Why Contextual Commerce Is The Next Big Thing

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Includes: AMZN, FB, MUSIC, PINIT, PYPL, UBER
by: Karen Webster

Summary

In January of this year, I wrote a piece in which I said there were six things that would shape the direction of payments and commerce in 2016.

I argued that making buying seamless inside of environments that consumers used regularly for other reasons would drive innovation for those environments.

Uber, Facebook Messenger, Amazon, Braintree/PayPal and even Spotify are tapping the power of contextual commerce.

In January of this year, I wrote a piece in which I said there were six things that would shape the direction of payments and commerce in 2016. Third on that list was “contextual commerce.”

I argued that making buying seamless inside of environments that consumers used regularly for other reasons would drive innovation for those environments - and for the third parties that enabled those new commerce experiences. As its name implies, commerce then happens because there’s an interest and an intent to buy, along with a context that makes doing so very natural and easy.

Making Pins buyable inside of Pinterest (Private:PINIT) is something that I called Contextual Commerce 1.0. Inserting buy buttons inside of a marketplace – in this instance a marketplace of ideas and inspiration – is interesting. But it’s not the game changer that contextual commerce could really be.

Pinterest, as the advertising platform it has become, is certainly driving lots of interested consumers to merchant websites to explore what they see pinned on Pinterest, and then even buying from that site if they remain enamored with what they see once there. But simply sticking buy buttons everywhere there are occasions and things to buy is undervaluing contextual commerce’s true potential.

Potential that we see now being tapped by Uber (Private:UBER), Facebook (NASDAQ:FB) Messenger, Amazon (NASDAQ:AMZN), Braintree/PayPal (NASDAQ:PYPL) and even Spotify (Private:MUSIC).

Each of these platforms is taking the concept of contextual commerce to the edge – and soon, I believe, well beyond it. Each of these players is leveraging their powerful closed ecosystems that, with payments embedded inside of them, extends commerce into the places where consumers want to take it – rather than the other way around.

Uber: The Road From Ridesharing To Contextual Commerce 2.0

In 2009, Uber’s innovation was to match up black car drivers with downtime and consumers fed up with the uncertainty of not being able to reliably get a ride when they needed one. Six years and an expanding inventory of cars and price points later, Uber’s platform has a market cap of $70 billion, more than 1 million drivers across 400 cities worldwide who’ve delivered a 1 billion rides – and the first instance of what we now call “invisible” payments in the offline world.

Uber’s magic is how payment at the end of the ride happens, as much as it about how rides are procured. An app with a card on file, Uber, as all of us who are addicted to it know, requires no intervention on the part of the consumer to pay and tip the driver. Cards on file are charged once the rider’s destination has been reached and the consumer left the vehicle.

That magic is being extended to third parties who see its platform as a way to create new commerce opportunities.

UberEats, which launched last month (March 2016) as a stand-alone app, was Uber’s first shot across the contextual commerce bow. This stand-alone food ordering and delivery app — now live in Atlanta, Austin, Chicago, Dallas, Houston, Los Angeles, Melbourne, New York, Paris, San Francisco, Seattle and Washington, D.C. — started life as an option inside of the Uber app. It was relaunched as a separate app, no doubt to expand its pool of potential users and cross-pollinate its Uber platform.

For existing Uber users, creating an UberEats account is as easy and invisible as paying for a ride.

When someone installs the UberEats app, they’re prompted to either select their existing Uber profile or create a new one. The 99.999 percent of existing Uber users who opt for the former now have an UberEats account connected to their existing Uber user profile and account credentials stored there.

Easy peasey.

Last week, Uber appeared to take contextual commerce a step further.

Uber users on their way to a Hilton hotel can now check into their room from the car. Hilton Honors’ members traveling via Uber can make a room selection, and then receive a digital key that will allow them to bypass the front desk upon arrival and go directly to their room.

On the way there, Uber’s partnership with Zomato will also allow that passenger to check restaurants nearby and make a reservation at one that might have caught their eye and appetite.

