Hybrid-Cloud Technology: Retail Opportunities & Challenges

How has the hybrid cloud transformed retailing? 
The sheer volume of change that has inundated the retail industry during the last twenty years is staggering.  The proliferation of high-speed internet, 24/7/365 online shopping, smart ubiquitous mobility, and social networks have created the most fickle and demanding consumers in history.  Amazon has broken and is rewriting every rule of an industry that has steadfastly clung to its cherished “basics” for centuries.  The retailers that are surviving and thriving are those that can focus on differentiated customer experiences, driven by innovative and agile technology platforms and services, in an environment that includes hundreds or thousands of remote, disparate, non-technical stores.  This would be unlikely or cost-prohibitive without the hybrid cloud model.  Cloud technology at its core reduces IT costs, complexity, and develop/delivery time to market compared to traditional retail technology platforms.  Hybrid clouds typically increase security (in most cases), privacy, system availability, and accessibility from virtually anywhere, at any time, on any device.  But perhaps the greatest transformative benefit of hybrid cloud for retailers is adaptability – enabling the business to adjust and scale to changing business requirements which exploit emerging technologies with fewer constraints from decisions made and contracts signed in the past.  For this reason, 93% of retailers identify hybrid cloud as the ideal IT model, above the 91% global average across industries, and are quickly moving away from the traditional data center infrastructure according to a report by enterprise cloud computing company Nutanix.

What are the current challenges CIO’s in the retail space face managing their hybrid cloud deployments? 
Retailers clearly see hybrid cloud’s potential; however, several challenges and technical barriers still exist which are encumbering these retailers from fully embracing hybrid cloud’s transformative benefits. These challenges are reflected in the disparity between the 93% of retailers ranking hybrid cloud as the ideal IT model and the industry’s 21% penetration of hybrid cloud deployments, the second-largest among all industries according to Nutanix.  Topping the list of challenges is a shortage of hybrid cloud skills, ranked second only to skills in artificial intelligence and machine learning.  Specialized in-house skills are required to supplement cloud vendor resources when architecting hybrid cloud solutions that meet retailers’ specific requirements.  Compounding this challenge is the legacy issue of retaining IT talent, which will only be exacerbated by the anticipated growth of 22% in hybrid deployments over the next two years.  The biggest technical barrier for retailers currently is the ability to move applications between different cloud environments easily and inexpensively which enables IT teams to better manage their cloud costs while still balancing management, security, and performance requirements.  For retailers, fully realizing hybrid cloud’s potential means enabling them to:  a) pick the right cloud environment for each application based on service, cost, and security requirements, b) change the runtime environment for a given workload at any point in time, as application and/or business requirements change and c) avoid vendor lock-in.

How will 5G impact retailers and their use of the hybrid cloud?
When discussing all things retail today the center of focus is always the customer.  They have become retail’s primary change agent and are forcing retailers to rethink every aspect of their business.  Customers have become adept at adopting technology as fast as it’s innovated which has put an incredible burden on retailers’ ability to stay relevant by differentiating the shopping experience.  The bar is now a personalized experience – catered specifically to each customer whenever, wherever, and however they choose to engage.  That requires a LOT of data and data collection devices, and intelligent cloud services to store and analyze that data on its way to becoming a personalized shopping experience – that connects, often in real-time, with the latest technology a customer has adopted.  Enter 5G and hybrid cloud – a match made in retail heaven.  “5G is more than just a better connection. It’s a better connector,” says Michael Koziol, CEO at Huge, a global strategy, design, and innovation firm headquartered in Brooklyn, NY. “The adoption of 5G technology will create a contextual reset around what it means to be connected and give rise to entirely new interaction, relationship, and business models.”  When combined with a hybrid cloud, 5G offers tremendous potential for retailers to include high-quality data capture and processing in near–real-time, the ability to react to captured intelligence live and on the fly, the ability to provide a user experience well beyond an “omnichannel” expectation, and a true blending of the best of digital and physical commerce.  IHS estimates that there will be 1.7 billion 5G-connected IoT devices globally in 2022.  5G’s massive capacity and ability to improve real-time responsiveness will be essential to support this connectivity explosion – which the industry is counting on to ensure personalized experiences such as personalized digital signage, augmented reality, virtual reality, video and pattern recognition of shoppers, interactive mobile apps, smart dressing rooms, robotics, hyper-awareness throughout the store, and a fully intelligent supply chain – to name a few.

