What Is O2O, And Does It Give Chinese Retail A Competitive Edge?

Photo courtesy of vacilamos via Flickr and Open Clipart, modified by Curiousmatic. 

Whether or not you’ve heard of online-to-offline commerce, also known as O2O, there’s a chance you’ve benefited from it already. On the market end, however, it’s Chinese businesses that may have the most to gain.

O2O is a shopping business model, exemplified by Groupon and Open Table, that allows consumers to browse, buy, or reserve their purchases online and redeem the item — or experience — in store the same day.

In the U.S., it’s been touted as the ultimate weapon against showrooming and online retail giants like Amazon, and it appears to be working: In the first quarter of 2014, O2O buyers outpaced e-commerce by 10 times.

How it’s changing shopping

In 2010, TechCrunch called O2O a trillion dollar opportunity. At that point in time, the boom was just beginning, as was witnessed by Groupon — an app that allows users to redeem local deals — which was called, rightfully, the fastest growing company in history as of 2011.

Since then, retail stores like Walmart, Macy’s, and Best Buy have been increasingly virtualizing their shopping experiences as well in an effort to compete with Amazon, the go-to for most showroomers, whom are known for the reverse activity — offline-to-online, where the offline store gets no benefit.

We’ve compiled four L’s that illustrate why O2O works for so many shoppers and businesses:

  • Local shopping: Most purchases are local. O2O expands the discovery zone so that shoppers can select digitally from home and still support neighborhood stores they know.
  • Lazy shopping: As e-commerce increases, it’s clear many shoppers prefer online browsing to in-store; O2O takes the nuisance of shopping carts and other shoppers out of the equation.
  • Last minute shopping: Amazon is convenient, but even at best may take a day for delivery. O2O, in contrast, offers same day pick up.
  • Listener’s shopping: O2O lets shoppers read honest comments and reviews on items before making the buy.

Western limits and Eastern opportunities

In China, O2O is set to become even bigger than it is now in the West — because the retail landscape is smaller, less physically established, more online based — a perfect storm for O2O disruption.

The unfolding of an O2O shopping revolution may be around the corner for Chinese markets: Three Chinese moguls, the Wanda Group’s Wang Jianlin (real estate), Tencent’s Pony Ma (social network), and Baidu’s Robin Li (search engine), just teamed up for a yet to be named joint O2O retail venture.

O2O has been called by Wanda’s Wang Jianlin “The biggest cake in e-commerce,” and this partnership has the potential to challenge even Alibaba, which currently boasts the largest IPO in history and is working to establish O2O as well.

In America, according to Quartz, when companies like Walmart are only compelled to sell their own products, it puts a ceiling on innovation. These Chinese behemoths, on the other hand, have no such boundaries — and being tech-first ventures are more likely to revolutionize the shopping experience.

While the West is attempting to revitalize dying shopping malls (which China doesn’t have many of to begin with), Chinese companies are able to start from scratch to custom make retail in a digital world, and make many businesses smarter without being tied to their products alone.

Whether it will be Alibaba or this new joint venture to perfect O2O on levels America can’t is anyone’s guess — as is whether it will impact you and me. Well, Chinese innovations have been known to spill over before. So we’ll just have to wait and see.

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Jennifer Markert