In a datafied world, algorithms become the genes of society

Here is an interesting and slightly scary thought.  What is currently going on (in the world of Big Data) is a process of datafication (as distinct from digitisation).  The secret to using Big Data is first constructing  a datafied map of the world you operate within.  A datafied map is a bit like a geological map, in that it is comprised of many layers, each one of which is a relevant dataset.  Algorithms are what you then use to create the connections between the layers of this map and thus understand, or shape, the topography of your world.  (This is basically Big Data in a nutshell).

In this respect, algorithms are a bit like genes.  They are the little, hidden bits of code  which none-the-less play a fundamental role in shaping the overall organism – be that organism ‘brand world’, ‘consumer world’, ‘citizen world’ or ‘The Actual World’ (i.e. society) – whatever world it is that has been datafied in the first place.  This is slightly scary, given that we are engaged in a sort of reverse human genome project at the moment: instead of trying to discover and expose these algorithmic genes and highlight their effects, the people making them are doing their best to hide them and cover their traces.  I have a theory that none of the people who really understand Big Data are actually talking about it – because if they did they are afraid someone will tell them to stop.  The only people giving the presentations on Big Data at the moment are small data people sensing a Big Business Opportunity.

But what gets more scary is if you marry this analogy (OK, it is only an analogy) to the work of Richard Dawkins.  It would be a secular marriage obviously.  Dawkins’ most important work in the field of evolutionary biology was defining the concept of the selfish gene.  This idea proposed (in fact proved I believe) that Darwin (or Darwinism) was not quite right in focusing on the concept of survival of the fittest, in that the real battle for survival was not really occuring between individual organisms, but between the genes contained within those organisms.  The fate of the organism was largely a secondary consequence of this conflict.

Apply this idea to a datafied society and you end up in a place where everything that happens in our world becomes a secondary consequence of a hidden struggle for survival between algorithms.  Cue Hollywood movie.

On a more immediate / practical level, this is a further reason why the exposure of algorithms and transparency must become a critical component of any regulatory framework for the world of Big Data (the world of the algorithm).

 

Forget Ebola, Twitter has caught Ipola

SickIpola is long-term debilitating disease that frequently is contracted in the financial markets during the process of launching an IPO.

Twitter has it bad, as this recent GigaOm piece highlights, and Facebook is also suffering.

Twitter is basically comprised of an idea, some geeks and some server space.  The last of these are not precious or scarce resources and the idea is basically now a sunk cost.  Not just for Twitter, but for anything that aspires to be Twitter like.

It therefore doesn’t cost much to be Twitter (or Twitterlike).  Logically speaking therefore, the revenue opportunities for Twitter, long-term, are likely to be similarly low.  The problem for Twitter (and Facebook) is not generating sufficient revenue to cover its costs, certainly not the costs of delivering the service its users want.  Its problem is generating sufficient revenue to justify its share price.

In the chase for this revenue, an Ipola sufferer turns away from its users and focuses on marketing directors.  It tries to turn itself into a media platform or a data mine, because that is the only way it can seduce the marketing dollar.  And in the process it basically destroys what it was that made it successful in the first place.  Its vital organs start to fail.

Twitter is basically a conversation.  Take the chronology out of conversation and it stops working.

Twitter is never going to be some sort of content lillypad – which has always been its problem.  It has no real estate on which advertising dollars can settle.

Which would all be fine, if it didn’t have try and keep the boys on Wall Street happy.

Ipola is not going to kill Twitter just yet, although it is going to run a sweat.  What will kill Twitter is when the market gets infected by a competitor – and users realise how easy it is to swap, because the size of your accumulated Twitter following means nothing (because they are not actually an audience), you don’t follow handles anymore, you follow or search hashtags (in real-time), and if you do want to follow someone (or have them follow you) they are still only a click away.  Doing a factory reset on your Twitter following is basically a good thing because it means you only get the ones back which were worth anything in the first place.

The only course of treatment for Twitter (and Facebook and LinkedIn) is to recognise your stock is going to become a devalued currency when Wall Street finally realises you are never going to hit the long-term revenue expectations, so use it while it is trading at such a ridiculous premium to buy other companies that can then become the lifeboats for when the business model sinks.

