business model

Google’s Third Wave Of Innovation

Is it normal that a search engine is buying up all of the robotics and drone companies?

If you’re in the marketing profession, you have to be scratching your head at the moves that Google has made over the past little while. It’s hard to reconcile how a company that was founded on a search engine (and then optimizing an advertising platform so efficiently that it drove them to a $350 billion market cap) could be spending its war chest on technology so nascent and future-focused. If Google’s main form of revenue is advertising and licensing software, where will the ads be going on all of these robots and drones?

Google’s first wave of innovation.

Google has gone through two dramatic waves of innovation (with many nuances and smaller ones in between). It’s important to understand that in phase one, Google mastered search. The ability to organize the diverse and divergent pieces of data, content and information that were being created in a non-formulaic way across the Internet. It was everything from programs to articles, and (through the years) it’s hard to imagine how we would find anything (let alone remember stuff) in a world where we can “Google it.” The problem with search, of course, is that there was no significant revenue in helping to organize all of the world’s information. While Google didn’t invent keyword-based advertising, they have certainly mastered it. Ushering in the era of performance-based advertising, they nurtured search engine marketing into becoming one of the most effective forms of direct-response advertising. People searching for content would be exposed to contextually-based text ads that did not interrupt the search experience. On top of that, the ads would be sold to brands and media agencies in an auction-based mode where the cost would be charged only if the consumer clicked on the ad (showed interest). Over the years, Google has expanded the offering to individual’s website wishing to run these types of ads in lieu of traditional banner advertising. From there, the company has made several strategic acquisitions to build their GDN (Google Display Network). The acquisition of YouTube in 2006 is also significant in this first wave of Google’s innovation. Years later, they are beginning to understand the types of commercials that works in the online video world as TrueView continues to learn which ads the consumers are watching (and which ones they are skipping). Within a few years, TrueView will become as efficient at performance based commercial advertising as keywords have become. To put the first wave of Google’s Web dominance into perspective, comScore Media Metrix’s rank of the top 50 U.S. desktop Web properties for February 2014 tells the tale: In a world of over 222 million unique visitors, Google’s website account for over 187 million of them.

Google’s second wave of innovation.

Back in 2006, Google acquired a lesser-known mobile operating system called Android. It was, at the time, an acquisition that perplexed the media pundits. It was a bold play and one that has – without question – enabled Google to become a dominant player in the mobile space. Now, Google doesn’t just build applications that run on a mobile-enabled platform (which they do), but they own the actual platform on which our mobile connectivity is playing out. As consumers move from desktops PCs and laptops to smartphone and tablets, Google has continued to innovate and own the mobile landscape, and this includes being hyper-competitive in relation to Apple and the staggering success of the iPhone and iPad. Still, Android (and the supporting Google applications and mobile websites) are the 800-hundred pound gorilla in mobile. Adding some data to this, comScore’s February 2014 U.S. smartphone subscriber market share demonstrates just how much of the mobile Web Google owns: While Apple ranked as the top smartphone manufacturer (41.3%), Android led as the number one smartphone platform with over 52% of the market shares. What makes this more staggering, is that Google sites hit close to 90% of the entire smartphone browsing and app audience. In short, they own mobile as well. 

Welcome to Google’s third wave of innovation.

