The “Commerce of Things”

The “Commerce of Things”

by James Gagliardi

Internet Retailer, May 4, 2015

75 billion objects will be connected to the Internet by 2020, Morgan Stanley says. When your refrigerator can order milk and your toothbrush a replacement head, online retailing will be a very different industry.

Last year, I backed a Kickstarter project called runScribe, a little Internet-connected device you clip to your running shoes. The runScribe is at the vanguard of the “Internet of Things,” the rapidly expanding universe of connected objects that are transforming the ways we relate to our physical environment. It tracks extremely fine-grained information about how I run, stores and analyzes the data in my butt, and visualizes that information to help me run faster and with fewer injuries.  

But what if intelligence and connectivity weren’t confined to a little doodad attached to my tennis shoes, but actually built into every pair?  What if my shoes could actually replace themselves when they wore out, sending me a new pair in the mail at just the right time?  What if, rather than just reporting on my world, my running shoes could actually take action—with my permission and on my behalf—to make my life better? 

According to Morgan Stanley, 75 billion individual objects will be connected to the Internet by 2020. While this proliferation of connectivity is already changing lives and industries in meaningful ways, the world of connected devices is in its infancy. Companies are still largely focused on getting their devices connected to the Internet—and inventing ways to manage the exponentially increasing amounts of data those devices generate.

In short, we are just starting to glimpse the potential of the Internet of Things. The real transformative power of this paradigm resides in its next evolution, which is called the Commerce of Things —a new paradigm of business in which connected objects will mediate commercial transactions by themselves. The objects we use will start to free us from the tedious and costly business of replenishing the things in our lives that get used up or worn out or spoiled. They will do this by themselves, with our permission and on our behalf, in order to make our lives better.

The Commerce of Things Can Save Us Time

But why should people allow objects to do business for us, with our permission and on our behalf? Just think of your morning cup of coffee. Every time you need coffee, you have to do something—order a pound of beans online, pick some up at the store, or maybe look for a coupon. The time you spend buying coffee beans seems inconsequential until you start adding up all the little errands that quietly eat up your life—getting kibble for the dog, washer fluid for the car, restocking the toothpaste. Once objects are smart enough to enable commercial transactions on their own, all these tiny to-dos will simply take care of themselves—freeing us to spend more time doing more meaningful things.

The Commerce of Things Will Anticipate Our Needs

Dentists tell us that we should change our toothbrushes every three or four months—or more, if we brush harder or more often than most people. Right now, connected toothbrushes can report on how much and how hard we brush, gamifying the experience of brushing. But we still need to go and order replacement heads every time we need them. Because of that extra step, many of us go too long with a worn-out brush. If a new brush simply arrived in the mail every time you needed one for optimal oral hygiene, your dentist would be happier and you’d be healthier. What if your refrigerator could quietly order your favorite kind of frozen broccoli when you weren’t eating enough green vegetables? What if your running shoes could replace themselves at exactly the moment when they no longer offered the correct support? Think of the possibilities.

The Commerce of Things Will Lead to Smarter Purchases

Behavioral economists are learning what marketers have always known: Many of our purchasing decisions are, frankly, unwise. We make impulse purchases in the checkout line; we succumb to the allure of the overpriced luxury item merely for the label; and we put off necessary purchases for too long because we’re preoccupied with a thousand other more important things. Connected devices will take advantage of the power of big data analytics to reduce the impact of human frailty in consumer decisions, saving us money and improving our lives. If I know my running shoes will replace themselves at exactly the right time with exactly the right model for my feet, I won’t be tempted to splurge on an overpriced new pair that I don’t really need. If your smart smoke detector can tactfully send a replacement battery in the mail at exactly the right time, it can make your home safer.

How do we Achieve the Commerce of Things?

Making the Commerce of Things a reality will require an immense effort of innovation. To make daily purchases effortless and frictionless for consumers, manufacturers will need to assume the effort and friction of commerce themselves. Merchants will face major challenges to traditional business models—most significantly, the challenge of adapting to multitudes of object-mediated micro-transactions. When a company sells replacement toothbrush heads through traditional retail channels, it might sell a thousand products in a single transaction. But what happens when a thousand smart toothbrushes order their own replacement brushes individually? Each of the one thousand tiny transactions will include its own regulatory challenges, its own security risks, and its own payment-processing costs.

Digital commerce infrastructure will be vital to manufacturers as they make the shift to the Commerce of Things. Digital wallets will make it possible for refrigerators to buy milk while minimizing the risk of fraud. Servers that process payments will scale to accommodate tens of millions of transactions rather than thousands. Tax calculators will evolve to comply with local laws without requiring a human being to click a button every time. But developing this infrastructure is costly and demanding. Like all revolutionary changes in business, the Commerce of Things will not come without casualties. How companies respond to this new opportunity is yet to be decided, but one thing is clear: the Commerce of Things will change the purchase experience forever. Will your business be ready?

Digital River provides e-commerce technology and online payment services. James Gagliardi is Chief Product Officer.