October engagements: Shel Holtz (#smwisoc) and Golden Drums

FireShot Screen Capture #180 - 'Strategic_digital_engagement_seminar-earlybird_pdf' - www_isoc_com_files_pages_Strategic_digital_engagement_seminar-earlybirdI have a couple of engagements in October I would like to flag.

First, social media guru Shel Holtz (@shelholtz) is going to be in the UK from 27-31 October for the week-long strategic digital engagement seminar organised by ISOC.  Since the poor man can’t be asked to provide an entire week’s worth of seminars, some others (Paul Marsden, Janet Murray and myself), have been hired as support acts.  I am going to be responsible for the future, as in Social Media and the Next Big Things: the Forces that will Shape the Social Digital Space in the Next Few Years.  It will focus on Big Data and the world of the algorithm in the morning and rise of communmity and why community may become the new media in the afternoon.

Should be fun.

Places on this one are pretty limited and also have a £2,200 price tag attached, so if you are interested please sign up here.

Second, although firstly chronologically speaking, I will be speaking on October 10 at the Golden Drums in Slovenia.  The organisers have allowed me to run a session (actually pitched as an EACA masterclass) called “An alternative look at content” which I am going to use as an opportunity to expose those guilty for filling the social digital space with Brandfill and reveal why they are doing it.

I think it unlikely you will travel to Slovenia just to listen to me, but if you do happen to be going anyway, my session is at 14.00 on Friday – and you will have the choice between me and Johan Jervøe, Group Chief Marketing Officer, UBS AG who will be answering the question “Branded content: has social media changed the world of creative excellence?”.  Not that I want to influence anyone, but I will also be answering that question.  In fact I can give you the answer now: yes, branded content and social media has changed the world of creative excellence, but only in-so-far as it is causing us to forget what creative excellence really is.  This is because most branded content is simply tediously long-form advertising, with all of the things that made advertising effective taken out of it.

I will also be giving away T-shirts.

 

 

 

Convening an audience: the new challenge for marketing

sermon_mount2I believe there are now two consumer worlds: the world of the audience (the world of ‘traditional’ media and marketing) and the world of the individual (the world of social media). These worlds are very different, not least because in the world of social media consumers will expect to be treated as an individual and will tend to resent or ignore attempts to treat them as just another member of an audience. This doesn’t mean that consumers don’t ever want to be treated as a member of an audience, just not when they are in the social digital space.

This presents two problems for brands. First, almost everything we know about marketing (including digital marketing / media) comes out of the world of the audience. Marketing, to date, has essentially been audience-based marketing. But putting audience-based approaches into the social space just doesn’t work, because it can’t support the potential for creating high-value relationships with individuals. Traditional marketing is a high reach but low engagement business and there is no point in putting the low engagement techniques of traditional marketing into the low reach environment of social media.

Audiences are very hard to find or create in the world of social media. This is because when people are in this space they are looking to create connections and you can’t create connections with an audience, only with individuals or within groups. The social media space is a medium of connection, not a medium of distribution. When a brand operates within the social space it has to accept that it can realistically only talk to very few people at any one time so it therefore has to (and can) create relationships of far higher value than anything that is associated with traditional marketing. But you only do this by recognising what it is that people want from you in this space, which is real-time individualised response and recognition, answers to questions and information.

However, this fact is not stopping many brands from trying dump audience-based, low engagement approaches in the social digital space. Content marketing is the latest iteration of such an attempt. Continue reading

Will Big Data kill Vendor Relationship Management?

Modernization of Al-Khalid Main Battle Tank (MBT) PAKISTAN ARMY I III have just finished reading Doc Searls’ Intention Economy. And about time too. The book has been out about two years and it is widely recognised as being a Very Important Book. In my defence, I have been following the Vendor Relationship Management (VRM) thing anyway and have even had some marginal contact with the good Doc himself on the issue. So it was more a case of filling-in the gaps. For those not already in the know, VRM is positioned as the counterpoint to CRM (Customer Relationship Management). CRM is how brands use data about their customers in order to define the relationship the brand decides it wants to have with the customer: VRM proposes that customers should own and control the data about themselves so that they can define the relationship they want to have with brands.