Do you see the dominance of AWS / Azure being challenged in the future as retailers look to rationalize their cloud deployments? 
Today retailers have 15% public cloud penetration and hybrid cloud deployments at 21% according to Nutanix.  Projections see growth to 22% during the next two years.  While much of this penetration may be shared between Azure and AWS today, that’s an awful lot of cloud adoption potential still left on the table and there are numerous factors in play that will drive where and how retailers will adopt cloud computing over the next 10 years.  For example, we’re already seeing a reluctance by several major retailers, including Kroger and Walmart, to partner with Amazon on their cloud platform.  Besides the obvious desire to not contribute to their explosive revenue growth, there have been concerns regarding the privacy of sensitive data, especially customer transaction and relationship activity.  This isn’t a concern for all retailers, in fact for some partnering with Amazon makes sense.  Another factor that may impact where and how retailers influence the adoption of cloud computing is the thousands of niche applications and services that retailers count on throughout the business year to help drive their business.  The retail industry is aided by thousands of specialty software programs that are designed for various niches and needs, such as weather and emergency situation management. The average retail chain uses about 450 such applications — far more than most other industries. Naturally, those software programs get heavy use at certain times while they are shut down at others.  Not all are cloud-based, but all are logical candidates for cloud computing going forward.  

How are retailers using the hybrid cloud to support the omnichannel and the expanding m-commerce space? 
For most retailers, at least initially, the primary hybrid cloud benefit for omni-channel was cloud bursting.  Retailers have numerous periods in which their business activities, such as new product launches, marketing campaigns, holidays, or seasonal events temporarily boost the demands on their computing resources. Cloud bursting is a hybrid cloud technology that allows an application running in a private cloud or local data center to extend (or “burst”) out to the public cloud when the demand for computing capacity spikes. Cloud bursting allows a retailer to handle temporary workload increases by extending their local infrastructure using scalable cloud resources without the need to purchase additional local computing resources.  

What are the current trends across the retail hybrid cloud landscape? 
The trends are constantly evolving, but a few recent items are worth mentioning.  AmazonGo has received a lot of buzz over the last year with its pilot of cashier-less stores.  A host of other companies are working on similar projects, many are startups, but a few major players like Walmart and Carrefour are testing the Bag’nGo approach.  Last year news broke that Microsoft was working on cashier-less technology and was in talks with Walmart to roll it out.  The implications of this for Amazon could be significant given the depth and breadth of Walmart’s retail footprint.  The accuracy of Bag’nGo technology requires a tremendous amount of artificial intelligence and machine learning, both of which rely on a significant amount of visual and transactional data to become proficient – and all of which would reside in a hybrid cloud.  Walmart’s ability to compile a significant amount of customer experience data with the experimental technology could quickly dwarf that of Amazon, even with the Whole Foods acquisition.  If this technology takes off it could reach a $50B market in the U.S.  Microsoft and Kroger announced an alliance in the latest example of how big U.S. retailers are deploying data-rich technology to improve the often-tedious ritual of food shopping and keep pace with Amazon.com.  Kroger built a retail-as-a-service offering on top of Azure and will use some Azure AI technologies. Microsoft and Azure will jointly market Kroger’s commercial retail-as-a-service (RaaS) product based on this solution to other retailers. Azure will store and process data generated in stores, near smart shelves, and on Kroger’s application. The coming RaaS will use Kroger’s Edge (Enhanced Display for Grocery Environment) Shelf, which is a smart shelving system using digital displays to show prices, promotions, and nutritional and dietary information. 

Any other comments you would like to make? 
Keep an eye on how 5G may super-charge edge computing in retail.   Edge computing involves performing complex compute functions closer to the user—and away from decentralized cloud servers.  Coupled with 5G, edge computing allows cloud computing applications to happen at the edge of the network, significantly reducing latency.  As telecom providers build 5G into their wireless networks they will increasingly add micro-data centers that are either integrated into or located adjacent to 5G towers. Retailers would be able to own or rent space in these micro-data centers to do edge computing, then have direct access to a gateway into the telecom provider’s broader network, which could connect to a hybrid cloud platform – all in the name of personalized customer experience!

3 thoughts on “Hybrid-Cloud Technology: Retail Opportunities & Challenges

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