Monthly Archives: January 2011

iPadonia and the coming ad rebellion

Years ago we met a woman from The Institute for the Future (yes, there really is such a thing) who said, “the mistake people make is overestimating how much things will change 100 years from now, and underestimating how fast things will change tomorrow.” She was right — it’s 2011 and we’re not booking vacation trips to Mars, as 1950s sci-fi writers predicted, but we use tiny glass computers in our pockets to communicate to anyone around the globe. Message formats are immigrating to iPadonia, and unwanted marketing messages aren’t invited.

Tablets will proliferate because the most forceful change of our society in the past 50 years has not been in clunky technology shapes (no home-cooking robots or highway hovercars, alas) but in communication formats. Much of this is silly. The first decades of this century will be recounted by historians as a time of faddish media tweaks: we all watch video and read typography still, yet we’re obsessed with minor nuances in how we do it. 3D TV, streaming Netflix, Apple iTunes, Facebook and Twitter merely reformat text, sound and video. The innovation vectors converge around mobility, with portable glass pads the end point of mental input. Soon, we’ll have windowpanes that do everything, and that will be that.

For a hint of this future, check out Dynamics Inc.’s new smart cards — a type of credit card 2.0 that allows you to tap a button to switch between bank accounts, or hide the numbers on the card’s display until you input a keycode. They are rudimentary compared to today’s iPad, but show the technology of powering variable inputs and outputs now fits into a slender wafer. Compare a Nokia cell phone from 1999 (remember? the one with the little black-and-white screen that was as big as a remote control so you had to clip it on your belt?) to today’s iPhone, only a decade later, and now imagine what the next 10 years could do to Dynamics’ smart card format. Those tiny cards will be tablets connected to the web, pulling in any information you want.

The price for all this will fall, first by half and then one-hundredfold, until smartpads cost $10 and are given away by The New York Times in return for an annual subscription. Tablets will win because they are the end line of print communication format — from carved stone plates to paper to shape-shifting pixels in full color. Sure, producers like Apple will try to defend prices and margins by adding cameras and higher resolution screens in the next few years, perhaps 3D images by 2015, but eventually the tech tricks will run out. To modify a classic quote from Altimeter Group’s Charlene Li, in the future, tablets will be like air.

This unstoppable trend creates conflicts, of course, in business models hinged upon old paper formats. Some journalists and publishers still deny the shifts (magazines still have power! goes one campaign from The Association of Magazine Media), confusing their value as aggregators of news and opinion with what Clay Shirky calls the accident of our society printing words on crushed tree pulp. The medium is not the same thing as the message, and using fuzzy newsprint to read about a presidential speech has no more logic than a writer scratching the news report on the trunk of a tree in your yard. The emotional repulsion journalists feel toward electronic media really is fear driven by the dying pulp-paper advertising model, one where vast reams of impressions are wasted, where marketers pay $10,000 for a newspaper ad supposedly reaching 1 million people, but likely 95% of those readers skip the page B12 that carried the ad and only a fraction of the remainder glance away from editorial copy to read it. Tablets, like web pages, have reduced visual inventory of ads, and as the bloated paper boat of waste sinks, billions of ad dollars may disappear as well. Of course producers of web, tablet and mobile content should not feel smug, because approximately 90% of online ad inventory now goes unsold as well. Most ads are never seen, and much of today’s ad space is going away.

A society voting ‘No’ to advertising

TV is still the king of media, with U.S. consumers watching more than 5 hours each day — but its ads tell the future’s story. In the United States, viewers receive about 130 channels per home, and yet “tune” to only 18 channels each month (people no longer channel surf by turning dials, but instead hit “guide” on the remote or punch in 33 for CNN, leaping to the channels they know they wish to watch). Behind this 86% waste, DVRs are now in 1 of 4 homes helping consumers skip all TV commercials. Billions of dollars flow to those TV outlets, ignored by most people, and while pricing is supposedly based on audiences per channels, eye-tracking studies by Nielsen and Ball State University have found that when TV spots air most consumers look away to read a magazine or peck at a cell phone in their lap. Ad impressions are a currency that is being devalued, and real ad inventory will shrink further as consumers move to on-demand content.

