Welcome to the Fourth Industrial Revolution
Ecommerce continues to act as an upsetting force throughout the industrial world, prompting rapid advances in technology and the way we conduct business. The most recent upheaval a merger between nationwide drugstore chain CVS and Aetna, one of America’s largest healthcare providers. As other corporations like Amazon and UPS change the status quo in their respective industries, they’re shaking the very foundations of our economy.
The 1800s, the early 1900s, and post-1980s each represent a turning point for technology in modern human history. These periods are known as the first, second, and third Industrial Revolutions. The first is marked by the transition of many agrarian societies into industrial, urban ones. The second centered upon oil, electricity, and mass production of machines like automobiles. The third heralded the advent of the digital age, the Internet, computing, and information technology rising to the forefront.
According to German engineer and economist Klaus Schwab, we are experiencing the dawn of a fourth Industrial Revolution, centered around high technology that is embedding itself deep within our society. Essential to “Industry 4.0” is the Internet of Things (or IoT). Opposed to machines that accomplish a single task, modern technology is capable of communicating with humans, interacting with other devices and programs, and creating seamless integration between the digital and physical worlds. As intelligent automation becomes the norm, the role of human beings in nearly every industry continues to change.
In commerce, businesses emulate the characteristics of new technology spurring this transition. Just as digital devices are building a network between their world and ours, so too are companies. Gone are the days where one could quickly turn a profit by performing a single, narrow service. Businesses are now expected to be able to network online, deliver products, and maintain brick-and-mortar storefronts, all while extending their reach into similar industries to better encompass all the needs of the consumer.
A single company’s success is measured by its flexibility between industries, between media (like physical and digital retail spaces), and the implementation of new technology such as artificial intelligence and IoT.
The New Frontier
In late October, the New York Times reported that pharmacy giant CVS was in talks with healthcare provider Aetna to arrange a merger. The $69 billion merger announced December 3 is one of the most significant corporate acquisitions to take place this year and one of the largest in history for the healthcare industry.
Interestingly, these talks began mere weeks after CVS completed a partnership with Anthem, the second-largest healthcare insurance provider nationwide. Aetna sits in a close third place. Anthem and CVS are in the process of creating a new pharmacy management company. Pharmacy Benefit Managers (PBMs) essentially act as middlemen between consumers and drug distributors, creating prescription plans and offering services like home delivery and bargain-hunting. How CVS would manage to work closely with two of America’s largest healthcare companies remains to be seen, but Forbes reports it would be highly unusual in an industry that has faced intense anti-trust scrutiny over the past few years.
Many outlets speculate that — as is the case in so many markets these days — the move is a reaction to an impending foray into healthcare by Amazon. They recently obtained licenses to distribute pharmaceuticals in 12 states, although it will be a while before they can move in in earnest — at least a decade, according to CNBC.
The deal is indicative of a broader trend rearing its head indiscriminately in markets throughout the economy. The driving force: ecommerce. Just as a CVS-Aetna merger blurs the line between pharmacy and health insurance providers, ecommerce has led businesses to reach into industries and technology that are far from traditional, from Amazon’s move into housing to UPS’ implementation of artificial intelligence.
Circling the Wagons
Corporations like Amazon and Walmart bring a significant amount of firepower when they move into new markets. They are not passive about it either, extending their feelers wherever they sense wiggle room. Naturally, businesses that already exist in these markets do not want to give up their control. The adage “the enemy of my enemy is my friend” is becoming a driving philosophy.
Mergers are becoming everyday news, and the dollar amounts involved are growing larger. More businesses realize that the only way to survive is to take a lesson from Voltron, combining themselves into larger, more competitive unified entities. These deals range from the consolidation of functionally similar companies to industry-bridging amalgamations that redefine decades-old commercial boundaries.
CVS, Anthem, and Aetna
As we mentioned previously, the combination of health insurers with a large physical pharmacy chain represents changes to healthcare. CVS, which also operates a fleet of walk-in clinics both in its own buildings and in Target stores, is poised to become a truly all-in-one provider for medical necessities. If they succeed, in the best-case scenario, we will start seeing more streamlined, consolidated models like theirs where customers can get pharmaceuticals, insurance, and in some cases actual healthcare all in the same place.
With the debate over the future of the healthcare industry raging at a national level and skyrocketing costs for prescription drugs, there is no shortage of uncertainty in the market. Both Anthem and Aetna have stated that partnering with CVS will allow them to bring more transparency to — and possibly lower — drug prices. Of course, as the aforementioned anti-trust concerns would indicate, it is also possible that this would place too much power in the hands of a few all-encompassing corporations.
That is not to say independent doctor’s offices cannot compete; direct primary care is a new trend that allows doctors to bypass patient insurance requirements entirely. Similar to streaming services like Netflix and Hulu, it will enable these doctors to accept subscription-style payments to cover the drugs and services the average patient needs.
