Commerical Worlds

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

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Commerical Worlds

  1. 1. Future Perspectives Commercial worlds How technology is changing the world of payments, retail, and business Technology 2020 1 Technology 2020 Commercial worlds
  2. 2. Future Perspectivesshowcases The Futures Commercial worldsCompany’s newthinking. It outlinescritical issues, revealsnew insights, and helpsidentify new sources Technology 2020: Commercial Worldsof growth.For more information please visit is the third report in a series fromwww.thefuturescompany.com 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. © 2012 The Futures Company. Some rights reserved. 2
  3. 3. Summarizing the future rather than technology, weof technology on health or are able to draw heavily ondomestic life comprehensively our knowledge of other social,in a few hundred words economic and cultural trends,would be ill-advised, and and assess how these willwe don’t attempt to do that interact with technologicalhere. Instead, we provide an changes.overview of some of the keytrends and technological What this means is that thisdevelopments, and a report provides a series ofperspective on how these will snapshots. They are notchange the way people do specific to particular industriesbusiness. or geographies, but we hope that they provoke you toFortunately, we are helped look at these issues in moreby some of the tools and depth for your business orknowledge available to us at organization.The Futures Company. Oneof our founding principlesis that you cannot make an You can’t assess the impact ofintelligent assumption aboutthe impact of technology technology without understandingwithout considering changes social values, systems andto fundamental infrastructure infrastructureand social conditions. We usea range of models to help uswith this analysis, such asthe Technology Axis Modelreferenced in the first reportin this series. Furthermore,because we look through thelens of foresight and futures,© 2011 The Futures Company. All rights reserved. 3 Technology 2020 Commercial worlds
  4. 4. The world of Tech 2020This Future Perspectives are now about a decade into the adoption and use ofreport is part of a series the deployment phase of the technology, and the roleof reports on how digital ICT revolution. of infrastructure, systems,technology is reshaping our regulation and businessworld. The first in the series, The next decade will see the models in—typically—actingTechnology 2020, published in progressive unbundling of as a brake on take-up.late 2011, set out an argument technology, as connectivityabout the development of becomes more ubiquitous. Finally, looking at thesedigital technology over the We use the acronym DDSS different elements together,next decade or so which fell for data, devices, software it is clear that businessinto four parts. This argument and sensors, to represent a innovation takes placeis summarized briefly here. way of thinking about this only towards the end of unbundling process. The result the technology wave. TheThe Information and will be a technological world in edge-of-town ‘big box’Communication Technology which users and suppliers can store, for example, evolved(ICT) revolution is only the endlessly reconfigure the ways very late in the auto andlatest in a number of long in which they use technology oil wave; similarly, the USwaves of technological to interface with the world. meat- packing industryevolutions that we have seensince the Industrial Revolution.The other four were cotton The next decade will see anand canals, steam and rail, unbundling of technology.steel and chemicals, and oil We expect to see users and suppliersand autos. (In this analysis wedraw heavily on the work of reconfiguring constantly thethe technology and economic ways in which they use andhistorian Carlota Perez). Eachwave, which lasts for 50 to 60 deploy technologyyears, has followed the samepattern: an ‘installation‘ phase,funded by investment finance, Understanding technology emerged near the end of thein which infrastructure is on its own is not enough to rail/steam wave. We are 10built; a crash, as expectations understand which devices to 15 years away from theoutstrip take-up; and a and applications will be end of the digital wave, in‘deployment‘ phase, in which successful. We use the other words, exactly at thenew products and services technology axis model point at which we can expecttake hold. The ICT wave started developed by HP Labs business model innovation toin 1971 with the invention of researcher Bill Sharpe to accelerate.the microprocessor, and the understand the ways in whichcrash occurred in 2001-02. We social values will influence© 2012 The Futures Company. Some rights reserved. 4
  5. 5. Payments in 2020The most significant, anddisruptive, developments inthe payments sector over thenext decade will be drivenby mobile transactions. Theincreasing sophistication andubiquity of smart phones,heightened consumerexpectations, and a sectorthat is attracting innovativenew entrants, mean that theunderlying conditions forchange are strong. In fact, weexpect that the next few years enables users to store virtual adult population2. It has alsowill herald a tipping point in the versions of their plastic cards, inspired the establishment ofwidespread adoption of mobile coupons, and in the long term, more than 60 similar schemespayments amongst merchants loyalty and gift cards, on worldwide3. Services likeand consumers. Many of their phone1. M-PESA are likely to expandthe latest developments in well into the next decade,the industry are being led by Mobile payments are also especially in countries withnon-financial players who see creating new financial models. limited fixed line provision,an opportunity to use mobile M-PESA is a phone-based poor existing financial servicepayments to generate revenue money-transfer service thatboth from transactions and enables customers in Kenyaby offering location-based to complete simple financialmarketing and added-value transactions, including person-services such as promotions, to-person money transfer,coupons and loyalty initiatives. without the need to visit aFor instance, Google recently bank. The service has proved M-PESA’s mobile money serviceannounced the launch of its hugely successful and now has created new opportunities for millions in Kenya.Google Wallet, an NFC ‘tap and has 14 million users, or around http://www.safaricom.co.ke/pay’ mobile application that two-thirds of the Kenyan index.php?id=250 5 Technology 2020 Commercial worlds
