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March 21 2013

Commerce Weekly: The lucrative art of tracking shopper behavior

Snooping on shoppers pays off

Liz Gannes took a look this week at how online retailers’ desires to track consumers’ shopping habits are resulting in emerging startups offering services to track various behaviors on behalf of retailers. In a post at All Things Digital, she highlights newly launched startup Sift Science, which tracks online shopper behaviors to uncover fraudulent activity, and Commerce Sciences, a startup in beta that offers online retailers a Personal Bar for their websites that uses behavioral science to increase online sales.

Gannes outlines a few interesting insights each company has gleaned from aggregating consumer shopping data. For instance, Sift Science has found that a shopper who types her last name in all caps is 5.6 times more likely to be a fraudster, and shoppers who don’t sign in with a Facebook log-in are four times more likely to be fraudsters. Early findings from Commerce Sciences include using the word “free” — as in “you have won a free coupon” as opposed to “you have won a coupon” — increases sales by 15%, and social influences from displaying what a user’s friends liked and bought had zero effect during the day but resulted in 49% more sales in the evening. You can read Gannes’ report at All Things Digital.

In related news, it turns out Facebook ads are strongly influencing the platform’s users’ buying habits, even if they’ve never ever clicked on an ad in Facebook. Farhad Manjoo reports at Slate on in-depth studies conducted by Facebook showing that ad clicks don’t matter. He reports:

“‘On average, if you look at people who saw an ad on Facebook and later bought a product, [fewer than] 1 percent had clicked on the ad,’ [Sean Bruich, Facebook's head of measurement platforms and standards,] says. In other words, the click doesn’t matter; people who click on ads aren’t necessarily buying, and people who are buying are almost certainly not clicking.”

More notable, however, might be the way Facebook is managing to gather this data. Manjoo notes that last year, Facebook partnered with consumer data aggregator Datalogix, which tracks the purchasing behavior of more than 100 million U.S. households by tying consumer identities to their purchases through store loyalty cards. Manjoo writes:

“Over the past few months, Facebook and Datalogix figured out a way to match their respective data sets in a manner that maintains people’s privacy … Facebook can now tie its users to the stuff they buy at supermarkets. Armed with this data, Facebook began running a series of analyses into the effects of advertising campaigns on its site. If, say, Procter & Gamble ran a Facebook ad for Tide, Facebook could look at Datalogix’s data to see whether people who were exposed to the ad tended to purchase more Tide in the weeks after the campaign.”

Manjoo looks at the differences between direct-response and demand-generation marketing, and compares Facebook’s ad practices with TV advertising. You can read his report at Slate — it’s this week’s recommended read.

Retail struggles to remain relevant

The days of the traditional retail mall are numbered, according to experts at this year’s MIPIM trade fair in Cannes. Tom Bill reports at Reuters that property experts at the show explained to him that “[m]alls must become more like full-service community centers to survive in the face of a growing list of failed retailers” and that European malls are looking to add such tenants as hospitals, art galleries, education centers and government offices in order to offer services that can’t be found on the web.

Christian Ulbrich, chief executive for Europe, Middle East and Africa at property consultant Jones Lang LaSalle, told Bill that shopping no longer provides enough of a reason for consumers to go to shopping centers. “Stores will get bigger and become more like adventure parks that attack all of your emotions,” he said. “For example, Globetrotter has a climbing wall and cycle track in its Frankfurt store to try out its products.”

In related news, the Kate Spade brand is doing its part to reinvent retail for the future consumer. Mark Wilson reports at Fast Company that the Kate Spade flagship store in Japan is experimenting with the lean startup concept.

The store teamed up with Control Group to digitize its new campaign that offers customers espresso to encourage them to linger and launches a new product every Saturday that can’t be found anywhere else. The Control Group outfitted the store with digital iPad signage that engages customers and allows them to interact with the store’s displays. The cloud-based set up also allows the store to track customer response. Colin O’Donnell, a partner at Control Group, told Wilson:

“They can see sales corresponding with a change. So you can do A/B testing seeing how you drive consumer behavior. Using those web analytics in the real world is a super exciting place to be.”

