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Transcript of Commerical Worlds
Technology 2020 Commercial worlds1
Future Perspectives
Technology 2020
Commercial worldsHow technology is changing the world of payments, retail, and business
© 2012 The Futures Company. Some rights reserved. 2
Commercial worlds
Technology 2020: Commercial Worlds
is the third report in a series from
The Futures Company which seeks
to explore how digital technology will
remake our world over the next decade.
In the first, main, report in the series, we
outlined our analysis and the big picture
of technological change; in this short
series of further reports, we discuss
what some of the impacts will be on
everyday life in 2020. In this edition, we
look specifically at the impact of digital
life on commercial life, including retail,
payments, and business models.
Future Perspectives showcases The Futures Company’s new thinking. It outlines critical issues, reveals new insights, and helps identify new sources of growth. For more information please visit www.thefuturescompany.com
Technology 2020 Commercial worlds3
Summarizing the future
of technology on health or
domestic life comprehensively
in a few hundred words
would be ill-advised, and
we don’t attempt to do that
here. Instead, we provide an
overview of some of the key
trends and technological
developments, and a
perspective on how these will
change the way people do
business.
Fortunately, we are helped
by some of the tools and
knowledge available to us at
The Futures Company. One
of our founding principles
is that you cannot make an
intelligent assumption about
the impact of technology
without considering changes
to fundamental infrastructure
and social conditions. We use
a range of models to help us
with this analysis, such as
the Technology Axis Model
referenced in the first report
in this series. Furthermore,
because we look through the
lens of foresight and futures,
rather than technology, we
are able to draw heavily on
our knowledge of other social,
economic and cultural trends,
and assess how these will
interact with technological
changes.
What this means is that this
report provides a series of
snapshots. They are not
specific to particular industries
or geographies, but we hope
that they provoke you to
look at these issues in more
depth for your business or
organization.
© 2011 The Futures Company. All rights reserved.
You can’t assess the impact of technology without understanding social values, systems and infrastructure
© 2012 The Futures Company. Some rights reserved. 4
The world of Tech 2020
This Future Perspectives
report is part of a series
of reports on how digital
technology is reshaping our
world. The first in the series,
Technology 2020, published in
late 2011, set out an argument
about the development of
digital technology over the
next decade or so which fell
into four parts. This argument
is summarized briefly here.
The Information and
Communication Technology
(ICT) revolution is only the
latest in a number of long
waves of technological
evolutions that we have seen
since the Industrial Revolution.
The other four were cotton
and canals, steam and rail,
steel and chemicals, and oil
and autos. (In this analysis we
draw heavily on the work of
the technology and economic
historian Carlota Perez). Each
wave, which lasts for 50 to 60
years, has followed the same
pattern: an ‘installation‘ phase,
funded by investment finance,
in which infrastructure is
built; a crash, as expectations
outstrip take-up; and a
‘deployment‘ phase, in which
new products and services
take hold. The ICT wave started
in 1971 with the invention of
the microprocessor, and the
crash occurred in 2001-02. We
are now about a decade into
the deployment phase of the
ICT revolution.
The next decade will see the
progressive unbundling of
technology, as connectivity
becomes more ubiquitous.
We use the acronym DDSS
for data, devices, software
and sensors, to represent a
way of thinking about this
unbundling process. The result
will be a technological world in
which users and suppliers can
endlessly reconfigure the ways
in which they use technology
to interface with the world.
Understanding technology
on its own is not enough to
understand which devices
and applications will be
successful. We use the
technology axis model
developed by HP Labs
researcher Bill Sharpe to
understand the ways in which
social values will influence
the adoption and use of
technology, and the role
of infrastructure, systems,
regulation and business
models in—typically—acting
as a brake on take-up.
Finally, looking at these
different elements together,
it is clear that business
innovation takes place
only towards the end of
the technology wave. The
edge-of-town ‘big box’
store, for example, evolved
very late in the auto and
oil wave; similarly, the US
meat- packing industry
emerged near the end of the
rail/steam wave. We are 10
to 15 years away from the
end of the digital wave, in
other words, exactly at the
point at which we can expect
business model innovation to
accelerate.