Portable tablets will accelerate this ad skipping, because high-def print and video content on a pane of glass, connected to any provider and sendable to any friend, will trump old formats. Publishers had hoped that iPads would lure new revenue from consumers willing to buy subscriptions for finger-swiped enhanced content; Jason Ary has a nice dissection of the failure of this model. Consumer behavior isn’t really changing; just as your 2011 house still has shingles, in 2021 you will still read and watch video. But the power of marketers to intercept consumers will fade as screens become smaller and more mobile.

How to respond? Advertisers are left with three choices:

1. Notability. Create stories that are talk-worthy enough for consumers to want to pull them onto their shiny panes on the merit of the content. The brilliant 2010 ads for Nike and Old Spice by Wieden + Kennedy, for instance, created millions of conversations. The Mullen agency’s coopting of the Super Bowl into a “Brand Bowl” chatbox about ads lets consumers create a metabuzz about which marketing messages work best. The challenge, of course, is thousands of ads are brilliantly creative and yet society responds enthusiastically only to a handful each year. There’s a lot of randomness in turning a concept into a meme that resonates within cultural context; achieving viral success is like throwing dice in casino.

2. Targeting. The second option is for advertisers to use hyper-targeted media formats that make the remaining ad inventory work. Banner ads, online rich media, and online video are moving away from individual publisher sites — where 90% of ad inventory goes unsold — to ad exchanges, or biddable marketplaces, where the same banners can be targeted against specific audiences at huge cost savings. Tricks such as site retargeting and media-based retargeting chase individual consumers with repeated impressions. Media as stodgy as out-of-home is moving to demographic ratings by billboard location, trying to show they can target better as well. Experimentation in this space is key, and media planning has become a crucial science for getting advertising results.

3. Sponsored thoughts. Or, more darkly, advertisers can blur the lines between editorial and paid messaging. Publishers are toying with this, desperate to keep the ad dollars flowing; no less a publication than Forbes announced last week it would blend articles written by advertisers with its paid staff on the new website, potentially discoloring its authenticity. Sponsored posts and tweets, spammy Twitter direct messages, product placement in films are all what we call “sponsored thoughts” — attempts to trick consumers into believing a paid message came from the mind of the opinion leader or entertainment creator. This creates problems in ethics (is it right to blur the source of an idea?), in influence (consumers confused by the source of the message are uncertain how to process it), and in pollution (there is a tragedy-of-the-commons risk here, if overexploited, untrusted paid communications make the network they ride upon less valuable to users).

In the end, networks are self-correcting, and consumers vote with their feet. We’ve gone through this with telemarketing in the 1990s, in which consumers rebelled by signing up for the Do Not Call list, and email solicitations in the 2000s, which largely have been blocked by spam filters. Media is only as valuable as the audience — advertisers don’t buy ad space, they really buy eyeballs — and the audience migrates to the content it finds most useful, setting up filters around the content deemed an intrusion. Facebook is rising fast because consumers have more control and less marketing interruption. YouTube and Hulu have succeeded by offering immediate choice and minimal advertising. When the inputs and outputs converge into tiny glass screens, the trend of advertisers being squeezed out will continue.

So, pick your solution: Find a way to get more notable, get smarter about targeting, or disguise the source of your message. We recommend notability and targeting … but expect to see more of the third, paid content pollution, as marketers grapple with the shrinking tablet ad inventory held in the palm of your hand.

Down with sentiment, up with entrants

Why is the customer not always right? Because focusing on customers is only one of several ways to compete, and product innovation sometimes means not listening to them.

Apple, Groupon, Twitter, Facebook, Dyson. Amid today’s hype about social media, some product-focused innovators enter the market with radically new ideas to gain more value than incumbents listening to customers. Groupon, founded in November 2008, is on its way to be the fastest company to make $1 billion in sales — for making coupons scalable on the Internet. Apple hit an all-time earnings high by moving glass touchscreens to phones and computers. Facebook has scaled rapidly by making email — what it has replaced — more connected with less friction. Dyson revolutionized vacuum design after going solo with an idea that bag-selling incumbents thought no consumer would want.

Michael Treacy and Fred Wiersema wrote in 1997’s “The Discipline of Market Leaders” that there are three ways to compete — customer intimacy, or production innovation, or operational excellence. Each strategy is very different, but one must be picked, because no company can be all things to all people. Customer-focused companies tend to build feedback loops and provide total solutions (ad agencies follow this model, which is why ad gurus on panels typically say customer engagement is everything). Operations focus is what makes FedEx and Walmart shine, delivery goods at extreme efficiency, with minimal customer interaction. And product innovation is what makes Apple produce glittering new toys you didn’t expect, but somehow desire.