“With a lean startup mentality, Kate Spade doesn’t need to prognosticate the habits of their customer base,” writes Wilson. “They can hypothesize, test that hypothesis, and refine over time.” You can read Wilson’s full report at Fast Company.

Starbucks’ struggles with Square illustrate challenges all mobile wallets face

The Starbucks partnership with Square that launched late last summer might not be going as well as either company had hoped. Austin Carr reports at Fast Company this week that he and other writers and freelancers at Fast Company have been experimenting with the Square-Starbucks partnership in the wild, and the results were inconsistent at best. Carr writes:

“At worst, the service simply did not work. On average, however, the user experience was buggy and awkward, with Starbucks employees seemingly more confused about how Square works than their own customers. Our evidence is anecdotal — and our sample size small — but the results of our tests are telling, especially given the reputations Starbucks and Square have for customer service. It serves to show that however refined a user experience might be on a local level, scaling such a streamlined UX all at once is borderline impossible.”

Harry McCracken commented on Carr’s post in a piece at Time’s Techland, noting that the service worked well for him in tests at independent businesses last year, but the situation is a bit different at Starbucks because Square is integrated with Starbucks’ POS system and requires a QR code to be scanned. He adds that Carr’s experience is a “sobering reminder” of how difficult the transition from credit card to mobile wallet is going to be. “Plastic may be boring, but it’s universally accepted, it’s understood by both consumers and businesses — and it just works,” he writes. “That isn’t yet true of any of the challengers which are trying to render it obsolete.”

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January 31 2013

Commerce Weekly: Goodbye traditional retail, hello ecommerce

Here are a few stories that caught my attention in the commerce space this week.

Death bells toll for brick-and-mortar retail

A recent report from mobile analytics startup Flurry looked at the growth in consumer use of shopping apps and concluded the “App & Mortar economy has arrived.” Flurry president and CEO Simon Khalaf reviewed their research results in a blog post on the company website, noting that “consumer time spent in Retailer Apps has skyrocketed by 525% from December 2011 to December 2012,” exceeding the shopping app growth of 274% as well as overall app growth of 132%.

Khalaf points out that it’s “mission critical” for retailers to start extending their reach to consumers beyond the brick-and-mortar walls and into connected devices such as smartphones and tablets. “In the App & Mortar economy, the battle for deeper consumer relationships is beginning,” he writes, “and there are already thousands of apps for that.”

Flurry’s research may be coming up short of the long-term big picture if well-known entrepreneur and investor Marc Andreessen is correct. Andreessen told PandoDaily’s Sarah Lacy that traditional retail is on its death bed:

“Retail guys are going to go out of business and ecommerce will become the place everyone buys. You are not going to have a choice. We’re still pre-death of retail, and we’re already seeing a huge wave of growth. … Retail chains are a fundamentally implausible economic structure if there’s a viable alternative. … Malls are going under, and there’s more to come. These chains are much closer to going under than you think.”

Andreessen noted to Lacy that it’s not only the implausible economic structure of physical stores that will bring down traditional retail, but that online retailers like ShoeDazzle and Fab are finally starting to compete on the shopping experience front, providing the entertainment and social aspects of shopping that have been keeping traditional retail afloat.

On his Launch.co platform, entrepreneur and blogger Jason Calacanis agreed with Andreessen’s assessments, with the exception of “considered purchases and ‘social shopping.” “I mean, I could order Disney toys online, but visiting the store is a blast with my daughter,” he writes. “Clearly we don’t need to visit a store for toothpaste, underwear or even shoes when you have Zappos, Everlane and Amazon in the mix.”

Starbucks hints at CPG customer rewards, Intuit buys Payvment

In an earnings call with analysts this week, Starbucks CEO Howard Schultz discussed the company’s fiscal first quarter success in its digital and mobile platforms and touched on plans for expansion. Mobile Commerce Daily’s Chantal Tode quotes Schultz’s comments during the call:

“Over the next few months or so, we’ll be coming back to you and sharing with you the plans that we have to take advantage of Starbucks products within CPG, and specifically grocery, and leveraging the technology and the advancement of providing value to our customers that are buying Starbucks products in grocery, and leveraging the card.”