  6. 6. The combination of smartphones, consumer expectations, and new entrants means that we’re approaching a tipping point in the payments industry Complementary currenciesinfrastructures and favorable peer-to-peer transactions will such as the Brixton pound have launched a mobile version.regulatory climates. see rapid growth. http://brixtonpound.org/In the more mature In the short- to medium-economies, companies term another important payments landscape willlike Square are delivering factor in the developing be the continuing shifta similarly empowering into the mainstream ofservice, enabling anyone web-based companies. Aswith a suitable smartphone Paypal is only e-commerce continues toand a card reader to become grow, organizations like PayPalmerchants and accept credit a decade old, will continue to prosper (albeitcard payments, wherever they but has 100 it in a variety of guises andare. Launched in 2010, initially applications). Although PayPalas a response to the payment million users has been in existence for littleneeds of small businesses, worldwide over a decade it now has 100Square now processes almost million users worldwide and and revenues$4m in transactions a day4. its revenue forecast for 2011 isIt is too early to predict the last year of $4 over $4bn5.long-term success stories in the billionmobile payments market, but it The rise of alternativeis likely that systems like Square currencies will play aand M-PESA based around significant role in defining the© 2012 The Futures Company. Some rights reserved. 6
  7. 7. shape of the payments marketto 2020. Virtual currencies,especially those linked with Demand for virtual gold in the Worldsocial networking sites, have of Warcraft is now so high that it’sthe potential to be huge. If created a new job title in low-costFacebook manages to sustainits success, and its Credits countries: ‘goldfarmer’approach is successful, thensome commentators havesuggested that the companycould be bigger than PayPal acquire new members, and areand Google in the next 10 increasingly rewarding theiryears6. The rise of alternative customers with experiences,currencies is also being as well as with financialdriven by the popularity of incentives. The importanceonline and social gaming. of these schemes to anAs this continues to grow, organization, both as a way ofso will the scale and value Square lets anyone with a generating valuable customerof in-game transactions and smartphone and a card reader data, and as an approach to become a merchant.exchange. In the World of https://squareup.com/ brand building, means thatWarcraft, players earn virtual their influence in the paymentsgold for performing a range sector is only likely to increase.of repetitive, basic tasks. This money, and more safely, than Indeed, the idea of loyalty andgold can then be traded for their contemporaries who reward can already be seenreal world currency. Demand mine physical gold.7 merging with technologiesfor virtual gold is now so high like GPS and online networksthat in low-cost labor countries However, the growth of to create successful socialsuch as China people are paid alternative currencies will be capital-based propositionsto play the game to create it, broader than digital minerals. like Foursquare. Digitala process called ‘goldfarming’. Corporate loyalty schemes, like technologies also improveIt’s been estimated that virtual frequent flyer programs and the functioning of localgoldfarmers may make more retailer club cards, continue to complementary currencies. 7 Technology 2020 Commercial worlds
  8. 8. offer new opportunities for . subversion and corruption, Developments and payment-related crime will in payments remain a persistent presence. They may also be resisted will create new by customers because they opportunities reduce convenience and for subversion, create greater risks to them if data is lost or stolen. corruption, and crime With the combination of new technologies, new applications, new forms of currency and evolving consumer needs,In London, the Brixton pound the payments sector inrecently launched an SNS- 2020 is likely to consist ofbased version of its existing an even more complex webpaper currency. of interdependent systems, processes and algorithms thanWhatever form the industry we see today. To the consumertakes, satisfying consumer end-user however, it will mostconcerns around security likely take the form of a simplewill remain critical to function on a mobile devicethe success of payment that just makes buying whatproviders. Advances in identity you want easier.recognition, like biometricsand iris scanning, may offer Giles Powdrillnew levels of protection whilebetter location-based datawill make it easier to monitorand track spending. As always,these developments will also© 2012 The Futures Company. Some rights reserved. 8
