A Market for Morality

Things are going to get interesting in the world of marketing. And the first indication of that was seen this past Sunday during the Super Bowl. As Bob Garfield noted, there were a lot of subtle and not so subtle undercurrents of messaging in the ads that ran in between the distracting sub-story that played out on the field. Things got downright political with a number of 167 thousand-dollar-a-second ad swipes at the current president and his policies.

I and many others here at Mediapost have been criticized over the past several months for getting political when we should have been talking about media and marketing. But as this weekend showed, we’re naïve to think those two worlds don’t overlap almost completely. And that’s about to become even more true in the future.

Advertising has to talk about what people are talking about. It has always been tied to the zeitgeist of society. And in a politically polarized nation, that means advertising’s “going to go there”. That’s normal. What’s not so normal is this weird topsy-turvy trend of for-profit companies suddenly becoming the moral gatekeepers of America. That’s supposed to be the domain of government and – if you believe in such things – religion. That’s in a normal world. But in the world of 2017 and the minds of 53.9% of America (the percentage of the electorate who didn’t vote for Trump) there is a vast, sucking moral vacuum on at least one of those fronts. It seems that Corporate America is ready to step up and fill the gap.

Suddenly, there is a market for morality. Of course, we have always had “feel-good” advertising and codes of corporate responsibility but this is different – both in volume and tone. It is more overtly political and it plays on perceived juxtaposition of the mores of the nation and the official stance of the government. Markets are built to be nimble and adaptive. Governments are seldom either of these things. Corporate America is sensing a market opportunity by taking the high road and the Super Bowl marked the beginning of what may become a stampede to higher moral ground.

This isn’t the first time this has happened. Around the turn of the last century, we saw the rise of welfare capitalism. In a rapidly expanding industrial market where there was a scarcity of human resources and little legislative regulation of working conditions, corporations became paternalistic. The reasoning was that no one could better provide stability for workers than the corporation that employed them. What is different about the current situation, however, is that this moral evangelism is primarily aimed at the market, not internal operations. We’ll come back to this in a bit.

This creates an interesting dynamic. In a free market economy citizens have the right to vote with their wallets. After a deeply divisive election the debate can continue in a market suddenly divided along political lines. This is compounded by the interconnected and interactive nature of marketing today. We have realized that our market is a complex system and plays by it’s own rules, none of which are predictable. Social network effects, outriding anomalies and viral black swans are now the norm. As I said in an earlier column, branding is becoming a game of hatching “belief worms” – messages designed to bypass rationality and burrow deep into our subconscious values. Our current political climate is a rich breeding ground for said “worms.”

You might say, “What’s wrong with Corporate America taking a moral stand? “

Well..two things.

There is no corporation I’m aware of that has as its first priority the safeguarding of morality. As economist Milt Friedman said, corporations are there to make a profit. Period. And they will always follow the path most likely to lead to that profit. For example, Silicon Valley has been very vocal in its condemnation of the Muslim travel ban not because it’s not right but because it jeopardizes the ability to travel for its employees from Muslim countries. And a century ago, welfare capitalism spread because it helped employers hang on to their employees and gave them a way to keep out unions. Even if morality and profitability happen to share the same bandwagon for a time the minute profitability veers in a new direction, corporations will follow. This is not the motivational environment you want to stake the future on.

Secondly, there is no democratic mandate behind the stated morality of a corporation. There are a lot of CEO’s that have robust ideological beliefs, but it is fair to say the moral proclivities of a corporation are necessarily tied to a very select special interest group: the employees, the customers and the shareholders of that corporation. Companies, by their very nature, should not be expected to speak for “we, the people.” Much as we would like morality to be universally defined, it is still very much a personal matter.

Take just one of these moral stakeholders – the customers. According to Blend, a millennial messaging app, their users loved the Coke, Budweiser and Airbnb ads that all had overt or thinly veiled moral messages. But there was a backlash from Trump supporters asking for boycotts of all these advertisers along with others that got political. The social storms stirred up on both sides were telling. Reaction was quick and emotionally charged. In a world where branding and beliefs are locked together at the hip, we can probably expect that morality and marketing will be similarly conjoined. That means that morality, just like marketing, will be segmented and targeted to very specific groups.

Branding in the Post Truth Age

If 2016 was nothing else – it was a watershed year for the concept of branding. In the previous 12 months, we saw a decoupling in the two elements we have always believed make up brands. As fellow Spinner Cory Treffiletti said recently:

“You have to satisfy the emotional quotient as well as the logical quotient for your brand.  If not, then your brand isn’t balanced, and is likely to fall flat on its face.”

