On The New Edge Network and The Future of Local Commerce
In networking there’s a saying called the last mile problem. It goes as follows: the last mile—or ‘edge’—of the network is the hardest to reach. In mobile, distributing intelligence to the edge has posed an even greater challenge. Why? Because mobile users are always roaming, their location constantly changing in relation to the network. The mobile network supplies plenty of bandwidth, but the network has little idea where you actually are. ((Sure GPS and Wi-Fi give context, but really only at the city block level, not indoors. Innovative companies like Moves have been employing proprietary data science and sensor fusion to solve these problems, but it’s imperfect, proprietary, and not extensible between apps at a platform level)).
This fundamental lack of context about mobile users has almost completely blocked intelligence required to attribute online actions with offline behavior. It has basically been impossible to close the data attribution loop. But an elegant technology called iBeacon is about to change this, and it has massive implications for the future of online to offline commerce. Here’s why:
- Intelligence at the network edge is now mobile; there is no longer a true network edge. The best way to compare mobile networks is to think about the way it used to be. In the desktop era, PCs were the edge of the Internet. You sat at your desk and that was it. Today, intelligence at the network edge is no longer fixed to your desk. There is no longer a true edge. Humans are the new ‘edge network’. In fact the network is now alive and breathing, dynamic and changing, just as you are as a person, walking through your city. But the network doesn’t know how people or objects are moving in relation to each other. This has really tilted the intelligence toward the network core.
- Because the network edge is nearly always indeterminate, smartphones are basically blind to their surroundings. People love to declare how intelligent their iPhone or Nexus 5 is. But why does your smartphone have no idea when you arrive at a movie theatre after buying tickets in the Fandango app? Or sit down to eat at your neighborhood restaurant that you just searched for? Yes, smartphones connect to fast networks and access the cloud, but they are missing a context that humans take for granted—’sight’. Do this: close your eyes for a second. Right away you immediately and totally lose context for how far away that wall is in front of you is, and can no longer read that sign helping you navigate. You become blind to your surrounding environment, just as your phone is today.
- Apple’s iBeacon has been talked about a lot, but its essence is much deeper than the marketer’s wet dream of pushing coupons to nearby users. iBeacon is actually the digital equivalent of ‘sight for your smartphone’. Think of it this way: a freeway sign is installed once, has no intelligence and simply advertises a message ‘exit Page Mill Road’, allowing millions of people to follow the right path. You read that freeway sign 100 yards away and know how to navigate and exit. Likewise, your smartphone listens to a beacon on the wall 50 feet away that says “I’m inside the coffee shop you just searched for and arrived at”. So iBeacon really is the digital equivalent of something we all take for granted: analog human sight.
- Because up until this point smartphones have had no idea what is around them, closing the attribution loop in online-to-offline commerce has been impossible. And solving this is a trillion dollar problem. No company has ever had success (monetarily) with online to offline search or discovery, because you can’t go to an app and carry that discovery process to your offline environment. Yes, you can absolutely use a search query to find a place to go, but when you get there no one knows you arrived because of that service. In fact, your phone has no idea you arrived! Your smartphone is actually contextually dumb, blissfully going about its job missing this fifth sense.
- Beacons close this attribution gap by distributing intelligence between the client (smartphone), the beacon, and the cloud to create a new ‘sign’ that your phone can read. A new network edge. And they distribute intelligence through the network while being low cost ‘commodity’ hardware. Beacons are really an extension of the network. A beacon verifies nodes on the network and receives data attribution that any transactions follow the rules of your application. But of course because this is a network element inside a venue, it needs to be secured, managed and future proofed, so both the value and cost is in the services.
- So iBeacon is not a hardware play. It’s actually a way to distribute software to create the first API layer for the physical world. And here’s the magical part: it’s completely free of charge from a power perspective. Beacons use effectively zero power themselves, and soon will last forever ((New chips can be sub 5mA peak power, way below what’s deployed today. Cortex M0 based SoCs target extremely low sleep states, approximately 5mA and below peak power. And additional energy harvesting techniques will make it possible to not even use a battery and completely power the system off energy harvesting.)). But even more importantly, scanning for beacons at the OS level also uses zero power. Think about that for a second: with iBeacon, Apple made a way for your phone to constantly ‘see’ signs (i.e. scan for BLE signals), all the time even when on standby, without using any power at all ((Ranging, which better approximates exact location of the beacon, uses a small amount of power, so Apple has restricted it’s use for 10 seconds after beacon discovery)). This is truly a remarkable breakthrough for location technologies. Beacon IDs are all individually unique (as unique as IP addresses). So in actuality, beacons can be thought of as place URLs for the real world.
