and emotion recognition. We will see devices become more contextually aware. Gesture is becoming more mainstream, but the next generation will be more around emotion recognition, and that will lead to a new level of personalisation and contextualisation.

Trend #5: The fourth generation internet: There's a very simple way to summarise what has happened in the past 20 years of the internet. We first went to 1 billion desktop customers in Web 1.0. We have reached 7.2 billion mobile subscriptions worldwide, which is greater than the world's population. We are now going to go to 100 billion connected devices. That's the next frontier, with the internet of things (IoT). The time isn’t too far away when everything that you interact with will have an IP address, your clothes, your car, your devices will talk to each other, and you can do asset optimisation, both in the consumer and the B2B applications, including smart cities, smart water, smart cars and smart health. This will lead to a new level of connectivity that we can only begin to imagine in B2B and B2C applications. We are starting to see that become a part of our lives in retail, education, security and health.

Trend #6: The emergence of Big Data: There are new forms and types of data coming up. The difference in data is that in e-commerce 10 years ago, all the data was transactional in nature. All of CRM [customer relationship management] was optimised around transactions. But the new data is all about interactions. In fact, interactions predict what the transactions may be. The focal point is customers interacting with customers, social data, unstructured data, which allows you to do some rich behavioural profiling. It also leads to the technologies for analysing Big Data and the analytics revolution that results. And this will be the next generation of business process outsourcing [which] will be built around Big Data and analytics applications.

Q. B2B marketplaces were expected to fundamentally change the way enterprises, their customers and their suppliers interacted and transacted, but it didn't pan out quite that way. What to your mind went wrong?

A. In a way, Alibaba was what we had predicted 15 years ago, but it took place in a slightly different way. What we had thought about was that there would be industry specific markets, be it for industries like steel, packaged goods, oil and gas, etc. But it turns out that any marketplace that you limit in any way is of a lesser value than one that is open. Alibaba has created an omnibus marketplace that connects any kind of buyer with any kind of seller. So the marketplace construct is healthy, like eBay and in a way, even Airbnb and Uber are also marketplaces. So the idea of two-sided marketplaces is alive and well. It did not happen in the vertical concept that we had thought. And that’s because we had underestimated the inertia of these large companies and overestimated the ability of the startups to change the industries. So the horizontal marketplaces absolutely took off, more significantly in the case of Ariba, and more general focused procurement models.

The other fundamental issue about the vertical marketplace that we had not anticipated - although I had written an article titled Dangerous Liaisons reflecting on this - was that when you form a consortia within an industry to create a marketplace, there is a fundamental conflict of interest. It is like putting crabs in a bottle where nobody climbs. So the governance of the consortia is flawed and that’s why they met with setbacks.

Q. What does India need to do to create an Alibaba-like model out of India?

A. I think India is ready. There is nothing that Alibaba is doing that can’t be done in India. There are two models in e-marketplaces. The Alibaba model is an open marketplace model. The Amazon model - or the third-party sellers - is a managed marketplace. The advantage of the Amazon model - which JD.com is doing in China - is that you have control over the customer experience and provide an end-to-end experience, including logistics and so on. The downside is that it is very expensive, and margins are very low, as you can see from Amazon's profitability. So the benefit of the Alibaba model is that it is asset-light and margins are mind-bogglingly high. But the downside is that the quality of the customer experience cannot be fully controlled. Flipkart is following the managed marketplace model, but we haven't seen the open marketplace model in India yet, although there may be an opportunity. It will be interesting to find how these two models find different levels of acceptance in China vs India. Clearly, the time is ripe for e-commerce in India.

Q. In the last two decades, China has been able to create sizeable digital businesses in its domestic market. India is still on the cusp of a similar break-out. What are some of the learnings from the Chinese experience?

A. One thing you will have to grant China is that their subscriber base is larger, their internet and smartphone penetration is far higher. The absolute size of the market is also larger. So that means that the e-commerce marketplace is perhaps a couple of years ahead. But India is changing up. One other thing that I find is that the Chinese e-commerce companies are deeply localised. The content is deeply local, the inventory, the business practices, the logistics, all of it is local. How to manage it is deeply specific to the Chinese marketplace. The lesson for Indian companies is that we should not imitate the Western companies. Come up with India-specific models. Consider an e-commerce firm like Ozone in Russia. Now the problem in Russia is that it is a cash on delivery model. Credit cards aren’t that popular. So when you send a guy to deliver and pick up the money, they came up with the insight that when I am buying a dress or an apparel, this guy could also be my fashion consultant. So when he comes home, he brings three dresses that you bought online, and in the 15 minutes that he spends with you, he says try this on and I'll tell you which one looks good on you. You can keep the one that works. This is almost like the fashion consultant coming home to you. And this is a Russia-specific model.

Innovations in the customer experience take into account the local infrastructure constraints in India, the availability of skilled talent at low cost to create an experience that is deeply contextualised. What we’ve got to learn from China is contextualisation of commerce. They haven’t copied the US, instead they have developed models and businesses that have been done ground up, because after all, the Chinese consumer and how they behave is different. For example, their mobile gaming businesses don’t exist in the US. Similarly, we have to figure out what is unique about our context, infrastructure and customer behaviour to create truly ground up businesses, instead of ones that are merely adapted from the West. We need to certainly learn from the West, but more importantly, we need to organically build businesses around the local context.

Q. Many businesses are increasingly creating multiple touch points to interact with customers. How should businesses think about bringing consistency and a seamless experience while managing such an omni-channel presence?

A. This is becoming increasingly important for omni-channel retail, where digital, mobile and physical interact to create an omni-channel experience. Here, all the touchpoints - web, salesforce, call centre, mobile - come together to create an experience that is seamless. The best practices here include mapping the customer journey very clearly. This means you've got to figure out what the flow is going to be. A typical flow looks like this: if you have social media on ramps, that bring you to a landing page that then take them out to a call to action to a retail store or a point of sale. You've got to ensure that each touch-point is connected to each other. The metaphor here is that of a customer who is going down a six lane highway to a destination which is purchase. But they should be able to switch lanes at will and there should be no toll along the way or dividers in between. All the calls to action need to be connected and you also give the customer the choice on how they want to connect with you at any stage in the journey.

There are some very interesting creative touch-point interactions that I am starting to see. For instance, if you are bringing a person from a billboard or a print ad into a website, you are able to track the customer URLs and IDs, which would tell you the source of the traffic. One of the coolest examples I saw was this retailer in Brazil called C & A. When you go into their store and look at the dresses on a hanger, there is a counter on every hanger. The counter shows the number of likes that the dress has on Facebook for that store. So you can see which items are popular in social media. That’s an example of touch-point integration. At the end of the day, businesses have to preserve the memory of their customer interactions as they move from one channel to another. So if a customer pays by credit card on a mobile app, the business must preserve the card details when the customer buys at the retail store.

End of part one

(Watch out for part two of this interview. It will be uploaded on Founding Fuel on Thursday)

[An abridged version of this interview was printed on Mint]

[Corrections - The line about Facebook's mobile revenues - "Now it's close to 50%" was changed to "In Q4 2014, it was 69% percent". "m-pesa" was changed to "M-Pesa". The line  "We then reached 1.2 billion mobile users, as we are now" was changed to "We have reached 7.2 billion mobile subscriptions worldwide, which is greater than the world’s population". The Brazilian retailer was changed from "3DA"  to "C & A"]

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