Yes we are, and it has serious possible consequences for a whole range of businesses.
Gather around children for a story when grandpa was young (in internet years anyway). Once in the deep dark history of the internet portals were all the rage. They were the place that companies hoped you would use as your stepping off point into the internet. If you were part of their portal and had it set up as your home page then they could offer you services, and make money from you being there rather than you wandering around on your own. Truly capable search killed off a lot of these efforts by allowing people to more easily find what they were looking for although portals still make sense in a number of areas. For example here in Australia the Our Community organisation which supports about 80,000 community organisations has a grants portal (Our Community) which aggregates all of the grant information across the country. Essentially it provides a specialised aggregation and search service. The government also offers a portal called myGov which aggregates a range of government services, offering both specialised search services but also common identification and log in systems.
Besides these sorts of services we seem to be moving into a new era of portals based primarily on mobile systems. On March 3rd TechCrunch stated that “Uber plans to turn its app into a ‘content marketplace’ during rides“. I have long believed that Uber is a data and services company with the transport model being an interim stage, and this fits perfectly with that theory (confirmation bias anyone). As a transport company they are in a brutally competitive world. They have already signaled their intention to be in the autonomous car business, but I think that business is going to be an even more brutal fight that will require huge reserves of cash. That fight will include the existing car companies and a host of new competitors and some will inevitably lose, and have their whole business model destroyed. In those sorts of fights technology plays a role but quite often it is a last player(s) standing sort of a fight where people bleed cash until they can no longer operate. In that sort of fight it makes sense to have multiple possible strategies rather than a single win or lose one. If, in the interim period before autonomous cars are widespread Uber can build a huge trove of data and insight for autonomous cars, but more importantly insight into the movement of people, and what they do during and after their trip then they have a separate strategy. If they are not able to slug it out in the transport space then they can supply data and services across the whole sector instead.
A content market place for Uber makes sense. According to the TechCrunch article they now are providing 10 million rides a day and to a large extent those riders are a captured audience for them. They also know in advance where you or I are going and when we will arrive which is enormously useful information. If they know you are going to a shopping centre then businesses at that shopping centre would really like to know that so they can send you offers in advance. If you are going to restaurant area at lunchtime, or an airport the same applies. If they can tie your trip data to what you do after the trip by tracking you through their application and partner applications then the value of the data increases astronomically.
In this new portal era they are the aggregators of customers for other businesses but they are also aggregators of data that increases in value as time goes on. In some ways it is the perfect business – profitable while it is building a new capital asset that is much more valuable.
There are lots of other companies that are pursuing this strategy. WeChat in China now has enormous capacity inside its app that is intended to keep you inside their ecosystem so they can aggregate demand and sell it to other companies ( WeChat is morphing so Chinese smartphone owners will never have to download an app again). Facebook is attempting to copy them while also trying to copy Snapchat and is a huge percentage of people’s mobile we traffic (Benedict Evans).
All of this raises a very serious question. Where will the profit accrue to in this new world? Here in Australia we have had retail dominated by two major supermarkets although this is slowly changing. As a result they have had the highest retail supermarket margins in the world, which have now crashed back to earth due to competition (see my post: Are The Two Major Supermarkets in Australia Doomed?). Through that time the suppliers of food into the Australian markets have been mostly constrained by having to supply to those two companies in large volumes. If you are Coca Cola or Mars this has not mattered too much but it has mattered to most suppliers (hence the high margins).
The advent of the internet and the capacity to connect to anyone around the world even if you are a one person business was supposed to break some of this down, to usher in a new age of commerce. To an extent that has been true. However I have been working with a couple of businesses that want to use some of the new technologies to connect directly to the customer rather than going through the major supermarkets as “the agent of the consumer”. One of the key concerns is whether they are swapping one master for another. If they end up with channels going through systems and applications like WeChat or Facebook does the profit accrue to them or the platform, and how much can they rely on the platform continuing to deal with them in a fair and consistent manner. In part that question is answered by platform economics – if the deal does not work for the customers on both sides of the platform then the platform disintegrates. On the other hand if you are not key to the relationship between the consumer and the platform itself it leaves you in a very weak position.
If we use that thinking and go back to Uber then I do not believe that a coffee shop at my local shopping centre is going to have the clout or expertise to efficiently partner with Uber to market specials through their App. It seems far more likely to me that another aggregation platform for coffee shops (and others) will partner with Uber and connect up the systems required to send me a notification of a special as I am on my way, or take my order via the Uber app as I travel . That means if there are three coffee shops at my local shopping centre, and Uber has a significant transport footprint, as soon as one of them has joined up the others are forced to do so or lose customer traffic. In that case none of the coffee shops actually wins because the actual customer levels between all of them are likely to be the same (ignoring any marginal traffic that may come from signalling). However the two aggregators (coffee shops and Uber) are going to want a cut of the action so it is likely that the profit margins of the coffee shops will fall.
So in a world that promised better contact and relationships with customers for small businesses the result may actually be less contact, more distant relationships, and less profits as a result. The advantages go back to the portal holders.
Of course in a modern world there is always the opportunity for the coffee shop to make a direct contact with me when I come to their shop. If they can establish a contact with me via my messaging App of choice (WhatsApp in my case) then they can form a direct relationship. However that relationship lacks a geo-location and proximity/arrival time context so unless my messaging App can supply that then the direct relationship is at a significant disadvantage. It also lacks the sophistication to be able to take my order, so unless another aggregator can link to my messaging app and provide those services the friction of the relationship will be too high. And so the dance continues.
The whole process is complicated by the fact that people actually use very few apps. In theory the coffee shop could have an App that does all these things and connects with me but given the limited real estate on my device and the fact that most people only really regularly use 5 apps that is not going to happen.
It is going to be very interesting to see where all this goes in the not too distant future.
p.s. – for those of you not from Australia the picture is one of Arnotts Tim Tams which one of the major supermarkets tried to force a price reduction on but was unable to do so because of their popularity. Therein lies a lesson. You should try them, they are awesome.
An additional point is that this means that the brand reputation issues that are afflicting Uber today are far more important than might be thought. If one of your key strategy pillars is that people need to trust you to share their data with you then your culture, behaviour and leadership become critically important. Because of the network effects of the data collection and utilisation if volume falls in broad terms but data sharing falls more then capital value of the company falls far more rapidly. I am sure that the board is having that discussion with the CEO right now