Last week eBay and PayPal made news at its X.commerce Innovate Developer Conference in San Jose. It was a few days of back-to-back press releases, commentary and cyberbuzz as everyone tried to digest the announcements that came fast and furiously. Here is the rundown of the big stuff and a few of my own comments along the way.
(Related: PayPal and X.commerce Launch PayPal Access)
The drumroll associated with all of these announcements is the massive commerce opportunity made possible by the blurring of online and offline transacting. John Donahoe, in his keynote, declared it a “$10 trillion opportunity” and one, of course, that he and PayPal plan to dominate. His view is that commerce won’t have an “e” or a “f” or an “m” or a “t” in front of it – it will be “just commerce,” as IP-enabled devices make those channel distinctions irrelevant. Maybe he’s been reading our stuff <joke>. Seriously, we have been railing about this for years.
(Will Zong Make eBay the Future of Retail Commerce?)
What makes the X.commerce platform interesting and potentially so powerful though is that it removes the friction that entrepreneurs face when wanting to innovate the shopping experience. It is, for all intents and purposes, a one-stop shop. Now via this platform, an entrepreneur can create and customize their own storefront (Magento), allow consumers to check inventory in real time (Milo), enable bar code scanning (Red Laser) in-store to enable product discovery and checkout capabilities a la Amazon Price Checke, track customer engagement online (Adobe’s Omniture) via a built-in analytics tool, develop targeted ads (Kensoo) for products that will appear on Facebook, Google or Yahoo and enable a variety of mobile apps (eBay Mobile iOS SDK). The scenario I painted a few months back when I first wrote about the collection of capabilities available via the eBay/PayPal platform seems a little less “pie in the sky” now.
As anyone emerging or otherwise knows all too well, the current state with respect to knitting all of this together into one commerce application isn’t impossible, but it can be infuriating, expensive and hard to wrestle to the ground. X.commerce seems to take the unwieldy sausage-making process otherwise associated with integrating multiple commerce apps off the table, leaving entrepreneurs to worry with other things, like whether or not what they are commerce-enabling will ever make a dime. A big enough worry for sure.
A few other things came out of the conference that are also worth noting but for different reasons. First is their NCR partnership that allows P2P payments at ATMs. This essentially makes it possible for anyone with a bank account to authenticate themselves at an ATM and send money to anyone else in any one of 60 countries with a PayPal account. It’s an interesting service and surely a step in the direction of saving NCR from near-payments obscurity. It is also a back-door play for getting into the money transfer game but requires that the sender have a bank account (not the receiver). That eliminates a lot of senders for a variety of reasons but more than capably addresses the situational/emergency and other one-off use cases that drive a lot of money send volume today. It also is the second such play PayPal has made in the money transfer space – it partnered with Discover to enable money transfer via Discover cards to PayPal account holders.
There was also an announcement about PayPal’s work with Facebook. The X platform will be integrated with Facebook’s new Open Graph functionality. That means that apps developed via the X platform will allow consumers to interact with merchants and their social networks in a very social way, well beyond just liking and subscribing. What is reported is that consumers can actually signal that they “want” or “own” products. Speaking as a consumer who is getting way too old to be disappointed on those important gift-centric occasions, like birthdays, holidays, etc., the idea of a “want” button sounds pretty good to me – allowing me to click on a product that I want and have that product land in a certain someone’s news feed to buy for me, via PayPal of course. The own button, well, I think that falls in the category of TMI. The poster child for that experiment, Blippy, fizzled when people (even those transparent Gen Y-ers) decided that it was TMI to share what they bought, even it was just with their friends.
Perhaps the most interesting and potentially game changing announcement is that involving PayPal’s universal identity log-in called PayPal Access. This single sign-on enables a frictionless checkout online at any merchant site. Descried by some as Facebook Connect for commerce, the notion of a single sign-on across the Web has been 16 years in the making and the subject of many a past attempt (remember Microsoft Passport?). It is reported that PayPal is making its Access API available to 500 of its enterprise clients, which will allow consumers to create an account at a retailer once and then check out with just a user name and password on all subsequent visits. It is being billed as not just convenient but secure, since payments credentials are not part of the merchant’s site but PayPal’s.
