Astonishingly important article by Evgeny Morozov

FireShot Screen Capture #164 - 'Why the internet of things could destroy the welfare state I Technology I The Observer' - www_theguardian_com_technology_2014_jul_20_rise-of-data-death-of-politics-evgeny-morozov-algorThis is an astonishingly important article, by Evgeny Morozov, published yesterday in The Observer.  It starts to paint the picture of the world of the algorithm, drawing together the important themes that define what it is we need to be thinking and talking about so that we don’t sleep-walk into this new world – the paradoxical world where an individual’s connectedness (to other indivduals and to things) is used as a mechnism of isolation and control.

As I have said previously, the algorithm is the most powerful instrument of social control invented since the sword (and current systems of regulation are powerless against it).

http://www.socialmediatoday.com/content/sword-printing-press-and-algorithm-three-technologies-changed-world

http://richardstacy.com/2014/05/15/algorithms-growth-sensorship/

http://richardstacy.com/2014/06/27/facebook-just-dark-pool/

 

 

 

Agencies, the future and The Big Why

(Warning: this post is over 4,000 words. Get a coffee)

This post in a nutshell: The business model has fractured: creativity is becoming separated from delivery.  Delivery is becoming a commodity (as procurement departments are realising) and thus no longer able to subsidise creativity.  This is an enevitable consequence of the social digital revolution, which is all about the separation of information from distribution, message from channel.  What was once a single business is now three businesses.  At one end is a high margin, low volume, insight/creativity business.  At the other end is a large pool of specialist deliverers within which there are no scale advantages associated with size or aggregation.  In the middle is a ‘commissioning’ business which is all about the outsourced management of creative ideas.  These three businesses cannot live together within one house because they have significantly different business models (albeit it large agency groups can own the three separate houses).   This is the end state, ten years down the track.  Agencies therefore need to manage this separation or else the new reality will be built from the wreckage of broken business models.


 

It has become something of a tradition to use the post-Cannes period to reflect on the future of agencies. The standard analysis will include the observation that the boundaries between the various disciplines are collapsing (usually illustrated by the amount of PR awards being won by advertising agencies), frequently followed by some portent of the imminent death of ‘something as we know it’.

This is nothing new. For many years the power of advertising as a killer punch has been progressively eroded, driven by increasing media fragmentation and the evolution of more sophisticated consumers. This has forced brands to develop a more integrated approach: 360 degree communication was the (now rather hackneyed) buzz-word for this. And about eight years ago I remember Lou Capozzi, then global head of the MSL network, looking at the agency landscape and saying to me “it’s all become PR with zeros added to the budget” – still the best sound-bite description of what is happening that I have heard. However,what is new is the thing being called the social digital revolution, but this has also been with us for quite some years, all that is really new is the fact that brands and consumers are finally working out how to actually use all the new shiny tools.

What is missing from the debate, in my opinion is The Big Why. Everyone is looking around and describing What is going on, but very few have a cogent analysis of Why it is happening. And the lack of this Why makes it difficult to predict what might happen next, or to make plans for how to react effectively. So here is my contribution to The Big Why.

Scale: it is becoming re-acquainted with commodity and utility

I think there are two tectonic forces which are responsible for driving much of what is happening in the client / agency space: one is related to scale and the other to the separation of information from distribution (message from channel and thus creativity from delivery). Let’s look first at scale. If you stand back see what happens when the social digital revolution touches a business sector, what you will see is that scale advantages start to leak out of its business model. Being big no longer confers the sort of advantages that it used to and in-so-far as scale advantages remain, they tend to retreat back towards the cave of utility / commodity within which the big beast of scale is most comfortable living.

We should look to the music and news businesses to illustrate what happens here, given that these were the business sectors first touched by this revolution, and while they were the first, they won’t be the last. Scale has been leaking out of the music business for some years now, largely driven by the inability of the major players within the sector to retain control of the means of distribution (see second point below). Interestingly, while the sector has been losing scale advantages it has gained in scale, in terms of the number of players and content within it (again because the distribution barriers to entry have come down). The remaining (big) business opportunities within the sector are now moving towards commodity and utility, providing the aggregation infrastructures necessary to allow music consumers to manage the increased flow and volume of content within the space. Provision of music has, in effect, become a utility (see Spotify) – something that David Bowie predicted in 2002.   Bowie is a very clever chap – as his longevity in the business testifies. All those who wish to remain relevant while the music around you changes should learn a few lessons from him.

Likewise, in the news business, news has stopped being a finished product and become a raw material (i.e. a commodity) – something news organisations are, in large part, failing to come to terms with. The opportunities that will evolve here are likely to be clustered around how you allow consumers to assemble their own finished news products – a function that requires very little actual news gathering and minimal human editorial input. In fact one can well foresee that much of this function will be handled by algorithms: you will simply subscribe to the news algorithm that matches your particular political or social preferences. However, the idea that the Guardian or Wall Street Journal will simply become algorithms doesn’t sit well with the current management or employees of these businesses.

What is dying is the business model that provides the thing, not the thing that the business model provides(d)

As with so many things with this revolution, what is dying here is not the thing itself (i.e. news, music or even advertsing and this thing being called content), in fact these things are enjoying an explosion in creative energy: a phenomenon Clay Shirky has labelled ‘the cognitive surplus’. What is dying is the restrictive business models that provide the thing, not the thing that the business model provides(d).

How is this effect likely to affect the agency sector? The agency sector has always had two components to it: channel (i.e. media buying and campaign delivery) and message (i.e. ideas and creativity). Of these two, media has been the area where scale has always been more important and creativity has had scale thrust upon it, largely to force it to conform to the scale requirements of mass media / mass market campaigns. To an extent this has always been a rather forced marriage and its imminent demise (see below) will allow creativity to go its own way, removed from the constraints of scale, and for media / channel to devote more attention to becoming a commodity or utility via becoming an infrastructure or process – something we are already starting to see in things such as real-time media and media trading. While the creative side of things can become liberated by its separation from channel, it will not be immune to the scale problem, largely because of the extent to which this problem will affect the brands who are its clients.

