After Building Customer Loyalty Program, Sears Looks to Sell Big Data Expertise

by   |   May 8, 2012 4:49 pm   |   0 Comments

Not long ago, Sears was viewed by many as an aging retail brand, an “old school” company that had missed the technology and cultural boats, a store your parents or grandparents would patronize. Sears’s slide toward irrelevance seemed assured after it was swallowed in 2005 by discount chain Kmart, which changed its name to Sears Holdings Corporation.

The company has continued its efforts to regain steady profits from its core retail business. But over the past three years, Sears Holdings has mined customer data in near real-time to create the Shop Your Way Rewards program for customers of Sears, Kmart, Lands’ End, and other stores, that now benefits 80 million members. The program, which relies on an analytics platform using Apache Hadoop, the open-source framework for distributed processing of large data sets, last year received an award for loyalty marketing from Colloquy Magazine.

So good did Sears become at crunching customer data that executives realized they had a developed a valuable expertise that could be offered to other companies. On April 24, Sears Holdings announced a new subsidiary, MetaScale, which will sell its services to other “traditional brick-and-mortar enterprises” in multiple industries (though not to direct retail competitors).

MetaScale promises to build and configure a customer’s cloud-based Hadoop cluster, as well as manage it and integrate it with existing data management platforms.

For bricks-and-mortar retail clients of MetaScale, it means an opportunity to offer a personalized product or service to a customer at the point of sale, something not possible without the ability of real-time data analytics to determine both the customer’s buying history as well as purchasing trends related to that specific product. That means more dollars per transaction, and higher operating margins.

“MetaScale will enable customers to learn more about their data and their customers, which can help increase revenues or reduce costs or create new business models based on their use cases,” said Krishna Nimmagadda, MetaScale’s head of marketing and business development. “They can ask questions that they thought not possible, and they can reduce costs and complexities on their mainframe and high-speed appliances.”

Nimmagadda said MetaScale is targeted to customers “across industry verticals,” or “any company that needs the infrastructure and solutions to monetize data and want to know more about their customers or products without the complexity of building their own practice.”

MetaScale is a notable example of an enterprise creating a service or system for internal use, and then spinning it out as an entirely new revenue-generating unit or subsidiary. Back in the early 1960s, American Airlines, with the help of IBM, created Sabre (Semi-Automatic Business-Research Environment), the first computer reservations system, which American used to automate reservations for its own flights. By the mid-1970s, American offered Sabre to travel agents and developed similar reservations systems for rival airlines such as Delta and Pan Am.

Of course, the launching of MetaScale puts Sears Holdings in competition with other providers of large-scale data analytics software and services, including EMC and Teradata. Some observers raised questions about this move given the retailer’s struggles in the marketplace. Sears faces competitive pressure in its own market, and launching a data analytics service could distract it from focusing on turning around its core business, University of Michigan business school professor Erik Gordon told Bloomberg News.

But Ari Lightman, distinguished service professor at Carnegie Mellon University’s Heinz College and director of the school’s CIO Institute, said the big-data play offers Sears Holdings a “diversification mechanism.”

“If they look at the financials and can justify it, I mean, why not?” Lightman said. Spinning out a business, he said, is “the same thing as any start-up: You have to look at the team behind it, the differentiation on the technology, the market opportunity.”

For his part, MetaScale’s Nimmagadda said the Sears Holdings subsidiary can compete effectively with other big-data platform providers, even outside the retail industry.

“We have implemented use cases that are similar to fraud detection in the financial services industry,” he said. “Our capabilities in running R (the open source programming language) and statistical analysis on Hadoop and integrating with BI platforms can be leveraged for insurance and healthcare.

“Our pitch for CPG (consumer packaged goods) industries around insights from big data is even stronger,” Nimmagadda said, “because they would need to combine POS (point of sale) data (such as Retail Link) with syndicated data (such as Nielsen) with social data and join it to their SKU and inventory data to get insights like if a product will have a stock-out situation. In terms of capability, MetaScale can start with POS data, syndicated data and inventory data to build a CPG company a working capability on the cloud and then add social data as a progressive next step.”

Analyst Charles King, president of Pund-IT, said Sears Holdings retail legacy may provide it with an advantage most companies with a narrow technology background may not have, even in the data analytics market—long-term relationships across a number of industries. “For broad adoption across a wide range of markets, Sears has its foot in the door in a lot of places,” King said.

Beyond that, King said, the early movers in any emerging tech sector “aren’t always the type of vendor that drives a technology or technical service into the broader market. Companies that may not be technology first-adopters would tend to listen to” an older, established company like Sears.

MetaScale is headed by Phil Shelley, chief technology officer of Sears Holdings. Shelley’s background includes extensive experience with large-scale private open-source cloud computing and Hadoop for business analytics. The company is based in Hoffman Estates, Ill., headquarters of Sears Holdings, with an analytics office in San Jose, Calif.

Apache Hadoop has become increasingly popular as enterprises seek to mine massive amounts of data in order to gain a competitive advantage and increase margins. It is used by other bricks-and-mortar retailers such as Wal-Mart and Target, as well as e-commerce giant Amazon.com, online auction leader eBay, Facebook and Yahoo.

MetaScale said costs for its on-demand professional services are based on a rate card and that infrastructure pricing (the company offers a virtual private cloud running inside a 43,000-square-foot computer room and a Tier 3 data center) is based on a client’s compute and storage requirements.

While MetaScale said it isn’t making public any specific customers at this time, Nimmagadda said the subsidiary is “talking to potential customers that have $15 billion in revenue and also to customers that have $1 billion revenue.”

Chris Nerney, a freelance writer and musician, lives with his family in upstate New York. Reach him at cnerney@nerney.net. Follow him on Twitter @ChrisNerney.

Tags: ,

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>