By JEFF HIMMELMAN
A blue BMW crossed the cracked parking lot and rolled to a stop outside a tired-looking Macy’s.
The passenger door opened, and out sprang John Donahoe, the chief executive of eBay, who began striding toward the store. It was earlier this year, and from the outside the Westfield Valley Fair mall near San Jose had a kind of ghost-town feel to it. But Donahoe thinks he can change that. As he walked from store to store — a nearly empty GNC, a quiet Foot Locker — he pointed out how little had changed in physical retail stores over the last 30 or 40 years and what would have to change in the next few years in order for these stores to compete with Amazon and Walmart.
As he sat in a patisserie on the mall’s ground floor, Donahoe touched on his usual themes: how technology has driven scale and automation; how the big-box retailers have crushed Main Street; the way in which our shopping experiences have become less dependent on human interaction. And these changes in the commercial landscape, he said, tend to be ‘‘phrased in zero-sum terms: big retailers versus the little guy. Local versus global. The Chinese imports will kill you. Online is going to disrupt offline.’’
There has been much talk about Amazon driving retailers out of business — most recently, and somewhat unbelievably, by proposing to use drones to deliver purchases. For some time now, physical retailers have lived in fear of the various ways in which Amazon can undercut them. If you’re looking for a product that you don’t need to try on or try out, Amazon’s customer analytics and nationwide network of 40-plus enormous fulfillment centers is awfully tough to compete with. And even if you do need to try something on, Amazon conveniently includes a bar-code scanner in its mobile application so you can compare prices while you’re in a store and then have the same item shipped to your home with just a few clicks. (Retailers call this act of checking out products in a store and then buying them online from a different vendor ‘‘showrooming.’’) Amazon holds such sway that for many it’s the default place to buy things online.
And yet online commerce currently accounts for only about 6 percent of all commerce in the United States. We still buy more than 90 percent of everything we purchase offline, often by handing over money or swiping a credit card in exchange for the goods we want. But the proliferation of smartphones and tablets has increasingly led to the use of digital technology to help us make those purchases, and it’s in that convergence that eBay sees its opportunity. As Donahoe puts it: ‘‘We view it actually as and. Not online, not offline: Both.’’
Most people think of eBay as an online auction house, the world’s biggest garage sale, which it has been for most of its life. But since Donahoe took over in 2008, he has slowly moved the company beyond auctions, developing technology partnerships with big retailers like Home Depot, Macy’s, Toys ‘‘R’’ Us and Target and expanding eBay’s online marketplace to include reliable, returnable goods at fixed prices. (Auctions currently represent just 30 percent of the purchases made at eBay.com; the site sells 13,000 cars a week through its mobile app alone, many at fixed prices.)
Under Donahoe, eBay has made 34 acquisitions over the last five years, most of them to provide the company and its retail partners with enhanced technology. EBay can help with the back end of websites, create interactive storefronts in real-world locations, streamline the electronic-payment process or help monitor inventory in real time. (Outsourcing some of the digital strategy and technological operations to eBay frees up companies to focus on what they presumably do best: Make and market their own products.) In select cities, eBay has also recently introduced eBay Now, an app that allows you to order goods from participating local vendors and have them delivered to your door in about an hour for a $5 fee. The company is betting its future on the idea that its interactive technology can turn shopping into a kind of entertainment, or at least make commerce something more than simply working through price-plus-shipping calculations. If eBay can get enough people into Dick’s Sporting Goods to try out a new set of golf clubs and then get them to buy those clubs in the store, instead of from Amazon, there’s a business model there.
A key element of eBay’s vision of the future is the digital wallet. On a basic level, having a ‘‘digital wallet’’ means paying with your phone, but it’s about a lot more than that; it’s as much a concept as a product. EBay bought PayPal in 2002, after PayPal established itself as a safe way to transfer money between people who didn’t know each other (thus facilitating eBay purchases). For the last several years, eBay has regarded digital payments through mobile devices as having the potential to change everything — to become, as David Marcus, PayPal’s president, puts it, ‘‘Money 3.0.’’