But another Mediapost article highlighted an interesting trend in branding:

“Brands will strive to be ‘meticulously un-designed’ in 2017, according to WPP brand agency Brand Union.”

This, I believe, speaks to where brands are going. And depending on which side of the agency desk you happen to be on, this could either be good news or downright disheartening.

Let’s start with the logical side of branding. In their book Absolute Value, Itamar Simonson and Emanuel Rosen sounded the death knell for brands as a proxy for consumer information. Their premise, which I agree with, is that in a market that is increasingly moving towards perfect information, brands have lost their position of trust. We would rather rely on information that comes from non-marketing sources.

But brands have been aspiring to transcend their logical side for at least 5 decades now. This is the emotional side of branding that Treffiletti speaks of. And here I have to disagree with Simonson and Rosen. This form of branding appears to be very much alive and well, thank you. In fact, in the past year, this form of branding has upped the game considerably.

Brands, at their most potent, embed themselves in our belief systems. It is here, close to our emotional hearts, which mark the Promised Land for brands. Reid Montague’s famous Coke neuro-imaging experiment showed that for Coke drinkers, the brand became part of who they are. Research I was involved in showed that favored brands are positively responded to in a split second, far faster than the rational brain can act. We are hardwired to believe in brands and the more loved the brand, the stronger the reaction. So let’s look at beliefs for a moment.

Not all beliefs are created equal. Our beliefs have an emotional valence – some beliefs are defended more strongly than others. There is a hierarchy of belief defense. At the highest level are our Core beliefs; how we feel about things like politics and religion. Brands are trying to intrude on this core belief space. There has been no better example of this than the brand of Donald Trump.

Beliefs are funny things. From an evolutionary perspective, they’re valuable. They’re mental shortcuts that guide our actions without requiring us to think. They are a type of emotional auto-pilot. But they can also be quite dangerous for the same reason. We defend our beliefs against skeptics – and we defend our core beliefs most vigorously. Ration has nothing to do with it. It is this type of defense system that brands would love to build around themselves.

We like to believe our beliefs are unique to us – but in actual fact, beliefs also materialize out of our social connections. If enough people in our social network believe something is true, so will we. We will even create false memories and narratives to support the fiction. The evolutionary logic is quite simple. Tribes have better odds for survival than individuals, and our tribe will be more successful if we all think the same way about certain things. Beliefs create tribal cohesion.

So, the question is – how does a brand become a belief? It’s this question that possibly points the way in which brands will evolve in the Post-Truth future.

Up to now, brands have always been unilaterally “manufactured” – carefully crafted by agencies as a distillation of marketing messages and delivered to an audience. But now, brands are multilaterally “emergent” – formed through a network of socially connected interactions. All brands are now trying to ride the amplified waves of social media. This means they have to be “meme-worthy” – which really means they have to be both note and share-worthy. To become more amplifiable, brands will become more “jagged,” trying to act as catalysts for going viral. Branding messages will naturally evolve towards outlier extremes in their quest to be noticed and interacted with. Brands are aspiring to become “brain-worms” – wait, that’s not quite right – brands are becoming “belief-worms,” slipping past the rational brain if at all possible to lodge themselves directly in our belief systems. Brands want to be emotional shorthand notations that resonate with our most deeply held core beliefs. We have constructed a narrative of who we are and brands that fit that narrative are adopted and amplified.

It’s this version of branding that seems to be where we’re headed – a socially infectious virus that creates it’s own version of the truth and builds a bulwark of belief to defend itself. Increasingly, branding has nothing to do with rational thought or a quest for absolute value.

The Bermuda Triangle of Advertising

In the past few weeks, via the comments I’ve received on my two (1,2) columns looking at the possible future of media selection and targeting, it’s become apparent to me that we’re at a crisis point when it comes to advertising. I’ve been fortunate enough to have some of the brightest minds and sharpest commentators in the industry contributing their thoughts on the topic. In the middle of all these comments lies a massive gap. This gap can be triangulated by looking at three comments in particular:

Esther Dyson: “Ultimately, what the advertisers want is sales…  attention, engagement…all these are merely indicators for attribution and waypoints on the path to sales.”

Doc Searls: “Please do what you do best (and wins the most awards): make ads that clearly sponsor the content they accompany (we can actually appreciate that), and are sufficiently creative to induce positive regard in our hearts and minds.”

Ken Fadner: “I don’t want to live in a world like this one” (speaking of the hyper targeted advertising scenario I described in my last column).

These three comments are all absolutely right (with the possible exception of Searls, which I’ll come back to in a minute) and they draw a path around the gaping hole that is the future of advertising.

So let’s strip this back to the basics to try to find solid ground from which to move forward again.