How does a company like Google grow? The opportunity to scale becomes increasingly difficult (will another 30 million people using a particular app truly help them?). The answer lies in in connecting the last mile of humanity that is currently not on the Internet. It’s nothing new. We have been talking about the digital divide for decades (the chasm that exists between the haves and the have nots). In fact, Google’s Executive Chairman, Eric Schmidt, discusses this very topic in depth in his business book, The New Digital Age – Reshaping the Future of People, Nations and Business (co-authored with another Googler, Jared Cohen). There are close to five billion people not connected to the Internet. There are countless appliances that aren’t “smart” or online (just yet). That is the kind of scale that Google must now focus on. For that, Google is pushing the envelope of innovation towards drones, robotics and artificial intelligence. Massive and risky bets that will enable a new type of connected consumer. Drones will enable Google to deliver connectivity to that massive last mile. Robotics is primarily based on the idea that we can get machines to work, think and do things somewhat autonomous to human intervention. This requires a new kind of computing coding and architecture – one that is based on machine-learning capabilities (yes, programming a computer to teach something to another computer and having each successive version be able to get better and teach more). While everyone is focused on Google’s most recent acquisition of Titan Aerospace for their drones, or that they have bought eight (maybe more) robotics companies in the past short while (including the very popular Boston Dynamics), not enough people have spent enough time thinking about why they acquired DeepMind in late January.

Getting computers to think better.

It has been reported that Google spent close to $500 million for DeepMind (which doesn’t seem like much, if you consider that it also paid over $3 billion for Nest not that along ago). DeepMind was in stealth mode when purchased, but we have been told that the London based technology was developing artificial intelligence to help computers learn and operate like humans. Couple that with connecting more devices, purchasing drones and robots and you can let your mind wander. From a marketer’s perspective, this may still sound quizzical and off-brand, but to anyone willing to expand their horizons, it is clear that Google is a company not willing to rely simply on media as a business model, but rather much more interested in technology and connecting the word. This is important for brands to understand as well. Perhaps the real future of marketing is not in just getting more efficient with advertising dollars, but in following Google’s footsteps to help connect your our brands to more people through technology on a more global scale.

The above posting is my monthly column on marketing innovation for Strategy Magazine. I cross-post it here with all the links and tags for your reading pleasure, but you can check out the original version online here:

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Data Markets: a category in search of new business models

In domains like financial services, the buying and selling of data is commonplace, and providers such as Bloomberg and Thomson Reuters are well-established. Elsewhere, too, there is recognition that data supports good decision making when creating new products and services, both for businesses and the individual […]

What Does Facebook Do Next?

I had an interesting conversation the other week with a senior marketing professional of a major corporation that represents many brands.

They had asked me what I thought the percentage was of posts that get through to the News Feed on Facebook from brands to people who have liked the Page? You would think that the answer is 100%. You would be wrong. There is so much sharing happening on Facebook, that the company throttles access to the News Feed (not just for brands for people too). They do this as a way to preserve and balance the diversity of content that we see on it. They also do this, so that brands (and individuals) don’t monopolize the feed. The more cynical might argue that Facebook does this as a business model. If you want more access to the News Feed, you can buy your way in with sponsored stories. I’ve heard brands say that anywhere from 12% – 18% of their posts make it through organically (without paying to promote it). It’s kind of shocking that a brand will spend so much time, money and effort to get as many likes as possible and only be able to connect with about 15% of their content/efforts, even if 100% of those people have agreed to stay connected. It is the Facebook business model: once you get a follower, you have to pay to connect with them. This senior marketing professional of a major corporation said that he is seeing percentages drop as low as 2% for some of the brands that this multi-national represents. Another analytics marketing professional told me that they are seeing the same meager numbers.

What is Facebook for brands?

I then asked the frustrated marketing professional what they are going to do about it? Are they going to allocate more dollars for advertising and sponsored stories? Are they going to continue paid fan acquisition strategies? This was their response: “we’re treating Facebook for what it has become: an advertising platform. Nothing more. Nothing less.” If you’re going to read one article this week, you may want to check out the Business Insider piece titled, Facebook Is A Fundamentally Broken Product That Is Collapsing Under Its Own Weight. It’s definitely a negative piece and slanted (so take it with a grain of salt). It’s hard to not argue that Facebook is still a viable and valuable place for brands to be, but it does point to a contentious issue that Facebook is grappling with: if everyone is sharing everything on Facebook, how realistic is it to assume that anybody is really seeing anything? From the article: “In August, Facebook revealed that ‘every time someone visits News Feed there are on average 1,500 potential stories from friends, people they follow and Pages for them to see, and most people don’t have enough time to see them all. These stories include everything from wedding photos posted by a best friend, to an acquaintance checking in to a restaurant.’ Let’s say the average Facebook user is awake for 17 hours a day. To consume all that stuff, they would take in 88 new items per hour, or 1.5 things per minute. That’s just not possible. Facebook knows it has a problem. It planned a major redesign that gave users more control over the News Feed. But it was scrapped when the first batch of users showed low engagement with the new design.”

