Why focus is the name of the ecommerce game


May 28, 2015

Vishal Krishna, Businessworld

Bengaluru, 28 March 2015

Today size isn’t everything. It is true that a large organisation fails to innovate if it tries to do everything on its own. This statement may not be true in the smart phone manufacturing world, but in the retail industry it is the hard truth.

Corporations, with serious revenues, like the $473-billion Walmart, the $130-billion Tesco PLC and the $73-billion Target have all suffered a drop in profits because of unpredictable shopping habits of the new millenials, who are people born after the year 1990.These folks would rather look at a smartphone, for a price comparison and to quickly place the order, before walking in to the store.

So where do the large companies begin to change or rather when do they change?

They begin by working with startups, small technology companies that have built platforms to engage and understand consumers, ideas which large corporations are desperately after to redeem themselves of falling profits.

Walmart’s IT company, Walmart Labs, has acquired 13 start-ups, since 2011, globally. Tesco has sponsored a startup accelerator called “Rainmaking Loft”, in London, and is working with a few startups on a pilot basis. The game is bigger than we think because even large system integrators, like Infosys, have announced the need to work with startups to give them the edge in business deals.

“We are already taking start-ups to work on IT transformation projects, mobile and digital, for large corporate retailers,” says Krishnakumar Natarajan, CEO of Mindtree. He adds that large corporations cannot ignore the digital consumer if they have to stay relevant. What about ‘Target’? The company has, unlike other companies, has a India first strategy when it comes to ideas. While they continue to focus on analytics, like Walmart and Tesco in India, they believe that mobile is the biggest driver of shopping, which together with other technology trends like big data and cloud will decide the future of brick and mortar retailing. These large retailers get less than 3 per cent of their revenues from online sales today. So while the likes of Amazon become powerful, across the globe, Target has to look at an omni channel strategy for revenues. In less than a year it has worked with ten startups and has signed vendor agreements with a couple of them. It has plans to sign up two more this year.

Trigger Happy Ideas

It was early 2014 when Konotor, MuHive, InstaClique, Turnaround Innovision and UnBxd were all picked to work with Target. Of the 350 applications these five startups were picked to pilot their ideas with over 100 stores in the USA. Each of them was unique to the pain point that Target was facing (see chart). Konotor, founded in 2012, started building messaging apps before realising that their unique selling point was in listening to the noise, also known as usage patterns, that the users were creating on applications. “We realised that mobile apps need a different form of engagement and there was so much data generated by conversations,” says Srikrishnan Ganesan, co-founder at Konotor. The platform can be used to segment people on an active and not active basis. This is where the analytics kicks in for retailers; they can use the “active” user data to push relevant messages to individual shoppers or floor managers that visit the app. Konotor quickly developed an internal messaging application that allowed store managers to communicate with headquarters faster. “It is a mobile communications bridge, where quick queries on product, including pictures of stock outs, could be uploaded and sent to management teams,” says Ganesan. This software is offered as a service and is integrated to the mobile devices of the organisation.

Target has now offered a vendor contract to the company because of real time resolution of problems in stores. The product puts the power back in the hands of store managers and allows them to serve their guest better and increase return to store, which is an indirect victory for Target’s corporate office in increasing shareholder wealth. Now Konotor has gone from being a startup to winning big names like GoIbibo, Shopera and BigBasket as clients in India. The Konotor platform boasts of 10 million users across 38 apps, and has used $1,25,000, which they won through a Qualcomm prize. Another vendor from the 2014 batch to have a contract is MuHive, a Bangalore-based social analytics platform. Today corporations have integrated their apps and websites to social channels, like Twitter and Facebook, and there are consumers commenting on the service and the product offered. MuHive collects these conversations and puts down questions to the retailers. The retailer will then have to work with the startup to find answers based on a sentiment analysis, of the text on the social channel, or by studying the consumer’s views of a product.

“A retailer launches an electronic device or apparel campaign, he must know what kind of product his demographics like and then stock only that product in the store,” says Sagar Vibhute, co-founder of MuHive. This platform fits well with Target’s “Express” store format, small 20,000 square feet stores, which will be used as delivery centres for orders placed on the e-commerce site. If a customer does not like a particular fit of jeans and she puts it up on the social feed, Target can then figure out which store in the locality has that fit and can deliver to the lady before she drives to the store. “We can use the social data and merge it with loyalty data to make more meaningful insights,” says Vibhute. This platform connects social feeds with the customer relationship management software, of the retailer, and can make legacy tools more effective. Both Konotor and MuHive are in advanced talks with investors to raise their first large round of funding.

Similary Bangalore-based ‘Unbxd’, which raised $2 million from IDG Ventures and Inventus in 2014, worked with Target’s e-commerce platform to make the search engine intelligent. “Our technology picks up user behaviour, on the site, and makes suggestions,” says Prashant Kumar, co-founder of Unbxd. The company has managed to get 250 global customers. “Working with Target gave us the requisite experience to find retailers across the world,” says Kumar. Today the company studies 20 million user events a day and has customers like Yepme, Madura Garments and PepperFry. Data analytics, intelligent search and smartphone solutions were the theme, for Target, last year and the company is investing, it does not disclose the numbers, in integrating stores with intelligent technology.