EBay’s current iteration of Money 3.0 sits on the third floor of a low-rise building on Sixth Avenue in the Flatiron district of Manhattan, in a series of spaces that the company calls the Commerce Innovation Showcase. A ‘‘brand ambassador’’ named Josh Beyers led me on a tour through them earlier this year. As he moved from a model living room to a model toy store to a model cafe, the PayPal mobile app served as a kind of virtual key that unlocked everything that you might want to do in places like these. Once Beyers ‘‘checked in’’ through the app at the toy store, for example, he was able to retrieve a purchase that he made earlier on the eBay website without ever having to remove his phone from his pocket. At the cafe, Beyers’s sandwich — which he ordered earlier from his phone, down to the condiments — was ready for him when he arrived. The app also saved his preferences, so he could order the same thing again later without having to repeat the process. His picture popped up on the point-of-sale system at the cafe, and the ‘‘clerk’’ verified who he was and then handed him his sandwich. At a model stadium, he entered with a digital ticket — StubHub, the online-ticket-resale vendor, was acquired by eBay several years ago — and was able to have food delivered to his seat and a souvenir jersey sent to his home that same day, even though the in-stadium store was sold out.
There was a hokey Potemkin village feel to the whole show, but the seamlessness of the personalization was striking. When you shop online — when you do anything online, as we are all supposed to know by now — you’re being tracked. Sites know who you are, when you’re there, how you got there, what pages you clicked on, how long you stayed on each page and in some instances exactly where and for how long your cursor hovered as you tried to make up your mind. Online companies collect all of this information and use it. Offline retailers — physical stores — do not have these advantages. They don’t know who you are unless you use your card to buy something, and that’s only after the fact. They can’t target you or make you any kind of specific offer, as online retailers can. The technology on display in eBay’s Commerce Innovation Showcase is designed to try to close that gap.
EBay can’t claim to be the only one capable of bringing this vision to life. Along with others, Walmart is also making the move into digital retailing as fast as it can in an effort to compete with Amazon — and in a much more direct way. Walmart’s reputation in Silicon Valley is for a kind of old-school efficiency: getting pallets of goods (often from China) into a big-box store in America and then into the hands of its customers, all for very low prices. There are more than 200 million visits to its stores every week. But until fairly recently, Walmart’s online search engine was having trouble doing something as simple as identifying what visitors wanted when they searched for ‘‘denim.’’ And so two years ago the company opened @WalmartLabs, in Silicon Valley, where 1,500 people now work. There are an additional 1,000 people around the world dedicated solely to e-commerce. All of Walmart’s stores are now ‘‘geofenced’’ — that is, they know when individual customers are in the store, thanks to the Walmart app on their phones that can guide them to what they want. In roughly 220 of Walmart’s 4,000 locations, customers can make their purchases with their telephones, bypassing registers (and their lines) altogether. ‘‘People know Walmart as the world’s largest retailer, but they’re going to know us as one of the largest and fastest-growing e-commerce companies,’’ Neil Ashe, the head of global e-commerce at Walmart, said. This is corporate messaging, to be sure, but it also reflects a very real shift in strategy. Ashe has said elsewhere that turning Walmart into a digital retailer is not just a project but a permanent part of its future as a business.
“People expect Toys ‘R’ Us to act like Amazon,’’ said Christopher Saridakis, who heads eBay Enterprise, ‘‘but they don’t realize how hard it is.’’ He was preparing to show me around a 543,000-square-foot fulfillment center in a remote corporate complex in Walton, Ky. What he meant was that Amazon has conditioned consumers to expect an ease to online shopping — a few clicks, desired items always in stock, free two-day shipping and returns — that physical retailers have a hard time competing with. EBay Enterprise, which was known as GSI Commerce when eBay purchased it in 2011, now drives eBay’s effort to enable its larger retail partners to meet the same expectations.
