Tag / facebook

by Ajinkya Pawar

The Mad World of Monopolies Over Brains

Microsoft bought semantic machines.

Google, FB etc keep buying smart companies all the time.

A handful of global companies keep buying smart companies before they can get a product out to the market.They are essentially creating monopolistic moats over not just cutting edge intellectual property, but also the intellectuals – the men and women capable of creating/ leveraging new technologies.

So many startups now start with the end in mind, the vaulted ‘exit’. What happens when all the technological advancements get concentrated in fewer and fewer hands? The only anti-dote to Marx’s dystopia of ever accumulating capital was the intellectual capital that allowed anyone to give it a go with limited risk and succeed. Is that anti-dote of intellectual capabilities relevant any more?

Any body can learn to code, etc. But can everyone access the infrastructure and the necessary accelerating feedback loops to improve as fast as these few companies can? That pace of accelerating innovations is the new Capital for 21st century.

If we don’t want an increasingly unequal world, we will need to view this capacity to rapidly innovate as a capital that needs to be seen similarly to other capital assets – land, machinery, channels of access to consumers.

Which means, it is time for regulations. We can’t let ever fewer investors and companies to corner the ability to rapidly innovate.

This is essential. Unlike 15 years ago, when a zukerberg could code out of his dorm and build an empire. Now another zukerberg could code just as well, but if his idea & code is any good, it will either get copied by these juggernauts or get bought early on. Look at how FB is copying snapchat to its death. It is not a level playing field anymore. A successful digital company now will require a war chest of billions. There are investors ready to fund these war chests. But the problem is, that these investors are same few folks from California (and one notable Japanese guy).

There is no Nigerian, no Indian, no Brazilian, no Greek, no Swedish….(and a 190 countries later) person among those few people who control the new engine of human innovations.

A side effect of this narrow competition is the poverty of ideas that the best minds are working on – google glasses, automated vehicles, AI assistants … are these the biggest challenges for the humanity? As Climate change, growing inequality and rising xenophobia tear the world apart, should the people who can create the infrastructure of the new world be spending their times on elitist pursuits?

It is not difficult to copy them and become the new age capitalist. However they have created a high-entry barrier by turning it into a mad game of bluff. Their tactic is to value companies at ridiculous valuations. The valuation is divorced from reality and based solely on the potential of possible monopolistic leverage. Naturally, most sensible people, stay away from this capricious game.

These people are feverishly gambling with the intellectual capacity of humanity. It is a mad mad world. They need to be stopped if we want a better world.

Advertisements
by Ajinkya Pawar

Advertising industry’s new ‘Pivot’

No planet for old businesses

Exhibit 1:

On 16 June 2017, Amazon.com Inc. announced that it is acquiring Whole Foods Market Inc., for $13.7 billion in an all-cash transaction.
By the end of that day, Walmart, Kroger, Target & Costco had lost their market caps by 5.8%, 7.1%, 9.1% and 15.7% respectively.
On the eighth day of the announcement, Amazon’s market cap had increased by $18.9 billion.

In a sense, not only did investors reward Amazon by funding the acquisition, they also punished the competitors of Whole Foods for not being acquired by Amazon.
The situation is such that as soon as Amazon enters any category, leaders in that category lose market valuations almost instantaneously. That is the promise/ threat of platforms like Amazon.

Exhibit 2:

“In 2017, almost 80% of every incremental ad dollar spent globally will accrue to digital. In their domestic market of the US, Google and Facebook are capturing more than 100% of this growth, up from 85% in 2015.” So read the 2017 Redburn Report titled, ‘Ad Agencies Marginalised.’
“More than 100%…”

If someone captures a share of more than a 100%, it means that that share came at someone else’s expense. Certainly, many digital advertising companies and ad exchanges saw decline in share of digital ad spends. Advertising agency holding companies too bore the brunt of Google and Facebook’s growth. 2017 perhaps has been the worst performing year for WPP since the recession of 2008-09. For the latest quarter Q3, the firm reported a 2% drop in organic growth.

Essentially, growth is almost a zero sum game now in which platforms are winning. This is in stark contrast to the nature of growth in the last century, where globalization created avenues for many to grow: It was not a zero sum game then. The monopolistic ‘Platforms’ are stealing lunch of legacy businesses – ours too.

Platforms are winning in today’s zero-sum game of growth. The monopolistic Platforms are stealing our lunch.

