US experience: O2O is the next trillion market

The US renowned local consumer O2O website Yelp's vice-president for business development, Mike Ghaffary, sent an article in TechCrunch this year at the end of February entitled "Why locals Commerce will is larger Than for the" Next decade's article, which explains that local commerce will still be much larger than E-commerce in general in the next decade, while Mike Ghaffary's company, Yelp, undoubtedly has tremendous opportunities in the local business world. Pugo, August 7, published an article in the website explaining the reasons behind Yelp's market capitalisation of more than $3 billion trillion, the reader may be able to better judge the O2O market prospects as represented by Yelp. (Note: This article is translated and adapted according to Mike Ghaffary article)

The internet industry celebrities Marc Andreessen and Reid Hoffman two recently issued a dispute, in the internet to erode the traditional retail background, whether all the traditional industries are not spared. Although the two people disagree, but the two people in the article mentioned that the current U.S. network retail sales of the total proportion of only 5%, the remaining 95% is still traditional retail. Andreessen firmly believes that E-commerce will completely replace the traditional retail, but he did not explain why some industries can never fully online.

No doubt, as more and more consumers embrace online shopping, many traditional industries under the impact of the Internet life is not good, but some industries are less affected. Mike Ghaffary built a simple formula model that shows that offline local commerce will be larger than E-commerce for a long time. The calculation model predicts that Amazon will do a great job in the book field and itunes in the music industry, but in the 300 billion-dollar apparel industry, traditional retailing will still dominate for the foreseeable future, and many other service-driven local businesses will be the same as clothing.

An indicator of how much local commerce will be eroded by the internet is the local coefficient. The local factor (represented by the letter "L") defines the degree of localization of each product or service, measured in 0 to one, each product or service can represent their local coefficients with numbers from 0 to 1, and the higher the coefficient indicates the higher the degree of localization of the industry or service, For example the book is 0.2, the dining is 0.9, the clothing is 0.6. This coefficient can be judged by intuition, and in order to make the judgment more intuitive and accurate, Mike ghaffary the local factor into three parts.

E=experiencing (after the purchase experience), after the purchase of products or services to personally experience the value of the degree;

T=trying (try before purchase), before purchase need to the product or service to wear, touch, observe the importance of observation;

S=substitutes (optional), whether there is a reliable provider of products or services on line.

Local factor (L) = (E T-S 5)/5 (E, T, s three variables range 1 to 5)

According to the formula model, Mike ghaffary The local coefficients of the industries or services. The choice of each variable is not absolutely accurate, Mike ghaffary try to make it have certain objectivity. Take books For example, it is a high standard of products, although some consumers still have the ability to read books with their own hands, but the book itself can Experience (e) The index is not high, more and more people through the Kindle reading can be corroborated, Mike ghaffary on this index to the book 2 points (5 points) For the purchase of books, consumers do not have to go ahead to try, to test the packaging of books, Mike ghaffary in the attempt (t) the same indicator to the lower 2 points, many offline bookstore failure to prove that the score is reasonable. Finally, for offline bookstores, online sites such as Amazon are excellent substitutes, and Mike Ghaffary gives 5 points on the alternative (s) index.

In combination, the local coefficient of the book industry is 0.27, which is a lower number in the range between 0 and 1. On the whole, the book industry will be replaced faster than other industries, which is why Amazon chose books as a breakthrough when it was founded in 1995. In the same way, the music industry is also more easily penetrated by the line, with a lower local coefficient. The local coefficients for other industries and services are as follows:

The higher the local coefficient of the industry and services, the less likely they are to be replaced by the electricity dealers. For catering, online shopping obviously can not solve the problem, the line of the meal is indispensable, so its local coefficient of up to 0.87; Other domestic maintenance, beauty and leisure industries, local consumption is also the absolute bulk, local business in the foreseeable future will occupy the main body, Local O2O sites like Yelp are more likely to guide consumption than the ubiquitous electricity-dealer web site. In the calculation of the above figure, the index score of E, T and S may be disputed, and the result of the above picture can not directly show the size of the local business. The following figure, Mike Ghaffary, is a more intuitive representation of the market size of electric and local businesses in various industries:

The results of the above diagram may surprise the Internet-speakers, although we use the Internet more and more, and the popularity of smart phones makes online shopping more convenient, but our daily contact with the beer and Skittles industries, local offline consumption is still the main body, the general sense of the electricity business is not the best solution to local consumption model. For industries and services with high local coefficients, internet companies have the opportunity to influence the formation of consumer decisions. Forrester, in 2010, estimated that the Internet-influenced business in the United States (online-influenced Commerce) amounted to $1 trillion trillion.

As for how the internet affects local business with high coefficients, similarly, for example, many consumers go to a restaurant to search for restaurant ratings, ratings, and menu information before they go to restaurants, and after a particular restaurant, consumers are likely to order by the online menu, and after the meal, consumers write reviews and grade restaurants. This set of processes down, consumers are first affected by the network to make consumer decisions, and later through the network to contribute their own evaluation and scoring, itself become a network influence.

The United States rarely mentions the concept of O2O, local commerce is more mentioned, the meaning of the two is very close. For O2O is the next trillion-scale market, the first argument is that the local business market is huge, whether in the United States or China, local offline commerce has enough market space for O2O expansion. Unlike E-commerce in general, O2O is "able to influence the offline local business scale" to measure its market prospects, and establishing a track-and-loop process is essential to the formation of tracking closed loops (or payment closed loops). The local business market is vast, but the internet to have an impact is not small, in addition to and the development of the Internet technology itself, the Internet awareness and application level is very critical.

Mike Ghaffary is optimistic about his company, Yelp, and has a huge opportunity in many local business areas; Recently, the market capitalisation of Yelp has soared to more than $3 billion trillion, and for Chinese O2O companies, the trillion-scale markets are the next area to create Taobao, But at present the market is still in the early stage of development, both giants and start-ups need enough patience to promote market maturity.

[Huang, research director, Internet industry analyst, micro-credit public, "Universal Society" (Micro-signal: Puji-she)]