Tom Ortega II

The Life Cycle of Commerce

In Business, Technology and Software on December 28, 2016 at 2:06 pm

TL;DR

Commerce has a life cycle just like human life does. Our world is full of patterns that oft repeat, why should commerce be any different? We started with bazaars and villages, then shops and cities, then department stores and metropolises, then malls/big box stores and suburbs, and finally (I predict) a return to the bazaar and village lifestyle with a technology twist.

I see the traditional retail model ending. Recently, we saw enclosed malls die off in 2006. Next, it was big box stores (sans food retailers) in 2013. With the explosion of home based businesses in 2016, the future is very clear. The bazaars of old where vendors congregated to meet consumers will make a comeback with a spin: No longer will either party have to go anywhere because the bazaars will be rise from suburban neighborhoods via home based businesses. Much like Amazon is a software driven business, so too will these new bazaars be driven by modern software. The difference is that instead of one software platform to serve them all (as in Amazon’s case), these new bazaars will be driven by a hodgepodge of various mobile apps and complimentary platforms, mimicking the diverse makeup of the new industry they will serve.

The Early Days – Commerce is Born

Cities grew where commerce happened. Villages/Towns existed near the raw goods that powered the commerce in cities. Suburbs grew in between them both to give city slickers the chance to pretend they lived in the open spaces their ancestors grew up in. (These suburbs weren’t important early on but they’ll play an important part later.)

Commerce happened where people were. Thus, the earliest bazaars were setup near important life-giving resources like water. Vendors would use camels or ox to get their goods to the bazaars. People would barter for or buy what they needed on their way home from getting water.

Bazaars would shut down at night for a variety of reasons. One, because the people would leave to go home. Two, there was no light. That second one eventually changed though.

Candlelight – Commerce Becomes a Child

Candlelight was good for many things: doing work, reading a book, seeing our lovers expressions, etc. It also allowed humans to indulge in that other favored past time: shopping! With candle light, we could now stay up later and see each other’s faces while doing commerce. We could count money to insure all was on the up and up.

What fire gave, it also took. For one, a vendor could lose all their merchandise. A dropped candle or an angry mob could easily light up and burn a vendor’s stand.

Two, you couldn’t really show off your goods in “their best light” as the saying goes. Therefore, people did a few transactions in the dark, regretted it, then likely waited for daylight to do their important shopping.

Plus, thievery would be far too simple in the dark corners that candlelight couldn’t reach.

Smart vendors would likely just raise their prices to compensate for all this. In either case, there was likely a lot of whining and crying like the child this age represents.

Candlelight also enabled bazaars to start to become cities: an important step in the commerce evolutionary chain. As cities grew, commerce was needed to keep them happy. More people equals more needs and more needs means the chance to make more profit. Mobile vendor stands started to setup more permanent shops. Many shop keepers moved their family into dwellings above or at the back of the shop, which added to the size of the city which spurred even more commerce growth.

As shops grew in size, so did their offerings. Like a child who has a dizzying array of differing tastes, so too did the shop take on this multiple personality. It was a giant shop filled with what resembled smaller shops, renamed as departments. A consumer could complete a shopping trip at one department store what once took stops at 4 or 5 shops to complete.

Electricity – Commerce Hits Puberty

Like the shock a human body goes through as it enters the teen years, so was commerce jolted by electricity. Electricity improved all the benefits of candlelight and eliminated most of the harmful effects.

Now products looked good at all times of the day. In fact, it made more sense to enclose shops and give a uniform lighting to the goods at all times.

Alarm systems could be setup to prevent thievery. Therefore, there was no more need to have people living in or atop their shops.

Almost mirroring the overboard feelings of emotions of this age, we see the exuberance and emergence of the robber barons. The icons of commerce leveraged cities, electricity, etc. to amass large fortunes through uncontrolled and unregulated capitalism. They also popularized the “a few can suffer so the masses can benefit” thinking that continues in the mind of some business executives til this day.

Cities also benefitted from electricity transforming themselves into metropolises. Instead of expanding outward, people and structures could now move upward. Soon came the skyscrapers and high rises that make up our modern day urban canyons. As people stacked upon each other, the need to stack and compact commerce also grew.

Something else changed as well. Much as the voice of a human changes at this point in the human timeline, so did the voice for how retailers spoke to consumers. Instead of having to shop face to face, people could now start to order via a catalog. Many out in the countryside could now shop and own the same merchandise that previously required a trip to the city. The catalog book was short lived in the history of commerce, but will make a comeback later in a new and improved form.

Malls and Big Box Stores – Mental Change vs Physical Change

When humans hit their twenties, great mental changes occur after the body starts to settle down. It’s often the time we find a permanent mate, marry, and start a family. We begin to see the strength and safety of numbers vs going about it on our own. We take jobs and pile on the responsibilities at work and at home.