For brands, being big has become harder, largely because being smaller has become easier

For brands, being big has become harder, largely because being smaller has become easier. To date, brand marketing has played on both sides of fence. Brands have been able to extract the scale advantages of being a commodity, (operating in mass markets, using mass production techniques and mass media channels) while positioning themselves as being in some ways superior or unique. In effect, the art of brand marketing has been about creating a perception of uniqueness around a commodity product. Communication has been the way in which it this has been done. The products or services themselves may be largely undifferentiated or similar to commodity, unbranded / own label offerings but premium positioning has been created through consumers’ experience of the layers of communication that have been built around the product. In effect, consumers of branded products have been paying a form of consumption tax which has been spent on buying Porsches for creative directors and lunches for marketing directors.

The problem now is that, what I call the premium myth is becoming harder to maintain as alternative offerings emerge and consumers themselves become connected and smarter and thus able to find and evaluate these offerings, or stress test the genuine premium-ness of the offerings of so-called premium brands. For example, look at what Airbnb and Trip Advisor combined are doing to the hotel sector. They are allowing individuals to compete with major hotel chains and forcing the big players to live up to their brand (grand) promises.

A one-size fits all markets approach is fast becoming a liability

Large brands, who provide the base load of fee income for the agency sector, are now finding they either have to be big in a very small way, or small in a very big way. Either way, being big doesn’t carry the clout that it used to. A one-size fits all markets approach (which was always something of a compromise) is fast becoming a liability thus eroding the advantage of the larger agencies who are basically set up to deliver this, while also creating a space for boutique creativity. Size is becoming re-acquainted with commodity and, as with all commodities, associated with high volumes and low margins. Longer term, this could have some profound implications for brands and brand owners, especially P&G-type brands that operate in low interest categories that have always had to invest heavily in marketing activity to inflate interest and keep commoditisation at bay. If you want to be big, you may have to look to other areas such as purchasing, trade relationships and genuine NPD (as distinct from NPD simply designed to create superficial ‘innovations’ that merely provide an excuse for a new ad) as the scale advantages associated with marketing as a discipline melt away.

Everyone decries the intervention of procurement departments into client / agency relationships, resulting in the driving down of margins. But all procurement departments are doing here is drawing attention to the fact that what agencies are delivering is becoming a commodity – or needs to be delivered as such if it is to reconcile the fact the ever decreasing returns ‘conventional’ agency services deliver no longer justify the margins they allegedly require to deliver them.

The social media revolution: separating information from distribution

Apologies, these last few paragraphs have become something of a ‘what’ analysis. We all basically know this – so to return to the ‘why’. In many ways the scale / commoditisation / fragmentation issue is really just a symptom of what I think is the most important driver of change, which is the separation of information from distribution (message from channel). This is really what the social digital revolution is all about.

This is the thing that is destructive of business models, because the business models (for both agencies and brands) are founded on the idea of their being a marriage between information and distribution. Break the relationship and you break the business model. The reason this is so momentous in its potential implications is that this is a marriage first created 600 years ago when Gutenberg created the printing press and moveable type. From this point on, message became wedded to channel and because the channels were expensive, channels (silos) were the dominant partners in this relationship. Their expense also dictated that they could only be used cost–effectively to communicate with audience-sized groups of people. This had a whole host of implications for how the information business became structured and the rise within it of large institutionalised players, be they media owners or brands (scale again). At a more fundamental level it is why marketing became a channel and audience game and was responsible for the creation in the first place, of the now collapsing channel-based silos.

The marriage between news and paper was always a marriage of economic convenience, rather than a love match

Wherever we look, we see this separation cutting business models in two: where The Thing is being separated from the means of delivering The Thing. Take newspapers for example. News (information) is being separated from paper (means of distribution). In fact, we can now see that the marriage between news and paper was always a marriage of economic convenience, rather than a love match. Looking at the music business again, the information (music itself) is no longer imprisoned within expensive distribution formats such as CDs. It is important to recognise that this divorce changes the nature of the information as well as just its selection of distribution partner. Not only can information find the distribution means for which it is best adapted it can change its own nature, now that it is freed from the constraints its distribution partner placed upon it. Probably one of the reasons that the businesses most affected thus far have been music and newspaper publishing is that a music track was actually very poorly adapted to the distribution medium of vinyl or CD: likewise, news is very poorly adapted to the medium of paper. But, now they are liberated, both music and news can go and do their own thing. And that means they can change. The concept of a music album is a creature of distribution, which is why it is dying. Likewise, news doesn’t have to live in 500 word segments or 30 second video packages, or even be defined by concepts of newsworthiness that are themselves shaped by the economic requirements of news media and its need to attract an audience-sized group of viewers, readers or subscribers.

This doesn’t necessarily mean the end of the media, it just means that mediums (channels) have to go and find the roles for which they are best adapted. The print medium won’t die, it will just loose most of its content, and be forced to court the content for which print is best adapted. In business parlance, distribution media will have to return to their areas of core competence.

Con-tent is defined by its requirement to be con-tained (within a channel), but we no longer live in a world where information requires containment

This is one of the reasons we have to be very careful with this thing we are calling ‘content’. Con-tent as a word and as a concept is defined by its requirement to be con-tained: to sit within a channel. Water flowing out of a tap is not content. It only becomes so when you put it within the restraining distribution medium that is a glass (or a channel that is a pipe). In a world where restraining distribution mechanisms are dying, you have to question whether content itself is a concept which will continue to have relevance. We no longer live in a world where information is constrained and contained within pipes or containers. It therefore cannot be con-tent because it cannot be con-tained. Content also requires an audience, but audiences are hard to find in the new social digital space. Audiences are a function of the expense of the channels that information used to sit within. There is now no longer a requirement to be part of an audience if you want to received information (even that which was designed for an audience in the first place). The new world is the world of the individual, not the world of the audience.