It’s only a matter of time, I conjecture, that on the ride from the airport to home or from the office to home, similar prompts might be made for an UberEats delivery or booking a reservation at a nearby restaurant.

Uber has several pieces of information that will make those prompts, well, contextual. They know where the passenger is, the time of day they are taking the ride, their destination and how long it will take to get from point A to point B.

Using that data, they can serve prompts that add value to that ride, in context, driving commerce along the way, so to speak.

Today, all of this happens outside of Uber in the third party apps connected to its core platform. But it’s likely only a matter of time before those capabilities are brought inside of the Uber platform to make the experience totally seamless, contextual and automatic for the user.

And all linked to the Uber account credentials on file.

Uber is morphing from just a ride-sharing platform into a commerce platform, matching third party apps to what Uber customers would regard as a value add in the context of their use of the Uber application.

Uber may have context, but its challenge will be to grow its core user base. Uber does not publish user stats, but I saw a story that quoted 8 million user accounts (as of July 2014), without being specific as to whether that was only U.S. or U.S. plus other geographies. Working with corporate travelers and hotel partners is one way to expand the commerce possibilities on the Uber platform, but not necessarily the core user base who probably uses Uber pretty frequently already.

For Uber to reach its full contextual commerce potential will mean giving third parties access to new users who can also create incremental revenue opportunities for them – and vice versa.

Messenger: From Conversation To Commerce

Facebook’s Messenger has made no secret of its ambition to take a page out of WeChat’s book and enable a variety of activities beyond chat inside of its ecosystem.

It’s not hard to see why.

In the four years since its launch, Tencent’s (OTCPK:TCEHY) WeChat reports 600 million active monthly users who can do a variety of things beyond messaging with some of the coolest emojis you’ve ever seen. WeChat users can play games (and they apparently play a lot of them – accounting for $420 million in revenue in 2014), buy tickets and book and pay for taxi rides. WeChat overcame a critical platform ignition point too that drives these numbers – they have a critical mass of consumers and their friends on the platform who use it exclusively.

That, and the wide appeal of messaging apps, worldwide, has inspired all messaging apps to consider use cases that go beyond chatting.

Pew reports that while nearly 50 percent of smartphone owners 18 to 29 use messaging apps, nearly 40 percent of those 30 to 49 do as well, and nearly a quarter of those 50 and older do, too. Granted, a lot of those use cases are parents and grandparents wanting to stay in touch with kids and grandkids, but getting those users on board has now given birth to a worldwide market of more than 2 billion people with whom messaging apps would like to engage.

And monetize.

Facebook owns two of the giants: WhatsApp with more than 900 million monthly active users, and Messenger with more than 800 million monthly active users. WhatsApp revenue is pretty much a pittance – $10 million it was reported in 2014 which would make the return on Facebook’s $22 billion investment largely incalculable. And David Marcus, Messenger’s Chief, says that Messenger isn’t about making money right now.

But it appears to be a lot more than messaging.

In March 2015, Messenger announced a significant upgrade to its platform.

It’s now possible to send and request money (as long as the people you are sending and receiving money from are also on Messenger and monitor it with regularity (hint hint to the person from whom I requested money a while back and might be reading this), get status updates from participating retailers via its Business with Messenger capabilities, and even order an Uber.

David Marcus, Messenger’s Chief, said at the beginning of 2016 that his team’s ambition is to “make Messenger the best place to communicate with all the people and businesses in the world.”

In other words, using the Messenger ecosystem to trigger commerce wrapped around context and conversation inside of that ecosystem.

Last week, Messenger announced a partnership with KLM Airlines which now allows Messenger users to get status updates and resolve customer service issues inside of the app including rebooking flights – an obvious link to commerce.

Messenger’s hope is that getting commerce enablers onboard will, in turn, pull more consumers inside the ecosystem and keep them there because they can get valuable services not available inside their existing apps or smartphone texting platforms. And if they do that, they will, in fact ignite commerce inside of the app.

Consumers may be something Messenger has in droves, but usage is a function of having a critical mass of consumers in the same social circle who use it regularly. From my informal survey, that seems to be a mixed bag – and one of Messenger’s core business challenges, commerce notwithstanding.

