Like Its 2099…

Screen-Shot-2014-09-16-at-15[1]Some brands are partying like “it’s 1999.”

And it shows in their marketing tactics in how they connect to the consumer – from emailing to content publication to media purchasing.

It’s 2015 and Prince wants his perm and bellbottoms back.

For example, email blasting inconsistent messages to untargeted audiences from Outlook in a Rambo-like manner and customer list building for quantity rather than quality worked in the past, because media distribution used to be owned by a few conglomerates.   Consumers received product information from a handful of sources, predominantly TV advertising.

However, the rate of tech innovation, media fragmentation and consumer habits have been evolving so rapidly and non-linearly on happy path to purchase, it would make a spinning top or Dreidel dizzy.    As a result, brands are struggling to keep up and attribute conversion through marketing funnels with the onset of digital, mobile and social activity.

The old marketing playbook is broken.

Prospects are deciding anonymity, skipping TV ads and clicking on Unsubscribe and Do Not Call lists. When they are engaged, they are finicky gymnasts jumping in at any stage of the purchase funnel(i.e. awareness, consideration and purchase) dragging items into shop cart on an ecommerce site or clicking to a car-sharing service suggested by a friend in Twitter.  In a 2015 survey done by Mindshare Shop, “47% of Millennials(18-35) intentionally leave items in an online cart in expectation of an offer via ad or email.”  This means that the next generation of digital-first consumers will be even more A.D.D. expecting marketers to understand them and medicate with always on, ubiquitous advertising that is relevant, rich and meaningful.

Although marketers can track everything that happens on the internet, the data remains enigmatic and partially unusable as content is no longer owned and solely pushed by the brand.  Consumers are participants in the storytelling and can push content back, sometimes brand favorable, sometimes not.  They have a voice and can amplify the tentacles of their influence in the echo chamber of social platforms like Facebook, etc.

Therefore, emerging and established brands must refresh their business models, strip away bureaucracy, and automate the manual measurements/processes of their marketing.  The focus should manifest in two major investments to connect with customers:

  • Customer experience as the engine of growth.  It is not 1999.  Although emails deliver the highest ROI, blasting emails from outlook will fail to build long-term relationships. Simplistic tactics and journey builders that generate binary, yes/no outcomes are not scalable and automatic on a campaign-to-campaign basis.  Firms need to invest in Marketing Automation tools like Marketo, Eloqua, and Hubspot. This includes a configurable email platform that feeds off customer data and life cycle information, to sequence and coordinate personalized 1:1 messaging no matter if the customer is on Instagram, email, texting, in the store or in the web shopping cart.
  • Media buying as more science and art form.  For the longest, the old adage was  “I know half of my advertising works I don’t know which half.”   As media budgets shrink for TV advertising, it is crucial to harness 1st and third party data to build the right audience profiles for precision targeting.  Additionally, it is crucial to understand the ROI of promotional and marketing initiatives, and how it drives demonstrable top-line revenue growth.  Thus, firms must fearlessly push into Omni-channel measurement and get more granular about understanding what media contributes to sales. They must invest in multi-touch attribution modeling and data management platforms for automatic ad buying.  It is not 1999.   Many firms are running tired propensity models that are like blunt instruments, resembling a sledge hammer hitting a tiny nail in the corner.   Ad spend has to move along the performance curve more efficiently to be considered a COG (Cost of Goods Sold) and active input to producing results rather than a discretionary expense that is sunken.

Brands can no longer be dancing on rooftops like its 1999, out-of-touch with their consumers and the trends that drive conversation.  By building self-sustaining, multi-stage programs that drive surprising and meaningful conversations with consumers, marketers can focus less on the mundane, like insertion orders and ad tagging, and more on testing and iterating good ideas, sound strategy.  Making these key tweaks will drive more revenue and deepen the customer relationship to party like its 2099.

Wearable Free-Conomics

030409_freeconomics1Warren Buffet said he doesn’t invest in technology because he doesn’t understand it.

What if I engaged the mighty sage of Omaha on the future of wearable computing like smart watches and Google glasses.

Fa-get about it!

But what company does not have some form of technology enabling it or disrupting its industry.  For instance, 3D printing  reducing the hassle of logistics and inventory management in manufacturing.  Drones swooping down in highly dense metros replacing bike couriers for mail delivery.  Self-checkout kiosks displacing retail clerks to consummate a sale. And it’s only getting worse.