Advertising depends on a triangular value exchange: We want entertainment and information – which is delivered via various media. These media need funding – which comes from advertising. Advertising wants exposure to the media audience. So, if we boil that down – we put up with advertising in return for access to entertainment and information. This is the balance that is deemed “OK” by Doc Searls and other commenters

The problem is that this is no longer the world we live in – if we ever did. The value exchange requires all three sides to agree that the value is sufficient for us to keep participating. The relatively benign and balanced model of advertising laid out by Searls just doesn’t exist anymore.

The problem is the value exchange triangle is breaking down on two sides – for advertisers and the audience.

As I explained in an earlier Online Spin, value exchanges depend on scarcity and for the audience, there is no longer a scarcity of information and entertainment. Also, there are now new models for information and entertainment delivery that disrupt our assessment of this value exchange. The cognitive context that made us accepting of commercials has been broken. Where once we sat passively and consumed advertising, we now have subscription contexts that are entirely commercial free. That makes the appearance of advertising all the more frustrating. Our brain has been trained to no longer be accepting of ads. The other issue is that ads only appeared in contexts where we were passively engaged. Now, ads appear when we’re actively engaged. That’s an entirely different mental model with different expectations of acceptability.

This traditional value exchange is also breaking down for advertisers. The inefficiencies of the previous model have been exposed and more accountable and effective models have emerged. Dyson’s point was probably the most constant bearing point we can navigate to – companies want sales. They also want more effective advertising. And much as we may hate the clutter and crap that litters the current digital landscape, when it works well it does promise to deliver a higher degree of efficiency.

So, we have the previous three sided value exchange collapsing on two of the sides, bringing the third side – media- down with it.

Look, we can bitch about digital all we want. I share Searls frustration with digital in general and Fadner’s misgivings about creepy and ineffective execution of digital targeting in particular. But this horse has already left the barn. Digital is more than just the flavor of the month. It’s the thin edge of a massive wedge of change in content distribution and consumption. For reasons far too numerous to name, we’ll never return to the benign world of clearly sponsored content and creative ads. First of all, that benign world never worked that well. Secondly, two sides of the value-exchange triangle have gotten a taste of something better- virtually unlimited content delivered without advertising strings attached and a much more effective way to deliver advertising.

Is digital working very well now? Absolutely not. Fadner and Searls are right about that, It’s creepy, poorly targeted, intrusive and annoying. And it’s all these things for the very same reason that Esther Dyson identified – companies want sales and they’ll try anything that promises to deliver it. But we’re at the very beginning of a huge disruptive wave. Stuff isn’t supposed to work very well at this point. That comes with maturity and an inevitable rebalancing. Searls may rail against digital, just like people railed against television, the telephone and horseless carriages. But it’s just too early to tell what a more mature model will look like. Corporate greed will dictate the trying of everything. We will fight back by blocking the hi-jacking of our attention. A sustainable balance will emerge somewhere in between. But we can’t see it yet from our vantage point.

The Rise of the Audience Marketplace

Far be it from me to let a theme go before it has been thoroughly beaten to the ground. This column has hosted a lot of speculation on the future of advertising and media buying and today, I’ll continue in that theme.

First, let’s return to a column I wrote almost a month ago about the future of advertising. This was a spin-off on a column penned by Gary Milner – The End of Advertising as We Know It. In it, Gary made a prediction: “I see the rise of a global media hub, like a stock exchange, which will become responsible for transacting all digital programmatic buys.”

Gary talked about the possible reversal of fragmentation of markets by channel and geographic area due to the potential centralization of digital media purchasing. But I see it a little differently than Gary. I don’t see the creation of a media hub – or, at least – that wouldn’t be the end goal. Media would simply be the means to the end. I do see the creation of an audience market based on available data. Actually, even an audience would only be the means to an end. Ultimately, we’re buying one thing – attention. Then it’s our job to create engagement.

The Advertising Research Foundation has been struggling with measuring engagement for a long time now. But it’s because they were trying to measure engagement on a channel-by-channel basis and that’s just not how the world works anymore. Take search, for example. Search is highly effective at advertising, but it’s not engaging. It’s a connecting medium. It enables engagement, but it doesn’t deliver it.

We talk multi-channel a lot, but we talk about it like the holy grail. The grail in this cause is an audience that is likely to give us their attention and once they do that – is likely to become engaged with our message. The multi-channel path to this audience is really inconsequential. We only talk about multi-channel now because we’re stopping short of the real goal, connecting with that audience. What advertising needs to do is give us accurate indicators of those two likelihoods: how likely are they to give us their attention and what is their potential proclivity towards our offer. The future of advertising is in assembling audiences – no matter what the channel – that are at a point where they are interested in the message we have to deliver.