Creating context for those consumers is critical to driving commerce. Messenger’s success in doing so will depend largely on three things: ((a)) getting a critical mass of retailers on board that enable those contextual experiences; ((b)) delivering a more valuable experience inside of Messenger than any other messaging app or the retailer’s own app delivers (or could); and ((c)) whether enough of the retailers that consumers engage with use Messenger as their preferred channel to engage with consumers.

Which they won’t do unless enough consumers use Messenger as their preferred platform to engage with them.

It will be interesting to see how their use case with the airlines evolve. I suspect it might be a tough hill to climb for the simple reason that anyone who is already a preferred customer of an airline probably uses their branded airline app. Messenger would have to offer something above and beyond what’s available inside those apps to get those customers to switch.

Or, alternatively, be the only platform available for consumers to communicate with brands – which they could be well positioned to become in lesser developed markets.

Amazon: Making Omnichannel Contextual

When Amazon introduced its first couple of Dash buttons on March 31, 2015, people thought it was an April Fools’ joke. One hundred Dash buttons and an entire Dash Replenishment system later, it’s clear that the joke was on those who didn’t understand the power of connecting commerce with context in novel new ways.

These buttons now drive, Amazon says, more than 10,000 orders a week from its very best customers: Prime members.

The idea of sticking plastic buttons all over one’s house as visual cues to order things like laundry detergent, diapers, toilet paper, snack food, batteries, paper towels, and cold medicine in the very places that consumers can see that supplies are running low has evolved into software embedded inside of products that automatically reorder when data and algorithms calculate that it’s time to do so.

Now, everything from printer cartridges to pet food are part of an Amazon ecosystem that not only makes ordering and payment invisible, but commerce tied directly to a very specific use case, solving for a very specific consumer need.

But that’s just one small slice of the contextual commerce pie to which Amazon wants to lay claim.

The Alexa ecosystem is using voice activation to extend commerce into a variety of contextual applications. Through Echo inside the home, Alexa can build a shopping list and order those items. She can order a pizza from Domino’s (NYSE:DPZ), and an Uber. With Ford cars, Alexa will be able to unlock the car door.

You don’t have to be a Nobel Prize winner to see where this is headed.

“Alexa … I don’t feel like cooking, what restaurants nearby have a reservation for 4 at 7:00 tonight?”

Or:

“Alexa … I don’t feel like cooking, I’d like to order Kung Pao Chicken and a side of rice and green beans from Gourmet Garden.”

Or on the drive to work:

“Alexa – I’d like to order a large coffee with two Splenda and whole milk and a dozen Munchkins from the Dunkin’ on Washington Street at 8 AM.”

All linked to the user’s Amazon account and card on file and enabled by an ecosystem that’s moved beyond a destination on the Web to where the consumer lives.

This capability is as disruptive as it is innovative.

For the first time, brands have the ability to have a major branding opportunity inside a consumer’s home in a way that was never before — and for that brand to establish preference in a way that was never before possible. Consumers aren’t ordering just any laundry detergent, they’re ordering Tide. Consumers aren’t ordering just any paper towel, they’re ordering Bounty.

And for Amazon to enable a direct-to-consumer experience that cuts out the middleman – a middleman called the grocery store – by making commerce not only contextual, but where it’s convenient for the consumer to make those buying decisions – inside of their home where they can see what they need and want to buy.

By the way, 12 companies will have the opportunity to partner with PYMNTS and Alexa/Amazon to participate in the Alexa Challenge starting on April 27th. Your idea plus four weeks of intensive mentoring by me and the lead Alexa developer evangelist will produce 12 ideas that the community will vote on for best in class Alexa skills. Some of the ideas that we’ve seen are incredible. There are only a few slots left; get details here if you’d like in on this remarkable opportunity.

Braintree: Using Scale To Enable Context – And Commerce

Braintree announced the launch of its Auth platform last week. It’s making commerce contextual by, among other things, helping Braintree merchants seamlessly embed commerce into their partner’s environments. Braintree is what enabled Uber inside of Facebook and will make it possible for the hundreds of thousands of merchants that use Bigcommerce or WooCommerce’s eCommerce software and shopping carts to light up a variety of new payments and commerce experiences inside of their virtual storefronts.