You can find a full transcript of the earnings call at Seeking Alpha.

In other expansion news, financial software company Intuit purchased ecommerce platform Payvment this week and revealed further expansion plans. Ingrid Lunden reports at TechCrunch that the company plans to roll out more than 20 new products this year in such areas as “payments technologies using NFC and Apple’s Passbook, consumer-focused big data apps, and new products for its Mint financial-management range.”

Lunden provides a rundown of several of the planned products, along with product comments from Intuit CEO Brad Smith, in her report at TechCrunch.

Newegg defeats “shopping cart” patent troll

The courts have put one patent troll in its place. Joe Mullin reports at ArsTechnica that Soverain Software’s long-running “shopping cart” patent lawsuits were brought to an end January 22 when Newegg “won an appeal ruling [PDF] that invalidates the three patents Soverain used to spark a vast patent war.”

The ruling not only affects Newegg’s lawsuit, but also shuts down Soverain’s lawsuits against many other companies, including Nordstrom’s, Macy’s, Home Depot, RadioShack, and Kohl’s. Mullin reports that Soverain also will lose the $18 million verdict it had won against Victoria’s Secret and Avon. “The ruling in the Newegg case is a total wipeout for a patent troll that had squeezed many millions from online retailers, was backed by big-firm lawyers, and was determined to collect hundreds of millions more,” writes Mullin.

Newegg’s Chief Legal Officer Lee Cheng told Mullin, “We basically took a look at this situation and said, ‘This is bullshit’ … now, nobody has to pay Soverain jack squat for these patents.”

You can read Mullin’s in-depth report on the ruling and the history of the long-running case at ArsTechnica.

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February 24 2012

Constructive criticism: the week in architecture

A closer look at a cutting-edge cafe in Japan may leave you spluttering into your coffee, Lego aims for the high notes and eggs from outer space land for Fabergé's Big Egg Hunt

Here we go: another enviably cutting edge and yet beautifully crafted and folksy-looking cafe in Japan. The type of thing that seems to happen once in a blue moon over here, but every Tuesday over there. But amid the swirling sea of 2,000 sticks flowing through this one, you might have missed the sign by the door: it's a Starbucks.

The special treatment is justified by the fact that it's on the approach to a famous 1,000-year-old Shinto shrine in Fukuoka Prefecture, but it shows how ubiquitous global brands can occasionally go hand-in-hand with distinctive design. One of the ways Starbucks has been seeking to recaffeinate its flagging empire is through conspicuously environmentally friendly design. Like this one in Tukwila, Washington, made out of recycled shipping containers – though the eco credentials are undercut by the fact that it's a drive-thru.

This Japanese one was the work of the gifted Kengo Kuma, who is also designing the new Victoria and Albert Museum in Dundee. Like many of Kuma's works, such as this restaurant, and his Chidori furniture range, the Starbucks and V&A designs amass small, regular building units into something remarkably sculptural – a traditional Japanese technique, apparently.

Talking of small regular building units, this week also sees the release of Lego's latest architecture kit: the Sydney Opera House. It has to be said, though, Jorn Utzon's sail-like concrete shells are not the easiest thing to replicate in Lego. The result looks more like a dead Transformer than Australia's national icon. It actually shows the limitations of the world's best-loved toy. Lego has doubtless inspired generations of future architects – last year, MVRDV's Winy Maas built 767 Lego skyscrapers for an exhibition – but it's a stubbornly orthogonal system. That's fine for the Frank Lloyd Wright houses and skyscrapers, which make up most of the Lego Architecture series, but when it comes to curves and blobs and irregular forms, it can't handle it. Play-Doh are missing a trick here.

Another form of cheap, cheerful design-collecting comes to Londoners this week in the form of Fabergé's Big Egg Hunt, in which 200-odd outsize eggs have been secreted around the capital for the public to find – but not keep; they're being auctioned off for charity later. They're not actual Fabergé eggs either, so don't get any ideas. Instead they've been decorated by artists of every stripe, from the Chapman Brothers to Vivienne Westwood, MIA to Maggie Smith.