This is where the digitization of media becomes interesting. It’s not because it’s aggregating into a single potential buying point – it’s because it’s allowing us to parallel a single prospect along a path of persuasion, getting important feedback data along the way. In this definition, audience isn’t a static snapshot in time. It becomes an evolving, iterative entity. We have always looked at advertising on an exposure-by-exposure basis. But if we start thinking about persuading an audience that paradigm needs to be shifted. We have to think about having the right conversation, regardless of the channel that happens to be in use at the time.

Our concept of media happens to carry a lot of baggage. In our minds, media is inextricably linked to channel. So when we think media, we are really thinking channels. And, if we believe Marshall McLuhan, the medium dictates the message. But while media has undergone intense fragmentation they’ve also become much more measurable and – thereby – more accountable. We know more than ever about who lies on the other side of a digital medium thanks to an ever increasing amount of shared data. That data is what will drive the advertising marketplace of the future. It’s not about media – it’s about audience.

In the market I envision, you would specify your audience requirements. The criteria used would not be so much our typical segmentations – demography or geography for example. These have always just been proxies for what we really care about; their beliefs about our product and predicted buying behaviors. I believe that thanks to ever increasing amounts of data we’re going to make great strides in understanding the psychology of consumerism. These  will be foundational in the audience marketplace of the future. Predictive marketing will become more and more accurate and allow for increasingly precise targeting on a number of behavioral criteria.

Individual channels will become as irrelevant as the manufacturer that supplies the shock absorbers and tie rods in your new BMW. They will simply be grist for the mill in the audience marketplace. Mar-tech and ever smarter algorithms will do the channel selection and media buying in the background. All you’ll care about is the audience you’re targeting, the recommended creative (again, based on the mar-tech running in the background) and the resulting behaviors. Once your audience has been targeted and engaged, the predicted path of persuasion is continually updated and new channels are engaged as required. You won’t care what channels they are – you’ll simply monitor the progression of persuasion.

 

Media Buying is Just the Tip of Advertising’s Disruptive Iceberg

Two weeks ago, Gary Milner wrote a lucid prediction of what advertising might become. He rightly stated that advertising has been in a 40-year period of disruption. Bingo. He went on to say that he sees a consolidation of media buying into a centralized hub. Again, I don’t question the clarity of Milner’s crystal ball. It makes sense to me.

What is missing from Milner’s column, however, is the truly disruptive iceberg that is threatening to founder advertising as we know it – the total disruption of the relationship between the advertiser and the marketplace. Milner deals primarily with the media buying aspect of advertising but there’s a much bigger question to tackle. He touched on it in one sentence: “The fact is that a vast majority of advertising is increasingly being ignored.”

Yes! Exactly. But why?

I’ll tell you why. It’s because of a disagreement about what advertising should be. We (the buyers) believe advertising’s sole purpose is to inform. But the sellers believe advertising is there to influence buyers. And increasingly, we’re rejecting that definition.

I know. That’s a tough pill to swallow. But let’s apply a little logic to the premise. Bear with me.

Advertising was built on a premise of scarcity. Market places can’t exist without scarcity. There needs to be an imbalance to make an exchange of value worthwhile. Advertising exists because there once was a scarcity of information. We (the buyers) lacked information about products and services. This was primarily because of the inefficiencies inherent in a physical market. So, in return for the information, we traded something of value – our attention. We allowed ourselves to be influenced. We tolerated advertising because we needed it. It was the primary way we gained information about the marketplace.

In Milner’s column, he talks about Peter Diamandis’ 6 stages that drive the destruction of industries: digitalization, deception, disruption, demonetization, dematerialization, and democratization. Milner applied it to the digitization of media. But these same forces are also being applied to information and rather than driving advertising from disruption to a renaissance period, as Milner predicts, I believe we’ve barely scratched the surface of disruption. The ride will only get bumpier from here on.

The digitization of information enables completely new types of marketplaces. Consider the emergence of the two-sided markets that both AirBNB and Uber exemplify. Thanks to the digitization of information, entirely new markets have emerged that allow the flow of information between buyers and suppliers. Because AirBNB and Uber have built their business models astride these flows, they can get a cut of the action.

But the premise of the model is important to understand. AirBNB and Uber are built on the twin platforms of information and enablement. There is no attempt to persuade by the providers of the platforms – because they know those attempts will erode the value of the market they’re enabling. We are not receptive to persuasion (in the form of advertising) because we have access to information that we believe to be more reliable – user reviews and ratings.