Auth will allow merchants to create new Braintree merchant accounts on behalf of its partners and for them to instantly accept payments, including PayPal and PayPal One Touch and alternative payments like Apple Pay, Venmo, Android Pay and others as they become available. Auth also allows access to a Shared Vault which means that a tokenized card credential stored with one merchant on a platform can be used in a single-click checkout on behalf of that same customer with another merchant connected to that master record inside of that platform.

Through that capability, Auth eliminates the need for customers to reenter their credentials at each of those connected merchants.

As an enabling platform, Braintree doesn’t touch the consumer. Its role is to give those who do the tools to create commerce inside the context they bring to that consumer. Their value proposition is to use the scale of their platform – their merchants, capabilities and 250 million stored tokens – to help other platforms scale more easily without having to get into the weeds of payments technicalities.

Spotify: I’ll Name That Tune In One Bottle Of Whiskey

Music and alcohol have a long and somewhat controversial history.

In the early part of the 2000s, a U.K. study reported that loud music in clubs increased alcohol consumption – which explains why you can’t hear yourself think in most nightclubs. The higher the volume, the more people pound them down. And the more money they make.

Don’t look for quiet nightclubs any time soon.

Another study done by a Boston University professor suggested that music itself is a marketing platform for alcohol. He found that four major brands more or less show up in most songs that reference alcohol, linked not so coincidentally to tens and even hundreds of millions of dollars of lucrative contracts that rap and hip hop artists who sing those songs have with alcohol brands.

Now, it seems that the possibilities of contextual commerce are taking the music/alcohol dance a step further. Streaming music platforms are now embedding ads to enable its instant purchase and delivery.

A colleague sent me a text describing his experience late one afternoon last week.

He was listening to Spotify and 7 seconds before a song ended, he said he was presented with an ad saying that he could get a bottle of Jameson delivered in an hour or less by using an app (that he had installed on his phone) to place that order.

Their wish was his command.

One hour later, his Jameson was delivered, underscoring the commerce potential that embedding commerce inside of an environment that consumers are using for other things creates.

It’s not as if my colleague intended to buy a bottle of Jameson that day. But it’s a brand he likes and in the context of listening to some cool tunes, he decided to act on his impulse. Something he probably wouldn’t have done if the offer was a T-shirt or a car wash. In this case, the context was entertainment – listening to music – and the offer was something that loosely connected music and the late afternoon – kicking back at some point later and having a drink.

All enabled, of course, by an app with card credentials stored inside, making the act of purchasing easy, seamless and contextual.

Risks And Opportunity On The Road To Contextual Commerce 2.0

As I said in January, Contextual Commerce 2.0 will make it possible for new relationships between brands and consumers to be established and for the retail playing field to be defined differently and on the consumer’s terms.

And those who master Contextual Commerce 2.0 will do so because they are able to create value by making commerce accessible “in the moment” and across any operating system, channel or buying environment. In each of the instances that I described here, the contextual platform is an app or software that can go anywhere the consumer takes it on their mobile device, one that is enabled by secure digital account credentials that flow with that context.

For those ecosystems, the imperative is to provide the context that will trigger the commerce impulse, add value to that consumer experience and remove the friction from making payment difficult.

For issuers, it raises the decibel level of making sure that their products are attractive enough for consumers to want to stick inside those apps. Platforms that are about creating context do that by bringing in more third parties to add that value, and leverage the account credentials they have “on file.” The more options that these ecosystems provide to those consumers across the platform, and the easier it is for those consumers to use those stored credentials, the fewer opportunities issuers will have to influence those choices downstream.

For mobile wallets and “buy buttons,” the challenge will be to get consumers to register “a wallet” inside of an app. And that will be a function of making sure that enabling platforms make it easy for retailers and other third parties to accept that method of payment and for consumers to use it.

Since where context will drive consumers, it will also pull along their payments preferences.