As you'd expect, it's the architects who are really thinking out of the carton. Zaha Hadid's looks like a silver sci-fi space capsule; Wilkinson Eyre's looks like the alien spaceship it came from; and fourfoursixsix's looks like a scale model of an ovoid Death Star. More down to earth, Rogers Stirk Harbour's Chicken Or Egg draws a poultry analogy to the form-function dilemma, and Nicholas Grimshaw fashions his egg out of discarded construction waste. Smashing.

Finally, an unexpectedly playful new photo book from John Pawson: A Visual Inventory. Hitherto considered the high priest of minimalism, Pawson turns out to be a bit of a maximalist when it comes to photography. Since first acquiring a digital camera, he's accumulated over a quarter of a million image files, he reckons. Every architect in his office must take a camera on site visits, and he gets annoyed with them if there are shots out of focus or missing. He even gave one of his clients a camera and told them to send him a picture of their new house every day.

The book is less proscriptive: a series of William Eggleston-like snapshots of the everyday world, laid out in pairs, with little annotations from Pawson explaining what he saw in them. Thus, a snap of an old water tank is unremarkable until you read how it reminds Pawson of Richard Serra's sculptures; or some Swedish farm-buildings become a mini-essay in the framing of views; or a small doorway in Ethiopia contrasts Herculean effort with lax security. It's full of little architectural details most people would never notice: paving stones, walls, windows, but there are also landscapes, semi-abstract shots of the play of light and images from Pawson's travels. You really start to see the world through his eyes – as a place of continual surprise, delight and inspiration. That's not just a lesson architects could benefit from.


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December 08 2011

Commerce Weekly: Verizon drops Google Wallet

Here's what caught my attention in the commerce space this week.

Verizon to Google: Leave your Wallet at home

VerizonVerizon's decision not to support Google Wallet in a new NFC-enabled phone renewed concerns that the mobile payments landscape is in for a long turf battle. Samsung's Galaxy Nexus, an Android-powered phone in all other respects, won't support Google Wallet on Verizon because, the carrier says, Google Wallet differs from other apps in that it interacts not only with the operating system but also with "a new and proprietary hardware element in our phones" — presumably, the NFC chip.

Few thought that was the whole story: the consensus among observers was that Verizon won't ship Google Wallet because it's one of the founding partners of Isis, a competing mobile-wallet solution. Isis isn't on any phones yet, but it's planning trials in Austin and Salt Lake City later this year. Verizon teamed up with fellow telecoms AT&T and T-Mobile, along with Barclaycard US and Discover Financial Services to launch the Isis effort last autumn. Since then, Isis has signed agreements with the other major credit card services to collaborate on development.

ZDNet's James Kendrick said it's not just about Isis, but about how much Google should pay to reach a new, large pool of customers: "Google will have to pay Verizon to play." And besides, Kendrick wrote, Google has a deal with Sprint right now — though it's going to be a long, cold winter for Google if that agreement keeps it off the other major carriers.

This fragmentation is likely to be the case for a while, noted Rebecca Greenfield at The Atlantic. Mobile wallets are probably fine for enthusiasts and early adopters, but mainstream shoppers won't take it too seriously until they know they can use their mobile wallets in most of the places they go. "[W]e won't leave our wallets at home until we get a cord-cutting equivalent," Greenfield wrote. "For now, users either have to load a smorgasbord of mobile payment apps, or settle for the current half-hearted solutions."


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Crooks take swipe-and-pay literally

In a reminder that unattended payment points — such as pay-at-the-pump terminals, ATMs, and self-serve check-out lanes — are weak links in the payments security chain, shoppers at Lucky supermarkets in Northern California appear to be the victims of criminals who tampered with card readers to skim debit card and PIN data. As of Tuesday, police in Petaluma, Calif., had 112 reports from customers of the local Lucky who reported unauthorized withdrawals from their accounts.

SaveMart, Lucky's parent corporation based in Modesto, Calif., said on its website that it discovered breaches back on November 23 and replaced compromised card readers at 20 stores. Unfortunately, they missed a few stores, including the one in Petaluma.

