Commercial World Technology at 2020 !
Commercial Worlds
Future Perspectives showcases The Futures Company's new thinking. It outlines critical issues, reveals new insights, and helps identify new sources of growth.
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.
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.
You can't assess the impact of technology without understanding social values, systems and infrastructure
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.
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 an unbundling of technology. We expect to see users and suppliers reconfiguring constantly the ways in which they use and deploy technology
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.
Payments in 2020
"When we talk to people it is clear social issues and the environment are still on the agenda."
"Concern about sustainability is still clearly present and at high levels."
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 phone 1.
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 personto- 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 infrastructures and favorable regulatory climates.
The combination of smartphones, consumer expectations, and new entrants means that we're approaching a tipping point in the payments industry
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.
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'
The rise of alternative currencies will play a significant role in defining the 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
Paypal is only a decade old, but has 100 million users worldwide and revenues last year of $4 billion
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. 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
Unbundling technology
If you have to keep four words in your head to make sense of how digital technology will change over the next decade, makethem "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: internetenabled 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.
But these prerequisites still tend to be found—so far— only at the edge of mainstream markets.
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.
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.
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 socalled '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 future of retail
The 4Ps of the digital retail world are Prices, Products, Places, and People
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
As price tends towards zero you need to be able to segment your market
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 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.
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 resourcescarce, 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.
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