The next decade will see an unbundling of technology. We expect to see users and suppliers reconfiguring constantly the ways in which they use and deploy technology
Technology 2020 Commercial worlds5
The most significant, and
disruptive, developments in
the payments sector over the
next decade will be driven
by mobile transactions. The
increasing sophistication and
ubiquity of smart phones,
heightened consumer
expectations, and a sector
that is attracting innovative
new entrants, mean that the
underlying conditions for
change are strong. In fact, we
expect that the next few years
will herald a tipping point in the
widespread adoption of mobile
payments amongst merchants
and consumers. Many of
the latest developments in
the industry are being led by
non-financial players who see
an opportunity to use mobile
payments to generate revenue
both from transactions and
by offering location-based
marketing and added-value
services such as promotions,
coupons and loyalty initiatives.
For instance, Google recently
announced the launch of its
Google Wallet, an NFC ‘tap and
pay’ mobile application that
enables users to store virtual
versions of their plastic cards,
coupons, and in the long term,
loyalty and gift cards, on
their phone1.
Mobile payments are also
creating new financial models.
M-PESA is a phone-based
money-transfer service that
enables customers in Kenya
to complete simple financial
transactions, including person-
to-person money transfer,
without the need to visit a
bank. The service has proved
hugely successful and now
has 14 million users, or around
two-thirds of the Kenyan
adult population2. It has also
inspired the establishment of
more than 60 similar schemes
worldwide3. Services like
M-PESA are likely to expand
well into the next decade,
especially in countries with
limited fixed line provision,
poor existing financial service
Payments in 2020
M-PESA’s mobile money service has created new opportunities for millions in Kenya.http://www.safaricom.co.ke/index.php?id=250
© 2012 The Futures Company. Some rights reserved. 6
infrastructures and favorable
regulatory climates.
In the more mature
economies, companies
like Square are delivering
a similarly empowering
service, enabling anyone
with a suitable smartphone
and a card reader to become
merchants and accept credit
card payments, wherever they
are. Launched in 2010, initially
as a response to the payment
needs of small businesses,
Square now processes almost
$4m in transactions a day4.
It is too early to predict the
long-term success stories in the
mobile payments market, but it
is likely that systems like Square
and M-PESA based around
peer-to-peer transactions will
see rapid growth.
In the short- to medium-
term another important
factor in the developing
payments landscape will
be the continuing shift
into the mainstream of
web-based companies. As
e-commerce continues to
grow, organizations like PayPal
will continue to prosper (albeit
it in a variety of guises and
applications). Although PayPal
has been in existence for little
over a decade it now has 100
million users worldwide and
its revenue forecast for 2011 is
over $4bn5.
The rise of alternative
currencies will play a
significant role in defining the
The combination of smartphones, consumer expectations, and new entrants means that we’re approaching a tipping point in the payments industry
Paypal is only a decade old, but has 100 million users worldwide and revenues last year of $4 billion
Complementary currencies such as the Brixton pound have launched a mobile version.http://brixtonpound.org/
Technology 2020 Commercial worlds7
shape of the payments market
to 2020. Virtual currencies,
especially those linked with
social networking sites, have
the potential to be huge. If
Facebook manages to sustain
its success, and its Credits
approach is successful, then
some commentators have
suggested that the company
could be bigger than PayPal
and Google in the next 10
years6. The rise of alternative
currencies is also being
driven by the popularity of
online and social gaming.
As this continues to grow,
so will the scale and value
of in-game transactions and
exchange. In the World of
Warcraft, players earn virtual
gold for performing a range
of repetitive, basic tasks. This
gold can then be traded for
real world currency. Demand
for virtual gold is now so high
that in low-cost labor countries
such as China people are paid
to play the game to create it,
a process called ‘goldfarming’.
It’s been estimated that virtual
goldfarmers may make more
money, and more safely, than
their contemporaries who
mine physical gold.7
However, the growth of
alternative currencies will be
broader than digital minerals.
Corporate loyalty schemes, like
frequent flyer programs and
retailer club cards, continue to
acquire new members, and are
increasingly rewarding their
customers with experiences,
as well as with financial
incentives. The importance
of these schemes to an
organization, both as a way of
generating valuable customer
data, and as an approach to
brand building, means that
their influence in the payments
sector is only likely to increase.