Saridakis referred to the facility in Walton as ‘‘the other side of the computer’’: When we press ‘‘buy’’ on the websites of Levi’s or Aéropostale or Quicksilver or PBS or Major League Baseball, whose products are all warehoused in Walton, that purchase often becomes a package bound from Walton for your door. Five miles of conveyor belts feed into a double-tilt tray sorter that dumps individually wrapped goods into the appropriate chutes at one end of the facility and then packed-and-stamped boxes onto ramps that lead directly into UPS trucks at the other. Almost 200,000 products from nearly 600,000 unique locations within the facility make their way via human pickers and machine sorters into the proper packages and off to the people who want them.
EBay Enterprise also helps retailers rethink and reorganize how they use their physical stores. Increasingly, retailers are starting to regard their stores as small-scale distribution centers for their products, as nodes in the fulfillment process as well as showrooms. If you live in Manhattan and you order Beanie Babies online from Toys ‘‘R’’ Us, sometimes it makes more economic sense for an employee at a local Toys ‘‘R’’ Us to pack and ship that order than it does to have the fulfillment center in Kentucky do it. This takes an enormous amount of integrated technology to orchestrate, but it’s also the only way to compete with Amazon: using everything from physical stores to mobile applications to delivery services to make sure that customers can get what they want when they want it. Walmart is doing some of the same things: building million-square-foot online-only warehouses and experimenting with using stores as distribution centers. The company is now shipping goods directly from roughly 35 of its 4,000 stores.
While this process is about efficiently moving goods, the deeper purpose is to improve and manage the relationship with the customer. Healey Cypher, the head of retail innovation at eBay, tells a story about a bookseller who was convinced that online commerce would kill his business: ‘‘I said to him: ‘How do you know when someone’s in your store? You don’t, unless they bought something, and then only after the purchase. What if you had a platform for the first time ever that said, ‘‘This person is in your store, they like these things, they bought these things on your web store, and here’s an offer you should give them based on their purchases’’? You don’t have to take it, but you’ve never had that opportunity before.’ ’’
The best current example of the digital wallet’s promise, according to many in Silicon Valley, is Uber, a digital platform that connects riders and drivers. You enter your credit-card information into the Uber app once, and then every time you want to use it, the app knows where you are and shows you how many cars are nearby and how soon one can be available. You order with one touch on a mobile screen, and a text lets you know a driver is on the way and then another tells you when he’s near. He greets you by name, you tell him where you want to go and then, when you are dropped off, there is no further exchange — no tip, no receipt, no signing anything. The app takes care of all that for you. Uber didn’t change anything about the nature of cars or how they are driven. It just figured out how to use data and technology to make what was out there work much more efficiently. (EBay, through its acquisition of the company Shutl, has begun to exploit a similar inefficiency in the spare capacity of courier companies.)
In this fashion, services can become both frictionless and more personal to you. Imagine that everything functioned as Uber does. Steve Yankovich, the vice president of innovation and new ventures at eBay, often asks people to do just that in order to envision eBay’s plans for the future. Imagine that, when you walk into a store, you could look at your mobile device and see everything currently available in your size there. Instead of having to stuff the ‘‘buy nine sandwiches, get the 10th sandwich free’’ cards from various merchants into your wallet, suppose every 10th sandwich showed up free without your having to do anything at all. Ditto your frequent-flier information and every other affinity or rewards program.
