How Mobile Will Destroy Retail Margins

Some of the news of the week has to do with eBay deciding mobile advertising doesn’t work for them as it clutters small screens and doesn’t provide that much revenue. This seems to make sense but if you think this in any way is going to change the impact of mobile advertising and commerce you are dead wrong.

Logic and rumors tell us Amazon will be releasing a telephone soon and the reasoning for them to do so goes far beyond expanding its ecosystem and pushing people to download apps and watch videos online.

Location based advertising is where everything is going.

We all know about the potential to flash an ad for a company when the customer is nearby and this will no doubt be an effective strategy to boost sales and traffic. Especially for restaurants who want all their tables filled.


The real power of mobile ads however comes into play when customers aren’t near the company’s retail location. Imagine you go to a car dealer and its competitor across town flashes an ad on the spot with a $1,500 rebate on any car in their lot and maybe offers to buy you lunch as well. You may not get up and go to the other dealer but you’d be a fool to not show the salesperson your cellphone in order to get a better price.

Think of all those purchases you have made over the years on your supermarket loyalty card and imagine if your supermarket had an opportunity to flash ads at you for the items you’ve previously purchased when you are at a rival grocer or at a pharmacy which now stocks almost everything the grocery store does.

And so it begins.

Sure, many savvy customers currently collect coupons and look for numerous retailers before going on a shopping expedition but the sheer ease of discovering competitive pricing will mean everyone will have access to the best prices at all times.


And retailers will have to price match or risk watching customers turn their cars around before they even park their cars in front of the store!

This is why the Amazon Kindle Phone has to happen. This is why Google purchased Motorola and is working on a killer “X Phone” to rival Apple and Samsung.

Moreover, this is why mobile devices will get cheaper as commerce will continue to subsidize them. Amazon and Google will no doubt want to get these devices into as many hands as possible – even if it involves losing (more) money on each one sold. Apple and Samsung will have to find ways to get a piece of this market and may have to partner or acquire. Suddenly Groupon has become more valuable. Suddenly, eBay has a chance to proactively sell you used products when you are in a retail store looking for something new.

Today, Amazon will sell you a Kindle Fire for $159 if you don’t mind the ads or $174 if want an advertising-free experience. In other words it is worth at least $15 to Amazon to show you ads on a tablet. Over time, if Amazon is successful with this dual-pricing strategy we can imagine it lowering the price of the subsidized model even more. A phone with permission to show you ads would be even more valuable than a tablet as you take it everywhere. Certainly Google can’t wait to bring its massive ad network into play in new ways. It certainly shows location-based ads today – but on a less proactive basis.

The takeaways are as follows:

  • Mobile devices will increasingly be subsidized
  • Google and Amazon have to have the best devices possible in order to compel users into their mobile commerce ecosystem
  • Apple, Samsung, HTC, Microsoft, Nokia and RIM have to come up with a strategy to compete in mobile advertising, commerce and location-based services
  • Retail margins for electronics and many other items have already taken a massive hit as a result of the Internet and mobile – but we haven’t seen anything yet
  • There is the potential for consumer backlash as they deal with ad overload
  • Apple will likely come out with an ecosystem for commerce and shopping – let’s call it iShop where it will handle flashing the offers while taking a cut of the sale
  • They may even (gasp!) charge less for a device which shows ads just like Amazon
  • Samsung may do the same
  • Carriers have an amazing opportunity in this space they will likely squander over the next few years
  • Consumers will win

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