Indeed, the idea of loyalty and
reward can already be seen
merging with technologies
like GPS and online networks
to create successful social
capital-based propositions
like Foursquare. Digital
technologies also improve
the functioning of local
complementary currencies.
Demand for virtual gold in the World of Warcraft is now so high that it’s created a new job title in low-cost countries: ‘goldfarmer’
Square lets anyone with a smartphone and a card reader become a merchant.https://squareup.com/
© 2012 The Futures Company. Some rights reserved. 8
In London, the Brixton pound
recently launched an SNS-
based version of its existing
paper currency.
Whatever form the industry
takes, satisfying consumer
concerns around security
will remain critical to
the success of payment
providers. Advances in identity
recognition, like biometrics
and iris scanning, may offer
new levels of protection while
better location-based data
will make it easier to monitor
and track spending. As always,
these developments will also
offer new opportunities for
subversion and corruption,
and payment-related crime will
remain a persistent presence.
They may also be resisted
by customers because they
reduce convenience and
create greater risks to them if
data is lost or stolen.
With the combination of new
technologies, new applications,
new forms of currency and
evolving consumer needs,
the payments sector in
2020 is likely to consist of
an even more complex web
of interdependent systems,
processes and algorithms than
we see today. To the consumer
end-user however, it will most
likely take the form of a simple
function on a mobile device
that just makes buying what
you want easier.
Giles Powdrill
.
Developments in payments will create new opportunities for subversion, corruption, and crime
Technology 2020 Commercial worlds9
If you have to keep four words in
your head to make sense of how
digital technology will change
over the next decade, make
them “data,” “devices,” “screens”
and “sensors” (DDSS). These
four groups of technologies are
likely to impact all areas of life
over the next decade.
■ Data: large amounts of
information on all aspects
of behavior, which can
be stored, shared and
analyzed to gain a greater
understanding of patterns
and trends.
■ Devices: internet-
enabled devices such as
mobile phones, tablets
or computers capable of
accessing, communicating
and sharing information
everywhere.
■ Screens: flexible and
immersive ways of
displaying information
beyond the traditional
2D computer, mobile or
television screen.
■ Sensors: wireless-enabled
sensors embedded in
everyday objects that
can send and receive
information about how
people interact with the
world around them.
While the interconnection
is essential, it is the
unbundling of these different
elements that will be most
transformative to 2020.
This change is already well
underway, and is sometimes
referred to as the shift to
“ubiquitous computing”,
whereby ICT is integrated into
our environment. The data
can be stored and accessed in
a separate location from the
device, screen and sensory
apparatus. Effectively, this
means that technology
becomes both ubiquitous and
central to everyday life. We no
longer need to go to a physical
computer; the computer
comes to us.
Unbundling technology
Data
Sensors
Devices Screens
Data, devices, screens and sensors: The transformational technological developments of the next decade
© 2012 The Futures Company. Some rights reserved. 10
Differentiation over the next decade
The business challenges of
the internet are well known.
For many items, especially in
audio-visual markets, it costs
far less to make something
available as a digital edition
and—provided the internet
is functioning—it can be
delivered far more quickly.
The cost of producing the
first copy of a digital product
is still expensive (although
computing power is driving
this down) but once made,
each extra copy costs next
to zero. And when copying
costs fall towards zero,
Microeconomics 101 tells us,
the revenues for each marginal
unit produced also tend
towards zero.
Meanwhile, retailers of hard
format goods have their own
set of headaches. Even if it is
not possible to produce digital
versions of, say, an armchair
(and this is changing, as we
discuss below), search costs
have plummeted. A consumer
can always find a cheaper offer,
and can do this while shopping
through a smartphone. In such
environments, differentiation
becomes increasingly
important, and increasingly
hard to substantiate.
A useful model for thinking
about these challenges was
developed by Philip Evans and
Thomas Wurster8. They argued
that digitization was wrecking
the long-standing tension
between reach and richness
(see diagram).
Building slightly on their
definition, richness is about
the extent to which an
experience is tailored to a
customer; reach is about the
number of people to whom an
experience can be extended.