Commerce did something very similar with the introduction of the mall concept. Here we take a couple department stores as anchors (much like parents) and attach dependent smaller shops (like children). The bigger stores share the brunt of the costs like the adults of a family, while the smaller shops have the leeway like children to try out new concepts and ideas. If one of them should fail, it won’t bring down the entire cohesive unit. They can retreat, lick their wounds, then try again.

The other mental shift was turning inward, much like parents do. Gone were the days of having your storefront windows on the street for passerby to look and see. In fact, unless you were a department store, consumers couldn’t even see your store from the outside at all. Once you looked inside the mall though, then there was glass everywhere and bright lights to help the shoppers see your goods. The key was that you had to get into the mall to see the benefit, much like you have to be inside a family unit to see the benefit.

Many of the department stores also had catalogs (i.e Sears, Montgomery Wards, J.C. Penny’s) so there was two streams of income for the anchor stores at the start. Whatever they couldn’t stock in store, could easily be ordered in store from the catalog.

Eventually, the idea of malls gave way to the big box stores. These were often not attached to malls in the early days since they house almost all the stores of the mall inside their own walls. In addition, to combat the catalog issue, we saw the emergence of speciality big box stores which were huge stores dedicated to categories like sports, outdoor equipment,  electronics, office supplies, etc.

Here consumers also started to change how they shopped. Malls introduced the concept of fast and easy choices. You no longer had to buy everything from the same retailer, but rather, it was simpler to buy the brands and items you wanted from the store that had exactly what you wanted for the price you wanted and was mere steps away. Big box specialty stores began to feed the budding need for instant gratification with their extensive product selection. These two concepts (choice and instant gratification) seemed great to the malls and big box stores at the time, but ultimately led to their demise.

Instant gratification slowly killed the printed catalog market. Why wait a few days when you could just walk to a different store or drive to another nearby mall? Those that leaned too heavily on the mail order aspect of the business eventually failed and went out of business. However, to keep that stock on hand, big box stores were making shipping much more efficient with trucks and trains. This led to a drop in the cost of delivery which was good for their markup at the time, but bad for their future profits.

The Internet & Smartphones – Maturity

One of the reasons big box stores and department stores were big was so they could stock a lot of inventory. Sometimes, like Barnes & Noble, it was because it was easier to make the warehouse the store vs constantly shipping inventory from the warehouse to the store. The goal was to give the sense of infinite choice, because it was impossible to provide infinite choice. Well, it was hard to implement infinite choice via hardware (i.e. stores, shelves, displays) but software came along and solved that problem with the internet.

With the internet, you really could now have infinite inventory and infinite shelf space. When shelves were virtual and on a screen, it didn’t matter how much there was because it wouldn’t take much effort for the user to scroll through it. Concepts like Drop Shipping and Fullfilment Centers came into being because of this. In fact, some businesses such as eBay, Expedia, Easy, etc didn’t have inventory at all. They were merely the virtual storefront for other people’s inventory.

This was basically the catalog business though, wasn’t it? Why did it work now when it killed others off a few years before? First, since catalogs were so encompassing, they were these huge massive books that weighed a ton. You couldn’t afford to print and ship those out to everyone on a regular basis, so printed catalogs quickly became dated and out of sync as soon as they were delivered. Websites, i.e. virtual catalogs, could be updated in real time in regards to inventory and styles. Not only that, but websites could update pricing in response to market conditions and capitalize on a craze and/or need. Also, shipping became a lot cheaper and better than it used to be.

This dangerous combination of limitless selection and quick delivery took instant gratification to a whole new level once the smartphone hit. Prior to that, online shopping required consumers a little bit of effort to get to the desktop computer to shop and click the buy button. With the proliferation of smartphones though, that tiniest bit of friction was now dead. Internet shopping had finally matured into the full fledged adult it wanted to be. Sure, there’ll still be some efficiencies gained in delivery times, as well as customization of the products, etc. Where it goes next is what I find most exciting though.

Neighborhood Bazaars – The Wise Years/Restart the Cycle

Up until this point in the story, I’ve related history to show the maturation of the commerce life cycle over time. Looking forward, I present to you my visions of what’s to come next. I may be right or I may be wrong, but in my eyes it’s as clear as day and as inevitable as time itself.

The one thing that has remained constant throughout the history of commerce is people. People (consumers) buy from other people (vendors). Sometimes there are groups on each side of the equation, i.e. students, employees, citizens on the consumer side and corporations, mom & pop, conglomerates on the vendor side. Way back when in the bazaar days, you not only traded material goods, but you also traded information. The social aspect of the bazaar was almost as important as the commerce aspect.