- The real cost to deploy this technology is the cost to acquire the merchants and to access a trusted physical space, not the cost to distribute the beacons. Beacons are a commodity in the classic sense; they are made with low cost hardware. But the installation of a beacon into a physical space has an additional cost (the cost to acquire the merchant), and an implied security cost (no one wants their venue ‘hacked’, so beacons need to be managed and secured). Beacon hardware itself will cost mere dollars in the future. A company could literally blanket all 20 million SMBs in the US for less than $100M. This is absolutely nothing at a time when tech companies are paying billions to acquire companies. When you do the math it’s quickly apparent that neither the cost nor the value is in the hardware. It’s in something entirely different: extending network services and accessibility to transactional value at the app layer.
- But offline retail is not a winner take all market. Just as consumers are not going to download an app for every retail store on their phone, merchants are not going to put a beacon for every service in their venue. The physical world is the long tail. You may shop at Amazon almost every time you buy something online but you will likely never dine at the same restaurant 10 times in a row. And whether you arrive at a venue via OpenTable, Google Maps, Yelp or the next breakout mobile startup, beacons should be deployed as a platform that developers can access. Imagine for a second if beacons were distributed at scale to merchants, and all they had to do was hang them on a window. It’s very probable that they will be distributed by someone who has a combination of (a) an at-scale consumer footprint and (b) acquisition of merchants at scale. And the company distributing the beacon has an opportunity to open this as a platform. The trend toward single-purpose experiences in mobile further suggests this should happen. Almost all have mobile payments, almost all are mobile only or mobile first, and all would elegantly tie into a beacon to close data attribution. Imagine if Uber placed a beacon in the car to automatically alert the driver that, yes, it’s indeed you who opened the door.
- As such, beacons will serve as the new network edge, enabling context to be unlocked by developers to make physical places smarter. Metaphorically speaking, an iPad will be running the restaurant or venue. And apps will be ‘installed’ on venues. In order for this to work, it needs to be neatly exposed for developers as an authenticated / trusted beacon that belongs to a venue owner and is authorized by them, opt-in for the consumer. The developer will effectively ‘install’ their app on the venue (for example, OpenTable could immediately power auto arrival check-in to the host and payments). The developer will get some basic information about the beacon you’re nearby—where it is located, name of the venue, venue type (store, restaurant, stadium), tying the event to CoreLocation in iOS. If the beacon is inside a secure venue, then the venue will install the app because they get something in return—foot traffic, more loyal customers and insight into how their physical venue is utilized.
- By unlocking location at this level for any authorized app to use, the edge of the mobile network finally becomes smarter. If developers are allowed to globally authorize beacons in a network framework, apps must trust the beacons and be agnostic to how they interpret location IDs, on both iOS and Android. Indeed, iBeacon (and Android’s equivalent) will bring a certain ‘block chain’ like effect to the physical world, allowing innovations like transaction mapping and time-stamping to be combined with location authentication. This is an abstract analog, but just as the bitcoin block chain ledger provides checks and balances which allow the network to police behavior around transactions, iBeacon will enable a sort of physical world identity verification that was computationally expensive or impossible beforehand. For example Yelp could only allow you to create a verified review if the app knows you dined there. I can tell you firsthand that all of this potential is now mobilizing the developer community like crazy.
Most people don’t yet get it, but beacons as a platform are really a wedge into ‘appifying’ the physical world. They give context to a physical space. They are a way of actually extending the network intelligence to the edge again, something that has been missing since the desktop era. Beacons are truly a way of giving your smartphone eyes—place dumb signs around you and let your phone discover and read them.
As this new edge network that’s arriving finally converges the online and physical worlds, it has the potential to make your life as a consumer radically better and completely change mobile behavior. We are in inning one of connecting a person’s unique identity to offline devices, people, objects and physical places and it’s very clear that the most exciting times yet for mobile lie ahead.