Whereas the traditional, insurance-based system encourages doctors to see as many patients as possible in as little time, direct primary care enables them to focus more intently on a smaller number, but also at a cheaper overall cost. Direct primary care physicians are also more likely to save their patients money by prescribing generic pharmaceuticals as opposed to more expensive (though functionally the same) name brand drugs. If this model continues to gain traction, it could altogether revolutionize the way we get our medical care, forcing the big guys to compete with the smaller ones on grounds that may favor the latter.
Traditional Grocery, Online Grocery, and Meal Kit Delivery
The grocery industry is another fantastic example of businesses joining forces in the face of adversity. We recently posted about Albertsons’ acquisition of up-and-coming meal-kit delivery company Plated. Albertsons possesses the resources of a veteran business with physical locations throughout the country, while Plated is a product of the surging popularity of online shopping and minimal-prep home cooking.
Amazon looks to be spurring movement here as well, as their Whole Foods buyout drives change. While standalone businesses like Whole Foods and Blue Apron have either been forced to sell out or continue to stagnate, both Albertsons and Plated seem set to prosper. As consumers continue to demand home delivery and maximum convenience, these marriages of old and new will likely be the norm moving forward.
Walmart, Jet, and Small Retailers
Walmart made news in 2016 with their high-profile acquisition of online retailer Jet.com. Since then, Jet and its respective CEO, Marc Lore, have been leading Walmart’s ecommerce division in an impressive number of retail buyouts. From fashion-first clothing company ModCloth to outdoor outfitter Moosejaw, they have had their sights set on Internet expansion for months. They have not slowed down, purchasing New York-based 24/7 delivery startup Parcel on October 3rd, a maneuver that will allow them to offer same-day delivery in the Big Apple for groceries and retail goods alike.
They have been perhaps the most significant example of large-scale corporate consolidation in recent history, in part because they are in direct competition with Amazon and are at great risk for ecommerce-induced obsolescence. Through each of these instances the trend remains the same — rapid buyouts as a defense mechanism against larger companies or a shifting market climate that threatens to dislodge businesses that have thus far stayed comfortably in their place.
While mergers and shake-ups like these are undoubtedly noticeable, they are far from the only effect the Fourth Industrial Revolution is having on our economy, and divisions between markets are not the only walls being broken down. The very line between online and physical retail is crumbling, and businesses now need a foothold in each realm to stay truly competitive.
It is easy to assume that the rise of ecommerce is merely forcing brick-and-mortar businesses to sell their wares online. However, the reality is not quite so straightforward. Instead of pushing the market in one direction, it is moving in both directions simultaneously. While real-world businesses are being made to adopt delivery and digital marketing, companies that have operated up to this point on an online-only model now realize that they need storefront space.
What people can hear, see, and feel, they are more likely to buy. The Harvard Business Review details several studies showing that the sense of touch is a crucial element of the sales process. If shoppers are able to experience the heft of a solidly constructed phone case or sit in a warm, comfortable chair inside a store, they are significantly more likely to pull the trigger on a purchase. This is something that can’t be provided purely by online retail, and Internet sellers that realize this are bringing their businesses back to terra firma.
The clothing company, which we mentioned previously for their merger with Walmart earlier this year, makes their way into another category because of their entry into physical retail in October 2016. They recognized that brick-and-mortar is not dead just because lots of mall stores and older retail businesses are floundering. Younger consumers simply desire a more personalized, interactive experience.
Acting on this knowledge, instead of operating a typical clothing outlet, ModCloth employed “ModStylists” that personally fit and recommend clothing to walk-in customers. Items in those precise measurements can then be ordered online and shipped anywhere. By staking out a presence in the real world, they are offering the human touch and ability to see and feel a product that many shoppers still desire while avoiding the negative aspects like distance limitations and having to maintain a large in-store inventory. It translates seamlessly into their ecommerce business, meshing those in-store advantages with the range and efficiency of online shopping.
Amazon and Whole Foods
Amazon’s acquisition of Whole Foods is perhaps the most newsworthy move from digital to physical retailing this year. The health food chain had been struggling after failing to capture the loyalty of the Millennial demographic, and Amazon swooped in to halt their freefall. While we have yet to see precisely what Amazon has in mind for their shiny new network of 460 stores, we have some educated guesses.
Amazon has been pushing into grocery since 2007 with AmazonFresh, which has evolved from a Seattle-based experimental grocery delivery service into one that operates nationwide. It has achieved steadily growing success, expanding city by city over the decade it has been operating. This year, they rolled out AmazonFresh Pickup, a drive-in style grocery store where you can order online and pick up in person. It is likely that their newly obtained real estate will serve as a network of distribution hubs and pickup locations to grow AmazonFresh even further. They also might function as testing grounds for new retail technologies like Amazon Go, a supermarket without cashiers where you just fill your basket and walk out.
Regardless of scale between humble ModCloth and the behemoth that is Amazon, where a business sells their products is only a part of the equation. How is a question better answered by an unexpected ally: robots. It’s become increasingly ordinary to see artificial intelligence in commerce. Robots perform tasks from direct-to-consumer interaction to advanced analytics. The key to their success, ironically, is how they can be humanized for customer service roles.