So this is what we know so far. Here are a few things that we don’t know and some of my comments.
The Facebook Open Graph integration is really interesting. As you know, I am very bullish on social commerce and commerce on Facebook in particular, and we are just starting to scratch that surface. My sense is that if PayPal has invested in it (and invited one of its execs to sit on its board), then I believe that they too think it holds strong promise. PayPal, of course, has been on Facebook via Payvment for a while now, so has payment-enabled applications already on the platform. What is being introduced now though is a series of tools that truly stimulate social connections while shopping. It will be interesting to watch how this changes the consumer and merchant experience on Facebook and whether it drives new sales.
PayPal Access is interesting. The chicken-and-egg problems associated with unified identity online are not to be underestimated. Success is only as good as the sites that enable it and the consumers who have the accounts. As I have said in other pieces, it is amazing that 16 years after the introduction of the Internet we still don’t have an easy way to shop online. It is no wonder that online sales are still such a small piece of all commerce, since by and large it is still a real pain to shop on most sites. PayPal, Amazon and Apple have all created online wallets that have changed that experience for the better. The traditional players still seem to be a long way off, in spite of having ubiquitous acceptance. Access is positioned as the online version of an acceptance standard at the POS. What isn’t known at this point is how retailers will react to the Access proposition. Will they feel as though they are losing control over user accounts? The degree to which they feel that way and resist is a function of how data is shared with merchants and the trade-off over that real or perceived loss of control and any increase in sales due to a decrease in cart abandonment remains to be seen.
The X.commerce platform is a living, breathing case study of the power of open platforms. It is reported that 850K developers are on the platform and it seems as though they have a virtual (no pun intended) candy store of applications to play with. It seems to have all of the right ingredients for driving the network effects that these platforms are designed to drive. What we don’t really know is whether they have. Rentalics, the winner of the 2010 Developer Challenge, developed an application based on PayPal that enables people to make money renting the stuff that is gathering dust in their garages – chain saws, lawnmowers, leaf blowers, etc. A year later, they are still trying to raise money and pay their 15 part-time employees four times a year with equity and not cash – probably because they don’t make enough. Rentalics was interesting enough to win the developer prize but not successful enough to ring the register, at least not yet. And we really don’t know how any of these other apps are doing either. Of course, all it takes is a new venture with a proposition so appealing and a user experience so frictionless, given all of the X.commerce goodies, to move the needle in a big way in the PayPal direction.Or for a mega-merchant to do the same.
The other unknown is the extent to which these strategies help PayPal acquire new PayPal accounts or whether they help activate the accounts established when eBay was the only place PayPal was accepted. Both, by the way, are wins. PayPal started reporting active registered users back in 2007 (adding the distinction “active” to the definition) then. In 2007, it reported 85.3 million active users, in 2008, it reported 87.7 active registered users and in 2011, 100 million active registered users. Don’t get me wrong, 100 million active registered users is nothing to sneeze at, but it does not suggest hockey stick growth over the last fock years either. Having lots of developers and lots of strategies designed to acquire and activate PayPal customers seems like it a very high priority.
So, how do I process all of this? If I’m Visa, who announced last year at about this same time its own open commerce plans (any news there folks since I haven’t heard much since?). Am I slightly amused or slightly worried? I might be a little of both.
(Related: Visa Opens Platform to Capture Market Share)
One question is the extent to which the billion or so dollars of commerce driven through the X platform so far is the tip of the iceberg or the iceberg itself and whether sitting on the open commerce sidelines was a stroke of sheer brilliance or incumbent inertia. For PayPal, opening its platform seemed an essential part of its ignition and getting distribution and scale. Visa, and its incumbent brethren have historically had scale via its issuers and processors. Their problem is that innovation now comes from far outside of those traditional places. PayPal appears to have assembled and integrated a series of components that make enabling commerce an easier and more robust experience, regardless of whether you are a large merchant, small merchant, established player or startup. We’ve seen the X.commerce platform open its kimono and have some idea about how it plans to drive innovation in commerce. The question for Visa and to the same degree, MasterCard and American Express, is how they will counter this strategy and when we’ll know.
Karen Webster is the CEO of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.