What are platforms?

A platform is essentially an enabling infrastructure/ environment that,

  1. Gives freedom to connect with others
  2. Enables valuable exchanges which were not possible outside of the platform
  3. Enables external applications/services to be built on top of it, (APIs)

Platforms like Amazon, Facebook, Google and Uber are enjoying unprecedented growth and consequently unprecedented investor interest, because they allow that egalitarian access to valuable exchanges that were not possible otherwise. By their very nature, the exchanges become more useful, more valuable with expansion of user base. Amazon is able to fine-tune its suggestion because it has access to purchase history data of billions of its customers across the globe. People use Facebook because all their friends use Facebook. This phenomenon, of increase in usefulness and consequently the value of a service with increase in the number of users, is called ‘network effect’.

The sinister consequence of the network effect is the potential of monopolies. The logic of Platform growth inevitably leads to hollowing out of existing market structures. The logical conclusion of Platform economy is a world of monopolies rising upon the ashes of old businesses.

Shift in client priorities

From ad spends to spends for innovations in product, supply chain or marketing.

As if the threat/ opportunity of ‘Platforms’ was not enough, companies these days also have to wrap their heads around 3D printing, Blockchain technology, CRISPR/Cas9 and so on. These are amazing technologies promising revolutionary changes. These technologies present new opportunities that we never knew existed before.  However, many legacy businesses are ill equipped to respond to them.

Thankfully, a whole industry has sprung up to cater to these needs – needs of business transformation in the face of existential threats posed by new technologies. Traditional consultancies have adapted to offer new expertise to clients. Specialist big data analysis agencies are helping companies make sense of their consumers. There is even an AI (Artificial Intelligence) agency now, that helps create ‘intelligent agents’ for brands. Market is demanding newer mutations of agencies like these, mutations that help them navigate the brave new world of the new economy.

Market is demanding newer mutations of agencies; mutations that help them navigate the brave new world of the new economy.

The question that we must ask ourselves is – do advertising agencies matter as much in these testing times? On one hand, the budget allocated by clients for marketing is under pressure. On the other, technological investments, specialist hires and consultancies are claiming an increasing share of the budget. Will this twin phenomenon erode the value of our services? Will the share apportioned to advertising shrink further?

Advertising agencies, if they remain what they are, will secede their privileged partnership status to digital transformation agencies, to business consultants and to platforms like Google, Facebook and Amazon.

One obvious yet terribly difficult-to-pull-off implication of this is – to become an advertising platform. I have discussed this in detail earlier. The reality though is, not everyone can win in that race to become a platform. For the majority of marketing services agencies to survive and thrive, we need a ‘specialist’ strategy, not a generalist one. Here is why.

Age of specialists

Creative agencies are made up of a unique set of people: People who can think laterally, think big, think informally. Apart from a few top tech companies, not many companies have the asset of free thinkers who are not stifled by hierarchies and suppositions. As such, creative agencies are uniquely positioned to create new solutions for brand growth, beyond branding ideas.

For marketers trying to make sense of a fast changing world, agencies need to adapt to remain the priority partners they turn to for help. Can the planner’s customer centricity help companies improve their business plans? Can the creative talent’s mastery over conceptualization propel a client brand’s product and service design?

Why not to be a generalist?

Advertising agencies help clients ‘position’ their products as distinctly relevant. But we forget to apply those lessons to ourselves.

Google and Amazon is fundamentally rewiring our brains – even our clients. The ‘search’ and ‘suggested’ result mentality means that for every emerging need, the client searches for services he/she needs with sharper definition. She is more likely to send out a specific query out in the world – either digitally or among peers – ‘Who is the best at product design in our category?’, ‘Who can help me assess Blockchain’s potential to disrupt our category?’

What results she might get? Would people respond with a generalist agency’s name even if they have the capabilities? Will a generalist be on ‘Top-Of-Mind’ for such queries?

Well, many private agencies can choose to continue doing what they do, with likeminded clients catering to traditional consumer segments. But that set of marketers is shrinking, the addressable opportunity is getting smaller. That means making peace with low growth.

However, for publicly traded advertising holding companies, coming years could be the years of transformation – either willingly or engineered by activist investors who demand growth.

Hence, it is increasingly likely for large advertising players to ‘Pivot’ to go for the biggest emerging opportunities.

What is ‘Pivot’?