At an even more fundamental level, this separation is changing the nature of trust. Trust used to sit within channels: we trusted information because we trusted the channel (institution) that delivered it to us. But now information is being separated from its channel and thus separated from its source of trust. As a result, trust is shifting from institutions to transparent processes. We trust information, not because of the channel it sits within, but because of context or process that surrounds the information. We don’t trust a tweet simply because it comes from Twitter, the Twitter channel confers no trust upon the information that sits within it. But this doesn’t mean we don’t trust tweets, we simply need to understand more about the context of individual tweets. Likewise we don’t trust Wikipedia as an institution (channel) in the same way we trust Encyclopaedia Britannica, we trust its individual entries only in so far as we trust the process that is Wikipedia. This is what is driving the rise of communities and defines why communities will become the new media. Communities are all about process-based trust. When you trust a comment on Trip Advisor, you are not really trusting the person who has made the comment, so much as the process that is Trip Advisor and the context within which that person is making their comment (i.e. that they have already experienced the thing you are interested in).

End of theory. What’s the future for agencies?

Anyway – enough of the theory. Getting back to the future of agencies. The separation of information from distribution doesn’t simply mean the destruction of silos. The silos simply represent delivery channels. What is happening is that creativity is becoming separated from the means of its delivery and silos are not so much collapsing, as becoming empty and redundant. We can already see that clients are asking agencies to deliver ideas which are not constrained or defined by the means (channels) by which that idea will be delivered. In the first instance these requests may have been framed within the context of integration, driven by cross-channel or multi-channel ideas. Clients wanted ideas that could live in many channels and agencies could respond to this by adding channel competencies to their mix. But this client pressure was simply a reflection that the clients themselves were still largely channel-based in their thinking and internal organisation. In the integration world an idea was defined as being something that could sit in a range of channels, rather than being something that transcended channels.

Great ideas will define for themselves the way in which they will be delivered, rather than being defined by the way in which they are delivered

But clients are starting to realise that the strength of an idea is not defined simply by its ability to be multi-channel or integrated. In much the same way that information can now select for itself its preferred means of distribution, great ideas will define for themselves the way in which they will be delivered, rather than being defined by the way in which they are delivered. This is a problem because to date clients have never really had to pay for ideas: agencies give them ideas for free because they make the money on the delivery channel. This problem can only be resolved by the recognition that what agencies once did, as a single business with a single business model, is now becoming two businesses with two business models. One business is all about delivery – which is a high volume, process-based, low margin, commodity game: the other is about creativity, which is low volume, one-off, high margin game.

I actually think there are three business models which will emerge and the construction industry provides the template. The creation of a large building involves three separate, but related competencies: the architect to come up with the creative idea, the structural engineer to make the delivery of that idea a reality and a builder to actually make the building. These businesses need to be conversant with each other, but because they all have different business models they can’t really exist as a single business. The construction of a brand will be similar. First you will need tier one people to come up with the ideas and you will need to pay them to do this. Making it clear that this is a separate function and separate business will assist in this process because as long as it is seen as being part of a delivery offering, the temptation will always be to try and get it at a discount. Remember, a procurement department could never have commissioned a Rembrandt portrait. Procurement departments can only see a picture as paint and canvass because they will never have a model that can attach a number to whatever it is that makes a Rembrandt different to the tragically sad offerings of George W Bush.

Media buying is ahead of the game because it separated itself from creativity 20 years ago

Second, you will need tier two organisations that can manage the delivery of an idea. This function will be all about real-time process management and making the most of what scale efficiencies remain. To an extent, media buying is already at this place mostly because it separated itself from creativity more than 20 years ago. What these agencies will really provide is the outsourced management of creativity in much the same way that Accenture provides the outsourced management of IT. A large part of the function will involve the commissioning of ideas and then the assembling of delivery teams, but not owning the deliverers. Unlike with creating a building, it is unlikely that the actual builders can be contracted under a single large contract, mostly because scale advantages won’t exist at the delivery level. This final aspect of delivery is likely to be comprised of a whole host of ‘boutique’ craftspeople or technicians operating as independents or as small businesses and this will therefore define what the second tier agencies need to do, which will thus be an integration, project management and commissioning role.

Third, as already mentioned, delivery or activation will be done by a third tier comprised of delivery specialists. This will be a volume game, in the sense that this will be where most of the people in the sector actually live and where there will be a wide variety of choice. It will be a low margin game only to the extent to which someone other than the practitioners themselves seek to extract a margin from it. For the individual practitioners, margins will still be respectable simply because they won’t have to carry the same burden of costs that were laden onto them when they lived in large agencies and had to pay for the creative director’s Porsche.

In this new arrangement the only area where scale advantages will persist will be in the tier two ‘structural engineering’ or ‘commissioning’ layer. The players in this space will look the most similar to the agencies of today. A large part of the client relationship will be held at this level and despite the creative importance of the ideas architects, the client interface with the architecture level may be minimal (in much the same way as creatives are often kept away from clients currently). In fact it is quite possible that the ideas architects will be commissioned by the structural engineers as much as they go and pitch for client business directly. Therefore, what we currently think of as agencies will morph into commissioning and integration businesses, surrounded at one end by a group of independent (or quasi-independent) creative specialists and at the other end by a cloud of independent specialist deliverers. What is currently delivered as one business will have fractured into three.

Create separation in a managed way, rather than fall apart in chaos

What might all of this mean for a Martin or a Maurice? At one level, not a lot in the short-term. It would be foolish to try and completely re-structure a business such as WPP or Publicis into these three sets of disciplines or functions, especially since it is questionable as to the extent to which all three functions can easily live under one umbrella. However, in terms of making current decisions, it will be important to recognise that this position is likely to be the end destination some years down the track. In preparation for this it will be a good idea to start to identify where the opportunities for separation exist, so these can start to be teased apart in a managed way, rather than falling apart in a chaotic way.