I can validate that it is indeed a Very Important Book because it not only defines this new and potentially interesting area (VRM) but also because it strays into a wider analysis of the history and operation (and philosophy) of the internet. The issues that it raises here are becoming increasingly important as pressures build to manage, regulate and appropriate the internet in order to make it conform to political or commercial vested interest. In fact, this wider analysis could turn out to be the most important aspect in the book, or perhaps a valid subject for a new book.

The Intention Economy and VRM is something I would very much like to believe in. Trouble is, form me VRM is a bit like God: something I would like to believe in if only I could get the evidence and reality to stack up. There seem to be just too many reasons why VRM (like God) doesn’t or won’t exist.   At one level, VRM appears to be overly reliant on a code-based answer. This is probably because Doc Searls himself and many of the current VRM gang come out of this place. But the concept that I found most interesting in the book was the idea of the things Doc calls ‘fourth parties’. Fourth parties are organisations that can aggregate customer intentions and thus create leverage and scale efficiencies. This takes us into the realm of community, which rings bells with me since I believe that within a few years almost all relationships between individuals and brands will be mediated by some form of community. In fact, this would be my own take on how the Intention Economy might actually come into being. I think it is the ability to connect individual customers, rather than empower them as individuals, that is likely to present the greatest opportunity to change the rules of the game – as things like TripAdvisor or even Airbnb are starting to demonstrate. However, fourth parties get relatively short shrift in the book, perhaps because they are not a code-based answer.

But my greatest area of scepticism, or perhaps fear, for the future of the customer and citizen, stems from the emerging world of Big Data and algorithms. As outlined in my previous post, algorithms suck the power out of the idea of having a personal data repository and make the ownership of this, from a government, brand, customer or citizen perspective largely irrelevant. In the world of the algorithm, your personal data file (i.e. your life) becomes little more than personal opinion. To all intents and purposes your ‘real’ identity is defined by the algorithm and the algorithm’s decision about who you are and how you shall be treated will pay scant attention to any information that is personal to you, other than to use it as a faint, initial signal to acquire ’lock-on’.

The problem with algorithms is that (like tanks) they favour governments and corporations. It is hard for a citizen to get a hold of, or be able to use, an algorithmic tank. And if you are standing in front of an algorithmic tank, giving you the rifle and flak-jacket of your own data isn’t much protection. It is why Wall Street is the first place that the world of the algorithm has really taken hold – it could afford the best geeks. And as Wall Street is showing, the world of the algorithm tends towards a very dark and opaque sort of place – about as far removed from the sun-lit commons of open-source code sharing as it is possible to be.

However, create the opportunity to connect a million people with rifles and flak-jackets to confront one algorithmic tank, and the odds get better. You may even be able to form a fourth party which can create its own tank, or at least some effective anti-tank weapons.

So, I guess my message to Doc Searls and the VRM gang would be: don’t loose faith in the idea of VRM and the Intention Economy as a destination, but think again about the route.  Build on the idea of fourth parties and focus on community and connection, rather than tools and code, and recognise that CRM is about to be swept away as brands and governments learn how to roll-out the algorithmic tanks.

Privacy: let’s have the right conversation

The whole social media, Big Data, privacy thing is getting an increasing amount of air time. This is good, because this is very important thing to start getting our heads around. However, I don’t think we are really yet having the right conversation.

The pre-dominant conversation out there seems to be focused on the issues concerned with the potential (and reality) of organisations (businesses or governments) ‘spying’ on citizens or consumers by collecting data on them, often without their knowledge or permission.

Our privacy is therefore being ‘invaded’.