A victim of their own success?

The people who populated, connected and grew Facebook were none concerned about the marketers or how the organization was going to find a business model. Much like any online success, once the exponential growth rates start kicking in, it becomes nearly impossible to manage success. Brands will often ask me how to best define if something has “gone viral,” and my standard answer is: when you can’t handle the results of your work. Success in the online sphere is often overwhelming to the point of near-collapse. The Business Insider article also points to newer challenges facing Facebook (couldn’t resist) like mobile as the real social platform. You don’t need to stay inside Facebook’s walled garden to share a photo (Instagram or Snapchat), to chat with someone (messaging or WhatsApp) or play a game. The social nature of the smartphone and the apps make switching from place to place completely frictionless. As mobile becomes the more dominant screen in the consumer’s life (which it is), Facebook is going to have to do more than nurture an acquisition strategy to maintain their relevance and dominance in the online social networking sphere.

What makes Facebook interesting.

For marketers, Facebook is interesting because so many people are there, connected, sharing and spending a lot time with it. For Facebook, it is attempting to ensure that as it grows, it can still enable each user to have a higher and more valuable level of engagement. Somewhere, in those last two sentences, lies the answer to what Facebook can do next. If the WestJet Christmas Miracle viral video sensation of the past few weeks has shown us anything, it’s that 30,000,000 (plus) people will spend a whole lot of time connecting with a brand, if it can tell a good story, add value to their day and give them a moment of thoughtful pause. Facebook has millions upon millions of people who are spending a whole lot of time engaged on the platform. When brands start using that opportunity to truly connect, instead of abusing that moment with an impression and repetition-based mass media mindset, they probably won’t see Facebook solely as an advertising platform, but rather a place where deep and powerful marketing connections can be built, nurtured and leveraged.

Facebook is not collapsing.

Most brand’s Facebook strategy is failing. They’re just looking for someone to blame. It seems to me like Facebook is throttling the News Feed in a bid to keep their consumers engaged and sheltered from brands doing very boring or traditional things. As this platform becomes more powerful on mobile, Facebook is going to have to be even more diligent in this process. Does this mean that Facebook is faltering, or is it that brands aren’t doing the very hard work of figuring out how they can add value to the online social network?

The more consumers share, the less consumers will see. Brands have to find their own way in this cluttered world. Obviously, more clutter is not the solution.

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How Much Does It Cost?

Let’s talk about money.

The marketing agency business is a strange bird. Brands are strange birds too. It’s a complex web of relationships that is often confusing, evolving, thrilling, beautiful, painful and more. As the marketing industry evolves, we have all experienced massive shifts in how the business is won and done. First, there is the procurement component. More and more, the procurement department is leading the charge not only in the negotiation of fees, but in the running of the bidding for the business. That, in and of itself, is book-worthy content. For the moment, let’s put that aside and look at a more predominant and frustrating component of pitching. Let’s talk about when there is no budget allocation.

Why would anybody pitch on a piece of business without a budget?

It happens all of the time. Agencies will be given these massive RFPs (Request For Proposals) or RFIs (Requests For Information) that take days, weeks and more to complete. These phases in agency new business are not only disruptive to the work flow (because agencies never know when they are coming in and then have to divert resources to make a run at this new piece of business), but cost a tremendous amount of money to complete. It’s amazing – after all of these years – how brands fail to understand the simple business model of the marketing agency (which is this: agencies charge more for a human unit of time than they pay for it). From there, it has been well-documented that these requests for proposals or information are usually littered with unreasonable requests (like providing strategic and creative direction for a particular problem with no promise of compensation). As a brand, to not afford the agency the courtesy of knowing and understanding the budget that is being laid against the request demonstrates a complete lack of understanding as to how this business works.

