Tuesday, 14 May 2013

Data the new oil? Then exploration is just the start

Oil drilling

What do Google, Amadeus, AmEx and Tibco all have in common?

Well, they are all market leaders in their verticals.  

Amadeus for example are the largest travel transaction processor in the world, processing 440m bookings per year for 693 airlines across 195 countries.  Tibco are a software company with a suite of products that focus on real-time data transfers powering many of the Fortune 500.  AmEx account for almost a quarter of all dollar volume for credit cards in the US and Google... well they are Google.

What they also all have in common is data.  

Each company manages and processes vast amounts of data.  You could say that they are in the data business and they just specialise in a particular vertical, whether this is travel bookings or web search.  If, as has been said before, data is the new oil, then these companies have very deep reserves.

It's this data though that is also the catalyst for the third thing they have in common.  

They all do loyalty.

They may not be widely known or recognised as loyalty companies and this may not be their core business - however they recognise the importance of loyalty and have made strategic acquisitions to add this capability to their services.

Back in 2010, Google acquired loyalty startup Punchd and Tibco acquired SAAS vendor Loyalty Lab.  In 2011 AmEx acquired Loyalty Partner which operates Payback in Germany and Poland and i-Mint in India.  Then in 2013 Amadeus recently acquired airline loyalty specialist Hitit who provides loyalty solutions for over 40 airlines - more than any other provider.

So what's the rationale here?  Why are these companies branching out into loyalty marketing?

AmEx stated that this was to "diversify it's fee service", "deepen merchant relationships" and "add more than 34 million consumers".  Ed Gilligan, Amex's Vice Chairmain said at the time that:-

"The loyalty coalition model is growing rapidly in many parts of the world. Increasingly, consumer decisions about where to shop and how to pay are based on loyalty offerings"

It's that final statement that real nails it.  "Consumer decisions...are based on loyalty offerings".  

If you can package up the offering from the initial consumer decision then you potentially get to control the whole value chain.

This seems in part to also be the rationale for Tibco purchasing Loyalty Lab.

Increasingly loyalty is about real-time decisioning and next best action and the software to manage this, known as CEP (Complex Event Processing), is an emerging frontier.  Tibco provide the software, but Loyalty Lab allows them push further up the value chain for their consumers in the B2B space, helping them steal a march on their competitors (incl. Oracle, SAP and IBM) by providing a solution to the problem (packaged up in a loyalty application) rather than just a cog in the overall solution.

Google is interesting in that having acquired loyalty start-up Punchd, they then went on to shut it down.  It's not totally dead however and the "closed for business" web page alludes to something bigger and better coming when it says:-

"The team has been working to integrate Punchd features and ideas into other Google products. Retiring Punchd is the next step towards our integration with Google"

For Google, Punchd provided a means to access small, local, offline retailers - and this is a key, strategic market for them.  As I've discussed previously, Google actions seem to be about protecting it's "economic castle" - it's ad revenue.  Having increased control from personalised online offer, through to purchase (via Google Wallet), loyalty and repeat purchase helps them to secure the whole value chain.

Continuing with the data being the new oil analogy - these companies have essentially mastered the "upstream" segment in terms acquiring the resource through exploration and production.  They've got the data reserves and the means to extract them.

However the "downstream" segment which involves refining, processing and distribution is increasingly attractive.  Loyalty is very similar to a network of forecourts - it provides a guaranteed consumer base for the core product and ensures the companies have line of sight from raw material through to consumer demand.

Vertical integration doesn't work for every industry or company, but what these examples show is that loyalty still has the power to drive and direct consumer demand.

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