It's not clear yet what method was used to skim the data and the PINs. BankInfoSecurity.com reports that there are several ways to capture the PIN, including compromising the PIN pad hardware inside the box. In that case, it's also possible that Bluetooth technology could be used to transmit data to a laptop in a car parked close outside. Michael's craft stores were hit by a similar breach last May, causing that company to replace 7,200 PIN pads.

"Criminals realize that retailers are understaffed to the point that swapping out a [point-of-sale terminal] will go unnoticed," McAfee consultant Robert Siciliano told BankInfoSecurity. "Once they determine the make and model of an easily swappable device, they target a chain they can easily comprise."

Starbucks succeeds with payments, moves on to augmented reality

Starbucks said it has processed more than 26 million transactions on its mobile app since launching it last January. The novelty effect appears not to have worn off: in the first nine weeks of the program, there were three million transactions. For the nine-week period starting in October, there were twice that number. The Starbucks app is a nice example of what's possible with lightweight payments when you have complete control of a closed-loop system. Customers can load up a Starbucks card by credit card online or at a store (with cash or credit). They can draw off that card's credit by clicking a button on the mobile app, which displays a barcode that Starbucks' cashiers scan to debit the card.

But payment is just one part of Starbucks' mobile strategy. In November, it introduced Cup Magic, an augmented-reality application that lets users interact with characters on its red holiday cups and on displays in its stores. After launching the associated iOS or Android app, you find drawings of the characters and view them with your phone's camera. The app identifies shapes in the characters and launches simple interactive animations, like snowflakes falling and the characters playing.

When I first read the release, I thought it was yet another way for customers to engage with their phones rather than anyone else in the store. But when my daughter and I went to a nearby Starbucks to try it out, just the opposite happened: a crowd of curious customers gathered around to see what we were laughing at. Some downloaded the app right away and began doing the same. The two cashiers, who were unaware of the app or the secret behind the character drawings, demanded to know what we were all doing. When we explained, they agreed it was pretty cool and helped us locate the other characters in the store. As we drove home with her hot chocolate, my daughter explained to me how each of those people in the store would probably go home and tell a few other people about what they saw at Starbucks this evening. I smiled and thought to myself: a viral marketer's dream.

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If you're interested in learning more about the commerce space, check out DevZone on x.com, a collaboration between O'Reilly and X.commerce.


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November 25 2011

Top Stories: November 21-25, 2011

Here's a look at the top stories published across O'Reilly sites this week.

Congress considers anti-piracy bills that could cripple Internet industries
With the SOPA and PROTECT IP acts, members of the U.S. Congress have advanced legislation that could undermine Internet industries and harm freedom of expression online.

Jonathan's Card: Lessons from a social experiment
Jonathan Stark raised eyebrows last summer when he made his Starbucks card available for anyone to use. Here, Stark looks back on the "Jonathan's Card" experiment and examines its lessons.


Exposing content via APIs
In this TOC podcast, Fluidinfo CEO Terry Jones says the real world is "writable" and he describes how APIs can offer powerful publishing solutions.

EPUB 3: Building a standard on unstable ground
"What is EPUB 3?" author Matt Garrish explains how EPUB 3 is shaped by web standards and how it addresses accessibility. He also shares his thoughts on Amazon's KF8 and why EPUB will stay one step ahead of the competition.



Tools of Change for Publishing, being held February 13-15 in New York, is where the publishing and tech industries converge. Register to attend TOC 2012.

November 21 2011

Jonathan's Card: Lessons from a social experiment

Earlier this summer, author Jonathan Stark (@jonathanstark) launched a social experiment by releasing his Starbucks card to the general public. Based on the "take a penny, leave a penny" tray near some stores' cash registers, Stark encouraged people to use his Starbucks card — to spend the money on it and/or to add cash back to it. While Stark never put any stipulations on the process, some observers were taken aback when another developer, Sam Odio, explained how to use Jonathan's card to buy an iPad.

It's been several months since Starbucks shut down the experiment, and now that the frenzy around it has subsided, I asked Stark a few questions about what motivated him to begin the project and what he learned in the process.

Why did you launch the Jonathan's Card experiment?

