The physical transformation

Behind the digital stands the physical. Behind Amazon stands Bhiwandi. Behind Google, FaceBook stands Iceland.
At a time when people are mooning over the digital I thought it made sense to show the business in the physical allied to the digital and also to demonstrate the linkages between the two. First however is to understand what we mean by digital. Everyone uses the word as if it is self-evident but I am skeptical. In fact, I am certain that everyone is using it as a catch-all phrase just as is happening with the word ‘cloud’! As a corollary, I am also skeptical of ‘digital transformation’ but we will come to that at some other time. I am keeping this short as I wish to make a simple point, especially from the perspective of thinking through what is involved in understanding a business and businesses.

The inescapable physical

I have not formally studied technology but can say this much that there is nothing purely digital. I start by defining the digital as not-physical, using a well-known technique of negative definitions. And I also find it easy to understand the digital by referring to the way films are now made. Earlier, films were made in films (wow!) and stored as a roll – images stored in a physical device. Many libraries have stored information in microfilms, widely considered the most efficient way to store information. We have had music audio & video CDs, as well as films, again images stored in a physical device. When you downloaded an e-book, you did so into a Kindle Reader or into iBooks in an Apple device. Even if you wish to listen to digital music, there still needs to be ‘some place’ where you can so listen. As far as I understand, at a minimum, a website – say iTunes or Spotify-, which means at least one physical object, a server in some data centre somewhere. Even when people talk of the cloud or a virtual office, they forget that there still has to be some data centre somewhere. You can’t shake free of the physical.

The point is not physical or digital but how businesses are run and what is required to keep them running better and better. One of the companies which has grasped this is Amazon as it has understood how to close loops. Some of you may recall reading a few days ago that Amazon India was leasing 6.06 lakh sq ft warehouse space in Bhiwandi near Mumbai to cater to its growing number of customers in India. Clearly signaling it is in India for the long term, Amazon has signed the deal for 20 years. It had also entered into an agreement to lease over half-a-million square feet warehousing space from the Xander Group’s industrial real estate platform for a similar long-term tenure. (https://economictimes.indiatimes.com/tech/tech-bytes/amazon-picks-up-6-06-lakh-sq-ft-warehouse-space/articleshow/86184772.cms?from=mdr).

Not just this, and not just in India. Ever hungry for more space, in the US Amazon had converted as many as 25 malls into distribution centers during the period from 2016 to 2019 (https://chainstoreage.com/amazon-has-converted-many-25-malls-distribution-centers, April 6, 2021) According to this story, failed malls became warehouses to serve Amazon’s needs, especially during the pandemic when e-commerce had a field day.

The logic is simple and clear. Digital here is just a means of accessing and ordering but delivery cannot be. In Amazon’s case, when customers want instant or rapid delivery, the only way to is set up distribution centres throughout its demand centres such that it can cut down the delivery time. Remember, Amazon has an efficient returns policy too which also cannot function without such a distribution and warehousing back-up. To be fair, much the same must be true of Flipkart or any other e-commerce entity because they are catering to the same kind of customers.

However, it is not just e-commerce entities who are hungry for space.

In 2017, Samsung India leased 1.10 lakh sq ft office space in Mumbai’s Goregaon (https://economictimes.indiatimes.com/wealth/real-estate/samsung-india-leases-1-10-lakh-sq-ft-office-space-in-mumbais-goregaon/articleshow/57583127.cms?from=mdr). A sizeable chunk of Samsung’s business addresses the digital space. And in September 2021, we read that Samsung leased 357,000 sq ft at Noida Brookfield. You can find many more example if you searched specifically for digital businesses scouting for office space.

Now that office space can be smartly designed, especially keeping in mind the growing legion of start-ups, digital or otherwise. And since this is a considerable business opportunity, you have companies like WeWork, Innov8 “turning the need for small flexible office spaces into a business” (https://www.livemint.com/companies/news/wework-india-launches-virtual-offices-11624862465781.html). This is not a new business. Many small businessmen in Mumbai have grown with such shared offices with the office not more than a table and a telephone. If you recalled, many hotels, especially those near the airports, began catering to the day business traveler offering convenience of location and comfortable spaces to conduct their meetings and catch the late night flight back home. The office space is going to be a battlefield of innovation.

Let us explore this from another angle. Most people are aware that data storage has been a growing problem with the ever growing mountains of data but they should also know that there has been considerable sophistication in techniques and devices to store data. The ever decreasing size of storage devices but holding larger amounts of data is too well documented to need mention here. Let me mention just this that it has become easier to store even CT scans, MRI and such medical images. Even videos for that matter, especially by security agencies. All signify improvement in storage devices and techniques. Whole families of machine learning algorithms cannot perform at all without such stored medical images.

Look at the Internet of Things (IoT) widely considered to be the most influential factor in the process of digitization. However, the world of IoT is predominantly a world of sensors, physical things that capture and store digital images and sounds! Or let us look at the growing internet traffic especially images, audio and video, with constant alerts from your service providers to increase your storage space, for a price of course. And this ‘cloud’ storage could well be in Iceland, where so many of the world’s largest technology companies have set up giant-sized, cloud-enabled data centres, chiefly because Iceland has plentiful supply of cheap power thanks to large potential in less expensive renewable energy sources. And the search for such centres is never ending.

Hanging together- Twin dimensions

I can go on but I do hope you get the drift of my argument – don’t focus on one side of any technological development. I do not mean to say they are a unified whole; often, they are not. But the gap between the two keep pushing the other to progress. Just look at the history of embedded software in the last few years and you can see what I am arguing.

The point of this writing is not to be contrarian but merely to demonstrate that whether digital or physical, every business needs other businesses to take care of its own business. This is how it has always been. Even if you are fascinated with the digital there is no escaping understanding how to set up a flourishing digital business. Consider for example QR codes which have been around for over a decade but have only now become successful as a common way of making payments because an ecosystem facilitating the entire cycle of transactions is now in place. More than the physical, the digital can survive and flourish only when the entire facilitating ecosystem is present. Else you will have to create one.

The digital is indeed a fascinating space and we will explore it but we need to get the basics right. Let me sum up: The physical has to keep pace with the digital; the digital too responds to possibilities opened up by the physical. So, behind Amazon is Bhiwandi, behind Google, Facebook is Iceland!

Takeaways

Digital requires the physical to complete its objectives

Think more from the perspective of business and what is required to be done

Digital is fascinating but will fail without an ecosystem

The physical and the digital co-exist, feeding off each other