‘‘It’s not about payment,’’ Jack Dorsey, a founder of Square, a PayPal competitor, says. ‘‘It’s about identity. And it’s about the experience that a merchant can create, which is what actually builds loyalty. We believe that it’s important that the technology, the mechanics of payments, actually fade away to the background. They disappear completely.’’ After helping found Twitter in 2006, Dorsey became chief executive of Square in 2009. Its initial innovation was the Square Reader, a small device that plugs into the headphone jack of a smartphone or tablet and enables anyone, anywhere, to process a credit-card payment. (PayPal now has a similar reader.) In 2011, Square introduced what would become known as the Square Wallet, an app that links to a credit card (as Uber does) and allows consumers to pay either by holding their phones up to a scanner or, in some cases, simply by having the phones on in their pockets. Dorsey talks about how cool it is to get your coffee without having to do anything, but he also emphasizes what it means for the merchants. ‘‘The seller gets this very interesting tool,’’ he says. ‘‘They can recognize me when I walk in.’’
The idea is that, someday not too far off from now, you’ll store everything in your digital wallet that you currently store in your old leather one — including your driver’s license, health-insurance information, all of it. We’ve all gone out for the night and not wanted to bring a bulky wallet, so we grab our phone, our license, a credit card and $20 and head out the door. The digital wallet, if it develops to its potential, will make the license and the credit card redundant, and eventually also the $20.
It’s hard to predict who will prevail in any sector of the tech world, but PayPal does have some advantages. This year Square processed more than $20 billion in payments — mostly through its card readers, not the wallet — but PayPal has 137 million active users, and millions of them have downloaded the PayPal app. PayPal’s head start has enabled it to create a greater variety of payment options than other companies offer. It doesn’t just link to a credit card. It’s set up more like a bank: through it, you can make payments with any of your credit cards or a debit card, have the amount withdrawn directly from your checking account or even finance the purchase through a line of credit with PayPal itself. And for up to a week after you’ve made a purchase, you can choose how you want to pay for it. Almost anybody can build a digital wallet. The trick is getting people to entrust that wallet with their financial information and then to offer them enough benefits that they’ll use it.
Of course there’s a catch — or, really, a series of catches. The first is that there’s not much genuine demand for the digital wallet. Even Hill Ferguson, PayPal’s chief product officer, says, ‘‘The digital wallet is the linchpin for everything we do, but it’s interesting, because consumers aren’t asking for them.’’ People who don’t work at corporations that have a financial interest in digital wallets are even more direct. Sucharita Mulpuru, a vice president with Forrester Research who specializes in online commerce and consumer behavior, says: ‘‘Digital wallets, at this point in time, are solutions looking for problems. We don’t fundamentally have friction in payments in the U.S. People who want to use cash are using cash for a reason: They prefer to or they don’t want to be traced. As for credit cards, there is not something fundamentally inconvenient about them. They’re fast, they’re reliable, our networks are good.’’ She has also been watching a start-up called Coin, which is basically one card with a magnetic strip that can store any swipable card that you have. At the point of sale you can pick one by pressing a button on the card. This requires no change whatsoever in consumer behavior. (PayPal has issued a card, together with Discover, for much the same reason: some people aren’t quite ready to make the leap to purely digital transactions.) Credit cards really are pretty easy. And if you’re paying with your phone, what do you do if you run out of batteries or if the network is down? The credit-card network rarely falters, and it is ubiquitous; as of now, there are very few places that look anything like the Commerce Innovation Showcase.
Another catch is that the ‘‘personalization’’ envisioned by the pioneers of the digital wallet isn’t really all that personal, and in many ways the process benefits retailers more than it does consumers. Entering a store that happens to be geofenced and receiving notifications on your phone based on who you are and where you’re standing — does anybody truly want that? The same can be asked of mobile coupons meant to pull people into stores. The lack of demand for this stuff right now suggests that consumers aren’t so sure. Having a clerk you don’t know identify you by your picture on a point-of-sale system and then hand you your macchiato isn’t much of a personal interaction. Yes, you might be addressed by name, but it doesn’t mean you’re going to get to know the clerk. People at PayPal and Square rhapsodize about the bygone era of 50 or 100 years ago when you went to a general store in which the owner knew your name and you had an account and simply took what you wanted and then settled up at some later date. But it’s a purposefully naïve reading of an idealized past that most of us never experienced. ‘‘We use newly coined ideas of authenticity to attempt to hold on to something we can’t quite articulate that might have been lost in the course of becoming modern,’’ Jaron Lanier, a well-known computer scientist and technology expert, writes in his recent book, ‘‘Who Owns the Future?’’