The purpose of a pivot is typically to go after a bigger & sustainable growth opportunity in the market that can ensure companies’ prospects for near future. You do so by changing the direction of your enterprise if the need be, while staying grounded in your core competency.
Firstly, it requires reassessment of your old business in the context of emerging opportunities/ threats. The reassessment should ideally throw up useful insights about your clients, your product/ service relevance or the way you work. Consequently, you quickly test possible improvements to your service. When you hit on something that works, you scale it up and go to town with it.
You might end up changing something about the way you do your business, while keeping some aspect of the business constant. For example, it might entail shifting to new markets/ consumer segments/ new clients. It might entail prioritizing a different sales channel or to gain new capabilities. It might even mean reinterpreting a consumer need and creating a completely new offering.

At its core, it is about changing with an ear to ground. An ear to the ground tells us of seismic shifts in advertising industry with issues of trust (Pritchard, 2017), profitability, and marginalization (Bianca Dallal, 2017) posing threat to advertising industry’s prospects. Common sense tells us that something needs to give – something must change.

It is about time advertising agency business models change for the better.

The pivots of advertising agencies

At its most fundamental level, advertising agencies exist to help marketers grow (Purpose). They do so NOT by helping make the product/ service better, nor by helping reach more consumers. They do so by helping create consumer demand with distinctly persuasive communications. (Competency) The perspective to understand here is that of two variables: Core competency and Purpose of existence. Hence, to evolve, agencies can either look at radically reassessing their competencies or their purpose.

To evolve, agencies can either look at radically reassessing their competencies or their purpose.

Pivot 1. Core competency:

a.      Marketing services agencies:

Typically, creative agencies’ core competency is in their access to creative & strategy talent. W+K, Droga5 or Ogilvy are well known for their creative rock stars. Yet another agency might be built on the strength of decades old client-agency relationships. A media agency might boast about the scale of media spends that it controls and can influence. A research agency might have proprietary methods of inquiry or access to qualitative data.

The logic of pivot tells us that – for advertising agencies, there is an opportunity to pivot with their creative talent. What is the biggest business growth opportunity for the kind of talent they have? Beyond ‘advertising’ what high-value products/ services can this talent create?
Similarly, a research agency might look at its proprietary tool and reevaluate its potential. How can they augment the value of their intelligence the most? Would tabulation of existing qualitative studies help build an intelligent map of consumer behaviors? Who might be interested in such products? If ‘Big Data’ is the new oil, why are research agencies not making their big data usable at scale?

Here is an example of Pivot thinking applied to creative agency business.

The “If You Build it, They Will Come” agency:

This pivot is about keeping company’s people and their abilities at its heart and purpose. It seeks not to build radically new capabilities or hire radically disruptive talent. Instead, it seeks to find the biggest opportunities that the existing teams can deliver on, with greatest amount of satisfaction for the team.
For a creative agency, that means identifying the distinct talents of its teams and then finding the biggest possible commercial opportunities for them, may it be in advertising or beyond.
Creative talent remains the biggest asset of any creative agency. Yet, there is a growing sense of being overworked and underappreciated among the creative teams. There is a sense of ‘missed opportunity’ among people who see others creative people garnering fame and fortune with digital content. YouTube stars, Vice, Refinery29 and so on, have shown that there are bigger avenues for creative expression that could be financially rewarding too. There is a market for every conceivable creative style, expression, idea, app, activity or content. The creative team’s dilemma is – whether they will be better off with a career in advertising or in new age digital companies or by going solo with content creation, curation or aggregation?
Each creative person grapples with these choices. It would be in the agency’s interest to see the potential of its people before the people themselves do. If their team is passionate about a certain kind of creativity, find the biggest market for that creativity. This logic perhaps would not have been very sound 20 years ago. The surest way to make money with creative expressions and ideas was with advertising alone. However, today, a creative person can do much more with his/ her ideas.

If one looks at an idea objectively beyond the context of its birth, it looks much grander. Here is a thought experiment to prove my point.
Think of the last idea you had for a client’s campaign (or if you do not work in advertising, consider ‘what were they thinking?’ for any of your favorite commercial). Now think a logical conclusion to that idea divorced from the brand. Put that idea onto another stage/ context/ medium – see how it expands. If it is a good idea, it will always fill up the volume of your imagination – more than any brand can do justice to the idea.
For example, divorced from Dove, imagine the biggest expressions for the idea of ‘real beauty’. Can it be a movement? Who would like to contribute to it? Which brands would like to associate with it? Would the idea find place in the women’s marches? Would it lobby against skin whitening creams among policy makers? Would it run community centers? What would be the business plan, revenue model for the fullest expression of this idea?

