Online or Offline?
I live in a quiet cul-de-sac, comprising twelve houses. Since I work at lot from home (and spend a lot of the rest of the time there relaxing and reading!), I am aware of local traffic. There is a clear pattern for Monday to Friday: at the start of the morning neighbours’ cars leave for work, and for three of them their departure is timed to fit in with getting their children to school; if there are other children to collect, the big yellow School Bus arrives around 8.20 am, and then returns in the middle of the afternoon. After 8.30 am, the traffic pattern is less regular. The weekly garbage collection takes place on a Wednesday morning; the mailman comes by sometime between 11 am and 5 pm (he also comes on a Saturday, usually in the morning).
Outside of commuting times, you might think it would be quiet. Not so. For much of the year, annoying and spread randomly over the course of the seven days of the week are the lawn people, with mowers and leaf blowers: I will save my rant about them for another week. And then there are deliveries. Almost every day I will expect to hear both FedEx and UPS trucks, and most times more than one of each. Hear? Yes, because their arrival is usually followed by the ‘beep, beep’ of a vehicle reversing down a drive. I might also see a US Postal Service van with parcels to deliver, and occasionally a DHL van or one from another trucking company. A few pizza deliveries, but apart from them we are yet to become a popular area for Grubhub meals. However, more is on the horizon. Next it will be AmazonFresh, delivering groceries as a result of its acquisition of Whole Foods. Or drones? Or autonomous delivery robots??
This is the other side of online shopping. While some products are digital, like eBooks, videos and music, most are not. Once ordered, they have to be picked up or brought to the home. The immediacy of purchase has to be balanced against the real time taken for the goods to arrive: unsurprisingly, the big suppliers are trying to make that arrival time as short as possible. They are clever at delighting you: if I order a book (physical version!), I am told it will take 3-5 days to get here. Two days later, it is waiting on my front porch. Impressed, the supplier hopes I will forget I could have driven over to Barnes and Noble, and picked up a copy straight away. In the past, Amazon’s other advantage was it might be selling a book at a discount other booksellers couldn’t match, but now they are all offering similar price reductions. It does make me wonder what ‘recommended retail price’ really means!
Where are we headed? Reading hyped-up stories about artificial intelligence, big data analytics, and 21st Century logistics, might call to mind the dystopia portrayed in Pixar’s film WALL-E. [i] Apart from all that glorious imagery of WALL-E rushing around collecting rubbish, the film was set in a world of obese humans, all looking uncannily like fat babies. Travelling in individual hovering chairs, their every need was met by voice activated systems and robot deliveries. As the film showed those blob-like humans of the future, we could see they were quite unable to walk around by themselves, or even move independently. Is this our future, living online?
Like so many other thoughtful films anticipating what might come next, [ii] WALL-E portrays a world closer than we might like to believe. Replace FedEx drivers by robots, delivering whatever you want and whenever you want, why would we need to go outside? Just up to the letter box – but surely the delivery of the daily post could come to the house, too?
I don’t want to understate the extraordinary extent to which the digital world has inserted into our daily lives. Amazon and Apple, Microsoft and Facebook, and finally Google: these five giants alone permeate just about everything we do, inescapably intertwined with our activities as Kashmir Hill demonstrated she tried to do without them completely. [iii] Not only those five businesses in themselves, but also because they support and enable so many others. Amazon Web Services (AWS) alone hosts and underpins thousands of other companies.
At the same time, I also want to acknowledge what this world has brought, the benefits that have resulted. At the personal level, when we take my father-in-law to various specialists, they all have immediate access to his complete medical record, where trends and changes are easily seen, potential drug interactions made clear. At the broader level, the digital horn of plenty offers information, music, videos, providing more knowledge than we can absorb, and access to more entertainment than we can enjoy in a lifetime. Oh, and plenty of fake news to confuse and mislead us, too. Overall, the online world is changing companies and industries, in some cases destroying them, while enhancing systems, reducing costs and better tailoring products and services to customers’ needs. We are in the middle of a transformation, a revolution.