“It is a time of unprecedented change …. driven by smart phones,” says Navneet Kapur, MD of Target India. He says that the future of retail is still not scripted and he adds “Relevant merchansiding and inventory management is the future of retail. We need to connect with our guests beyond sales data and technology allows us to connect on a real time basis.” Target is absolutely right. The consumer is not coming to the store because he wants products available on phone screens first. This makes managing inventory, for such a consumer, a difficult proposition. Old style in store advertising along free coupon campaigns is no longer interesting, unless it is personalised, for the millennial population. “These Indian startups are helping us with ideas ranging from content to customer engagement to intelligent search,” says Kapur of Target. Also the shareholders of Target Corporation are keen that the company do this immediately. Its stock price on the Nasdaq has, over the last year, gone up from $57 to $75 per share on a year to date basis.

“It is a value proposition, it is an era of personalised solutions, technology provides insights and retailers need to know their guests,” says Devangshu Dutta, CEO of Third Eyesight, a consulting firm.

The writing was on the wall when Target’s Canadian operations, 133 stores, shut shop in January 2015. Although the business was generating $2 billion in annual revenues, it was still running in to huge losses worth $500 million and more. The company realised that deep discounting can win customers for a short while and not in the long run. Hence it pulled out, at the right time, to retrospect on the future and focus all its business in the USA. Apart from MuHive and Konotor it is now working with a new bunch of startups in 2015 for new ideas.

Warehouse Comes To The Living Room

“Internet of things is real and every company must open up their IT infrastructures for start-ups to build apps on,” says Karsten Ottenberg, CEO of the $15 billion Bosch Siemens Home Appliance. He adds that the mobile word is part of a business that no company can miss. “They should be open to new ideas,” he says.

This year Target selected four companies from a list of 3,000 applications that it received on December 2014. One of the first problems Target wanted to solve was the guest’s inability to find the right apparel in the store and on the website. It brought in WazzatLabs to build a visual search engine on a pilot basis to power the ecommerce store. The five founders of WazzatLabs are machine learning experts who say images speak a “million words” and that the creating visual recognition algorithms for ecommerce or mobile sites could easily win over younger customers.

“The algorithm recognises image uploads and matches, available apparel, inventory to fit the person’s choice,” says Mautik Kulkarnai, co-founder of WazzatLabs, the three-year-old startups from Hyderabad. WazzatLabs is trying to win over customers by solving a pain point, at the very onset of entering the app or the website. The software can be plugged in to a mobile app and a web platform. Image technologies are becoming powerful in a mobile and soon 50 per cent of the shopping revenues will be driven by customer engagement on smart phones. Moving a step ahead in to the future of image recognition is Whodat, a two year old startup from Bangalore, which essentially is building artificial intelligence or gesture recognition technology in to mobile apps which can use the camera.

Take for example, a customer wants to buy furniture for her house. The lady goes shopping on an ecommerce site and cannot make up her mind. All she has to do is take a print out of a paper marker provided by the catalogue, and then point the camera – of the phone – towards the living room along with the paper marker. Voila! The furniture of your choice and colour show up as a virtual image in the frame. “Our visualisation technology can change the way a store is designed, it brings the store to the living room,” says Sriram Ganesh co-founder of Whodat.

Target is on warpath to work with such path breaking technology. It wants to do away with dumb content on its ecommerce site and wants images to become much more interactive. Today a creative that an ad-agency builds does not fit in with every device because of the proliferation of different screen sizes and operating systems. This can indirectly impact customer interaction if a person is accessing the website through a phone. Solving this problem is Visarity, a self funded startup that has put in $100,000 to begin its venture. “Our real time rendering engine compresses high definition images and makes them interactive on the mobile,” says Harsha Padmanaba, co-founder of Visarity. He adds that the company has opened the 3D platform for developers to create and test their creatives.

Harsha and his partner Bastian Zuhlke began building chips for automobile companies before jumping full time in to interactive technology. Today their technology is used in the websites of global automotive giant Mercedes and a global watch brand. “Using our tool has helped clients increase their clicks per impression, which translates to customer involvement in buying the product,” says Harsha.

Indian retailers are yet to adapt to or even adopt such technologies. They have taken baby steps and have just launched mobile apps to keep the guest interested. But soon apps themselves will be commoditised if there isn’t a quest undertaken to personalise service. Target is also working with Synapse Inc, a one year old start up, whose technology recognises customers when they walk in to the store and pushes relevant messages to their smart phones. “Our platform brings context in to the picture, after which content takes over,” says Ranjan Jagganathan, co-founder of Synapse Inc a one year old startup. He adds that his company’s technology allowed retailers to know where the customer is located in the store. “Imagine sending messages to the lock screen and getting users to make additional purchases because of the relevant content,” says Jagganathan.

“The whole idea of customer engagement is going beyond a loyalty card. The customer is happy if he is engaged at the point of need, which is why everyone is investing in start-up technology,” says Ajay Kelkar, Hansa Cequity, a data science firm in Mumbai.

May be Target has read the India story right. But for it to keep its revenues increasing consistently, it needs to figure out whether the consumers are ready for this path breaking technology to make an impact on their lives. Only time will tell how successful they will be but it has been a great attempt nevertheless.

(Published in Businessworld.)