Why Local Search may be the answer to Winner-take-All Online Platforms
As CEO of DigitalTown, (DGTW), over the last 18 months, I have had the opportunity to meet with hundreds of executive leaders from around the world who are on the front lines when it comes to small business. From Indianapolis to Istanbul, these people represent small business through Chambers of Commerce, Economic Development Agencies, Trade Associations, Municipalities as wells as independent business owners of all sizes. For a large percentage of these people, a recurring theme is how to engage with an economic playing field that is rapidly evolving towards "winner take all".
According to a comprehensive study of Amazon's eCommerce dominance published by the Institute for Local Self-Reliance, 55% of all US online retail searches now start at Amazon. With Amazon's latest purchase of Whole Foods, the grocery industry was put on notice. Within weeks of the Whole Foods deal being announced, Amazon entered the meal kit business that newly-public Blue Apron was poised to lead. Indeed, it is looking like no significant vertical will remain untouched for much longer. What happened to the taxi industry with Uber, with 2016 gross revenues reported at $20 billion, is now happening to niche verticals. Consider the example of Rover.com, which has created the AirBnB of pet care, raising $155 million in private equity and has reportedly grown to gross revenues of over $100 million with commission rates of 20%.
At the most recent meeting of the International Society of Hospitality Association Executives, behind closed door sessions, it was apparent that even the major hotel brands are starting to worry. Their economic models are being disrupted by AirBnB, which is making it harder for property developers to secure the funding with which to build new large hotels to be managed by the major hotel brands. In the meantime, state lobbyists for the lodging industry are doing their best to keep Short Term Rentals in check through legislation, all the while knowing that in a country built on free enterprise that is looking like a losing battle.
The news from the Council of State Restaurant Associations is hardly better as their member base contends with the mainstreaming of not only meal kits, but also meal delivery services like Seamless, GrubHub, and Uber Eats, as well as online booking titans like OpenTable (now part of Priceline Group), Yelp and Resy squeeze ever larger fees out of the dining economy as these habit-forming and consumer-facing brands play a larger role when it comes to putting butts in seats and determining online reputation. Based on the gig economy pattern, the restaurant industry should be bracing for the imminent mainstreaming of "Dine at my House" business models, in addition to a dramatic acceleration of local delivery of door-to-door room service.
In an online economy that is being dominated by winner-take-all platforms, there is a large -- and in some cases even existential -- challenge for smaller independents. Consider a Marriott that pays Expedia a 14% commission for a lodging booking and gets paid the net proceeds on or before the day of stay. Contrast that with an independent hotel who pays as much as 40% and gets paid 60 days after stay. As online booking platforms of all types become more habit-forming, and users become more loyal, the capacity grows for those platforms to use market power to extract larger commissions. In the case of Uber, which started out at a benign 5% commission with no minimum, the commission is now 30%. In the not too distant future, Uber will keep 100% as Uber cars become autonomous vehicles.
So we come to the ultimate question: what exactly can communities, cities and regions do to stem the tide against winner-take-all platforms? I believe the answer is found in providing a competing alternative, which starts with local search branded in the identity of the cities with which residents and visitors have a local affinity and ends with making local direct transactions frictionless. Rather than having the municipality, chamber of commerce, convention and visitor bureau, and destination marketing organization compete with each other for search ranking in major search engines, these organizations have an opportunity to come together around a unifying approach that makes it easy for both locals and visitors to see the world through local eyes.
The DigitalTown - an idea whose time has come
The DigitalTown SmartCity platform provides cities with a framework to empower local stakeholders with the means to search, share and buy local.
- Local Smart Search branded in the identity of the City: In a DigitalTown, each city, town or region is equipped with its own highly relevant local search engine branded in a memorable way, e.g. Nashville.city for Nashville. By branding the local search engine, the city can smartly route visitors to local solutions from the public sector and the private sector, bypassing the traditional agents of the "extraction economy", including search engine optimization specialists, pay-per-click advertising fees and high transaction fees. The goal is for a city-branded site to become an intuitive and habit-forming homepage for all things local.
- A Single Online Wallet for the City and Beyond: The DigitalTown single-sign-on SmartWallet provides every registered citizen with a free verified login with which they can securely connect, shop, and pay both locally and globally across both public and private services, everything from local shopping, booking a table at a restaurant or signing up for parks and recreation. Community members and businesses can also securely transmit funds in real-time without fees by using their SmartWallets.
- A storefront for every business: DigitalTown has developed or integrated solutions for local commerce across retail, services, dining, and lodging. Registered businesses are able to secure at no cost, a storefront with which to begin transacting immediately. Merchants pay low transaction fees. Where applicable merchants are encouraged to make use of the SmartWeb standard. Each mobile-ready storefront has the option of running on a free subdomain (e.g. roast.london.shop) or on their own unique domain.
- A secure platform for local innovation: Each city is able to use DigitalTown’s Application Program Interface (API) at no cost to local developers. With a DigitalTown-powered city platform, the capacity for local civic innovation is unlimited, and the capacity for great ideas to spread is unprecedented. During London Tech Week in June 2017, attended by more than 50,000 delegates from both London and abroad, nearly 400 development teams participated in theSmart.London global Hackathon sponsored by DigitalTown in cooperation with London-based partners.
Smart.London and Nashville.city are two learning laboratories where DigitalTown is partnering with local stakeholders to co-create Smart communities around a new economic paradigm that is centered around local search and direct commerce and works globally through single-sign-on. In total, the DigitalTown network is expected to grow to more than 20,000 cities around the world.
Platform Cooperativism as Framework for Co-Creating Digital Economies
New School Professor Trebor Scholz, first coined the term Platform Cooperativism in 2014. Since then, the term has gained some following from sharing economy innovators. However, to my knowledge Platform Cooperativism has never been applied to cities, and certainly not at scale. Beyond co-creation of local content and shared use of a local search engine and transaction framework, it is also possible to have shared ownership of the entire City portal in order to generate recurring cash flow for local institutions in a way that is not dependent on taxes, dues or debt. In this construct, local stakeholders have shared ownership in the city portal. In addition, each party maintains right of first refusal on the other stakeholders' interest in order to provide a sustainable path for maintaining local ownership of the entity. During the startup phase for a given unified city search portal, local stakeholders may choose to not form a dedicated legal entity and simply use DigitalTown as the merchant of record. As the city search portal achieves critical mass, and as transactions grow to a material level, DigitalTown provides a seamless path for enabling either (1) form a dedicated legal entity to serve as long-term merchant of record for local payment processing, or (2) invite the municipality itself to acquire the rights from a proven multi-stakeholder city portal. In the meantime, the DigitalTown multi-stakeholder ownership model serves to align incentives among the local stakeholders in order to position each city to collectively compete against shared external opponents.
In summary, there has perhaps never been a more urgent time since the advent of the Digital Age for cities to position themselves for sustainable economic sovereignty. DigitalTown is partnering with local stakeholders around the world in order to provide turn-key, managed solutions with which to equip cities to compete and win in the Digital Age.
For more information about DigitalTown, visit us on the web at DigitalTown.com or feel free to contact me at This email address is being protected from spambots. You need JavaScript enabled to view it..
Disclaimer: DigitalTown (OTC: DGTW) is a fully-reporting publicly traded company which periodically completes private placements among accredited investors. Any statements contained herein related to future events are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on forward-looking statements. DigitalTown, Inc. undertakes no obligation to update any such statements to reflect actual events.