This revolution has sustained innovation, with something ‘new’ appearing every day, careful marketed to ensure this is the ‘next thing I really must have’. Yet it remains a world of fads and fantasies. Do you remember the Instant Pot, the new cooking device that would change the face of the kitchen for ever? It dominated sales of kitchen appliance for a few years, with its programmable, wi-fi enabled set up. Digital cooking! Now the fad is over, and wiser heads can see it is little different from the venerable Crock Pot, which quietly added a few new features to offer much the same as its upstart competitor, but at a lower price. [iv] The next to suffer the same fate will be the NutriBullet, “the world’s original nutrient extractor”, accompanied by an ‘app’ to help you decide what to blend. It sold like hot cakes, only slowing when shoppers saw it was just another compact food blender with a motor strong enough to reduce anything to a liquid!
The online world has delivered many benefits and thousands of new products, but at the same time it is accompanied by less attractive changes. In particular, digital technologies and robots are already having a major impact on jobs and areas of employment, and those effects will continue. My local paper, the Winston-Salem Journal, recently published a two-page report in the Sunday ‘Business and Innovation’ section on the “Issue of the Century”, covering the risk to jobs in the Triad area from automation and artificial intelligence. [v] I’m not sure this will prove to be the ‘issue of the century’ as we are only 20% through the 21st Century, but there are clear costs incurred by what is happening. Some jobs are disappearing, and others are in short supply. Autonomous vehicles might mean even employment as a delivery truck driver may be at risk.
Are we racing towards Wall-E’s couch potato world? As it happens, eating is an excellent area to reveal the impact of online and offline changes. There is little doubt that the preparation of foodstuffs will continue to become more automated. The increased use of new technologies reduces costs throughout the value chain. At one end, farmers rely on data from online satellites, with automated systems assessing crop yields, the allocation of water and fertilisers, harvesting schedules and future planting. Much of this is done with very little human interaction, as the systems use well-established algorithms. From there, automated processes look after delivery to suppliers, where factory food processing and scheduling is linked to real-time information on customer demand, provided by supermarkets and suppliers for restaurants and homes.
The consequence of all these systems is less need for low-level employment. The sight of workers sitting by a conveyor belt checking for damaged goods or diseased produce will be relegated to history, just as swathes of menial employment were swept away by the new technologies at the beginning of the 20th Century. Rather than assembly line checking, more people will be employed to look after machines and systems. The net effect will be a reduction in the total numbers engaged, I am sure, but labour costs per head will increase as more employees with advanced engineering and software skills will be required.
Boosters of the benefits of automation usually go on to talk about meal preparation. Mass production of ‘ready to eat’ packaged meals has been a characteristic of the food industry for a long time. Where does that leave homes and restaurants? Will all our meals be delivered using online systems? We know that people go out to eat for a variety of reasons, using fast food outlets while on the move all way through to having upscale dining experiences. There is some data to suggest that cooking at home is declining, and new houses often have smaller kitchen areas rather than a separate kitchen. Whatever the case, eating ‘out’ is still growing, especially for young people: after all, eating out is a ‘social offline experience’! At the same time organic produce from local farmers and slow food are also booming.
Despite this, people are ordering many meals online. Domino’s Pizza is one of the fast-growing food companies in the US, with an increasing global presence. Based on recent performance, it expects to have more than $3bn in revenue in 2019. You may not know, but Domino’s sees itself as a technology company, with online ordering and delivery as the core of its business. [vi] After facing business problems ten years ago, their recent story is revealing: “They used technology to offer customers a myriad of ways to order comfortably and this was another reason why they went from struggle to success. For example, you can use Twitter, Amazon’s Alexa, Google Home and even Apple Watch to order a pizza … More than half of their employees globally are drivers who are committed finding new ways to be more efficient … they are testing drone deliveries. Domino’s is also paying attention to how customer preferences are shifting. Their new chain restaurants offer a nice environment where customers can sit down and eat their pizza.” [vii] For me, the key is in that last sentence. The future isn’t just online, but rather a blended strategy. Online complements offline, both accommodating to customer preferences.
Another example makes the same point. Big box stores were dominant in the retail landscape for years, and then along came Amazon trying to take over retail by making it a solely online business. In recent years, many companies have collapsed or had to cut back drastically. The pace seems to be increasing: Toys ‘R’ Us has gone, as has Radio Shack. Sears is teetering on the edge of disappearing, while Macys and K-Mart are announcing rounds of closures. Is online successfully crushing the offline sellers? I think the situation might be more complex than that.