The basic premise of advertising has changed. Information is no longer scarce. In fact, through digitization, we have the opposite problem. We have too much information and too little attention to allocate to it. We now need to filter information and increasingly, the filters we apply are objectivity and reliability. That turns the historical value exchange of advertising on its head. This has allowed participatory information marketplaces such as Uber, AirBNB and Google to flourish. In these markets, where information flows freely, advertising that attempts to influence feels awkward, forced and disingenuous. Rather than building trust, advertising erodes it.

This disruption has also driven another trend with dire consequences for advertising as we know it – the “Maker” revolution and the atomization of industries. There are some industries where any of us could participate as producers and vendors. The hospitality industry is one of these. The needs of a traveller are pretty minimal – a bed, a roof, a bathroom. Most of us could provide these if we were so inclined. We don’t need to be Conrad Hilton. These are industries susceptible to atomization – breaking the market down to the individual unit. And it’s in these industries where disruptive information marketplaces will emerge first. But I can’t build a refrigerator. Or a car (yet). In these industries, scale is still required. And these will be the last strongholds of mass advertising.

Milner talked about the digitization of media and the impact on advertising. But there’s a bigger change afoot – the digitization of information in marketplaces that previously relied on scarcity of information to prop up business models. As information goes from scarcity to abundance, these business models will inevitably fall.

What Would a “Time Well Spent” World Look Like?

I’m worried about us. And it’s not just because we seem bent on death by ultra-conservative parochialism and xenophobia. I’m worried because I believe we’re spending all our time doing the wrong things. We’re fiddling while Rome burns.

Technology is our new drug of choice and we’re hooked. We’re fascinated by the trivial. We’re dumping huge gobs of time down the drain playing virtual games, updating social statuses, clicking on clickbait and watching videos of epic wardrobe malfunctions. Humans should be better than this.

It’s okay to spend some time doing nothing. The brain needs some downtime. But something, somewhere has gone seriously wrong. We are now spending the majority of our lives doing useless things. TV used to be the biggest time suck, but in 2015, for the first time ever, the boob tube was overtaken by time spent with mobile apps. According to a survey conducted by Flurry, in the second quarter of 2015 we spent about 2.8 hours per day watching TV. And we spent 3.3 hours on mobile apps. That’s a grand total of 6.1 hours per day or one third of the time we spend awake. Yes, both things can happen at the same time, so there is undoubtedly overlap, but still- that’s a scary-assed statistic!

And it’s getting worse. In a previous Flurry poll conducted in 2013, we spent a total of 298 hours between TV and mobile apps versus 366 hours in 2015. That’s a 22.8% increase in just two years. We’re spending way more time doing nothing. And those totals don’t even include things like time spent in front of a gaming console. For kids, tack on an average of another 10 hours per week and you can double that for hard-core male gamers. Our addiction to gaming has even led to death in extreme cases.

Even in the wildest stretches of imagination, this can’t qualify as “time well spent.”

We’re treading on very dangerous and very thin ice here. And, we no longer have history to learn from. It’s the first time we’ve ever encountered this. Technology is now only one small degree of separation from plugging directly into the pleasure center of our brains. And science has proven that a good shot of self-administered dopamine can supersede everything –water, food, sex. True, these experiments were administered on rats – primarily because it’s been unethical to go too far on replicating the experiments with humans – but are you willing to risk the entire future of mankind on the bet that we’re really that much smarter than rats?

My fear is that technology is becoming a slightly more sophisticated lever we push to get that dopamine rush. And developers know exactly what they’re doing. They are making that lever as addictive as possible. They are pushing us towards the brink of death by technological lobotomization. They’re lulling us into a false sense of security by offering us the distraction of viral videos, infinitely scrolling social notification feeds and mobile game apps. It’s the intellectual equivalent of fast food – quite literally “brain candy.

Here the hypocrisy of for-profit interest becomes evident. The corporate response typically rests on individual freedom of choice and the consumer’s ability to exercise will power. “We are just giving them what they’re asking for,” touts the stereotypical PR flack. But if you have an entire industry with reams of developers and researchers all aiming to hook you on their addictive product and your only defense is the same faulty neurological defense system that has already fallen victim to fast food, porn, big tobacco, the alcohol industry and the $350 billion illegal drug trade, where would you be placing your bets?

Technology should be our greatest achievement. It should make us better, not turn us into a bunch of lazy screen-addicted louts. And it certainly could be this way. What would it mean if technology helped us spend our time well? This is the hope behind the Time Well Spent Manifesto. Ethan Harris, a design ethicist and product philosopher at Google is one of the co-directors. Here is an excerpt from the manifesto:

We believe in a new kind of design, that lets us connect without getting sucked in. And disconnect, without missing something important.

