business news in context, analysis with attitude

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week, we focus on the importance of fast responses in a digital world, why resistance to change usually is futile, and a lightning round of quick questions and answers.

And now, the Conversation continues…

KC: There was a story that I read the other day about how Consumer Reports gave a negative grade to the Tesla 3, and that Tesla was able to get the grade changed because, once it was made aware of what was essentially a sluggishness in its braking system, it was able to very quickly come up with a fix. Unlike most automobile companies, which would have to issue a recall notice and wait for owners to bring their cars in, Tesla was able to perform a remote software update that instantly improved the braking distance on the every Tesla 3 on the road. In the Fortune story, they wrote that the ability to do an over-the-air update "surprised Jake Fisher, director of auto testing at Consumer Reports. Fisher, who has been at CR for 19 years and tested more than 1,000 cars said in the CR write up of the testing and new decision that he’s 'never seen a car that could improve its track performance with an over-the-air update’.”

It seemed to me when I read this story that in some ways it is an almost perfect metaphor for what you and I talk about all the time, and have been focusing on here in all our Innovation Conversations - technology not only allows people and companies to do what never has been done before, and to do it with increasing speed and potency, but also begins to change the consumer perception. Granted, we all don’t drive Teslas, but next time I see a recall notice for any car, or maybe any appliance, I’m instantly going to think about Tesla and how they didn’t have to recall anything - they just had to fix it. And, the Tesla story also reminds us of how scary innovation can be - because it is a little frightening that Tesla could just make that change in people’s cars without them even knowing about it. If they can do that, what else can they do, and what else can they know?

Tom Furphy:
Every day we experience the risks and benefits of personalization in our online interactions. Most websites that we visit, most posts that we like and most products that we look at are logged by commercial enterprises and used to market and sell us more products and services. We’ve seen how this can turn ugly when information, and then trust, is compromised. Those risks are real and it’s imperative that information is kept secure and used only for authorized purposes. The companies that do this the best will continue to earn trust and be able to have the privilege to use the information.

We are now entering an era when much of the “hardware” we use in our lives are connected. Cars, devices, appliances and wearables increasingly include software that helps the hardware operate and also knows a lot about us, how often, where and when we use the hardware, and can adapt the performance of the hardware based upon this awareness. This can lead to richer experiences with the hardware such as updates to functionality, changing performance based on conditions and replenishing supplies.

In the case of Tesla or other connected cars, the manufacturer could know how, when and where you’re driving in real time. They could target contextual messages or offers into the car based on permissions. The cars performance could be adapted based upon the driver. Maybe I like a stiffer, sportier ride and my wife likes a mellow luxury ride. The car would know when I need maintenance and could schedule it online directly with my dealer, could sync with my calendar and could suggest convenient appointment times. Any system and capability upgrade could be remotely deployed. Done right, all of these could dramatically improve my customer experience with the car.

It’s not hard to envision how this could enhance your experience with your refrigerator, washer & dryer, coffee maker, filtered water pitcher, vacuum cleaner, electric toothbrush and more. Having all of this connected into commerce and replenishment is going to happen. Done right, it will be a big win for consumers. It can also be a massive win for the retailers and manufacturers that get it right.

KC: If the Tesla story makes it clear what is possible, there was another story that I read that seemed to make it clear what often is probable, because change and innovation often scares people and makes them protective of what is rather than embracing of what can be. There was a story in the New York Times about a group that is bankrolling political efforts all over the country - in Arizona, Arkansas, Michigan, Tennessee and Utah, for example - to fight against the bankrolling of mass transit systems that have been proposed in order to deal with specific problems including too many cars clogging up city streets, pollution, and even the propensity by an increasing number of urban dwellers not to own cars. Now, the anti-mass transit say that their position is rooted in a desire for smaller government, and government-backed transit systems require bigger government, and a deep-seeded belief that public transit is anti-freedom, because freedom, in this construct, means being able to get around in your own car (or I guess, if you go back far enough, on your own horse), and not waiting for a train or bus and be dependent on schedules.

To me, this argument falls apart because it does not recognize a changing reality - that many communities really are too crowded and require alternatives. (How crowded and unmanageable would places like New York or Seattle or Chicago be without mass transit?) There’s also the matter that not everyone can afford their own car (or horse). Now, we can have a perfectly reasonable discussion or debate about how such efforts can and should be funded, and whether government needs to find a more efficient and effective approach. (The falling apart system in Washington, DC, would certainly make that case.) But there’s another reality about the situation that again serves as a good metaphor for how some businesses approach change and innovation - the bankrolling of these political movements comes from business interests that have their roots in oil, gas, asphalt, and the automobile industry. Am I right that in some ways these folks are making the same mistake that we talk about when we discuss the move from horses to cars … that many in the buggy whip business probably complained and whined and even contributed money to anti-car forces, but the smart ones figured out how to sell or fix cars. To borrow a line from Star Trek, isn’t resistance almost always futile?

I think resistance to the extent that it can make us aware of risks and present valid counter-arguments can be valuable. For instance, in the recent case of the Seattle business head-tax, not only Amazon, but many groups came forward in opposition and presented several valid arguments against the tax. This resistance likely averted negative consequences and also seems to have garnered wider focus on the core issue being addressed – dealing with the rising homelessness situation in Seattle. Likely an overall positive outcome.

However, if resistance is being used to push back against a market force, it will certainly be futile. The horse & buggy interests campaigning against automobiles lost to a market force. And the automobile interests campaigning against mass and alternative transportation will lose to a market force as you outline. The same will happen in retail.

Retail has constantly evolved over generations based on the underlying capabilities and infrastructure that have been available at any time. As capabilities evolve, shoppers gravitate toward those capabilities and retailers that best serve their needs. We’ve seen that across format evolution and we are now seeing it in the format change to digital. As digital capabilities and fulfillment infrastructure improve, and as store formats evolve, the retailers that best match these capabilities to shopper needs will win. That’s the way it’s always worked. To try to hold on to old paradigms and resist change will certainly be futile.

KC: This is our last Innovation conversation until after Labor Day - though we’ll come back for a quick Innovation Chat if something in the news prompts us to. So, I have three “lightning round” questions for you.

In 2016, Amazon Prime Day sales were $1.52 billion. In 2017 (when it ran a little longer), they were $2.41 billion. Make a prediction: How big will they be this year?

$3.65 billion.

KC: Yes or no - do you think there will be a major merger and/or acquisition affecting the food retail business between now and Labor Day? (This could be two retailers, or a retailer buying some sort of tech company, or a retailer being bought by someone else.)


KC: What will be the New York Mets’ record when Labor Day hits, and will Jacob deGrom still be on the staff, or will he have been traded to a contending team? (These questions pain me, as they do you … but I had to ask.)

Sadly, I don’t think the Mets get to 70 wins this year. Sadly, I can see them more 20 games below .500 by Labor Day. Call it roughly 53-77. I think the Mets keep deGrom on the roster. To trade him means they are committed to rebuilding from the ground up. I don’t see that happening.

Have a great summer!

KC: I’ll go with $3.8 billion … yes … and because I’m more of an optimist about the Mets than you are, I’ll say they’ll be 54-76, but that deGrom won’t be pitching for the Mets. (Though this also could mean that, like virtually every other player on the team, he could be on the DL.) It is going to be a long, painful summer for Mets fans.

As noted above…The Innovation Conversation will return on Wednesday, September 5.

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