Telecommunications and the Future of Commerce

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Telecommunications and the Future of CommerceWhen we think about commerce and trade, we often think about retail and wholesale.  Retailers buy from wholesalers, who buy from producers, and the world keeps spinning on its axis.  But if we go way back – not that long really, maybe two or three hundred years – there were neither retailers nor wholesalers.  There was still commerce, and trade, but most of it was direct producer to consumer.  There were some facilitators, or enablers, like ship builders (B2B!), and of course financiers, but nothing like the massive supply chain and infrastructure networks that exist today.

Globalized manufacturing structures allow for vast complexity and agility in production.  For example, Apple watchers look for deviations from conventional component output in Taiwan in order to determine whether a new product is in the works, or whether real sales forecasts are soft.  Peter Drucker at the start of the millennium suggested that the greatest opportunity to emerge from the Internet would be in logistics – that while technologists grappled with ever more efficient trade infrastructures, trade would surge, at a global level, requiring worldwide fulfillment.  Continued imbalances in wage rates would be taken advantage of, so that production costs could be offset in an increasingly competitive environment. Shipping costs would be minimized – optimized – through clever management of physical points of production, and the timing of production.  The planet, in production terms, would become super efficient, in order to best serve the consumer, and most profitably serve the brands to which consumers were subscribed.

But something interesting has begun.  In the first instance, wage rates have inevitably begun to rise in large developing labor markets such as India and China.  The continued optimization of supply chains has meant that shipping costs are less and less of a concern – though they remain high.  It seems that an important reason for the mitigation of shipping costs as an issue is the avoidance of shipping costs.  In addition, the emergence of 3D printing offers massive opportunities for distributed manufacturing, or micro-manufacturing, which changes the way in which production happens.  It needs to be said however that this technology is in its infancy – but it should mature rapidly.

In trading and commerce terms, the internet has brought the consumer much closer to the producer.  Retailers are under extraordinary pressure to differentiate their offering, and increasingly that does not come in the form of product, but in terms of value added services.  Responsive after sales support, exceptional customer experience, and deep customer engagement are the hallmarks of successful retailers today.  There aren’t many examples to show – and the number of failed retail brands keeps rising.  More and more consumers compare and buy online, without ever visiting the high street or the mall.

The online shopping experience for the consumer is becoming a complex, real-time, intelligent mediation between the consumer and the producer.  Wholesalers are less and less relevant, and retailers – even online – are more and more responsible for that consumer-producer mediation.  Proctor and Gamble have for some time now been offering products directly to the consumer.  Electronics companies are increasingly selling directly to customers – as Apple has done for many years.  Companies like Google, eBay, and Yahoo are becoming more about the facilitation of real-time commerce execution, fueled by big data – where the big data point is really important.  If you’re a producer, you can ‘hire’ a company like Google to connect you to people who are likely to want to buy your product.  As a producer, you can stay good at making good products, and focus on that, while online big data jockeys create the connections for you with buying consumers.

So – leaping forward – retailers disappear, wholesalers disappear, and the whole supply chain transforms as a result of increased automation, integration, and analytics.  With all of this technology, it is almost as if we are returning to the simple days of direct producer to consumer trading.  And in a way we are; but in a virtualized, globalized context, the producers are only making those products for people when they need them; and they are only interacting with consumers at the point in the purchasing cycle when it is most relevant.

All of this happens on a telecommunications network.  The connectivity that underpins all of this worldwide commerce transformation is provided by the telco.  These are the networks upon which everything is possible.  As we contemplate the future of the industry, there are two significant points to take from this – first, how can our industry enable these connections in the cloud, through machine to machine connections, collaboration solutions, and the like? And, second, how can the abundance of data that is available to telecommunications companies about their customers be used to help producers understand consumers better?  In answering these two questions, the true latent value of telecommunications in a Smarter Planet context can be revealed.

Digital Transformation Segment Leader, IBM Global Telecommunications Industry

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