Commerical Worlds

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Future Perspectives Technology 2020 Commercial worlds How technology is changing the world of payments, retail, and business

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How technology is changing the world of payments, retail, and business.

Transcript of Commerical Worlds

Page 1: Commerical Worlds

Technology 2020 Commercial worlds1

Future Perspectives

Technology 2020

Commercial worldsHow technology is changing the world of payments, retail, and business

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© 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

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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

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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

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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

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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/

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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/

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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

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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

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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

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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.

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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

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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

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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.

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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.

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Technology 2020: Commercial Worlds was written by Giles Powdrill, Andy Stubbings, and Andrew Curry. Designed by Augustus Newsam.