If it is a good idea, it will always fill up the volume of your imagination – more than any brand can do justice to the idea.

Imagine an agency that has a set of issues/ themes/ ideas that it works on instead of set of clients. Will it be more interesting for the creative talent? Could it be more profitable? I believe it can be.

Ideas can translate to bigger things if you let them run free. The digital world has brought down the cost of realizing ideas drastically. It has given us the tools to translate and mutate ideas in infinite ways. Creative shops must make it part of their credo, to not let any good idea go to waste and to bring to life only the biggest expression of it.

The tragedy for many creative people is to see their magnificent ideas not reaching their full potential, being rendered impotent for a smaller cause, smaller venue. Instead, this new agency would recognize the bigness of ideas and put their efforts and capital in realizing those big ideas. The belief being – If You Build it, They Will Come.

b. Holding companies:

Unlike consultancies whose competency is in housing domain experts, holding companies do not have palpably distinct competency any more. A holding company is as good as the companies it has in its portfolio. The value of a holding company used to be in its ability to help portfolio companies to scale. However, it seems to have exhausted its scaling potential, evidenced by lack of organic growth.
Holding companies are trying a few things to improve their value. WPP is hedging its bets on ‘Horizontality’; Publicis is attempting to create an AI enabled personal assistant for its employees called ‘Marcel’. However, unfortunately, both attempts lack vision and conviction.
In an interview for ‘Strategy + Business’ in 2016, PwC Principal Deborah Bothun asks Sir Martin Sorrell, “How far can you take that?”, referring to Horizontality – the effort to get people from different WPP companies to work together for certain clients. Sir Marin Sorrell responds, “Not far enough.”
If the idea cannot be scaled across the company, is it even strategically relevant? At best, it seems to be a tactic to keep key clients happy.
Marcel too seems to be born of a narrow vision; it simply is an internal talent-sourcing tool. Wit AI, and the data that Publicis already has, it can be much more – but there simply is no evident will to create something groundbreaking.
Currently, the business incentives for a holding company are structured in such a way that they cannot radically change their course. However, many of their operating companies can.

Pivot 2. The purpose

In this pivot, we remain true to our purpose of helping client businesses grow. What changes is the ways in which we help them grow. The competencies become variable here. This means for this pivot to work, we must be radically adept at bringing in expertise for most growth needs of the client. If the client requires blockchain expertise, the agency must be capable and willing to provide that expertise. The key focus here is to become the de-facto growth partner of your client.

The “specialized business growth drivers” agency:

This pivot keeps the client base, the market, as constant and re-evaluates its options to seize the biggest opportunities in that market. Therefore, if your client base still feels that their biggest priorities are advertising/ branding to fuel their growth, continue doing the same. However, if your client base feels that their biggest priorities for growth are about leveraging emerging digital platforms or managing reputation in the age of instant outrage, adapt and train your teams to fulfil these needs well. The days for generalist agencies that could do everything for a client moderately well are numbered. Today, marketers need sharper, targeted expertise, which they can get most efficiently by looking at smaller, more specialized ‘vendors’. There is good money to be made servicing these myriad business growth needs. Specialize in driving growth for a certain kind of clientele with a set of competency they prioritize.

New age, new agencies

It is about time that agencies wake up to the reality of working in the digital world. It is not the time to be afraid and to be defensive. It is time to make bold new steps, to ‘fail fast’ and to ‘pivot’. It is time to start new adventures. The technological and societal revolutions are not threats, but opportunities for growth. It is time to grow magnificently with these new opportunities. Grow by either sharply adapting to emerging client needs or by investing in ideas you believe in. It is a brave new world, ready for the best of our ideas.

by Ajinkya Pawar

If agencies remain married to ‘ads’, agencies are doomed.

Traditional advertising agencies were essentially amoral tongues on rent.  In the pre-digital age, where there was no other way of knowing the truth (or rumours) about products and brands, advertisements was the only major source of opinion/ information (after WOM) about the product’s usefulness/ efficacy/ likeability.
There was a role for advertising in the lives of people. It was global village’s emissary of good times. It was the window to a new lifestyle. It was the helpful aunt who knows solutions to all our problems. And it was all in good cheery humour. Oh, golly-gee. What a wonderful world advertising was building for people. In a media-starved world, people lapped up the shiny world painted by advertising. The modernist utopia was painted by advertising.

