Making it Happen
Few would argue that IBM is one of the most iconic American businesses and the driving force behind the advent of computers, which have forever changed the way we work and live. But a retail trailblazer?
Indeed. The company, which celebrates its centennial this month, also pioneered technology that has redefined the retail industry, from the UPC barcode system and magnetic stripe technology used on credit cards to the platforms that power retailers’ e-commerce businesses.
Here’s a look at some groundbreaking IBM technologies — and the people behind them — that have reshaped the retail industry, including Watson, the Jeopardy-slaying supercomputer it hopes will usher in the next phase of retail change.
Magnetic Stripe Technology
I t was the late 1960s, and IBM was faced with the challenge of updating the point-of-sale payment business, which was inaccurate, costly and used an old card imprinting technology “that wasn’t reliable and was expensive,” recalls Jerome Svigals, the former IBM project manager who is known as “the father of mag striped cards.”
At that time, when a shopper paid with his credit card, a retail sales person would capture the transaction by imprinting the card’s raised embossed characters against a piece of paper to get an imprint of the consumer’s bank information. The store would then have to call the shopper’s bank to approve the sale transaction.
IBM was under a time pressure to come up with a reliable, machine-readable technology, Svigals says. The airline and banking industries were betting on the company to devise an improved payment method fast: ultra-modern 747s were coming online, and the airline sector was worried about the increased number of passengers who would be flying. Meanwhile, banks were worrying about the rollout of ATMs.
“We decided that the thing to do was magnetics,” Svigals recalls, but IBMers were scratching their heads as to how to get the strip of magnetized tape to adhere to the plastic card.
The “a-ha” moment came when IBM engineer Forrest Parry was sharing this dilemma with his wife, who had been ironing. She suggested that he use the iron to melt on the strip. It worked. Svigals then developed the process by which the magnetic stripe is hot-stamped onto the plastic credit card.
Today, “There are five billion swipes of a magnetic card every day,” says Jill Puleri, IBM vice president and global retail leader. “It absolutely changed the way we handle payment.”
The magnetic stripe card and the magnetic stripe readers at POS were “the catalyst for the use of credit cards at retail,” she says. “It really paved the way for a cashless society.”
The advent of “e-money,” or the “e-wallet,” shorthand for an electronic wallet, is the magnetic stripe card’s natural descendent. Already in use in Japan, e-wallets store credit card information in smartphones. Consumers can use their phone for payment much the same way they use an E-Z pass to whiz through a toll booth, Puleri says.
The UPC Barcode System
G eorge Laurer joined IBM in the summer of 1951 as a junior engineer. Two decades later, he would usher in a technology that would revolutionize the retail industry: The Universal Product Code, which has come to be known as the barcode.
The UPC barcode system was born out of the need to adjust to the changing climate of post-war America. The grocery industry, amid the boom in suburban supermarkets, was looking for ways to automate checkout at stores to increase speed, reduce hiring costs and computerize inventory management.
In 1970, Laurer went to work on scanning labels and developing a digitally readable code. “In 1973, prior to the UPC, stores could only know the dollar amount of merchandise sold and sometimes the department that stocked it,” Laurer says. “It wasn’t until a physical inventory was taken that the store knew what items were sold.”
When the retailing and manufacturing industries adopted the product identification system along with the related deployment of scanners, it allowed for the large-scale collection of consumer data.
With the advent of the barcode, stores knew immediately what items were sold. And this knowledge was power: With it, “They could update their inventory and reorder as necessary,” Laurer says. “Among other things, they could track sales promotions so they could optimize them.”
The UPC code debuted on a package of Wrigley’s Juicy Fruit chewing gum in 1974 at a Marsh’s supermarket in Troy, Ohio. (The gum? It’s now on display at the Smithsonian’s National Museum of American History in Washington, D.C.) Today, the UPC is a universal standard and the most widely used inventory-tracking tool around the world. For retailers, its development resulted in precise inventory control, savings and improved customer service, all while yielding reams of marketing data.
I t was 1995, and then-IBM chief executive officer Lou Gerstner was seeking a new direction for the company.
As booming dot-com startups were tapping this new frontier called the World Wide Web, Gerstner saw what he termed “e-business” as part of IBM’s “strategy for our future.”
Gerstner had a hunch that companies would start to conduct business on the web at a time when the Internet was largely a curiosity and a browsing tool. His focus was prescient, says John Mesberg, vice president of B2B and commerce solutions for IBM.
Retail was one of the first areas IBM targeted. In 1996, the company debuted Net.Commerce, which designed online retail storefronts but didn’t include an online checkout for payment.
Net.Commerce evolved into a tool set called Websphere, an application server that offered retailers a suite of products and services that enabled them to build their own e-commerce sites or purchase “provided packaged solutions,” Mesberg says.
Websphere gave retailers a reliable and trusted e-commerce platform, Puleri says. Today, IBM’s technology is powering the e-commerce sites of the nation’s biggest retailers — from Sears to Staples. “We have the largest market share today of retailers’ e-commerce platforms,” Puleri says.
In April, the company introduced Smarter Commerce, the latest iteration of Websphere. Smarter Commerce “allows our retail clients to really interact in a powerful way to the changes…revolving around the power the consumer has begun to aggregate due to social [networking] and mobile [commerce],” Mesberg says.
What is, Watson?
I BM has high hopes for its latest supercomputer, especially in the retail space. Watson uses advanced analytics to understand the meaning and context of human language: It gained fame by outsmarting the two most prolific “Jeopardy” champions. IBM invited executives from key industries, including retail, to be guests in the audience for the taping of those shows so that when they saw the computer in action, “a light bulb could go off,” says Michael Haydock, chief scientist and retail analytics leader for IBM.
“Watson reasons and makes decisions based on evidence,” Haydock says. “It’s like a really smart person and a good example of artificial intelligence.” While its applications in the retail industry are in their infancy, IBM is currently working with merchants to explore its potential.
“What we are trying to do is program the machine in a retail setting for guided customer selling and guided customer service” in real time, he says.
Let’s say a Best Buy shopper is seeking to indentify the optimal cable for connecting his 3D Blu-ray player to his plasma TV — a purchase decision complicated by many factors, including inputs/outputs on the respective machines. “We think Watson is perfect for answering those types of questions,” Haydock says.
But it will be a while before IBM and its partners can program the computer for myriad retail environments and applications, he says. “It takes a bit of lead time to get this thing right,” but when it does, IBM envisions Watson acting as a sales associate as well as facilitating retail supply chain, “understanding price points so it can do re-ordering and shipping, among other applications,” Haydock says.