The Buffet idea that a firm can permanently stay at arm’s length from its competition because of a durable, competitive advantage is a thing of the past, a bone of analog.  Any company that is not embracing digitization and developing “spider thinking” is a thing of the past.  The wave of internet competitors angling for domination across retail, telecommunications, CPG and entertainment sectors is far too numerous and  aggressive (more than the dotcom era) to stumble incredulously over stones of denial or hesitate.  He who hesitates to understand digital and exploit leverage will lose.

In the same manner many sports analysts argue that the game of basketball has transformed from one of pure skill and intelligence(Larry Bird/Magic Johnson) to speed, size and athleticism (Lebron James), business has changed.  Robust, proprietary algorithms with a slick, agile interface that delights customers while attacking pressure points in the value chain are table stakes.  The crossover dribble AI (Allan Iverson) popularized in sneaker ads and on NBA courts is not fancy “street ball” anymore; its fundamental basketball.  Similarly, profitability itself does not entitle firms to sustainability.  Rather, the way a company profits by developing an unfair advantage, leveraging the compounding power of network effects, does.  And so digital is the new “crossover” that is fundamental to business.   As a result, digital victors must find the right business model that can plug-and-play their products/services with other providers, allowing for flexibility and sufficient scaling with environmental changes.

With that said, one does not need to be a sage like Warren Buffet to see that the future of wearable technology is in need of a business model upgrade or mass adoption will not spread.  Wearables 1.0 was about inventing technologies. Wearables 2.0 has to be about architecting rich business models.

For example, while Google Glass enjoyed first-to-market success, consumer sales languished because critics claimed it was too expensive @ $1500, aesthetically un-wearable  and it lacked real world utility – with too few apps over its unique mobile operating system. Voice commands like “Ok Glass” could not prevent the Google Glass Explorer Program from shutting down operations.  Even Astro Teller, head of Google X Labs admitted to a Vanity Fair audience in Fall 2014,  wearables have to drop in price by a significant factor to get an uptick of demand and go mainstream.   Likewise, Apple launched its first wearable technology, the Apple Watch, in early Spring 2015 tallying up $1 Billion in 2 weeks of pre-orders.  However Slice Research is claiming that the halo of initial sales has dimmed recently and plunged by 90%, dropping from 200K units to 20K units per day.

For business models to work effectively they have to focus on the who, the what and the how.   Who are the paying customers for wearables? What are wearables and are they a good product with no superior alternatives? How are wearables  purchased through a distribution channel like retail stores or online?  If the first question is not answerable, it is very hard to stand a business model up successfully.  A Harris survey found that 59% of Americans don’t get the need for wearable technology.  It seems both Apple and Google have answered the what-questions and the how-questions, but the who-questions remain open, unrepentant.  What’s worse is that,  according to research from Endeavor Partners, 1/3 of people who buy wearables stop wearing them within 6 months.

The main challenge for market penetration of wearable tech is that it doesn’t provide utility.  The killer app, telling time, was figured out hundreds of years ago starting with the sundial and the smartphone gently alerts us of emails and texts with a buzz in our pocket.

Wearable manufacturers will have to lower prices with cheaper versions for breakthrough sales to ensue.  Today, wearable manufacturers are applying a cost plus model where they are sourcing parts at cost and charging a markup.  But they are pricing wearable tech out of the market for the average consumer.  If Moore’s Law continues to hold up, the cost to produce batteries with a longer life and minimize component sizes will go down.   Before then there are a few potential approaches to fix this broken business model.

  1. Upfront carrier subsidies are a possibility. Similar to smartphones, smartwatches could be lowered to $100, if the customer signed a two-year contract.  This means the carrier will cover a portion of the device cost and recoup the loss through data service revenue.
  2. Offering these wearable goods for free. It  will not make manufacturers happy as it will reduce the perceived value, but networks can wholesale device and recoup cost by selling the data on the phone to marketers.
  3. Offering these wearable goods for free. And offset the cost through mobile advertising personalization. As  devices get more intimate consumers may be put off but its viable method of making money.  This is how Google derives a large portion of its revenue.
  4. Freemium.  Basic wearable tech data for free.  Advanced services for premium charge.

