Notes

[MUSIC]
Okay, welcome back everybody.
Let's start at the start.
This is module one, online offline
interaction,
omni channel, and all those great buzz
words.
So, as I mentioned earlier we all live now
both
in the physical world, and also in the
virtual world.
We're on our phones, we're on our tablets,
we're on the Internet.
And we want to start thinking about what
this means
for customer behavior, and what this means
for commerce.
So what I want to do to begin our
discussion here is
to think about the two most important
frictions that the real world throws
our way.
That the virtual world helps us get over
in terms of overcoming those things.
So the first friction that the real world
throws our way is a friction called search
friction.
So imagine, back in 1987 and you want to
buy a big screen TV so
you can really get an up close and
personal view of the Rugby World Cup.
So you face the following problem.
Which store shall I go to, to buy the TV?
Who's going to have the best assortment?
Who's going to have the best price?
It's so very, very hard
for you to know.
So, you think, well the closest store to
my house is three miles away.
Let me go over there and check out the
products and prices.
And you find a price on a TV there, let's
imagine it's 2,500 U.S. dollars, $2,500.
And so then you're faced with another
decision.
Do you buy the product there at the store
for $2,500, or do you incur the cost?
The search cost and the time cost to get
in your car and to
drive to another store, in the hopes that
you might find a cheaper deal.
So this was back in 1987, and this is
called the friction of search.
Meaning that if you want to get better
deals,
better prices, better assortment, better
value, higher satisfaction,
you've got to go out and search for things
and you incur a cost of doing so.
And this is a problem that's been studied
by economists for decades and decades.
In fact, a very famous economist who won
the Nobel Prize, talked about the
economics of information.
And actually derived some mathematical
formulas about how often and
how long you should continue to search.
And when you should just stop and say
okay, enough is enough, let me buy this
one.
Now let's fast forward to 2013.
Or even 2011, because that's the Rugby
World Cup again, 24 years later.
It's the same two teams playing in the
final.
Again in my home town of Auckland, New
Zealand.
And now, instead of having to go through
that
process, you can go onto a website, let's
say, milo.com.
M, i, l, o, .com, started by
one of our students at the Wharton School
at
The University of Pennsylvania, and later
purchased by ebay.
And milo.com will tell you the prices and
the assortment
of the various products that you might
want to buy.
You can do it all from the comfort of your
home, from the comfort of your cell phone.
And so what the Internet has done in that
case is, it has reduced the friction of
search.
Reduced the friction of search, so that's
the
first major thing that the online world
does,
that helps us out in the offline world.
And so some of you who are out there, you
might be thinking about, gee,
perhaps I could start a business, that
would help people reduce the friction of
search.
A business like Yelp.
you might want to figure out where you're
going to go and eat your dinner.
If you go onto Yelp, you can get reviews
of other users about what
restaurants are the best restaurants to
eat
at, the best value in your neighborhood.
So, there are many, many important
businesses that
have started to reduce the friction of
search.
That's the first one.
The second friction that gets thrown your
way is the
friction of the geography that you end up
living in.
So let's imagine that I live in Manhattan.
I don't, I wish I did.
Let's imagine I lived in New York City.
In New York City everything is available
to me all day, all night.
I have all the shops that I want to
go to to buy anything that I could
possibly Imagine.
If on the other hand, I have a quieter
life and
I live in Iowa City, there are some
benefits of that.
But also in terms of the products and
services I have available to me, they are
much more limited.
So, there's the friction of geography.
Meaning that the location that you have
chosen to live in,
offers you certain benefits, but also
imposes certain costs on you.
So if you want to fancy pair of designer
jeans and
you live in New York City, you can
probably just
walk out of your door and go and buy a
pair from any number of stores right there
in Manhattan.
If you live in Iowa that's going to be a
little bit more difficult.
So you might want to therefore
go on to the Internet, step into the
virtual world, and
purchase products that then can be
delivered to your geographic location.
So that's the second thing that the
Internet does for us.
It reduces the geographic friction of
where we live.
So, again, I want you to keep those two
things in mind as we go ahead.
There are other things we could think
about
as well, like transport frictions and so
on.
But search friction and geographic
friction are
the two most important principles, that
help
us understand how the real world and the
virtual world interact with each other.
[MUSIC]