But this is an old-fashioned, small data, definition of privacy. It assumes that the way to gain an understanding of an individual, which can then be used in a way which has consequences for that individual, is by collecting the maximum amount of information possible about them: it is about creating an accurate and comprehensive personalised data file. The more comprehensive and accurate the file is, the more useful it is. From a marketing perspective, it is the CRM way of looking at things (it is also the VRM way of looking at things, where the individual has responsibility for managing this data file).  It is also a view that then gives permission to the idea that if you detach the person from the data (i.e. make it anonymous) it stops it being used in a way which will have consequences for the individual concerned and is therefore ‘cleared’ for alternative usage.

But this is not the way that Big Data works. The ‘great’ thing about Big Data (or more specifically algorithms) is that they require almost no information about an individual in order to arrive at potentially very consequential decisions about that individual’s identity.   Instead they use ‘anonymised’ information gathered from everyone else. And increasingly this information is not just coming from other people, it is coming from things (see Internet of Things). The great thing about things is that they have no rights to privacy (yet) and they can produce more data than people.

The name of the game in the world of the algorithm is to create datafied (not digitised) maps of the world. I don’t mean literally geographical maps (although they can often have a geographical / locational component): from a marketing perspective it can be a datafied map of a product sector, or form of consumer behaviour. These maps are three dimensional in that they comprise a potentially limitless numbers of data layers. These layers can be seemingly irrelevant, inconsequential or in no way related to the sector of behaviour that is being mapped. The role of the algorithm is the stitch these layers together, so that a small piece of information in one layer can be related to all the other layers and thus find its position upon the datafied map.

In practical terms, this can mean that you can be refused a loan based on information concerning your usage of electrical appliances, as collected by your ‘smart’ electricity meter. This isn’t a scary, down-the-road sort of thing. Algorithmic lending is already here and the interesting thing about the layers in the datafied maps of algorithmic lenders is the extent to which they don’t rely on traditional ‘consequential’ information such as credit scores and credit histories. As I have said many times before, there is no such thing as inconsequential data anymore: all data has consequences.

Or to put it another way, your identity is defined by other peoples’ (or things’) data: your personal data file (i.e. your life) is simply a matter of personal opinion. It has little relevance to how the world will perceive you, no matter how factually correct or accurate it is. You are who the algorithm says you are, even if the algorithm itself has no idea why you are this (and cannot explain it if anyone comes asking) and has come to this conclusion based in no small part, by the number of times you use your kettle every day.

The world of the algorithm is a deeply scary place. That is why we need the conversation. But it needs to be the right conversation.

Converged media: is it the Next Big Thing?

Blessed Trinity of mediaHere is a lift from a Sprinklr blog post about its recent purchase of TBG Digital – a “top global social paid solution company”.

With the obvious and inevitable decline of organic reach, paid is increasingly the only lever that can predictably control brands’ reach across channels. It’s absolutely critical that brands learn to coordinate messaging across paid and owned.

I look at this and feel conflicted. At one level, what Sprinklr are saying here is absolutely true. It is certainly true to the extent that brands are starting to recognise that what Sprinklr call ‘organic reach’ just doesn’t happen at any scale in the social digital space (for brands at any rate). It also is validation of what I have been going-on about for some years now – namely that there are no audiences in social media and therefore social is not a reach and frequency (channel and message) game.

I am also aware that ‘the conversation’ within the social digerati of social media managers and consultants has been shifting back towards a greater emphasis on paid social solutions. This is a conversation that is heartily sponsored by the likes of Facebook and Twitter of course because it supports their agenda of discouraging organic (i.e. free) usage of their platforms and encouraging paid usage.

But here is the conflict. Why is it that we therefore think converged media is the answer and is the concept of ‘paid social’ really a contradiction in terms?

I first wrote about this almost exactly two years ago where I argued the point that converged media is really a construct of convenience for those that have an interest in traditional media and mass, audience based marketing. It is a way of trying to preserve the relevance of traditional approaches within the new social space. From the consumer / customer / citizen perspective however, media is going the opposite way. It is diverging and creating two very different media spaces, what I call the world of the audience (traditional media) and the world of the individual (social media). I also questioned the relevance of the Holy Trinity of media (Bought, Earned and the Wholly Owned), suggesting instead that media is now better understood as a spectrum, with participatory media at the social end and non-participatory the traditional end.

It seems to me that what has been happening in the last couple of years has been a growing realisation that most brands’ social media strategies are not working. Rather than try and deal with the fact that this is because these strategies were all about trying to make social work as a traditional, audience-based space (so that traditional audience-based marketing can continue to work) the response has been to try and converge ‘organic’ social with a steroid injection of paid social.

Therefore, converged media is really just the next step along the wrong road. Brands will only hit the right road when they realise that the challenge in the social space is not defined by reach and frequency, channel and message – it is defined by behaviour identification and response. Social ‘media’ is a connection medium, not a distribution medium. You deal with much smaller numbers of people at any one time, but the value from these connections is much greater, largely because they are based upon what your customers want from you, rather than what you want your customers to have.

adidas spills the beans on its World Cup campaign: they went #allin but what did they get?

BtJkpzZIUAAB77oOn Tuesday I was at one of Sprinklr‘s #social@scale events in London. These are always good because a series of big brands (who happen to be Sprinklr clients of course) basically spill the beans on what they are up to in social media.

The stand out presentation (no offence to the other presenters) was adidas who spilled the beans on their World Cup programme. It was fascinating because, firstly it was adidas, secondly it was the World Cup (the biggest potential brand exposure platform there is, especially for a sports brand) and thirdly, what an astonishing tin of beans it was.

To give you a flavour: the strategy had three elements, mobilization, anticipation and reaction. On the mobilization front they set up a social media command centre in Rio with a team of 80 people. 80 people! To put that into perspective the England national team only brought an entourage of 72 people – and that was the largest party England had ever assembled. From this command centre adidas were running a broadcast/content operation that was probably more extensive (in terms of its usage of channel and variety of output) than any of the traditional media broadcasters, although they didn’t trump the BBCs’ 272 people in terms of numbers. But I don’t think anyone trumps the BBC in terms of the numbers of people turning up at these sorts of parties.

In terms of anticipation adidas went there having prepared what they called a content bible: actually a vast library of material ‘in the can’, so that they could react in real time to almost any scenario. They also did something that was super-clever in order to get around the fact that they didn’t own the rights to any of the content from the games themselves, which was to have an animation facility on tap that could produce stylised video representations of the key moments of play which could then be put out as vines or assembled into montages for YouTube. In many ways these were even more ‘engaging’ than the real video clips because they challenged the viewer to match the clip and the players featured with the actual moments of play they were recreating. Making your audience work for the punch line always gets bigger laughs than just spoon-feeding them jokes.

And to give an indication of the speed of reaction, the Bazuca ball had its own Twitter identity. Come the infamous ‘was it over the line’ incident, ‘the ball’ tweeted that it was a goal before even the referee made his decision. Whether or not you think giving a ball a Twitter identity is a good idea you have to take your hat off to the speed of reaction.

Basically the whole thing was totally awesome in scale and organisation. In fact it was probably the most totally awesome way in which you could use social media, if you wished to use social media in a totally awesome way. Indeed this may even set a never to be repeated high watermark for social media awesomeness.

Why never to be repeated? Well here is where it gets interesting. The objective for all this awesomeness was simply to “have the loudest voice at the World Cup” according to @KrisEkman who was giving the presentation. So at the end of the presentation I asked the question, “why was this the objective and how did you measure it – was it just with respect to the share of voice of competitor brands or was it with respect to the whole World Cup conversation on social media?” The answer, it transpired, was basically to be shouting louder than Nike. This was because Nike was perceived to have ‘won’ the last World Cup and adidas wanted to out-gun them this time. And then came the killer question from Jessica Federer (@jjfeds) from Bayer. “How did you justify this expenditure to the bosses, in terms of what it did for sales or brand reputation” she said. The answer was startling. “We didn’t have to do this”, said Kris. Basically the team had been given an ROI pass: the whole thing had been declared an ROI-free zone. All they had to do was rack-up was more engagement stats than Nike.

Wow. Is that enlightened or just plain crazy? Not only were adidas spending a huge amount of money on a hunch, they were unable to have any basis for comparison for what a campaign vectored almost exclusively in social media was delivering versus what a traditional media based campaign would have delivered. Wow.

This seemed to me the equivalent of a football manager saying “you don’t have to score any goals, just make more passes than anyone else.” I tackled Kris in a coffee break on this one. Of course, it wasn’t a totally measurement free zone. The fact that they were using a platform such as Sprinklr to manage all the listening and response channels meant that they had control over a lot of the data. For example they could track contacts in social media through to online sales, albeit as Kris acknowledged, this was really only a small part of the picture. Now while Sprinklr does a good job on measurement, its main function is for real-time management and control. It can provide you with data you can plug into measurement processes if you want to, but, as far as I was aware, the Sprinklr data wasn’t really being plugged into anything.   Ultimately, adidas will also be able to look at uplift in sales and compare this to that generated by previous World Cup or Euro campaigns. Perhaps they already have this picture. None-the-less, this was a pretty big leap of faith.

As an aside, measurement is my big beef with many brands’ usage of social media. For example, everyone is spending big bucks producing loads of ‘content’ but no-one can measure the value the individual pieces of content created. Therefore you neither get a decent ROI calculation nor do you have an editorial framework that allows you decide which types of content you should be creating, i.e. which bits create the most value.

For myself, I didn’t quite know what to make of the adidas campaign. I was blown away by the awesomeness, but fear it may not have won the battle of sales, even if it won the battle of shouting. I always carry on about there now being two worlds for brands: the world of the audience (which is what traditional marketing has always been about) and the world of the individual (the new space where social media plays). Audiences don’t really exist in social media and to the extent to which they do, they are quite hard to create. For an event like the World Cup, which is probably the biggest audience-based event on the planet, is it therefore appropriate to show-up with an approach that, no matter what awesome levels of investment you throw at it, is always going to struggle to reach an audience as big as that which is available through more traditional channels? (Remembering, of course that social media isn’t really a channel or form of media, it is an infrastructure).

For sure, social media must form an important part of any campaign. Social media is a participatory media, it allows you to do things with groups of consumers or individuals that are not possible when you are simply ‘performing’ in traditional media, or ‘reaching out’ in competitions, promotions, events etc. But what it delivers in terms of participatory opportunity, it tends to lack in terms of reach.

It was interesting to note that very few of the 50 or so people in the room had seen the elements of adidas’s campaign. I must confess that I hadn’t encountered any of it. Put together all the elements in a show-reel and it looks totally awesome – but no consumer ever gets to see the show-reel. This is always a challenge, even if you are creating a campaign that has a higher dependency on high-reach media. But the way you solve this is by having a well-defined central creative idea, such that when a consumer sees just a bit of the campaign, it reinforces or creates the pathway back to that central idea. The idea acts as a multiplier to the individual tactics. Without this, you just have a bunch of tactics.

What then was the adidas idea? The tag line was ‘All in or nothing’ but this is a one-line expression of an idea not the idea itself. The difficulty I think adidas faced is that it is hard to make social media conform to the strictures of carrying an idea. You can use it to help create an idea or to involve people in aspects of that idea, but traditional forms of broadcast channel or conventional audience-based marketing activities are almost always better vehicles for actually driving an idea. Social media is also relentlessly real-time: a fact that adidas’s approach was set up to deal with. But it is hard to exert the creative precision necessary to sustain an idea, when you have only seconds to react. It is a bit like being asked a question, but then having to frame your answer in rhyme and also sing it as a jingle. Quite possibly adidas’s reliance (over-reliance?) on social media actually ended up eroding the focus on a creative idea (because singing all your responses in rhyme and in real-time is just too creatively challenging).

So I was left with the question: are adidas simply doing the wrong thing, brilliantly? At heart, it was a conventional broadcast strategy that used social, rather than traditional, media channels. But as we all know by now, social media is not about broadcast (it’s not even really media). You may well be shouting louder than Nike, but social media is not a medium for shouting.

And this is why I suspect this awesome display may represent the high-water mark: for adidas and perhaps all brands. For sure, they went #allin and whilst they didn’t get nothing, when they look at the sales lift, did they get enough?

 

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.