Internet broke that world. It made the world transparent. People could verify claims, could complain, could rally fellow consumes into shaming advertisers who were dishonest. Advertising just didn’t ring true any more. At best they were entertaining distractions. At worst they were insidious worry-mongers who amplified the worst aspects of humanity – misogyny, racism, greed…Mostly they were an annoyance best muted or ignored.

From a brand point of view, ads were not efficient anymore in telling consumers anything they didn’t already know or wanted to know. Advertising simply had lost the plot.

Then came Amazon, facebook and google. And boy did they take the life out of advertising. Many agencies are dead, they just don’t know it yet. They see pitches, dwindling margins as symptoms of economy, politics etc. They don’t see the picture. The disease is different. The disease is ‘death of brands’. And with it, traditional agencies.

People do not need ads anymore to inform/ educate/ convince them about anything. thank you very much. They have google, facebook for that. They stream their brand experience (mostly if it is bad) live on facebook. They pummel the brand social media handlers when brands do a faux pas. They’ve got the power and they know it.

People buy ‘products’ on amazon and flipkart now. They don’t care for brands anymore.
With Amazon’s Alexa and Prime, amazon will ‘seamlessly’ relieve the burden of choices and chore shopping for wealthiest of consumers. That means hello private labels and small players, bye bye big CPG brands.

Sure, some people might continue to believe that they must drink redbull and eat tacos and drive audis and exhibit iphones… but the vast majority of non-lifestyle CPG brands, daily use brands – brand on which we spend most frequently. They will see erosion in their ‘brand value’.

Go niche or go big. There is no middle ground anymore for most brands.

What that means for agencies? Forget the age of ‘lines’ and brand ethos. ‘brand with a purpose’ and ‘lifestyle defining brands’ can only be a handful. Most of agency clients are not these brands.

Agencies of the future need to help most brands become more ‘uniquely useful’ to the consumer. Agencies need to be able to create opportunities and harness unexpected opportunities for brands. Here are some interesting brief to work for.

‘How can we ensure that the consumer searches for my brand name and not the category name when buying on amazon?’

“How can we change the amazon prime habit and get the consumer to buy stuff at my store on his way home?”

How can my brand reach consumer better, quicker, more delightfully than amazon/ google can?

and so on.

The point it, days of ‘lines’ and ‘scripts’ are gone. We must be able to solve real business growth problems and be ready to leverage any medium/ expertise/ experience. If agencies remain married to ‘ads’, agencies are doomed.

by Ajinkya Pawar

End of the bluff

In this video, P&G’s ‘chief brand officer’ talks about P&G’s efforts in ‘draining the swamp’ (as trump would have said) of digital fraud, unverified stats, dubious practices by publishers and agencies.

This is great, because this comes from one of the biggest advertisers in the world. And it is a positive step – one that is towards transparency and common sense that does not entertain exceptionalism every time some one conjures up a shiny new .com.

How would that affect agencies?

I want to be cheerful and hopeful that the greater scrutiny and transparency will force agencies to grow a spine and start asking for the rightful fee it deserves.
But I shouldn’t be too hopeful. Internecine competition takes up way too much time and efforts of an agency with awards, new biz pitches etc. Agencies typically are way too dependent on a few key clients for survival. Fear of losing them and prospect of winning new ones, keeps them forever running on the hamster wheel of survival.
So this is what is going to happen: simple erosion of margins. Agencies will start working at even smaller margins. Which means, even crappier talent will get hired at cheaper costs. Which means, bye bye to competent people.

How would it affect facebook/ snapchat/ etc.

Its amazing how such large companies like facebook can so shamelessly deceit people about their performances. This is a product of the ‘fake it till you make it‘ mentality of the morally vacuous people who see business as a game of bluff.
These digital-advertising-revenue-based companies will definitely be shaken up. Largely, because they are still in the phase where they have to prove their business models. Their valuations are still in need of correction. Their valuations are still based on the assumption of the great payoff that awaits for winner in a ‘winner takes all’ game. They need all the confidence of investors until the ‘winner takes all’ game is over/ or they learn to become profitable.

Hi5 for reasonable people who vote with their money. 🙂