And we believe in a new kind economy that’s built to help us spend time well, where products compete to help us live by our values.

I believe in the Manifesto. I believe we’re being willingly led down a scary and potentially ruinous path. Worst of all, I believe there is nothing we can – or will – do about it. Problems like this are seldom solved by foresight and good intentions. Things only change after we drive off the cliff.

The problem is that most of us never see it coming. And we never see it coming because we’re too busy watching a video of masturbating monkeys on Youtube.

Ex Machina’s Script for Our Future

One of the more interesting movies I’ve watched in the past year has been Ex Machina. Unlike the abysmally disappointing Transcendence (how can you screw up Kurzweil – for God’s sake), Ex Machina is a tightly directed, frighteningly claustrophobic sci-fi thriller that peels back the moral layers of artificial intelligence one by one.

If you haven’t seen it, do so. But until you do, here’s the basic set up. Caleb Smith (Domhnall Gleeson) is a programmer at a huge Internet search company called Blue Book (think Google). He wins a contest where the prize is a week spent with the CEO, Nathan Bateman (Oscar Isaac) at his private retreat. Bateman’s character is best described as Larry Page meets Steve Jobs meets Larry Ellison meets Charlie Sheen – brilliant as hell but one messed up dude. It soon becomes apparent that the contest is a ruse and Smith is there to play the human in an elaborate Turing Test to determine if the robot Ava (Alicia Vikander) is capable of consciousness.

About half way through the movie, Bateman confesses to Smith the source of Ava’s intelligence “software.” It came from Blue Book’s own search data:

‘It was the weird thing about search engines. They were like striking oil in a world that hadn’t invented internal combustion. They gave too much raw material. No one knew what to do with it. My competitors were fixated on sucking it up, and trying to monetize via shopping and social media. They thought engines were a map of what people were thinking. But actually, they were a map of how people were thinking. Impulse, response. Fluid, imperfect. Patterned, chaotic.”

As a search behaviour guy – that sounded like more fact than fiction. I’ve always thought search data could reveal much about how we think. That’s why John Motavalli’s recent column, Google Looks Into Your Brain And Figures You Out, caught my eye. Here, it seemed, fiction was indeed becoming fact. And that fact is, when we use one source for a significant chunk of our online lives, we give that source the ability to capture a representative view of our related thinking. Google and our searching behaviors or Facebook and our social behaviors both come immediately to mind.

Motavalli’s reference to Dan Ariely’s post about micro-moments is just one example of how Google can peak under the hood of our noggins and start to suss out what’s happening in there. What makes this either interesting or scary as hell, depending on your philosophic bent, is that Ariely’s area of study is not our logical, carefully processed thoughts but our subconscious, irrational behaviors. And when we’re talking artificial intelligence, it’s that murky underbelly of cognition that is the toughest nut to crack.

I think Ex Machina’s writer/director Alex Garland may have tapped something fundamental in the little bit of dialogue quoted above. If the data we willingly give up in return for online functionality provides a blue print for understanding human thought, that’s a big deal. A very big deal. Ariely’s blog post talks about how a better understanding of micro-moments can lead to better ad targeting. To me, that’s kind of like using your new Maserati to drive across the street and visit your neighbor – it seems a total waste of horsepower. I’m sure there are higher things we can aspire to than figuring out a better way to deliver a hotels.com ad. Both Google and Facebook are full of really smart people. I’m pretty sure someone there is capable of connecting the dots between true artificial intelligence and their own brand of world domination.

At the very least, they could probably whip up a really sexy robot.

 

 

 

 

 

 

 

 

 

 

 

 

Why Marketers Love Malcolm Gladwell … and Why They Shouldn’t

Marketers love Malcolm Gladwell. They love his pithy, reductionist approach to popular science – his tendency to sacrifice verity for the sake of a good “Just-so” story. And in doing this, what is Malcolm Gladwell but a marketer at heart? No wonder our industry is ga-ga over him. We love anyone who can oversimplify complexity down to the point where it can be appropriated as yet another marketing “angle”.

Take the entire influencer advertising business, for instance. Earlier this year, I saw an article saying more and more brands are expanding their influencer marketing programs. We are desperately searching for that holy nexus where social media and those super-connected “mavens” meet. While the idea of influencer marketing has been around for a while, it really gained steam with the release of Gladwell’s “The Tipping Point.” And that head of steam seems to have been building since the release of the book in 2000.

As others have pointed out, Gladwell has made a habit of taking one narrow perspective that promises to “play well” with the masses, supporting it with just enough science to make it seem plausible and then enshrining it as a “Law.”

