As a 90s kid, I grew up looking forward to weekends when we’d go to the mall to hang out with friends and maybe compel our parents to buy us something. But as I observe the teenagers today, that is hardly where most of the shopping happens. Digital age introduced us to a new way of fulfilling our needs – E-commerce. Amazon and Walmart have quickly become our go-to platforms and as sellers and buyers have both increased, these platforms have become mega marketplaces.
Amazon, more than anything, defines US shopping trends. E-commerce sales accounted for 13% of all retail sales in US in 2017 and this number is supposed to hit 17% by 2022. These platforms brought in their wake a huge wave of decentralisation enabling small entrepreneurs to build their online presence without owning or renting brick and mortar spaces. More efficient than merchant websites, these platforms offered spaces where buyers came with the intention to spend. As these players have grown, they have undertaken upstream and downstream integration to offer complete solutions. But for e-commerce to achieve its full potential some challenges must be overcome, starting with friction within its various segments.
Challenges facing E-commerce
- Fragmentation: There are several players that dominate different parts of the value chain:
- Storefronts — Shopify.com
- Payment Processing — Paypal, Stripe
- Shipping and Fulfillment — FedEx, UPS
- Backoffice processing — Salesforce.com
- Last mile distribution: This refers to the end of a purchase cycle wherein bought goods are transported from a central warehouse to the consumer’s address. Last mile delivery is costly and resource intensive for both smaller and bigger players.
- Purchasing power: Irrespective of the quantity bought by a consumer on marketplaces, he/she always buys at retail prices and doesn’t have access to wholesale/bulk rates.
- Data ownership issues: Data in these marketplaces is owned by the middleman (or the platform) and the buyers and sellers never see the big picture.
- Cost to merchant: Merchantspay up to30%of their revenue asmargin to the platforms to be a part of the platform. They are also charged 2-3% of the amount by payment platforms like Paypal.
- Fraud and logistical loss: For every $100 spent through e-commerce, fraudsters stole 5.65 cents through fake identities. There are also gaps in the product delivery chain where products are delivered late or incorrectly.
- Unfair competition: Companies like Amazon and Walmart have their own brands that are competing with much smaller merchants in these marketplaces.
There are now several start-ups that are offering solutions to these problems in a way that would decentralise the information base currently held by the marketplaces.
Decentralisation in business model
Players like Buying.com are looking to disrupt the business model in several ways. They have introduced microdistribution where anyone can become a warehouse node in the firm’s supply chain. The concept leverages shared economy wherein people with extra garage space can create their own warehouses taking away the centralised leverage from the major players. The platform also has a plan to enable individual consumers to receive direct from manufacturer pricing through bulk orders.
Many companies have already been experimenting with blockchain based logistics. Walmart found that it could narrow tracing products to 2.2 sec as opposed to the seven days it took earlier. IBM is a famous blockchain pioneer, running a program that helps the well-established businesses of Walmart, Nestle, and Tyson Foods.
Omnitude, a start-up, is looking to tackle the issue of digital fraud by creating digital identities (OIDs) where consumer doesn’t need to share purchase history or personal information. In any transaction only the relevant information would be transferred. The idea assumes that digital identities are harder to forge. This form of identity would also help dispel fake reviews on sites, for every digital identity would be easy to verify and hard to duplicate.
Shopin, another player using the blockchain technology is focused on creating personal user profiles that carry wish lists, user details and purchase history that would no longer be owned by the platforms but by the consumers. It looks to challenge the current e-commerce business model where buyers and sellers meet on the platforms and employs democratic blockchain to enable direct transactions between shoppers and merchants.
Image 1: Shopin’s decentralised business model
In a world where such platforms don’t exist, the next question to be answered is where would consumers interact with products? Currently platforms decide which products are promoted, listed, discounted and pushed during deals. In a world with no platforms, consumers decide which products to push and recommend on their social networks.
This again pushes for an ecosystem where everyone is an influencer, honestly recommending products that speak the most to them. This solution simultaneously solves a recent accusation facing social media platforms like Facebook and Instagram with regards to directing traffic. Such a business model has already been launched by Yuser, a social networking platform that rewards content creators with gems that can be exchanged for products with the listed merchants.
Such a model benefits both buyers and sellers:
- Consumers get to buy the most recommended products – Usersalready depend on social media for reviews. Such a streamlined operation would reduce the noise created by fake reviews and allow users to take calls based on authentic stories.
- Merchants save on commissions and returns – Small time merchants who cannot afford the margins charged by platforms, end up with stronger margins and a wider reach. They also improve their sale rate with fewer returns because of a blockchain based logistics network.
- Creates a new class of influencers – The advertising model proposed by the decentralisation of e-commerce creates a new class of influencers who can organically direct the merchant’s marketing dollars towards consumers who intend to buy.
Strategy in the Age of Decentralization 