  9. 9. Unbundling technologyIf you have to keep four words in ■■ Sensors: wireless-enabled referred to as the shift toyour head to make sense of how sensors embedded in “ubiquitous computing” ,digital technology will change everyday objects that whereby ICT is integrated intoover the next decade, make can send and receive our environment. The datathem “data,” “devices,” “screens” information about how can be stored and accessed inand “sensors” (DDSS). These people interact with the a separate location from thefour groups of technologies are world around them. device, screen and sensorylikely to impact all areas of life apparatus. Effectively, thisover the next decade. While the interconnection means that technology is essential, it is the becomes both ubiquitous and■■ Data: large amounts of unbundling of these different central to everyday life. We no information on all aspects elements that will be most longer need to go to a physical of behavior, which can transformative to 2020. computer; the computer be stored, shared and This change is already well comes to us. analyzed to gain a greater underway, and is sometimes understanding of patterns and trends. Data, devices, screens and sensors: The transformational technological developments■■ Devices: internet- of the next decade enabled devices such as mobile phones, tablets or computers capable of Sensors accessing, communicating and sharing information everywhere.■■ Screens: flexible and Data immersive ways of displaying information Devices Screens beyond the traditional 2D computer, mobile or television screen. 9 Technology 2020 Commercial worlds
  10. 10. Differentiation over the next decadeThe business challenges of A useful model for thinking out their service modelthe internet are well known. about these challenges was across a hundred or aFor many items, especially in developed by Philip Evans and thousand stores.audio-visual markets, it costs Thomas Wurster8. They arguedfar less to make something that digitization was wrecking Some of the early winnersavailable as a digital edition the long-standing tension in the digital business warsand—provided the internet between reach and richness simply went for reach, butis functioning—it can be (see diagram). commoditized their marketsdelivered far more quickly. as they went. The businessesThe cost of producing thefirst copy of a digital product Tension between reach and richnessis still expensive (althoughcomputing power is driving Rich product and customer specificthis down) but once made, informationeach extra copy costs next Richnessto zero. And when copyingcosts fall towards zero,Microeconomics 101 tells us,the revenues for each marginalunit produced also tendtowards zero. Commoditization Traditional /comparability trade-offMeanwhile, retailers of hardformat goods have their own Reachset of headaches. Even if it isnot possible to produce digital Source: Evans and Wurster, Blown to Bitsversions of, say, an armchair(and this is changing, as we Building slightly on their which have built value havediscuss below), search costs definition, richness is about created both reach andhave plummeted. A consumer the extent to which an richness. Amazon, still thecan always find a cheaper offer, experience is tailored to a internet business with theand can do this while shopping customer; reach is about the highest profitability perthrough a smartphone. In such number of people to whom an customer, built platforms toenvironments, differentiation experience can be extended. enable customers to sharebecomes increasingly Historically, these represented information, and createdimportant, and increasingly a trade-off, because the algorithms to add insighthard to substantiate. tailoring for the required about buying patterns. Slick richness tended to limit the back-office systems helped. reach. Harrods or Neiman- Marcus couldn’t afford to roll© 2012 The Futures Company. Some rights reserved. 10
  11. 11. So, looking to 2020, where make a claim—something This is the reason there hasdo we see this heading? they can’t test when they buy. been increasing interest in so-How does one go beyond Finding ways to demonstrate called ‘freemium’ models, butcommoditization and add this future richness at the these have some way to go.richness to reach? point of sale becomes a competitive advantage. The next challenge, though,Beyond the moment may come from ‘fabbing’ ,of transaction Segmentation is also essential. also known as ‘3-D printing’ , If price tends towards zero, in which digital designRichness is often about a you need to be able to tier your instructions are sent to a localpromise, a promise which market, adding more value manufactory, and the goodsextends beyond the moment for customers who are most are produced and assembledof transaction to the lifetime interested in the proposition. close to home. (Think of therelationship with the customer. print-on-demand model nowAmazon scores points here, for offered by some bookshops.)example, for allowing people The costs of the technologywho use its cloud services are falling quickly, and theto replace digital editions objects being assembledthey have bought from them are becoming increasinglyin the event that they lose complex. IKEA has eventheir content in a hard disk experimented with acrash. Similarly, we expect to ‘fabbed’ house.see retailers and consumerelectronics companies looking This model offers higher levelsafter the goods they’ve sold, of differentiation and providesnot through over-priced and reach for artisanal producers.over-complex protectionschemes but through Digital production andmonitoring and managing their distribution create newperformance, ensuring (for opportunities for richnessexample) they are repaired and variety, which chimebefore they fail. with well-known consumer trends towards authenticityReputation becomes and customization. Even in aimportant, and therefore brand recession, this will characterizedoes, too. In the insurance the most dynamic businessesmarket, where competition is of the next decade.increasingly on price (going for The cost of fabbing equipment isreach), the moment of truth falling quickly. The picture shows Andrew Curryfor the customer is when they a machine which costs around $1,000, for use in schools. 11 Technology 2020 Commercial worlds