Take “The Law of the Few”, for instance, from The Tipping Point: “The success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.” You could literally hear the millions of ears attached to marketing heads “perk up” when they heard this. “All we have to do,” the reasoning went, “is reach these people, plant a favorable opinion of our product and give them the tools to spread the word. Then we just sit back and wait for the inevitable epidemic to sweep us to new heights of profitability.”

Certainly commercial viral cascades do happen. They happen all the time. And, in hindsight, if you look long and hard enough, you’ll probably find what appears to be a “maven” near ground-zero. From this perspective, Gladwell’s “Law of the Few” seems to hold water. But that’s exactly the type of seductive reasoning that makes “Just So” stories so misleading. You mistakenly believe that because it happened once, you can predict when it’s going to happen again. Gladwell’s indiscriminate use of the term “Law” contributes to this common deceit. A law is something that is universally applicable and constant. When a law governs something, it plays out the same way, every time. And this is certainly not the case in social epidemics.

duncan-watts

Duncan Watts

If Malcolm Gladwell’s books have become marketing and pop-culture bibles, the same, sadly, cannot be said for Duncan Watts’ books. I’m guessing almost everyone reading this column has heard of Malcolm Gladwell. I further guess that almost none of you have heard of Duncan Watts. And that’s a shame. But it’s completely understandable.

Duncan Watts describes his work as determining the “role that network structure plays in determining or constraining system behavior, focusing on a few broad problem areas in social science such as information contagion, financial risk management, and organizational design.”

You started nodding off halfway through that sentence, didn’t you?

As Watts shows in his books, “Firms spent great effort trying to find “connectors” and “mavens” and to buy the influence of the biggest influencers, even though there was never causal evidence that this would work.” But the work required to get to this point is not trivial. While he certainly aims at a broad audience, Watts does not read like Gladwell. His answers are not self-evident. There is no pithy “bon mot” that causes our neural tumblers to satisfyingly click into place. Watts’ explanations are complex, counter-intuitive, occasionally ambiguous and often non-conclusive – just like the world around us. As he explains his book “Everything is Obvious: *Once You Know the Answer”, it’s easy to look backwards to find causality. But it’s not always right.

Marketers love simplicity. We love laws. We love predictability. That’s why we love Gladwell. But in following this path of least resistance, we’re straying further and further from the real world.

Is Amazon Creating a Personalized Store?

There was a brief Amazon-related flurry of speculation last week. Apparently, according to a podcast posted by Wharton, Amazon is planning on opening 300 to 400 bricks and mortar stores.

That’s right. Stores – actual buildings – with stuff in them.

What’s more, this has been “on the books” at Amazon for a while. Amazon CEO Jeff Bezos was asked by Charlie Rose in 2012 if they would every open physical stores. Bezos replied, ““We would love to, but only if we can have a truly differentiated idea,” he said. “We want to do something that is uniquely Amazon. We haven’t found it yet, but if we can find that idea … we would love to open physical stores.”

With that background, the speculation makes sense. If Amazon is pulling the trigger, they must have “found the idea.” So what might that idea be?

Amazon does have a test store in their own backyard of Seattle. What they have chosen to do there, in a footprint about the tenth of the size of the former Barnes and Noble store that was there, is present a “highly curated” store that caters to “local interests.”

Most of the speculation about the new Amazon experiment in “back-to-the-future” retail centers around potential new supply chain management technology or payment methods. But there was one quote from Amanda Nicholson, professor of retail practice at Syracuse University’s Whitman School of Management, that caught my attention; “she said that space represents ‘a test’ to see if Amazon can create ‘a new kind of experience’ using data analytics about customers’ preferences.”

This becomes interesting if we spend some time thinking about the purchase journey we typically take. What Amazon had done online brilliantly is remove friction from two steps in that journey: filtering options and conducting the actual transaction. For certain kinds of purchases, this is all we need. If we’re buying a product that doesn’t rely on tactile feedback, like a digital file or a book, Amazon has connected all the dots required to take us from awareness to purchase.

But that certainly doesn’t represent all potential purchases. That could be the reason that online purchases only represent 9% of all retail. There are many products that require an “experience” between the filtering of options available to us and the actual purchase. These things still require the human “touch” – literally. Up to now, Amazon has remained emotionally distant from these types of purchases. But perhaps a new type of retail location could change that.

Let me give you an example. If you’re a cyclist (like me) you probably have a favorite bike shop. Bike stores are not simply retail outlets. They are temples of bike worship. Bike shops are usually an independent business run by people who love to talk about their favorite rides, the latest bikes or pretty much anything to do with cycling. Going to a bike store is an experience.

