Notes

[MUSIC]
So, again let's continue our discussion of
how our two worlds,
the virtual world and the real world,
interact with each other.
Now, of course the virtual world provides
great things.
We can buy almost anything we want, at any
time we
want, on various websites and through
various apps and so on.
And yet, government statistics tell us in
the United States at
least, and this is fairly similar in other
parts of the world.
That 92 to 94% of everything that's
bought,
is store bought offline in real world
stores,
whether we're talking about a pair of
pants, a pair
of shoes, and certainly whether or not
we're talking about groceries.
In fact, groceries are a very, very
interesting case, and
I would encourage you to follow this as we
go
along through our course, you might have
noticed that Amazon
now is getting into the grocery business
with Amazon Fresh.
And this will be a really interesting one
to follow because currently I think
only about one percent of groceries in the
United States are actually sold online.
And, you probably enjoyed seeing Pete
discuss
the customer issues, but Pete also is
somewhat
of an internet expert himself, my
colleague Pete Fader.
And I'm going to steal this little joke
from Pete.
Pete always likes to say that the fraction
of groceries
sold online in 2013 is roughly what it was
in 1713.
So roughly 0% with rounding.
And why is that?
Well there are significant frictions.
First of all there may be the issue of
delivery time.
Thats the barrier to getting things
online.
Of course our
friends at diapers.com can get us diapers
by 6pm in the United States
as long as we order them by 9am on the he
same day.
But even that may be too long for some of
us.
The second thing that prevents us from
buying
everything online, is we may face some
uncertainty about
the fit, the feel, the texture, the
quality, the
color of the products that we want to buy.
Do you really want to buy your bananas
online?
How do you know what they're going to
taste like?
Would I really want to buy this
shirt online, without knowing how it fits
and feels?
Well, it turns out there are ways to
overcome some of
these barriers, and I'll talk about this
as we go through.
But that is a second barrier, uncertainty
about what it
is that might arrive when it comes to your
door.
And then the third thing that's typically
voiced
by consumers as a problem with the virtual
world, is the cost of returning things,
even
if there are free two-way shipping, and so
on.
So, I think it's very,
very important for us to keep in mind at
this juncture, that even
though the internet is a great liberator
and brings us all kinds of things.
Most of what still gets transacted, is
getting transacted in the offline world.
And so those two worlds are going to
continue
to coexist like this for some time to
come.
So let me again share with you
a very, very interesting piece of academic
research.
It was done by some of my colleagues up in
Toronto, the Canadians, once in a while
do some very good things.
So, let me share one of the good things
that Canadians actually do.
I'm part of the Commonwealth, so I feel
like I can say that.
So, what they looked at is, they looked at
sales at amazon.com in various zip codes
around the United
States, and whether or not those sales
would be
influenced were a physical store to come
into the neighborhood.
So let's imagine you're living in
Philadelphia, zip code PA
19104, and right now there's no bookstore
anywhere in sight.
All of a sudden, a bookstore opens up
across the street from your apartment.
How would this affect the sales at
amazon.com, if at all?
Well, if your out there thinking that
sales at Amazon might go down because
some customers might now be encouraged to
walk across the street and buy books.
You'd be absolutely right.
When a virtual world store opens up in a
zip code,
sorry a physical world store opens up in a
zip code,
virtual world sales do go down, but they
don't go down for every product.
They only go down for the popular
products, because if
you wanted to buy Harry Potter and the
Sorcerer's Stone.
You can probably bet that that book is
going
to be in stock at your local book store,
and
so you might be able to run across the
street
and buy it, and indeed that's what the
researchers found.
When a real-world store opens up in a
zipcode,
amazon sells fall, but only for products
that are popular.
Now if you wanted to buy another book,
probably better than theHarry Potter book
but less popular.
There's a book called 101 years of all
black trivia.
In fact I suggest that you at least take a
look at that book.
But if you wanted to buy that youd be
unwise to go into the physical store,
because the
physical store would be unlikely to carry
a book
thats going to be so low in terms of
popularity.
And so this leads us to a very, very
interesting
concept, that I'm going to elaborate on in
subsequent sessions
that's called the Long Tail, the Long
Tail.
And it's a very, very interesting idea
about how
products and services that are sold over
the internet, change,
or the mix of products and services sold
over the
internet changes when we offer customers
more and more variety.
[MUSIC]