Historically, these represented
a trade-off, because the
tailoring for the required
richness tended to limit the
reach. Harrods or Neiman-
Marcus couldn’t afford to roll
out their service model
across a hundred or a
thousand stores.
Some of the early winners
in the digital business wars
simply went for reach, but
commoditized their markets
as they went. The businesses
which have built value have
created both reach and
richness. Amazon, still the
internet business with the
highest profitability per
customer, built platforms to
enable customers to share
information, and created
algorithms to add insight
about buying patterns. Slick
back-office systems helped.
Richness
Reach
Traditionaltrade-off
Rich product and customer specific information
Commoditization/comparability
Source: Evans and Wurster, Blown to Bits
Tension between reach and richness
Technology 2020 Commercial worlds11
So, looking to 2020, where
do we see this heading?
How does one go beyond
commoditization and add
richness to reach?
Beyond the moment of transaction
Richness is often about a
promise, a promise which
extends beyond the moment
of transaction to the lifetime
relationship with the customer.
Amazon scores points here, for
example, for allowing people
who use its cloud services
to replace digital editions
they have bought from them
in the event that they lose
their content in a hard disk
crash. Similarly, we expect to
see retailers and consumer
electronics companies looking
after the goods they’ve sold,
not through over-priced and
over-complex protection
schemes but through
monitoring and managing their
performance, ensuring (for
example) they are repaired
before they fail.
Reputation becomes
important, and therefore brand
does, too. In the insurance
market, where competition is
increasingly on price (going for
reach), the moment of truth
for the customer is when they
make a claim—something
they can’t test when they buy.
Finding ways to demonstrate
this future richness at the
point of sale becomes a
competitive advantage.
Segmentation is also essential.
If price tends towards zero,
you need to be able to tier your
market, adding more value
for customers who are most
interested in the proposition.
This is the reason there has
been increasing interest in so-
called ‘freemium’ models, but
these have some way to go.
The next challenge, though,
may come from ‘fabbing’,
also known as ‘3-D printing’,
in which digital design
instructions are sent to a local
manufactory, and the goods
are produced and assembled
close to home. (Think of the
print-on-demand model now
offered by some bookshops.)
The costs of the technology
are falling quickly, and the
objects being assembled
are becoming increasingly
complex. IKEA has even
experimented with a
‘fabbed’ house.
This model offers higher levels
of differentiation and provides
reach for artisanal producers.
Digital production and
distribution create new
opportunities for richness
and variety, which chime
with well-known consumer
trends towards authenticity
and customization. Even in a
recession, this will characterize
the most dynamic businesses
of the next decade.
Andrew Curry The cost of 'fabbing' equipment is falling quickly. The picture shows a machine which costs around $1,000, for use in schools.
© 2012 The Futures Company. Some rights reserved. 12
There is much excitement
around how ICT, and in
particular the impact of mobile
devices, will change retail. One
of the themes of Technology
2020 is unbundling—of data,
devices, screens and sensors—
and this looks likely to have
a radical effect on retail,
enabling different aspects
of retail to interact in an
increasingly dynamic manner.
The new 4Ps of retail are::
Prices (and other data)
dynamically linked to products,
meaning that prices can be
changed on the fly more easily
(or different prices will be
visible to different consumers)
Products linked to
other products (meaning
that you will be able to create
associative tags between
products to form shopping
lists, organize product
assortments by recipes, or
see how other shoppers have
connected products together,
for instance)
Places where retail operates expanding beyond the confines of the physical store: the distributed store will continue to ‘talk’ to its products about their maintenance status throughout their working life
People (not just
staff) controlling the retail
environment (e.g., changing
the lighting or wallpaper in
store, or looking through the
walls of a store from outside)
The move to a programmable
model of retail means in
part that retailers and
manufacturers will be able to
interact with the customer
after purchase. Cheap
wireless sensors and data
collection technologies will
facilitate remote exchange
between everyday objects
and household appliances,
and smart mobile devices
could essentially become
the interface between the
retailer, the customer and
the device. So, for example, a
street retailer could provide
a ‘washing contract’ to
consumers instead of selling a
washing machine, both helping
manage the machine to its
optimum and ensuring good
performance—and
clean clothes.