There is a template for this if we look at what happened more than 20 years ago when Saatchi & Saatchi spun out its media buying department into a stand-alone agency, Zenith, which had the freedom to work for both Saatchi and non-Saatchi clients – probably the single smartest business decision the Saatchi brothers took.  This move created the independent media sector as we now understand it and Zenith (now Zenith Optimedia) still remains a successful company within the Saatchi (now Publicis) portfolio. In today’s context, this means thinking about spinning out creativity as a separate function.

Most ‘creatives’ are too wedded to a delivery discipline to become ‘new creatives’

It also means re-thinking the nature of creativity. The new definition of creativity will also encompass insight and will therefore draw to it as many planners as it does traditional creatives. Indeed, many of the people that currently live in creative departments are not actually sufficiently creative in that their skills and mind-set are too wedded to a delivery discipline. These people are more like master-builders – they will end up living within the delivery specialists. None-the-less, scattered across any large agency organisation like WPP or Publicis, there will be suitable people. Pulling them all together may be difficult and indeed undesirable in that it may bleed their ‘home’ businesses of necessary skills, but there is surely an opportunity in the short-term to start to identify these people and package their skills in a way which can become a separate offering, even if they still ply the majority of their trade back in their home agency. As much as anything, someone needs to start the process of allowing clients to see the value in buying creativity and ideas as a stand-alone service. It is also quite possible that a ‘new creative’ consultancy will emerge from the independent agency sector (since, unlike with media buying, scale is not a consideration) and once the template is established, others will follow suit.

However, this spinning out of creativity is a necessary, but not sufficient step. It simply creates the tier two environment within which the future agency can emerge, which is as a business which provides the management of creativity as an outsourced function. The templates here are the consulting companies such as Accenture. These companies call themselves consultancies, but they are not. They provide the expertise necessary to outsource the management of the provision of information technology. This expertise is largely in process management, the real technical (creative) knowledge lies with the developers of the systems these companies sell. Likewise, project delivery is often managed by contractors. The good news, from an agency perspective, is that Accenture has shown that there is good money to be made in the outsourced management of a business function. The more tricky issue is that the model for outsourcing the management of ideas, by the very nature of ideas-people, is likely to be harder than commissioning and managing geeks – which is what Accenture does.

The third tier is the one area that is currently in the state of most advanced construction, largely as a result of agencies shedding head-count in recent years. There is now a huge number of experienced people operating as freelancers or coalesced into small, boutique operators and it will not require too much effort to provide the infrastructures to allow these either to link-up with each other or to operate on a more efficient / formal way with commissioning agencies. I suspect that even today, many clients would be surprised to learn just how many of the people they are dealing with when they deal with agencies are actually not permanent agency staff.

It is also possible that within large agency groups, delivery can be packaged up into smaller specialists which can which can operate more independently with significantly lower costs (see earlier note about Porsches) and be responsible for finding their own revenue rather than being dependent on being fed by large network clients.  This may, of course, involve working for ‘rival’ tier two agencies.  An agency therefore becomes a much looser structure, acting as a host for specialist units, rather than trying to aggregate specialist units into larger structures – which has tended to be the direction of travel to date because of the assumed (but now increasingly redundant) cost efficiencies of operating at scale.  You can also suggest that big brand owners, such as P&G, will also have to reorganise themselves into much looser structures, where scale and coordination efficiencies are created in areas other than in marketing.

The key is to not make the Kodak mistake

The current agency groups, to a certain extent, still have time on their side. There is the opportunity to experiment. However, the key is to not make the Kodak mistake. Kodak saw the digital future coming and it started to innovate to find the sorts of products and services that would thrive in the digital photographic future. Kodak was one of the first companies to develop a digital camera for example. Kodak’s mistake was a failure to recognise that at some point, the business model of its core business – i.e. chemicals, cellulose and paper, would eventually collapse. Kodak never built its innovations into business models, largely because of a fear that these would cannibalise their core business. But their core business got eaten anyway and they were left with nothing but dusty prototypes.

So, in summary.

  • Scale is leaking out of both the agency sector, but especially out of the world of the big brands that supply the base load of fee income for large agency groups. This requires a recognition of what is, and needs to be delivered as, a commodity separate from a recognition and delivery of, what is a high margin specialism.
  • As the social digital revolution separates information (message) from distribution (channel), so creativity is becoming separated from delivery and also changing in its nature now that it isn’t defined by the delivery silos /channels it used to sit within. Agencies therefore need to identify and spin-out this new creativity, so that it can be sold as a separate, high margin product, removed in most part from the clutches of procurement departments (Rembrandt v George W Bush etc. etc.).
  • The margin problem at the other end of the scale needs to be addressed by shedding the costs associated with ownership of delivery specialisms. There are no longer scale efficiencies in this space, so the costs of delivery aggregation are no longer valid. In so far as large agencies can continue to own delivery businesses, these businesses need to be liberated to find their own way in the world and potentially work for ‘rival’ commissioning agencies (in much the same way that Zenith worked for ‘rival’ clients).
  • Within the middle space a new business needs to be founded, based on the concept of the outsourced management of ideas / creativity. This concept will mostly only be relevant to large clients, smaller ones sourcing ideas and delivery direct from the specialists. These businesses will be formed out of the remnants that remain from existing large agencies, once they have spun out insight / creativity and delivery specialism.

This isn’t going to happen overnight, but this is probably what the sector will look like in ten or 15 years’ time. The only real choice the sector faces is the extent to which it can manage the move to this end state, rather than having this built out of the wreckage of failed business models.

Is Facebook just a ‘dark pool’?