There are also privacy concerns. Consumers have to be willing to share information about themselves — their location, their preferences — in order for the software to do its job. With the recent revelations that the government has been watching us more thoroughly than we ever knew, that has become a tougher sell than it once was. Security and the risk of identity theft pose challenges, too. The hope, according to David Marcus of PayPal, is that biometric technologies — for example, the fingerprint sensor on the iPhone 5s — will eventually become ubiquitous and create the sense of security that people need to make the leap to mobile-only transactions. In general, Silicon Valley tends to be overly optimistic about how fast new technologies and behaviors will be adopted. Payment companies talk about making the transition to digital payments within the next three to five years, but Mulpuru says she thinks it’s going to be at least 10 years before people are ready to accept such a radically new way of doing things.
In some ways, the future is already here. At City Winery in New York City right now, you can use your PayPal app to track your bill in real time as you eat and drink and then pay it (including the gratuity) on your phone without having to wait for the server. (Ferguson, who’s in charge of PayPal’s digital wallet, says that the early results indicate that diners leave bigger tips when they don’t have to wait for the check.) And maybe it is better if our phones can work quietly from our pockets instead of drawing our attention away from others. ‘‘I think technology is at its best when it reminds us that we already have everything we need,’’ Jack Dorsey says. ‘‘I’m excited when technology disappears more and we’re using what we already have. This whole trend of moving from a keyboard and a mouse to actually using our fingers, our voice.’’ We carry our phones with us everywhere today, but that doesn’t mean we will in a few years. The strategy of the future isn’t necessarily about your phone. It’s about your phone as another intelligent screen.
EBay and Square and retailers trying to compete with Amazon have to try to take advantage of every new technology because that seems to be the best way to avoid being squashed. Amazon is so big, has so many distribution centers and offers so much ease of use that in some sense it has already won — unless its competitors can find new ways to bring the convenience and connectivity of online interaction to the physical retail world.
But even John Donahoe hesitates to predict exactly what facets of the digital wallet, or of the technologies that eBay is trying to deliver to its retail partners, will take off. Maybe a ‘‘smart’’ mirror in a store, which takes your measurements and allows you to try on several outfits virtually and then purchase them from the screen itself, will catch on; maybe it won’t. (EBay has been experimenting with a concept it calls Connected Glass, and the company says it’s much less gimmicky than it sounds. Right now eBay uses it mostly to create interactive digital storefronts in physical locations like a mall or an unused building, but Yankovich says that someday we’ll pull up to a drive-through and order by touching the connected screen embedded in our driver-side windows.) Maybe eBay will find itself fabricating things via 3-D printing, instead of simply facilitating sales. Maybe you’ll be able to use your camera to take a panoramic scan of your surroundings and then tap on any item in the image and look up all kinds of things about it, from its cost to its user manual.
In five years, digital wallets may well be a part of how we live, but they might also remain the province of the same early adopters who bought Segways. The recent rise of Bitcoin proves how fast things can change. Nobody’s going to use a PayPal digital wallet just because John Donahoe wants them to. Many people at eBay said the exact same thing, as if singing from the same sheet: ‘‘The consumer leads; the technology enables.’’ A good tagline, but it’s also true. If you don’t like it, if it doesn’t give you something you don’t want to live without, you won’t use it.
‘‘I would say everything we’re doing is just enabling the future,’’ Donahoe said, as we wrapped up our interview at the Westfield mall. The slow trickle of midday mall traffic eased past us. He sounded confident, even if the future was a little hard to see from where we were sitting.
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