Microsoft's Nadella Says Tech Intensity Will Drive Retail in 2020

Automation and prediction through data will be core for retailers going forward, according to Microsoft CEO Satya Nadella.

In his keynote speech for the NRF 2020 Retail’s Big Show conference, Nadella discussed how ever-growing mountains of data shape retail and likewise informs what Microsoft develops in response. Some 92 major retailers use Microsoft’s cloud platforms, he said. “That’s teaching us a ton about how to build technology so it can serve your needs.”

The National Retail Federation is hosting the annual conference through Wednesday in New York, bringing together incumbents and startups in technology with retailers who use or may need their services. Nadella’s keynote framed the need not only for the collection of data but a plan of action to work with it. “Data is only useful if you in real-time can predict or automate something better and gain insight,” he said.

The core elements of digital transformation are becoming mutually essential to operations in retail, Nadella said. This is leading to a phenomenon he called intelligent retail where data is used to understand consumer behavior as a crucial part of digital in retail. Taking advantage of newfound efficiency and synergy may become necessary for retailers to thrive in coming years. “The idea that you can bring the back office and the front office together as one seamless process and experience is going to be a requirement,” Nadella said.

Art and technology are helping to reinvent business models in retail, with more change on the way, he said. “Underlying all of this is what we describe as the capability around tech intensity,” Nadella said. “That’s the need of the 2020s. Every retailer will need to build their own tech intensity.”

The faster retail adopts the latest innovations, the better, he said, otherwise organizations might seem like they are reinventing the wheel just to keep up. That ongoing transformation may include proprietary technology developed by organizations to meet their niche needs. “You will need to build your digital capability."

One of the top tech trends he foresees spreading through the industry is personalization. About 30% of ecommerce sales come from recommendations and he said that percentage will keep increasing. Nadella said the market has reached a point where consumers expect personalized interaction with retailers, which can be accomplished through data and AI. “This is at the tip of the spear of how digital capability can shape what retail of the future looks like.” 

There are already examples of AI being put to work across multiple aspects of the retail process. Nadella cited Starbucks, which developed their own AI technology called Deep Brew. “They built this using reinforcement learning; it’s driving their recommendation engine in the Starbucks app,” he said. “It’s something they are going to use across multichannels.”

Retailers have valuable assets, Nadella said, in the form of commercial intent and consumer behavior data. That information must be converted into marketing efforts that can be leveraged. For example, Marks & Spencer, he said, has implemented compute in-store to give the retailer the ability to track all activity including the length of the checkout process in real-time.

Nadella proposed that other retailers should consider similar approaches embedding compute throughout their operations to take greater advantage of transformation. “What if you took the entire store and effectively thought of it as a computer?” he asked. “You do that with your website and mobile app. What if the physical space itself had all of the computing signal, all of the analytical signal you have on your website?”

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