FireShot Screen Capture #156 - 'Barclays shares tumble after allegations about private 'dark pool' trading system I Business I The Guardian' - www_theguardian_com_business_2014_jun_26_barclays-shares-tumble-dark-poolWednesday saw an important announcement from the New York Attorney General. He announced that Barclays Bank is to be prosecuted concerning their operation of a ‘dark pool’. A dark pool is basically a private trading area which a bank can operate on behalf of its clients, or anyone else to whom the bank grants access. It is dark because it doesn’t operate to the same level of transparency as conventional exchanges. The accusation is that Barclays allowed high frequency traders into their dark pool and allowed these traders to prey on the trading activity of the other investors within the pool, including Barclays’ own clients.

This is an astonishingly important announcement for two reasons: First, it is important for Wall Street but it also important for Facebook, Google, Big Data, data protection, the Internet of Things and thus, quite possibly therefore the future of humanity itself.

First Wall Street: What is happening within Barclays’ dark pool is almost certainly similar to what is happening in the dark pools operated by almost all the major banks. It is also pretty similar to what is happening in the ‘light pools’ that constitute the official Wall Street stock exchanges (just read Michael Lewis’s ‘Flash Boys’, published a few weeks ago if you want validation of this). This will therefore be a test case and rather than go after one of the Big Beasts, the Attorney General has sensibly chosen to pick off an already wounded juvenile.   Barclays is a foreign bank, it is a peripheral player (albeit one with a very large dark pool) and it is already discredited by it actions in rigging inter-bank lending rates. It is therefore easy prey, but bringing it down will provide the ammunition necessary to tackle, or at least discipline, the major players. You can bet that there are a lot of people on Wall Street right now really focused on how this case plays out, even if the mainstream media has yet to really wake-up to its significance.

But this isn’t about just about Wall Street. What is playing out here are the first attempts to understand and regulate the world of the algorithm. High frequency trading is driven by algorithms and exploits one of an algorithm’s principle characteristics, which is its speed in processing large amounts of data. High frequency trading illustrates the power of algorithms and also their potential for abuse. High frequency trading is not illegal (yet), but it is abusive. It is only not illegal because the law makers don’t really understand how algorithms work and no-one has worked out a way to stop people who do understand them from using them in an abusive way.  Interestingly the Attorney General has not tried to establish that high frequency trading is illegal, rather that Barclays misrepresented its dark pool as offering protection from the abusive behaviour of high frequency traders.

Algorithms colonised Wall Street for two reasons: first Big Data was already there in the form of the vast amount of information flowing through the financial markets and; second, Wall Street could afford to pay top-dollar for the relatively small group of geeks who actually understand algorithms. But this is about to change. The pool of geeks is expanding and pools of data, large enough for complex algorithms to operate within, are now developing in many other places, driven by the growth of Big Data and the Internet of Things.

Which brings us to Facebook. In many ways Facebook is a dark pool, except the data within it isn’t data about financial trading, it is data about human behaviour. Now I don’t want to suggest that Facebook is trading this information or necessarily inviting access to this data for organisations who are going to behave in an abusive or predatory way. In a somewhat ironic sense of role reversal, the PRISM affair has revealed that the regulators (i.e. the NSA and the UK’s GCHQ) are the equivalent of the high frequency traders. They are the people who want to get into Facebook’s dark pool of data so they can feed it through their algorithms and Facebook has been doing what (little) it can to resist their entry. But of course there is nothing at the moment to really stop Facebook (or for that matter Google or Twitter) from allowing algorithms into their data pools. In fact, we know they are already in there. While there may not be abusive activity taking place at the moment there is nothing to stop abusive behaviour from taking place, other than the rules of integrity and behaviour that Facebook and Google set for themselves or those that might be set by the people Facebook or Google allow into their pools. Remember also that Facebook needs to generate sufficient revenue to justify a valuation north of $80 billion – and it is not going to do that simply through selling advertising, it is going to do that by selling access to its pool of data. And, of course, the growth of Big Data and the Internet of Things is creating vast data pools that exist in far more shadowy and less obvious places that Google and Facebook. This is a recipe for abusive and predatory behaviour, unless the law-makers and regulators are able to get there first and set-out the rules.

Which brings us back to New York versus Barclays. It is not just Wall Street and financial regulators who need to focus on this: this could prove to be the opening skirmish in a battle that will come to define how society will operate in the world we are now entering – the world of the algorithm. I can’t lay claim to understanding how this may play out, or how we are going to regulate the world of algorithms. The only thing I do know is that the abusive use of algorithms flourishes in the dark and the daylight of transparency is their enemy. Trying to drive a regulatory stake through the heart of every abusive algorithm is a near self-defeating exercise – far better is to create an environment where they don’t have a competitive advantage.

 

Content and the 90:10 rule: why you should only spend 10% of your content budget on actually producing content

Brands have always produced content, it is just that back in the old days, they couldn’t afford to produce very much of it. This wasn’t because it was expensive to produce, but because it was expensive to distribute. There was a rough rule-of-thumb which said that maximum 10 per cent of your content (advertising) budget was spend on production and 90 per cent was spent on distribution (buying the media space). Now the great thing about social media is that you don’t have to buy it. “Fantastic,” has been the reaction of brands, “that means we can now spend 100 per cent of our social content budget on actually making the content.” It is as though something that was once expensive and desirable has now become virtually free and everyone has gone on a binge as a result.

However, we have forgotten that while it is easy enough to produce content and put it ‘in’ a social media channel, this doesn’t mean that the content is actually going anywhere or doing anything valuable for the brand. In fact the vast majority of brand content just sits in these channels like so much undigested brandfill. Content is only ever going to go anywhere, or do anything, if you socialise it – i.e. apply a process to the content you produce. In fact I think the 90:10 rule still applies: for any content strategy, only 10 per cent of the budget should be spend producing the content and the other 90 per cent needs to be spent ‘socialising’ the content you produce.