Warren Buffet,  once said “There is no such thing as a free lunch.”  However, wearables may require a new way of thinking and investing in Free-conomics.  With online there is such thing as a free lunch.  Much of free-conomics is based on the idea of dispensing free content to build audiences and sell them to advertisers. Freemium is part free basic services and part charge for advanced services.  Because the marginal cost to offer digital services approaches zero, it is ok if 99% of customers hog the service for free as long as 1% are willing to pay for the “premium version”. In the case of wearables there may be an opportunity for basic access for free but offer premium subscription to more advanced options.

There is an intimacy to how it can serve a customer seamlessly, built-in to clothing off the rack, rather than as a glass slab you swipe dozens of times with the pads of our fingers to get something.  The advantage of computing worn on the body is that it can deliver data that is custom, context-aware, which once consumers understand, they would be willing to pay for. There are a buffet of business models for wearables.  Wearable tech startup must artfully blend manufacturing, pricing, ongoing demand-generation and distribution with the role of data, users and metrics. This will be crucial for the market to justify buying it.


Burning Platform

The grand-poppa of causality dilemmas has had many a philosopher frown in consternation and slap their forehead.

Which came first the chicken or the egg? Chicken. Egg. Chicken. Chicken. Egg….Chicken Egg 2

While the answer mostly depends on one’s position on the issue of creation versus evolution, in business, it occurs when the value proposition of two entities in a market are dependent on penetration in the other.

For example, in the wireless industry, mobile operators are dependent on cellphones penetrating the consumer market.  Mobile operators make money by providing voice, text and data services to cellphone users on their network.  In order for that to happen, a virtuous cycle must start, which drives up the number of cellphone makers making cellphones for the network and the number of cellphone consumers that use the network: but how does this happen when there are no cellphone buyers and cellphone sellers to start with?

The answer to this paradox is to build a platform not a product.  Then bribe the chicken to “cross the road” from one side of the market over to the other with an economic incentive, a subsidy or charge.

In classical industries like car manufacturing, a widget’s value is consumed and depressed once the buyer drives the car off the lot.  But in more unusual industries with multi-sided markets like communications and software, a widget can talk to another widget and a network effect takes effect.  Consequently, the widget’s value comes not from its one-time use by the buyer, but from the number of widgets to which it can talk i.e. the number of smartphones one can call in their network. The more users the more valuable the network.  Amplifying utility.

Apple, Google, Facebook, and Amazon are very hard to compete against not because of their products, features and functions but because of their platform and “spider” thinking.  Particularly, Apple and Google are an entire spider-web-like ecosystem incorporating handsets, operating systems, and app stores which outside developers can “plug-and-play”, build on and co-create value.  But the same network effects that drive their “platform stickiness” also make platforms taxing to build.  Contrary to “Field of Dreams”, if you build it, they will not necessarily come.   For one,  once a new business is launched and commoditized, a platform tends absorbs it, adding it as a feature.   Think Facebook, which was solely a social media platform.  Now it has FaceTime, a telephony product.

The mother lode of all business models to conquer the chicken and egg paradox was the R&B model: Razor and Blade. The beauty of razor and blades was that it sold hardware, i.e. the razor at cost or loss and locked consumers in with add-ons,  high margin blades. One cannot shave without the razor or the blade.  The blades were consumables and provided a continuous revenue stream to recoup the cost of the razor, a durable.  In digital, Google modified the classic R&B model by eliminating the upfront cost of a durable, investing billions of dollars in “Free” services and growing a portfolio of over-the-top applications like YouTube and Gmail to sell advertising against large audiences.

In the age of the connected economy, where digitization combines mobile apps, sensors and cloud data, total cost of ownership has been lowered.  Owning assets and defending them from piracy and duplication means less than it once did.  More than manifestos, businesses have become APIs(application programming interfaces) to be paired with other APIs.   APIs are like spider webs that tech visionaries must pluck to find the food of opportunity and potential allies.   For example, Uber is exposing a whole new dimension of connectivity for businesses seeking to enrich customer loyalty and drive up revenue beyond car-sharing services.

For business model innovation, one has to look at ecosystem economics and explore new values created out of the firm.  They have to create a standard that lets other companies connect to it.  This will mean increased innovation, quicker response to market, risk containment and a larger customer base.  What chicken or egg doesn’t want that?