I spent a week in the highlands of Ecuador in a small town where everyone says good morning to each other. Dominated by farming, the community is self-sustaining – a stark contrast to the highly connected commercial ecosystem in the US.Returning to the valley, I reflected on several local technology investments we were evaluating and the large latent market opportunity to provide local businesses with tools to compete with large incumbent e-commerce players.
Mass Market E-Commerce
In the late 90s, entrepreneurs used the web to aggregate demand across geographies, enabling centralized asset management and consequent cost benefits. Companies like Amazon, eBay, Netflix, Pets.com, Drugs.com and many others replicated the model across verticals. Ultimately only those who combine shipping higher margin items profitably with an emphasis on customer service survived. In a short period of time, these victors competed directly with local businesses on price.
Guilty Price Consciousness
As a result, e-commerce grew dramatically. Nevertheless, today no more than 6.2% of total purchases are made online according to Barclay’s. I would have estimated the figure at 15-20%, particularly with loyalty tactics like Amazon Prime, which has influenced my behavior dramatically:Entering a book store, I use the physical copies to discover new titles of interest, surreptitiously scan them, determine if a less-expensive Kindle version exists and then complete the transaction, without the bookseller any the wiser or richer whereas I am riddled with the guilt of having deprived the local merchant of a sale caused by my hyperactive price sensitivity. (For more on the macro-economic ramification of this price sensitivity on the economy, CEO pay and attrition of the middle class, read Robert Reich’s SuperCapitalism).
Enabling think national, buy local
The cost structure of local stores forces them to compete on service, convenience, immediacy and tangibility among other axes. With the advent of mobile devices, location and behavior targeting, decreased cost of local business acquisition and increased technology awareness, the opportunity to arm local businesses with technology solutions to compete more effectively by enabling hybrid e-commerce/physical commerce looms larger than ever.Google has announced a first effort in this vein enabling book stores to sell electronic copies of books generating a single digit affiliate fee for their efforts. Despite being a paltry revenue generator, this effort is indicative of a much broader trend that may very well impact the 95% of commerce as yet untouched. It has the makings of a very big wave.