What is socialisation? Socialisation (like all things in social media) is a process and it has two components. The first involves finding out what content your consumers actually want and this has to start with establishing an effective listening and insight process. As simple and obvious as this step might sound, it is often either ignored or proves to be an almost insurmountable obstacle for some brands. This is because it reveals that the content (or conversations) consumers’ actually want is very different from the content (or conversations) the brand wants to have with consumers. In fact, consumers may not really want that much content at all. Rather than accept this rather unpalatable truth, brands often react by trying to provoke or entice (through promotion or gamification) consumers into becoming willing consumers of their content. Indeed Coca-Cola has stated its objective is to “provoke conversations and earn a disproportionate share of popular culture”.

What brands find when they listen to their consumers is that what they really want is answers to questions, either in the form of direct responses to real-time issues or through the ability to access relevant information, preferably where some form of peer endorsement process has been put in place. The place many turn to, of course, is Google and it never ceases to amaze me just how few brands have based their content strategies on an assessment of what questions their actual or potential customers are asking Google,  for which they as a brand can (should) provide an answer.

The second part of the socialisation process involves what you do with the content once produced. The reason content rarely goes anywhere in social media is because there are no audiences there to view it and such people as are there are not necessarily motivated to want to spread the content for you. Even if you have identified what Google spaces your content is relevant to, content left to its own devices is unlikely to attract sufficient attention to make it very far up the Google rankings. What needs to happen is that the content needs to be inserted into relevant conversations, matched to the spaces where the questions for which it is the answer are being asked.  This, of course, involves listening and responding to these conversations in the first place (step one again). This is a time intensive business and while you don’t necessarily need to attract a huge level of response to your content to attract the attention of Google (provided your content is designed appropriately in the first place), it will require some significant attention before the process of normal social interaction will provide it with sufficient Google juice to remain buoyant. Some content, of course, will never make it – so you have to start either the process again, or accept that there just isn’t a market for it.

The value of this approach is that, once you have given a piece of content sufficient buoyancy, it will remain relevant and useful for a long time, rather than simply being disposable. This is one area where brand-produced content is different to the content of traditional media. Traditional media content is designed to be disposable so that it produces an income stream. And traditional media outlets know exactly the value of the content they produce because there is a direct connection between volume produced and revenue (advertising or subscription) generated. This is one (of the may) reasons why it is foolish for brands to adopt a media model in thinking about how they approach content.

If brands applied the 90:10 rule the amount of content they produce would reduce dramatically, either because they couldn’t afford to invest sufficient time in socialising a large amount of content , or because they realised that there is no demand for the much of the content they thought they need to produce. They would also start to get a handle on what content creates value and thus have an editorial process that can focus on this rather than a process geared to generating a stream of disposable and /or unwanted brandfill.

For example, take this piece of content on ‘Spring picnic essentials’ from Coca-Cola. What process can you imagine might have been in place to determine that producing this content was a valuable or useful exercise and what process was then in place to insert it into relevant conversations such that it was likely to retain any sort of visibility or sustained relevance?   I don’t know what this process was, except that it must have been a very strange process. Or else there was no such process – which I suspect was probably the case.

It is a bit like old-fashioned press releases really. You didn’t measure the effectiveness of your PR programme by the amount of press releases you issued, but by the coverage you generated as a result. And you generated much of this coverage by the knowledge you had of the media you were targeting, the relationships you created with journalists and by not flooding these journalists with irrelevant content.

Perhaps there is much new-fangled ‘content marketing’ could learn from old-fashioned media relations.

How do we measure the value of content? A look at Coca-Cola.

How do we measure the value of content?  Given the amount of money many brands are currently sinking into content, this would seem to be a pretty important question to answer – especially since the conventional ways for measuring the value of content are not really designed to work in this new world where the brand positions itself as a publisher or media organisation – producing forms of online magazine.

To date we have generally measured brand content in two ways: either its effectiveness as a piece of advertising (usually via a direct link through to increases in sales) or we have measured it in the context of how it sits within a website (often through its place in a journey designed to lead through to online action or transaction).  In both of these instances the amount of content we produced was relatively restricted – either because it was expensive to produce or because producing too much of it lead to confusion.  However, the new approach dictates that brands produce a continuous, high volume stream of output – much like a conventional publisher.  No doubt this is why the publisher model is one that many brands like to reference.

Coca-Cola: leading the pack, but in the right direction?

Coca-Cola is one of the most high profile examples of a brand that has embraced the content and publication model.  In its, now famous Content 2020 video, chief creative type, Jonathan Mildenhall outlines how Coca-Cola is shifting from “creative excellence to content excellence”.  The corporate website has been declared dead and instead been transformed into a digital magazine and its stated ambition is to “make a Coke story part of your daily habit – whether it’s on Google+, Facebook, or Flipboard.”  Now that is some form of ambition.  I can’t even identify a traditional publisher whose content (at least in the online space) I consume as part of a daily habit.  The closest for me is the BBC – but even then I tend to come across their stories rather than making any conscious effort to visit their site (or use their app).

Set against this background, there has been a fascinating blogversation taking place between Ashley Brown – the prime mover at Coca-Cola behind the brand as publisher push, and Mark Higginson – from the University of Brighton.  Back in February Continue reading

Algorithms and the growth of sensorship

Here is a quick thought.  As I have previously said, I think we are moving from the age of the printing press into the age of the algorithm.  Printing led to the growth of censorship whereas algorithms are going to lead to the growth of sensorship.

I was prompted to write this today because of the announcement that one of the UK’s largest electronic goods retailers is linking up with one of the UK’s largest mobile phone retailers.  Electronic goods are basically forms of sensor that monitor human behaviour via how they are used (note: there are now even cameras in Barbie dolls).  Mobile phone retailers basically sell connection to the internet and also provide mobile handsets, which are the most comprehensive form of personal sensor currently out there.  I heard the CEO of the new company on Radio 4′s Today programme make no bones about the fact that the underlying logic behind the deal was the growth in The Internet of Things (with electronic things being the most obvious and easy of such things to connect to the internet).

