The term "Unicorn" has become one of the top tech buzzwords of the year. It refers to a short list of companies who have a valuation of over a billion dollars. The list actually contains nearly 50 companies today so it isn't all that short. But the fact remains: a billion is a big and impressive number.
Now imagine a much larger number, like one trillion. If you are an investor, this number makes your ears perk up. There are still no trillion-dollar companies, but there are several trillion-dollar industries and many of them are still in their infant stages, just beginning to sprout wings and grow.
One of those industries is the Online to Offline Commerce industry, otherwise known as "O2O." A few years ago, TechCrunch published an article that declared the industry a trillion-dollar opportunity. The writers used a simple formula: The average American earns $40,000 per year and spends the majority of that income locally, with only 9 percent spent on the internet.
For local business owners, this is good news. That means there are trillions of dollars floating around the local economy for them to scoop up. The challenge these business owners face is how to make sure their store, and not someone's down the street, gets that revenue.
With surveys showing that on average, 96 percent of consumers will research a product online before going into a store to buy it, and more and more consumers using smartphones, business owners are realizing the importance of online marketing to draw in these customers.
Online marketing is expensive and can be challenging for the small-business owner. Ideas like Groupon and LivingSocial were thought to be the next big thing, but in recent years they have lost their sizzle.
And so a trillion-dollar industry is sitting there waiting for a startup to fill the void with a new tech solution. One of those companies seeking to bridge the gap between online and offline commerce is San Diego-based Empyr.
After five years in the Card-Linked Offer industry under its consumer brand, Mogl, the company realized that the technology and partnerships it had established with the top three card providers could be used at a much larger scale.
At the Money 20/20 conference, CEO and co-founder Jon Carder announced Empyr, which enables other businesses to use their technology to bridge the offline-to-online gap. So far Empyr's partners include Microsoft, LivingSocial, Virgin Airlines, and over 10,000 other businesses.
Jon Carder sat down with me and explained the formula needed to make the O2O industry into a trillion-dollar market.
The Foundation of Online-to-Offline Commerce
Groupon and Livingsocial almost cracked the code of O2O. The fact that Google, Facebook, Amazon, Yelp, and thousands of other online companies all started a daily deal website in the same year is unprecedented. Daily deals used offers up to a 50 percent discount to lure in customers. That motivated online consumers by the truckload but wasn't sustainable for the offline businesses. The offer has to walk a fine line between being motivational for consumers and sustainable for businesses. Daily deals were like a "steroid," pumping up businesses fast but then leaving them with few returning customers. What has proved to be more sustainable is an "exercise program," like a 10-20 percent discount offer that does not drive in as many consumers but does ensure that the business has a sustainable marketing source
Most tracking solutions to connect the online world to the offline world aren't great because they have friction that prevents them from becoming ubiquitous.
Daily deals had heavy friction in their tracking because they used the old-fashioned coupon. Even in a digital form, coupons have friction because the consumer has to show the coupon to the staff, which can get awkward at a business lunch or on a Tinder date. Coupons are also a hassle for business owners who have to track them and train their staff how to process them.
The reason this friction didn't stop daily deals was because the "juice was worth the squeeze." Consumers and businesses alike will put up with friction as long as the reward is worth the pain the friction caused. The higher the reward, the more friction people will put up with. In the case of daily deals, the promise of thousands of new customers was enough for businesses to deal with the hassle of coupons, and for consumers the 50 percent discount offer was compelling enough that they didn't mind using a coupon. But when using a more sustainable offer like 10-20 percent off, the friction needs to be less or consumers won't bite.
The last piece is pretty simple: You need to create a way for online companies to make money by marketing offline offers. Daily deals' monetization strategy paid out about 25 percent of the purchase price to the online company that marketed the offline offer. This was very compelling and is the reason why just about every consumer-facing internet company on the planet jumped into daily deals.
In summary, the formula for a trillion-dollar O2O industry is: