Ólafur Andri Ragnarsson

Speaking about online shopping with people in retail only few years ago would reveal disbelief and some contempt. The believe was that people would prefer to go to the shop, see the product, touch it, buy and take it with them. This online thing was considered overrated and would never work. Well, things have changed and today, in 2017, retailers are worried and rightly so. According to a recent report by The Nielsen Company, some 93% of people globally have shopped online. Today, for many retailers, it is not enough to have a brick and mortar shop. It must be both a physical shop and an online shop. Retailers need to adapt to the changed consumer behaviour.

What has changed is how people access and use the internet. There are 3.5 billion people using the internet and 2.6 billion using internet connected smartphones. This will only increase in the coming years. One source even estimates that 6.1 billion smartphones will be in use by 2020.

It is not only that most people on earth will have a smartphone and access to the internet. The real change is in people’s behaviour. People are getting used to opening a browser and type in what they are looking for or asking questions. The emergence of smartphone assistants such as Apple Siri, Microsoft Cortana, and Google Assistant, devices such as Amazon Echo and Google Home are just fuelling this trend. If not that, platforms like Facebook, Snapchat and others bring flood of new ideas and products before people. As more and more sites are offering products online with a seamless and convenient experience and product delivery, more people are starting to trust online as a way to purchase products. It is becoming a livestyle to get stuff by by online ordering.

Then what about retailers. How will the adopt to this change? Here is what retailers need to do. First thing is to realise that local shopping has huge advantage. Local shopping meaning retailer in your neighbourhood or city. While big companies like Amazon have a huge selection of products, they are still a global company. That might change, but local retailers have advantage of the closeness to the customer. And in case something goes wrong, the customer can always drop by.

Second, retailers need to be visual online. The online presence needs to be complete with product descriptions and pictures, providing a great experience. And it needs to be findable. With 81% of shoppers starting a purchase by an online browser search, those that don’t get on the first page are not visible. Those with no online presence simply do not exist. The better and more convenient the online shopping experience, the higher the chance of the shopper completing the purchase. The goal must be to minimise any barrier to shop and that includes filling out complex forms. Being online not only drives online shopping, it actually drive consumer visits. One study found that 50% of consumers that search for product will visit the store that comes up.

Third, delivery logistics must be fast and convenient. The companies that manage to build up good sales through online channels have realised that fast service is key to repeat business. If you think about the customer first, giving a choice for when products are delivered is crucial. Customers that want delivery within an hour should have that choice. If they want a product between 3 and 4 this afternoon, they should be allowed to select that specific delivery time. Retailers should optimise their processes around the customer first, and then optimise them for themselves.

Fourth, transparency is important. We live in real-time world with small messages flowing all the time. When an order is placed, a message should go to the customer. Also, when the order is packaged, ready for delivery, in transit, and so on. The millennials generation expects these information pulses to come all the time. They are not a nuisance, but bits of info that keep you up to date of what is relevant to you at the moment.

Online shopping is becoming mainstream and retailers must accept that. It is important to realise that this is not the battle of online vs. offline or about offline finding ways to survive. It is about having both. Retail is not going away, it is partly shifting as the customers adopt new ways to shop. Retailers that only focus on offline are risking loosing part of their sales while still supporting expensive store space. Retailer of brick and mortar stores that offer online shopping in the right way, will likely be the winners.

June 29th, 2007, some ten years ago, the original iPhone went on sale. Five months earlier, in January, Steve Jobs had announced the device. Over these months, from the announcement to the first sale, the tech industry speculated whether this phone from computer maker Apple, would be a success or a failure. The mobile industry at the time was dominated by Nokia, Sony Ericsson, Motorola, LG and others. During the January keynote, Jobs said that every now and then a revolutionary product comes out that changes everything. He mentioned Macintosh and the iPod. They changed the computer industry and the music industry, respectively. The iPhone proved to be in that class, it changed, not only the telephone industry, it changed the world.

Any speculations on how the iPhone would be received by the public were laid to rest this day ten years ago:

https://www.youtube.com/watch?v=IIdCxDzFIpM

A few things that Apple did were different from the traditional phones at the time. The focus of handset makers at the time was always on the hardware and the design of the phone itself. Software and the user experience was important but secondary. The mobile operating systems (OS) were old primitive systems that were developed during an era of limitation, both of the hardware and the bandwidth.

What Apple managed to do was to squeeze a full blown operating system into the small device and put the focus on the software. The phone also became an application platform, creating a huge industry of app companies. The touchscreen user interface was key to the iPhone. Not only did it work, it worked really well. At the time, few phones had touchscreen but all required a stylus. However, it was believed that smartphones required full qwerty keyboard due to email. The iPhone proved that wrong. Finally, Apple put a full blown Internet browser into the the device, killing the “mobile web”. There was only one web.

So what is the impact of the iPhone ten years on? Apple set the standard for others to follow. Google came out with Android a little later. Most of the traditional phone makers rushed to get touchscreen phones, but most failed and companies like Nokia, Sony Ericsson, Motorola and RIM, maker of Blackberry, are now irrelevant in mobile phone industry. Today it is dominated by Google’s Android and iPhone.

The iPhone killed several product categories. Portable music players like the iPod became less desirable as people slowly switched to smartphone. Having two separate devices was not what people wanted, and sales of iPods started to decline. People can have their music on the phones or even stream them from sites like Spotify. Same happened with digital cameras. While the first smartphone did not match the quality of a good digital camera, the convenience of the smartphone and the fact that people would always carry it with them, made it prefect for taking photos. Today the cameras are so good that there is a flood of pictures in the world. It is estimated that 1.2 trillion photos will be taken in 2017. Camcorders are also getting extinct along with portable navigation systems.

The iPhone created a new industry for developing apps. It is estimated that there are 12 million app developers in the world. The smartphone created platforms like FourSquare, Instagram, Snapchat and Twitter. FourSquare was instrumental in crowdsourcing the world to name places. Being in a restaurant or at an airport, people would name the location they were at. In just a few years, all places in the world were registered.

Instagram changed the way people share photos. There are many people that work full time using Instagram. Snapchat has changed the way people communicate. Leading the way in augmented reality, Snapchat has added a whole new way to share moments. Twitter has changed how we keep informed, especially in times of crises. Twitter was important in the Arab Spring in 2011 to 2014 and Iranian uprising in 2011. Dictators could not contain the news feed and pictures coming from the people themselves.

Smartphones have also changed how we communicate one on one and in groups. Skype, Whatsapp and Facetime, and recently apps like Slack, have taken over voice communications. It is estimated that Facebook and Messenger process 60 billion text messages per day. That is three times number of good old SMS.

In fact, this small device is so pervasive that we constantly have to have it on us. One study shows that people touch their smartphone 2,617 times a day. Same source states that people use the device for about average 145 minutes every day. Even one in ten use their phone during sex.

The smartphone also became a huge platform for games and practically created the games industry in the Nordic countries. Games such as Angry Birds and Candy Crush are among the most successful mobile games. There are about 1,000 mobile games companies in the Nordics. Obviously, these did not exist ten years ago.

The phone has also changed the way we act in the world. Navigating by foot is easy, just use navigation apps and they will guide you. Calling a taxi is over. You get ride by using apps. Uber and Lyft are great examples. The phones knows where you are and it is easy to see the where your ride is and when it arrives. It is not only getting a car. It is also about everything else like ordering burgers to your house, booking train tickets, signing in on a shift, registering work hours, buying groceries, and pretty much everything. The smartphone has created the real-time software world we live in now.

Controlling the environment is also easy with the smartphone. Devices such as wireless speakers like for example Sonos, lighting such as Philipps Hue, doorbell such as Ring, thermometer such as iGrill are ways to interact with your environment. Expect more and more devices to become smart devices, controllable by the smart phone.

The drone revolution took off after the release of smartphone. It turns out that the smartphone has a lot of sensors. Accelerometer, Gyroscope, Magnetometer and Barometer to name few. Some of these components are needed to make drones. With cheap powerful sensor components and software, mostly developed open source by hobbyist, drones began to become an industry. The drone revolution is an example of a spinoff made possible due to the smartphone.

It is not only the drone. Think also about the Internet of things. Putting sensors on objects to communicated with them. The smartphone is key in interacting with these things in real-time. This interaction can optimise work for people, for example in construction, agriculture and retail. The software platforms can alert workers on when and where they should be to get things done. Think about a delivery driver that needs to make a pickup. The smartphone will tell the driver. No phone calls, everything is real-time and much more efficient.

Augmented reality (AR) and virtual reality (VR) are also possible today due to the smartphone. Perhaps AR is the killer app of the smartphone. Pokémon GO is an example, but also Snapchat and many other apps, including Google Translate that allows you to point the phone to a text of real objects, such as street signs, and it gives you translations in real-time. Amazingly, the smartphone is also usable for VR. The Samsung Gear VR headset, in which you put your smartphone, is already with the largest market share with 5 million devices.

Then what is next for the smartphone? I think the era of the smartphone is over. It is now becoming a platform for other technologies to become important. It will continue to be an important device but is has become stable and mature. Just like the PC and the Internet are now relevant but established, the smartphone will become a device that is bringing new waves of technology.

Disruption is a popular topics. The use of the concept became popular due to Clayton Christiansen’s book, The Innovator’s Dilemma. His theory, The Disruptive Innovation Theory describes a process where new entrants to an established market, typically a small company with few resources, can use innovation to challenge the incumbent. Examples of disruptions are Ford Model T, Personal Computers, NetFlix, Skype to name few. However, there is another theory by Christiansen that is even more important. This theory is called The Resource, Processes and Values (RPV) Theory and it explains why good companies can’t respond to technology changes. It explains why companies fail.

The RPV Theory states that the resources of a company (the people, technology, information, cash etc.), the processes (how the company works), and the values (the believes of the employees) defines the companies strength and also weakness. In stable markets, the dominating incumbents can beat any new entrant competitor because they know their business so well and have optimised all the processes. On the other hand, when technology changes, new entrants use new technology to offer a new value proposition and the state of the incumbent company becomes a weakness. They can’t respond and fail.

History has number of examples. Netflix started with a simple subscription based DVD movie rentals service using the post office. Blockbuster, the dominating video store rental company, which owned the market, could not respond and failed. They were in the video rental store business and they did not have resources, processes and values to go into a new completely different model.

Now think about any traditional business. Companies in industries such as retail, healthcare, insurance, finance, transport and so on, will need to adapt to the chances due to technologies such as digitalisations of processes, real-time logistics algorithms, the Internet of things and sensors, robotics, drones, data analytics, and Artificial Intelligence to name some important ones. The RPV theory is important because it will define which companies survive the digital transformation that is taking place.

Any traditional company that uses manual work processes instead of digital and automated processes will be at risk. Call centres can be 80-90% automated by software. Applications, forms to manually fill out, and request for services can be turned into web page or an app. Such request, such as loan application in bank, can be evaluated by AI algorithm with feedback in few seconds. Going though documents, for example legal cases, can be done by algorithms. Coordination of people, for example a construction worker and a task to be done, can be done by software. These are just few examples. The digital transformation in inevitable and companies with resources, processes and values from the 20th century, need to move into the real-time intelligent software era.