Harsh? But it’s true.

I have been in the marketing business since the late eighties. I’ve worked on the publisher side, the brand side and the agency side. From a brand perspective, this all makes sense. They can milk and bilk as much free information out of as many agencies that are willing to play along and then choose one, while still benefitting from the knowledge and insights of many. Smart. From the agency side, this is another story. This is why organizations like the American Association of Advertising Agencies (aka 4A) exist. It is also the reason that they have an extensive resource section on their website with documents like, Best Practice Guidance: Ownership of Agency Ideas, Plans and Work Developed During the New Business Process. Sadly, all of that hard work goes mostly ignored when there is an opportunity for a brand to grab a bunch of ideas off of agencies who are doing a ton of comp work on the front end to score the business.

What is the prize?

Most RFPs and RFIs have a section titled, budget. Sadly, in the past few years there has rarely – if ever – been a true, formal and final number assigned to that part of the document. More often than not, you will see language like: “we’re looking for a best-in-class solution and are open to defining the budget once we see the thinking and costing based on the agency’s work and ideas.” The unspoken truth here is simple: if a brand tells an agency how much they’re willing to spend, the agency will spend that entire amount (and maybe a little more). And, while that may have been true in the past, the argument could also be made that agencies simply want to know what the potential business reward will be against the amount of time, effort and cost it will take to complete the RFP or RFI in an effective manner.

Why else does money matter?

Here are some other reasons why allocating a firm budget to a piece of marketing business matters:

  • It demonstrates that the brand is serious and has committed the financial wherewithal to make it happen. 
  • A budget also gives the agency “rails” to work within. In a world where no budget exists, the brand will get a myriad of responses that are all over the map and will not allow them to compare apples to apples.
  • A budget demonstrates the brand’s knowledge of the space. When a brand doesn’t know how much something costs, it is an early indicator that they are not sophisticated.
  • A budget allows an agency to better understand if this is the type of client that they can work and grow with. I recognize that this may be a contentious issue, but it’s true. There are many agencies that are scaled to operate a certain way and budget is a prime indicator in relation to fit.
  • Budget is a two way street: in as much as the brand is trying to find the right agency, the agencies are also trying to find the right brands. Budget is a major factor in this.
  • How much is a house? Without a budget, you may as well be asking a contractor, “how much does a house cost?” It depends on the location, value of real estate, how big of a house, how many rooms, how many floors, what the needs are and beyond. If a brand doesn’t know what kind of house they want (in terms of the raw info) along with what they’re budgeting against it, what is the point?
  • Brands will get what they deserve. I’ve seen this happen time and time again. You have inexperienced agencies willing to lose money on the upfront to win a client, so they can add the brand logo to a PowerPoint deck slide to impress others, and the brand winds up getting cheap work with minimal (if any) impact.

It sounds like bitterness, but it’s really about transparency.

This isn’t about procurement or sour grapes, it’s about a healthy and transparent partnership because that’s what the best brand/agency relationships look like. If you’re hiding what the true value of the work is from the beginning, the relationship starts out in a deficit. This is the marketing business. In business, all parties should be clear on how the process will unfold, who the participants in the competition are and what the prize will be for the winner at the end. This shell game of fishing for ideas, creative and strategy with no commitment to following through on the mandate is a thorn in the side of the marketing industry that doesn’t need to be there. Things have, sadly, progressed to the point where agencies are putting weeks against a competitive pitch to only uncover that the project has been shelved, budget wasn’t allocated or the brand was simply kicking some tires to see if a better solution was out there.

Brands may think that this makes them smarter at the marketing game, but look at the overall results and costs for that effort? Sadly, this strategy seems like a lose/lose for all parties.

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