We can turn to IKEA to see a rather different picture. Traditionally IKEA had huge retail outlets on the edge of cities, with customers driving over to examine choices and then filling their cars with ‘flat packs’ to take home and assemble. One huge warehouse store was sufficient to look after a small city. However, IKEA has been looking at online vs offline systems. Listening to customers, it is making what look like smart changes. It has already introduced online selling, as well as offering expert assistance in your home if the assembly task proves too difficult. More recently, the first IKEA city-centre “Planning Studio” opened in London, another part of the company’s strategy to reach three billion customers by 2025. Planning Studio stores will “offer shoppers a more intimate experience than is possible in IKEA’s larger outlets. Staff will give advice and inspiration to customers, who can then order online… We will offer new and different ways to shop the IKEA product range … The city-centre model is at the heart of the new strategy, which IKEA said in April would be a part of a “transformation of our business” aimed at keeping up with changing consumer habits.” [viii]
In my mind, it always comes back to the same key issue: responding to customer needs; or ‘what job does the customer want done?’.[ix] A person is buying furniture. Something adequate, and need it now? A bookcase? Easy, order from IKEA: simple, functional, and cheap; it can be delivered in a day, put together in 30 minutes. Or do they want to fit out a kitchen, with a table, cupboards, and more? IKEA offers plenty of alternatives to be examined online, but even better to be seen in a showroom. Once chosen, IKEA can deliver, and even help put everything up. Or is this restyling a kitchen, with the desire to make it look modern, more relevant to social aspirations? Now the job the customer wants done is not driven by cost and convenience, but sympathetic design. Still IKEA? Go to the Planning Studio, and get some ideas.
The shift along these different customer needs is also about shifts along the continuum from mainly online to mainly offline. Cost, convenience, time, style and so many other factors mean that the job a customer wants done in changing a kitchen can vary in many ways. Online is just one channel under consideration. At the same time, part of the job that customers also want done is to get advice, have a discussion. We are social animals. If you want to be reminded of that, repeat a little experiment I carried out recently, and wander into a bank branch. The day I was there, most of the people in the branch were carrying out tasks they could have accomplished without entering the building. They wanted interaction. One older lady was clearly there to talk, and I could see the tellers knew her well, happily talking about the weather, television programs, and more as long as no-one was waiting. Even then, in the South, nothing can be rushed!
As is so often the case, overstated claims about the way the world is changing often prove to be wrong. Publishing is an excellent example. I was pleased to read that people are still buying physical books, and there is evidence the growth in eBooks is slowing. However, that’s another story to be unpicked: eBooks from traditional publishers are declining but does that mean the eBook fad is over? Not yet. While physical books are still key for publishers, direct publishing, i.e. vanity publishing, is growing through Amazon’s Direct Publishing service! [x] Yes, Amazon!
The next vehicle I hear on our street might be from IKEA. It could be a FedEx truck delivering a flat pack, or an IKEA truck with packs and an expert to assemble them, or a truck with custom-built goods to install. It might just be a car with an IKEA expert, ready to explore furnishing possibilities in an ‘offline’ discussion. For sure, the street won’t be quiet.
[i] https://www.imdb.com/title/tt0910970/
[ii] I will never forget the targetted advertisements talking to Tom Cruise in Minority Report, set in Washington in 2054 . They were responding to his irises as he walked down the street
[iii] https://gizmodo.com/c/goodbye-big-five
[iv] https://www.womenshealthmag.com/food/a25909152/instant-pot-vs-crock-pot/
[v] Sunday 27 January 2019: pages C1-2
[vi] https://www.forbes.com/sites/aliciakelso/2018/04/30/delivery-digital-provide-dominos-with-game-changing-advantages/#10da1d597771
[vii] https://www.investopedia.com/news/how-domino-stock-has-risen-over-2000-2010-dpzaaplgoog/
[viii] https://www.warc.com/newsandopinion/news/mini_stores_ikeas_strategy_to_reach_half_the_worlds_population/
[ix] Formulated by Christensen and his team: https://hbr.org/2016/09/know-your-customers-jobs-to-be-done
[x] https://www.forbes.com/sites/adamrowe1/2018/04/29/traditional-publishing-ebook-sales-dropped-10-in-2017/#2042909f7943