The relationship with the customer
New business models could
therefore subsidize the
purchase of the physical
product in return for a
guaranteed contract period,
much like the mobile phone
contract model of today. This
would be a dramatic departure
The future of retail
The 4Ps of the digital retail world are Prices, Products, Places, and People
Technology 2020 Commercial worlds13
from how the majority of
retail operates today, and
it may not be the retailers
who innovate first. Retailers
and manufacturers will fight
for the relationship with the
end consumer: if you buy a
washing machine, for instance,
the retailer, the appliance
manufacturer or the supplier
of detergent could be the
brand you trust when it comes
to washing your clothes or
knowing how to get rid of a
particular stain. Across a huge
swathe of areas of everyday
living, from preparing meals to
brushing teeth, data, devices,
screens and sensors offer a
hugely enhanced potential
for direct communication
with consumers.
Another implication of the
shift to retail as a service is
that it puts greater emphasis
on physical stores as places to
compare brands and products
rather than make a purchase.
We have already seen
consumers trying a product in
store before buying it online,
particularly with bigger ticket
items. But online retail doesn’t
need to cannibalize physical
retail: the two can have a
symbiotic effect. Several
studies suggest that the
presence of a physical retail
store increases online sales in
its catchment area.
The last place to go?
So we may see the growth
of ‘sampling stores’, where
products and brands can be
experienced in a much richer
way than is possible online.
They will sell goods and
services, but the stores will
function primarily as marketing
vehicles and service outlets.
Similar to the phenomenon of
‘pop-up stores’, we may also
see the growth of temporary or
festival markets.
As price tends towards zero you need to be able to segment your market
© 2012 The Futures Company. Some rights reserved. 14
New ownership models
There are also strong
sustainability incentives to
move to a service-led model of
retail. In the face of resource
constraints, there will be a
greater need to creatively
re-use and recycle products
and materials. Pervasive digital
technology makes possible
new ownership models such
as the Park Slope shared tool
rental scheme in New York, or
the WhipCar peer-to-peer car
sharing scheme, which are
perfectly suited to resource-
scarce, population-dense
urban environments. Mobile
digital technology provides the
combination of identification,
payment, authorization and
(in some cases) tracking that
such schemes need.
As discussed in our Future
Perspective report Quickening The Pace, this shift from
ownership to access is likely
to hit a sweet spot, where
economic circumstance,
sustainability, technology
and social values all combine
to change attitudes. The big
change over the next decade
will be that retail is likely to be
less and less about stuff, and
more and more about service.
Andy Stubbings
This poster, for a UK online site, chimes with the conventional wisdom. But research shows that physical stores increase a company’s online sales in their catchment area.
Technology 2020 Commercial worlds15
Endnotes1. http://googlemobile.blogspot.com/2011/05/coming-soon-make-your-phone-your-wallet.html
2. http://whatmatters.mckinseydigital.com/social_innovation/mobile-money-a-game-changer-for-financial-inclusion
3. http://www.economist.com/node/16319635).
4. http://dealbook.nytimes.com/2011/06/29/unprofitable-square-valued-at-1-6-billion/
5. http://thefinanser.co.uk/fsclub/payments/
6. http://thefinanser.co.uk/fsclub/2011/07/why-zynga-means-we-dont-need-tomorrows-bank.html.
7. http://digitaldebateblogs.typepad.com/digital_money/2006/03/the_whole_realv.html
8. Philip Evans and Thomas Wurster (1999), Blown to Bits. Harvard Business School Press.
Pictures on pages 5, 11, 13, 14 copyright The Futures Company 2012.
Technology 2020: Commercial worlds by Giles Powdrill, Andy Stubbings, and Andrew Curry, is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.
© 2012 The Futures Company. Some rights reserved. 16
The Futures Company is the leading global foresight and futures consultancy. We are a team of consultants, researchers and futures experts who apply a foresight and futures approach to unlock new sources of growth for our clients. We offer a range of subscription services and research and consulting solutions. We have teams in the UK, US, Mexico, Brazil and Argentina and partnerships in China, India and Poland. We are a Kantar company within WPP.
About The Futures Company
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Technology 2020: Commercial Worlds was written by Giles Powdrill, Andy Stubbings, and Andrew Curry. Designed by Augustus Newsam.