  12. 12. The future of retailThere is much excitement Places where retailaround how ICT, and in operates expanding beyond The 4Ps ofparticular the impact of mobile the confines of the physicaldevices, will change retail. One store: the distributed the digitalof the themes of Technology store will continue to ‘talk’ retail world2020 is unbundling—of data, to its products aboutdevices, screens and sensors— their maintenance status are Prices,and this looks likely to have throughout their working life Products,a radical effect on retail, People (not just Places, andenabling different aspects staff) controlling the retailof retail to interact in an environment (e.g., changing Peopleincreasingly dynamic manner. the lighting or wallpaper inThe new 4Ps of retail are:: store, or looking through the walls of a store from outside) a ‘washing contract’ toPrices (and other data) consumers instead of selling adynamically linked to products, The move to a programmable washing machine, both helpingmeaning that prices can be model of retail means in manage the machine to itschanged on the fly more easily part that retailers and optimum and ensuring good(or different prices will be manufacturers will be able to performance—andvisible to different consumers) interact with the customer clean clothes. after purchase. CheapProducts linked to wireless sensors and data The relationship withother products (meaning collection technologies will the customerthat you will be able to create facilitate remote exchangeassociative tags between between everyday objects New business models couldproducts to form shopping and household appliances, therefore subsidize thelists, organize product and smart mobile devices purchase of the physicalassortments by recipes, or could essentially become product in return for asee how other shoppers have the interface between the guaranteed contract period,connected products together, retailer, the customer and much like the mobile phonefor instance) the device. So, for example, a contract model of today. This street retailer could provide would be a dramatic departure© 2012 The Futures Company. Some rights reserved. 12
  13. 13. As price tends towards zero you need to be able to segment your marketfrom how the majority of hugely enhanced potential presence of a physical retailretail operates today, and for direct communication store increases online sales init may not be the retailers with consumers. its catchment area.who innovate first. Retailersand manufacturers will fight Another implication of the The last place to go?for the relationship with the shift to retail as a service isend consumer: if you buy a that it puts greater emphasis So we may see the growthwashing machine, for instance, on physical stores as places to of ‘sampling stores’ where ,the retailer, the appliance compare brands and products products and brands can bemanufacturer or the supplier rather than make a purchase. experienced in a much richerof detergent could be the We have already seen way than is possible online.brand you trust when it comes consumers trying a product in They will sell goods andto washing your clothes or store before buying it online, services, but the stores willknowing how to get rid of a particularly with bigger ticket function primarily as marketingparticular stain. Across a huge items. But online retail doesn’t vehicles and service outlets.swathe of areas of everyday need to cannibalize physical Similar to the phenomenon ofliving, from preparing meals to retail: the two can have a ‘pop-up stores’ we may also ,brushing teeth, data, devices, symbiotic effect. Several see the growth of temporary orscreens and sensors offer a studies suggest that the festival markets. 13 Technology 2020 Commercial worlds
  14. 14. New ownership sharing scheme, which are sustainability, technologymodels perfectly suited to resource- and social values all combine scarce, population-dense to change attitudes. The bigThere are also strong urban environments. Mobile change over the next decadesustainability incentives to digital technology provides the will be that retail is likely to bemove to a service-led model of combination of identification, less and less about stuff, andretail. In the face of resource payment, authorization and more and more about service.constraints, there will be a (in some cases) tracking thatgreater need to creatively such schemes need. Andy Stubbingsre-use and recycle productsand materials. Pervasive digital As discussed in our Futuretechnology makes possible Perspective report Quickeningnew ownership models such The Pace, this shift fromas the Park Slope shared tool ownership to access is likelyrental scheme in New York, or to hit a sweet spot, wherethe WhipCar peer-to-peer car economic circumstance,This poster, for a UK online site, chimes with the conventional wisdom.But research shows that physical stores increase a company’s online salesin their catchment area.© 2012 The Futures Company. Some rights reserved. 14
  15. 15. Endnotes 1. 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 byGiles Powdrill, Andy Stubbings, and Andrew Curry,is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. 15 Technology 2020 Commercial worlds
  16. 16. About The Futures CompanyThe Futures Company is the leading global foresightand futures consultancy. We are a team of consultants,researchers and futures experts who apply a foresight andfutures approach to unlock new sources of growth for ourclients. We offer a range of subscription services and researchand consulting solutions. We have teams in the UK, US,Mexico, Brazil and Argentina and partnerships in China, Indiaand Poland. We are a Kantar company within WPP.Technology 2020: Commercial Worlds was written by Giles Powdrill,Andy Stubbings, and Andrew Curry. Designed by Augustus Newsam.Will Galgey, Global CEOT: +44 (0)20 7955 1818will.galgey@thefuturescompany.comwww.thefuturescompany.comwww. twitter.com/futurescowww.facebook.com/futurescohttp://www.linkedin.com/company/the-futures-company© 2012 The Futures Company. Some rights reserved. 16

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