[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]