Jonathan StarkJonathan Stark: The motivation stemmed from my underlying belief that the vast majority of people are good. An opportunity to test this belief in public and on a global scale clicked with me at a very deep level. I couldn't have articulated this at the time, but it became very clear in retrospect.

For what it's worth, here's how the experiment got started:

I had been testing various mobile payment solutions while doing research for a client project. Starbucks' iPhone app was pretty cutting edge at the time, and I liked it. I wanted to test the app on an Android phone, but Starbucks had not yet released their Android app, so I took a screenshot of the in-app barcode on my iPhone and emailed the picture to my Android device. Sure enough, the barcode reader at the Starbucks point-of-sale (POS) system was able to read the picture of the barcode on my Android phone. This blew my mind because I had essentially emailed money to myself and bought physical goods with a digital photo.

Screenshot of Jonathan Stark's Starbucks cardA screenshot of Jonathan Stark's Starbucks card (click to enlarge).

As far as I knew, this was unprecedented. So, I did what any self-respecting geek would do: I blogged about it.

In the blog post, I invited readers to download the card image to their smartphones and see if it worked for them elsewhere in the US and around the world. It did work all over the US and in a handful of places outside the US. People who used it were amazed and delighted. It was really fun giving out free coffee, so I reloaded the card online a few times. Eventually it got a bit pricey, so I figured it'd be a once in a while thing.

Then one Saturday night, I noticed that my card balance had gone up. This freaked me out because the app is linked to my debit card and I thought someone might have guessed my starbucks.com password and was emptying my checking account. Fortunately, this was not the case. What had actually happened was that one of my friends discovered that he could anonymously add money onto my card using the picture of the barcode, either in person at the POS or by entering the number at starbucks.com.

At this point, my head exploded. I instantly realized that I could use the picture of the card to create a worldwide "pay it forward" experiment. I was up all night building a landing page that described the experiment, gave instructions on how to use the card, and how to donate to the card. I also wrote a script that scraped starbucks.com every minute for the current card balance — whenever the balance changed, the card would tweet its balance. When the card balance went to $0, it would tweet for help with a link to the instructions on how to donate.

What surprised you the most about the experiment?

Jonathan Stark: There were a lot of surprises. It's hard to say what surprised me most. Here's a list of biggies:

  • That Starbucks let the experiment go on for as long as it did. Sharing the card goes against the company's terms of use, and it could have been killed right away.
  • I was surprised how many people were perfectly comfortable with the concept of buying things with their phones. It seems to me that the average smartphone user is more willing to accept the "mobile wallet" concept than industry analysts would lead you to believe. I expected more people to have security concerns. I think I only got two questions about that.
  • How fast and huge something gets when it goes viral. I was getting contacted by network TV producers within days once the experiment took on a life of its own.
  • How addictive the Twitter feed was. By the end, @jonathanscard had more than 9,000 followers, many of whom later told me that they were watching it like TV, cheering when someone would make a big donation, booing when someone would spend $100 at a pop.
  • How generous most people are. I was amazed how many people were willing to throw $10, $20, even $50 into the pool to buy a coffee for some anonymous stranger. In one week, more than $19,000 went through the card.
  • How accommodating Starbucks baristas are. We heard stories about people bringing all sorts of wacky stuff up to be scanned: digital cameras, laptops, iPads, and so on. People who didn't have any mobile devices even took to printing the barcode out and scanning it like a coupon.

What are the broader implications from this experiment?

Jonathan Stark: There is no doubt in my mind that the experiment would not have taken off like it did without the Twitter feed. It was addictive, interactive, and simple. Once the community grew and started to engage with each other we had to create a Facebook page to allow people to have threaded conversations. Twitter became the card's data feed and Facebook was where people talked about it. Both were critical but in very different ways.

Starbucks doesn't have an API, which I think is a big missed opportunity. Retailers want to make sticky and engaging loyalty programs, right? One great way to do that would be to publish an API that allows third-party developers to build on top of a loyalty program in all sorts of delightful and unexpected ways. One thing everyone was asking for during the experiment was a heat map of where the purchase activity was taking place. Because there was no API, I couldn't provide this — which is too bad because it probably would have become viral in its own right.

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This interview was edited and condensed.

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