We are just at a start of a form of data detection landgrab – the Scramble for Data if you like.  Continue reading

Please listen to Kristina Halvorson’s presentation at SXSW

FireShot Screen Capture #103 - 'Go Home Marketing, You Are Drunk' - www_slideshare_net_khalvorson_go-home-marketing-you-are-drunkI don’t get to go to SXSW because I have to pay for my own airfare.  I can only go to the conferences that pay the airfare for me to come and speak.  Such is the life of an independent consultant.  However, I am fortunate enough to know some people who work for an organisation sufficiently large and enlightened to pay for some of its people to go to SXSW and since these people know what I am interested in – they can point me to the bits of it they think I might be interested in.  And they pointed me to a presentation by Kristina @Halvorson.

Please take the time to look at this (and / or listen to the accompanying words on SoundCloud) because it’s observations are spot-on.

It starts with an expose of the famous Oreo “dunk in the dark” Superbowl tweet which sent the marketing industry into such paroxysms of ecstasy.  The basis for her criticism was essentially the fact that while this tweet rocked the marketing world, it didn’t rock the world of the consumer for whom it was intended, basically because the actual numbers it reached were miniscule (in comparison say with the total numbers who tweeted about the event or watched it on television, or who might be considered Oreo’s target audience).  Music to my ears – so much so that I am going to use this example in a presentation at a conference in Hamburg in two days time.  (This is a conference which is paying for me to attend: In-Cosmetics 2014 if you are interested). Continue reading

The sword, the printing press and the algorithm. Three technologies that changed the world

It is always a good game to identify the game-changers: to reduce the complexities of history (and perhaps even the future) into simple cause and effect relationships.  No more is this so than with technology, given that we like to think we are living in a technological age and thus there is a certain vested interest in either talking-up, warning of, or dismissing the impact of technology on the course of our lives and our societies.

I am not a real fan of technological determinism.  Technology is (or should be seen as) a tool that helps us achieve certain objectives.  Focus on, or worship of, the tools can lead us into dangerous territory.  Nonetheless, I do think there have been certain technological breakthroughs which have played a fundamental role in shaping the way our world has evolved.  Interestingly, these technologies have been so fundamental, they have become invisible – insofar as we focus on the effect these technologies introduced often without fully appreciating the connection between a technological shift and subsequent events.  They are a bit like foundations – you see the building that sits on top (the effect) but the connection between a building and its foundation remains invisible.

The three technological shifts I would single out are the sword (specifically the iron sword), the printing press and the algorithm.  The interesting thing about these three is that they have all superseded each other to a large extent.  We have moved from the age of the sword, into the world of the printing press and are about to enter the age of the algorithm.  Here is what I mean.

The age of the sword

If I had to go back in time and live my life again, I think I would head-on back to the middle bronze age.  Life was pretty cool around 1500 BC (at least it was in the area now known as Great Britain).  A lot of the complications and hassles associated with the tricky business of agriculture had been sorted out by the geeks of the time, resources were in abundance, the weather was pretty good, religion was seen as a shared set of practices, beliefs and endeavours (such as dragging large stones around the country), rather than an instrument of power and everything was generally sweet.  But then some clever geek went and invented iron, and what did the powers that be then go and do with this?  They created swords.  Now swords had been around for some time, but they were more ceremonial than anything else.  You could cause a bit of damage by thrusting one of them into something, but in a full on clash of bronze against bronze they very soon lost their edge.  Iron swords, on the other hand (especially if the hand that held them was a fiery-tempered Celt), could give you serious power and influence.  Result: the quiet and gentle societies of the bronze age faded away into misty-eyed myth and the world became an altogether more brutal place.  I oversimplify, but I think the fundamental truth remains.

It wasn’t so much that possession of iron weaponry made us more violent, it just gave violence a greater competitive advantage.  For millennia groups of men had been clobbering each other using little more than sticks and stones.  Now sticks and stones can break your bones, but they don’t scale very easily.  If you had vast armies facing each other intent on annihilation, armed only with sticks and stones, they would have to go at it for quite a long time before they started to make serious inroads into the business of killing.  Battles would last longer than cricket matches and also have to have tea breaks.  In fact cricket is pretty much a sticks and stones sort of game, a relic perhaps of our stone age ancestry.  Sticks and stones were therefore used to solve relatively small scale, local disputes.  Or to look at it another way – larger scale disputes were simply not feasible.  You could not project power and influence over a large area using a sticks and stones army.  You could not build an empire based on sticks and stones.

Iron swords, however, gave violence a scalable benefit.  Land ceased being something that had only localised value, with a value cap limited by your personal capability to exploit it.  With a group of men armed with swords, you could extract value from land at some distance because you didn’t have to exploit it yourself, you could force the people exploiting it to pass some of that value onto you.  Thus both empires and taxation were born at the same time.  Some bloke sat in Rome could expect another bloke in the north of Britain to hand over a portion of his cash because he knew that if he didn’t there was a system in place which would deliver a posse of blokes with swords to his doorstep in pretty short order.

Armies became a finite and precious resource and thus, like all finite and precious things they ended up in the hands of a small, elite group who then were able to call themselves kings and emperors.  Or rather, if you aspired to become a king or emperor, you first had to get yourself an army.

And so the age of empires and armies (facilitated by swords) continued.  I guess you could say that after a while guns took over from swords – but I don’t count these as a fundamental technological shift, because this didn’t really change the order of things.  Swords gave violence a scalable benefit and guns just simply extended this.  They didn’t change the rules of the game, just conferred upon those that had them the ability to play the game more effectively.

The age of the printing press

A printing press is somewhat different from a sword or an army.  Not that we should necessarily be surprised by this.  Revolutionary shifts are usually defined by the fact the new thing doesn’t look like the old thing it is replacing.