Shopping malls evolved the concept of “hanging out” to a higher level with teens becoming mall rats, especially to escape the weather (extreme highs or lows). What happened during the mall rat phase was only exacerbated in the internet phase: vendor relations and social relations drifted further and further apart. No one would dare say that Amazon or eBay is a social site. The Q&A and Reviews sections don’t even come close to qualifying as social aspects. Gone are the days where you received your news from your preferred vendor. I think humanity misses that.

There will always be some hermits who prefer no human interaction, but most people enjoy talking and having a good time while they shop. This is particularly true for people who use shopping as cathartic therapy to rid themselves of the pains and struggles of life. Much of these pains are due to working at a stressful job or with people one does not like or enjoy.

It’s no surprise then that Home Based Businesses (HBB) are on the rise. Big box stores and malls allowed the suburbs to grow and thrive. More and more people bought suburban homes, bigger than the smaller apartments they’d have in the city. People eventually tire of the commute (or stresses of life mentioned above) and thus desire to stay home more. Many people start home based businesses to hopefully allow them to do that. Most of those businesses have you selling something vs manufacturing something of your own. This is a good thing that will only grow more and more common.

It will be interesting to see if the inevitable acceptance of Telecommuting/Remote Working will stem the rise of HBB. I hope what will instead effect that will be a rise in true entrepreneurship amongst the masses. It would be great to see a resurgence in the specialization of skills (i.e. bakers, butchers, farmers, etc) but I doubt that will be the case. Another possibility is that it may give people more opportunity to dabble in a HBB while leveraging the pay and benefits of a remote/telecommute job for a larger corporation.

Regardless, I think we will get back to the basic premise of shop near you. In fact, I think it will be really, really near you as in across the street vs across town. This will in turn return us to the days of hearing the neighborhood news from the people you shop from.

Obviously, shop owners will once again live in their shops. Or put in a more modern sense, people will now open up shops in their homes vs renting some space that sits empty at nights and possibly on weekends. Renting retail/office space in a strip mall will one day seem as foreign to some as having a shop in your house currently is for others.

When such neighborhood bazaars do open up and begin to thrive, we will again evolve catalogs to the next level: living catalogs. At the moment, the internet gives us real time catalogs with infinite choices and pricing, but few present the real life, changing daily options that the neighborhood bazaars will. A chocolate eclair may be available today at your neighbors house, but tomorrow she may have found a great batch of blackberries to make a blackberry tart instead. What if you want a chocolate eclair though? No worries, hop on your mobile phone and find the nearest neighborhood bazaar that has a pastry chef who does have chocolate eclairs for sale today. Big cities like New York or Hong Kong already have that luxury, but this will be a way to bring the suburbs up to par with those thriving metropolises without the congestion or higher costs.

The last bit that this “return to the old” experience will deliver is what Benedict Evans calls the “Facebook of ecommerce”. When you buy from neighbors and bump into friends as you shop, there will naturally be a level of discussion and interaction that will help bring best of breed products for YOURSELF to the top. Instead of peering into the limitless shelves of a virtual store, you’ll instead be introduced to the 20 or so products that you’ll likely buy over and over until you die. You may be buying that blackberry tart and mention that your kids will stain their clothes while eating it. The pastry chef may then recommend this wonderful cleaning product that Mary down the street sells that is perfect at removing berry stains, among other things.

Note: I think this bazaar works better for consumables. I don’t think people will begin to sell say TVs or cars out of their homes (though they very well could), but instead, it’ll be things that we buy, use up and repurchase such as potions, lotions, prepared foods, clothing, repairs, etc.

Conclusion

I have concrete examples of how I feel the tail end/reboot of the commerce life cycle will go, but they will have to be written up in a separate post for another day. This post was more to collect my thoughts and to prove to the naysayers that I’ve done my research and studied models in the past. I’ve intimately worked with technology over the past 20 years and mobile technology the past 10 years or so. I spend probably an unhealthy amount of time thinking up what the future of commerce holds when we all have computers in our pockets and desire for interaction in our hearts.

I am a strong believer in voting with my dollar. I am a true capitalist in that I love to make money to spend money. I hate inefficient systems and look at ways for which I can remove those inefficiencies. I constantly dream up systems that bring about the demise of retail and internet commerce as we know it, but also bring about a resurrection of the good facets from commerce’s past. Many people think that mobile is dead and that it’s time to move on to VR, but I don’t think so. I have about 5 or 6 mobile apps that could bring about some great change in the commerce space. I hope 2017 is the year that I finally begin to deliver those ideas out into the world so I can help bring about this change.

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