As Business Insider states, one of the most daunting challenges any ecommerce business faces regardless of the market they operate in is finding a way to compete with Amazon. There are very few realms that remain immune to Amazon’s influence, and one of the ways these smaller businesses have been honing their competitive edge is through the use of artificial intelligence. A study was recently released showing that large percentages of online retailers now plan to invest in A.I. by 2021.
These companies are trying to offer highly personalized experiences for shoppers. One of the most potent ways to do this is to employ technology that is capable of emulating human contact to deal directly with customers, as evidenced by the recent activation of UPS’ Chatbot. They can offer a “personal touch” without expending the vast amount of resources it would take to hire actual people to fill that role.
A.I. isn’t just good for impersonating humans. It’s also able to utilize advanced algorithms to create personalized recommendations for individual buyers based on previous trends and habits. A store can sell more goods faster if it uses artificial intelligence that knows what the customer wants before they start searching. The savings in time and money are well worth the initial investment.
From improved disease diagnosis to enhanced farming techniques, our lifestyles are being revolutionized by A.I. However, this is not the only way robots are being employed.
Shipping and Logistics
Applications for robot brains in logistics are nearly boundless. All the way down the supply chain, handing the reins to computers that can learn as they work means undeniable increases in both speed and efficiency. At the start of 2017, Amazon utilized over 45,000 A.I. warehouse robots to expedite their shipping process; they seem intent on ending it with over 100,000.
While this video is from 2014, it is the latest explaining how these robots work, giving a sense of the enormous size and scale they are operating on. “The 320 pound robots can lift up to 750 pounds. They have motion sensors to detect objects in their way and can travel between three and four miles per hour. Amazon says the robot’s small footprint allows it to squeeze 50% more inventory into this warehouse, which is the size of 50 football fields.”
Outside of the warehouses, self-driving vehicles are making it both faster and safer to get products to consumers. Not only do they reduce the risk for loss of life by not needing a driver present, but the technology packed into these automobiles is capable of reacting to traffic incidents much more quickly than any human, cutting down the risk of a crash altogether. Even Domino’s Pizza began testing autonomous delivery cars earlier this year. This is in addition to their experiments with drones last year.
Farming in Developing Countries
On the topic of food, Addio AI, a Singapore-based tech company, is attempting to launch an artificial intelligence-based service called Nikka that could help farmers increase crop yields in Asia. From Forbes:
“The Nikka platform relies on hyperspectral and microwave imaging to identify issues such as pest infestations or underwatered soil areas. If the system detects a pest infestation in a neighboring town, a participating farmer will receive a text message alert. He’ll then call an appointed number and receive voice instructions on how to protect his own crops. Or, if the infestation has already reached his fields, the system will direct him to the infected areas so he can move quickly to mitigate the damage.”
If more enterprising entrepreneurs invest in technology like this, it could not only play a part in making our agricultural system more efficient but lend a helping hand in places less fortunate. It’s a big planet, and everyone has to eat; there’s as much room for businesses to grow here as there is for crops.
You could even bring this kind of technology to your own backyard with Farmbot, an open-source linear robot farming system that manages raised planters through your computer or phone. Not unlike the popular Facebook game Farmville, users can drag and drop plants on a grid and set up automated tasks so that Farmbot weeds, plants, and waters your garden for you. However, A.I. can be used for more than just farming and warehousing.
Accurate Medical Diagnoses
For years, the purpose of medical equipment was to simply receive information from a subject and transmit it back to doctors so that they could form a diagnosis. Now computers are beginning to perform both roles. From mammograms to clot-detecting brain scans, artificial intelligence can detect patterns in data and uncover potential dangers in an industry where every second counts. The New Yorker reports that the newest of these machines are built with “something akin to layers of neurons.” These layers enable them to utilize “deep learning,” where each level of neurons processes data and sends it up to the next. Earlier this year, Nature published a study wherein A.I. was tested on its skin cancer diagnosis capability; it outperformed dermatologists in nearly every instance.
Imagine a world where you can take a picture of a rash, and rather than having to make the trip to a clinic, you simply use an app to identify whether you need further attention. It would ease the burden on our healthcare system while also providing instantaneous peace of mind to potential patients.
Of course, it’ll likely be a while before this sort of thing is implemented — diagnosing disease is serious business, especially where maladies like cancer are concerned. Medical professionals need to be absolutely sure that A.I. programs are more efficient than clinical examination before they are given responsibility for whether someone may live or die. Still, as the dermatology test suggests, we’re on the cusp of a life where machines, not man, are the custodians of our health.
As we enter the Fourth Industrial Revolution, there isn’t a facet of our lives that isn’t going to be affected by technology like the Internet of Things or artificial intelligence. From your local electronics store to farms in Singapore, we’re living in a world that is always a step ahead. As a consumer, you will experience convenience the likes of which you have never known. As a business owner, it will be up to you to take the initiative to ride the wave of innovation. Boundless opportunity awaits; will you grasp the robotic hand of the future?