What the printing press did was shift the battle away from a clash of iron to become a clash of ideas.  Ideas ended up becoming more powerful than armies, albeit armies were sometimes employed in the service of ideas.  Ideas allowed you to control the actions of people on the other side of the world without having to put a gun to their head or a sword to their throat.  It is down to the question of scalable benefit again.  If Galileo hadn’t had access to a printing press, his ideas would have lived and died within Italy – largely because the dominant institution of the time (the Catholic Church) would have supressed them, by suppressing him, in order to ensure that it retained its monopoly on ideas.  Printing allowed Galileo’s ideas to escape beyond the reach of the church.  The church could suppress the man, as it did, but it couldn’t imprison his ideas.  Printing gives ideas a scalable benefit.  It allows them to become something that can challenge the established order without having to raise an army.

Printing, or rather the ability to give scale to the distribution of information, does a whole lot of other things as well.  It allows you to give scale to trust and reputation.  Money lenders can become banks because banks can build a reputation that encourages strangers to trust them with their money, even if those strangers have had no previous personal experience of transacting with them.  Pretty much every institution associated with the modern world, from science to modern democracy – can trace its lineage back to printing and the ability to give information a means of mass distribution.  In fact you could say that democracy represents the ultimate triumph of the idea over the sword in that it has allowed large numbers of nations to organise their internal and external affairs without resolving things on a battlefield.

But just as armies were finite and precious resource and thus the monopoly of kings and emperors, the ability to distribute information (publication) was likewise finite and expensive.  This meant that its power could only be wielded by institutions, or rather institutions evolved in order to wield its’ power – first amongst them, of course being the institution that we call the media.  This is why Rupert Murdoch is more powerful than prime ministers and also why Procter & Gamble is the world’s largest advertiser.

But then something happened which changed the rules of the game.  The ability to control the mass distribution of information was no longer limited to institutions.  This thing called social media gave this power to individuals.  The social media revolution is all about the separation of information from its means of distribution and the associated shift of trust and power from institutions into transparent processes.  I used to think that this shift was the next big game-changer: the end of the Gutenberg age and the dawn of something new.  But now I am not so sure, because something else has emerged that confers a new form of institutional (and thus elite) advantage on those who can have access to it – and this thing is the algorithm.

The age of the algorithm

Algorithms are nothing new, but what has changed is that the thing that they feed on has exploded.  This thing is data.  In the world of small, or restricted, data – algorithms had to remain likewise constrained.  Even in the area where algorithms have perhaps carved out the most important role, which is financial asset trading, they have still remained constrained by the limited availability of financial data and haven’t broken out into the world beyond the markets.

Again it is a question of scalable benefit.  Until recently there wasn’t really a scalable benefit available for algorithms outside of what we might call data rock-pools.  But now the tide of data is coming in allowing these to become connected and for the algorithm to become the master of the ocean rather than the rock-pool.

Once algorithms can be fed with large, multi-layered and multi-dimensional data sets, they acquire an almost magical ability.  They can predict the world and at the same time have the power to make the world conform to their predictions.  They can predict the behaviour of consumers, or citizens and thus shape the response of the brand or the government.  In relatively short order, algorithms will define the identities of almost every person on the planet.  You will not be able to walk into a shop without an algorithm determining your desirability as a potential consumer and devising a pricing structure accordingly.  It won’t be long before goods will not have price labels, algorithms will estimate your desire for a product and your ability to pay and pitch you an appropriate price.  Goods may even be discounted according to their ability to harvest data from you – and thus ‘improve’ the ability of algorithms manage your relationship with the supplier of the product you have just bought.  Indeed – in the future we won’t own products anymore, because their primary allegiance will always be to their data masters.  But buying and selling goods will just be the start – algorithms will determine access to all resources, both those of the state and those of the market.   They will determine the insurance premiums you pay, the interest rates you are charged, your ability to benefit from access to healthcare and thus the healthcare you receive.

It is almost impossible to conceive of an aspect of life which algorithms cannot control, for wherever there is data, so will there be algorithms.  Forget quaint notions like artificial intelligence.  Algorithms are not in the business of allowing machines to become as smart as humans, or act in a human way – they are about predicting the actions of humans so that they (we?) can do things that transcend human capability or even comprehension.  Algorithms tell you what the world is like, or will be, without the essentially human need to understand why it is like that.

And here is the thing.  Algorithms are tricky things to make.  Anyone can write a blog post, or write a review, but not anyone can write an algorithm.  Like swords and printing presses algorithms confer an advantage upon an elite.

And that is why I think algorithms will be the third great technological game-changer.  We will have moved from a world of Alexander the Great, to Rupert the Great to … what?  Who can really wield the algorithm or will we have reached that dystopian point at where we become the tools and technology becomes the master?

Gagging for it: why content marketing is a fantasy

I have been a little off-the-pace in January, which is why I missed a couple of pieces on content marketing which gained a lot of attention.  Fortunately, I was having a coffee last week with Stan Magniant, the Head of Digital and Social, EMEA for the MSL Group and he brought me up-to-date.  The first is Content Shock produced by @markwschaefer and the second is the Slideshare presentation Crap. The Content Deluge by Doug Kessler at Velocity Partners.  Both are sceptical of content marketing and both are totally wrong in my opinion.

In brief Content Shock is wrong because it is applying an old-fashioned channel, content, consumption thinking in a space where such thinking is redundant and The Content Deluge proposes that the answer is simply to make better content, without recognising that the game is no longer about content, it is about real-time information.

But I thought, rather than just do another blog post, why not build on the spirit of The Content Deluge and ‘Do a Slideshare Number’ – so here it is.  Warning: the start of the presentation is deliberately designed to be uncomfortable, but hopefully not inappropriate.  Feel free to comment if you feel that it is.