Quick Thoughts: Amazon Mobile Illustrates the Increasing Importance of Physical Infrastructure to Digital Marketing


The launch by Amazon of a mobile POS reader illustrates the importance to the online giants of becoming involved in the transaction data generated at physical point-of-sale (which accounts for over 90% of retail sales). AMZN and GOOG, in particular, are looking to shape shopper decision-making through expanding, and then engaging in, the digital component of that experience. Larry Page, for example, has reportedly emphasized to subordinates that GSX is a strategic weapon to keep more people from starting their shopping experience on Amazon.

None of this is surprising. The online giants have built and gained competitive advantage, versus brick ‘n’ mortar counterparts and each other, through the digitization of commerce (with examples being data-enablced advertising in the case of GOOG and data-enabled recommendation-engines in the case of AMZN), and have had open-field while digitization was largely restricted to e-commerce. (Closed-loop payment networks – such as AXP, ADS and prospectively ChaseNet – are a noteworthy exception).

Consensus is that mobile will enable the extension of these data-driven models to physical point-of-sale, but we expect the reverse: that mobile, and the digital-enabling of “smart” stores through wireless technologies (e.g. Bluetooth, NFC, and RFID), will allow brick ‘n’ mortar players to mount an “omni-channel”, and hence online, challenge with data-enabled marketing strategies of their own. If physical infrastructure can be enabled for data-capture there could be resurgence in its marketing role rather than erosion in some cases towards mere fulfilment.

Rich Fairbank, CEO of COF, articulates the idea as follows: “mobile can actually be the best opportunity to bring the tie [with online players] back in the retailer’s favor when you think about the opportunity for real-time communications, real-time offers, for literally knowing where the person is in the store, for building loyalty programs, for point-of-sale and transactional ease and convenience, and ultimately all the data that can be collected there”.

The broad point is that the control and protection of transaction data generated at point-of-sale is increasingly strategic. AMZN will sign up micro-merchants, and for what it is worth savagely undercut Square, but merchants of meaningful size will need assurances on data security before participating in mobile schemes. For now, beyond bilateral arrangements retailers have with data-savvy acquirers such as VNTV and JPM, only MCX and AAPL can provide that with requisite credibility.

In the UK, Waitrose and Tesco have begun store-specific apps with iBeacons (although initially more geared to customer service than marketing to allow shoppers to acclimatize), and we expect US trials by year-end. If, as reported, the iPhone 6 includes a mobile shopping app that communicates with iBeacons and enables mobile payment, it could spur consumer adoption and prove a watershed event.


Relevant Research:

Mobile Wallets – The Battle for Control of Point-of-Sale and Opportunity for FIS, 6/19/2014

Apple versus Banks in Mobile Payments: Update, 5/30/2014

The Bank Edge Over Online Advertising and Payments Platforms, 6/15/2014

The Challenge to Online Giants as Banks and Retailers Build Data Strategies for Mobile, 8/10/2014

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