But Trek, one of the largest bike manufacturers in the world, also recognized the efficiency of the online model. In 2015, they announced the introduction of Trek Connect, their attempt to find a happy middle ground between practical efficiency and emotional experience. Through Trek Connect, you can configure and order your bike online, but pick it up and have it serviced at your local bike shop.

However, what Amazon may be proposing is not simply about the tactile requirements of certain types of purchases. What if Amazon could create a personalized real world shopping experience?

Right now, there is a gap between our online research and filtering activity and our real world experiential activity. Typically, we shortlist our candidates, gather required information, often in the form of a page printed off from a website, and head down to the nearest retail location. There, the hand off typically leaves a lot to be desired. We have to navigate a store layout that was certainly not designed with our immediate needs in mind. We have to explain what we want to a floor clerk who seems to have at least a thousand other things they’d rather be doing. And we are not guaranteed that what we’re looking for will even be in stock.

But what if Amazon could make the transition seamless? What if they could pick up all the signals from our online activity and create a physical “experiential bubble” for us when we visited the nearest Amazon retail outlet?

Let me go back to my bike purchasing analogy in way of an example. Let’s say I need a new bike because I’m taking up triathlons. Amazon knows this because my online activity has flagged me as an aspiring triathlete. They know where I live and they have a rich data set on my other interests, which includes my favored travel destinations. Amazon could take this data and, under the pretext of my picking up my bike, create a personalized in store experience for me, including a rich selection of potential add-on sales. With Amazon’s inventory and fulfillment prowess, it would be possible to merchandise a store especially for me.

I have no idea if this is what Amazon has “in store” for the future, but the possibility is tantalizing.

It may even make me like shopping.

 

 

 

A New Way to Determine Corporate Value

Last week, I talked about the trend of “hyper” expectations and corporate valuations. Peter Fader, a marketing professor at the Wharton School, commented, “This is why we need to replace the guesswork of tech valuation with the more rigorous, valid, and operational notion of “customer-based corporate valuation.”

I had a chance to look at Professor Fader’s paper. Essentially, he proposes a new model for the valuation of subscription-based businesses based on a calculation of customer lifetime value that uses publicly available information. While interesting in it’s own right, there is a fundamental shift of thinking here that I believe should be explored further.

There are a few standard equations that are used to calculate the value of a firm. If the firm is public, essentially its value is determined by its share price. And that share price is determined by activity in the market – the activity of shareholders. And that activity is dependent on analysts who pass judgment on companies based on projected return to shareholders. At every turn, our entire system of business finance is very heavily weighted towards ownership, which makes sense in a market-based economy. Buyers and sellers determine value.

But what Fader et al are proposing brings another essential stakeholder into the equation – the customer. It’s amazing to me that all the valuation equations we use to determine the value of a corporation don’t involve any direct measure of that corporation’s customer. Sure, we include things like profit, revenue, free cash flow and none of these things would exist without customers, but we never actually attempt to determine the value of a customer. Fader starts the process with the estimation of that value. That simple paradigmatic shift yields a very different view of the world.

For example, if we are to determine the value of a company through the lifetime value of its customers; we have to look at that company in a much different way than the typical financial analyst. We have to look at things like customer loyalty, brand affinity and the likelihood that a company will gain new market share through the disruption of markets. Last week, I used Amazon as an example. Here is a company that has been tremendously disruptive. It has essentially created a new marketplace and, in the process, upended retail as we know it. One would expect this to be taken into account when trying to determine the value of Amazon.

The problem is that things like customer loyalty and brand affinity are emotions. Emotions are not things that are easily quantified. It’s much easier to measure things like quarterly earnings and discounted free cash flow. Most of these things depend on using the past to predict the future. They also rely on the firm’s ability to prognosticate. Typically, all the heavy lifting of factoring in the fuzziness of things like future customer value is left to the company. If a company misses its projections, it is penalized by the analysts, resulting in a decrease of share price.

Ultimately, the gap between how we have historically determined the value of companies and how we might in the future comes down to a matter of our ability to determine what may come to pass. We strive for perfect predictability. We want to place our bets based on solid information and analysis. But, in a disruptive marketplace, this desire for predictability may ultimately sink us. Customers will always determine the value of a company and in a marketplace where transactional and switching costs are both plunging, those customers have the ability to switch buying behaviors instantly. The old saying, “No one ever got fired for buying IBM” has not been true for at least three decades.

Like it or not, if we want to get a true picture of the value of a company, we’re going to have to use some guesswork. And, most importantly, we’re going to have to make sure we include customers in whatever equation we’re using.