This is not to say that companies can ignore customers — every product needs a consumption market, and every operation has inputs and outputs touching buyers. But success requires focus, and you can’t lead in a product category while answering every customer call. The Zappos intense customer care model is brilliant, but would never work for USPS, which must send pieces of paper 3,000 miles for less than 50 cents. In our age where customers are more connected than ever before, people seem to hunger for the new-new thing, and product entrants get the buzz. Google found this out the hard way, when Groupon rejected its buyout offer … and we’ll see if Google’s late entry to local business couponing, Google Offers, catches on.

If Apple launches a 3D screen display in 2012 for its next gen iPad, will you want it? And if its antenna doesn’t work if you hold it the wrong way, will you care? Sometimes what gets talked about most is the radical innovation that customers asked for the least.

iPad’s new screen

It’s hard to believe but the current iPad you own/are coveting has a lousy screen. Really. You don’t notice it now, but wait until Apple unveils the new iPad 2 in April 2011 with a “Retina” display with 4 pixels per every single pixel on the screen now. Yowza. By offering many more glowing dots per inch, the new tablet model will look photorealistic, the type font serifs as sharp as a glossy printed page. The screen will disappear entirely … and the current model will look fuzzy by comparison. We know, because we own an iPhone 4 whose Retina screen makes the 3GS look like a Hasbro Lite-Brite.

AppleInsider has a nice rundown (brilliant work by Daniel Eran Dilger, really) of the changes in screen resolutions, and the tradeoffs designers must make by either making icons smaller (that is, tighter pixels are akin to moving a TV set further away from you, so everything must look smaller) or doubling up so the images are the same size but twice as sharp. Apple messed up on this choice a bit with the new MacBook Air, a beautifully thin computer but whose 11-inch screen is so tight, the tiny program icons and text are nearly impossible to read. Word is the iPad 2 won’t make the same mistake, but instead will keep objects larger and simply 4x as sharp.

We bet Apple will use the new iPad screen resolution as a competitive differentiator to fend off other tablet wannabes, who perhaps will have more cameras (front and back) or other gizmos, but not a screen where pixels are so fine they become invisible. Apple has to make this move, because the competing Samsung Galaxy Tablet is already sitting in AT&T stores next to iPads, and the Galaxy’s screen thanks to its roughly 50% smaller dimensions — get it? smaller screen size with same number of pixels equals tighter, oh, never mind — appears sharper than the current iPad gen 1. Given the sundry nuances of tablet program/app design, a Retina screen on iPad 2 will give Apple at least two years to fend the fuzzier boys off.

Ah, product obsolescence. It would be crass to think Apple plans things like this.

Update: Daring Fireball’s John Gruber thinks the higher-res screen will come eventually, but not in the iPad 2 update. We’ll see.

Netflix pushes you away from discs

R.I.P., DVD.

Netflix, the former movie discs-by-mail company, has been on a growth tear lately, and now it’s all about streaming and avoiding the Post Office. In 2009 Netflix grew nearly 25% to 12.2 million subscribers, of whom 48% have tried streaming TV or movies at least once. The company makes healthy profits on its $1.7 billion in revenue, but more streaming would jack all that through the roof. Netflix has signaled as much with three major moves:

1. Netflix recently recast its subscription pricing to $8 a month for streaming or $10 a month for streaming plus discs — with streaming included in both options, clearly enticing you to go for the lower price point.

2. In early January, news broke Netflix will be added as a remote control button on Blu-ray players from Sharp, Sony, Panasonic, and other major home electronics manufacturers — putting video subscription by Internet in your hands whether you want it or not.

3. Yesterday Netflix announced it would no longer allow its users to manage their DVD queues via connected devices, such as Wiis — you can only set up DVD mailings via the web site.

Hmm. Pricing enticements, buttons on remotes, and forcing you to walk into the home office to pick a DVD mailing — Netflix obviously wants DVDs gone. The photo above of a Netflix distribution center hints why the company is interested in beaming movies over wires vs. sorting and shipping them by truck — imagine what all that costs.

As with any forced customer migration, there are risks. Analyst Richard Greenfield of BTIG Research told Home Media Magazine that Netflix might damage customer loyalty by pushing so hard away from mail, given that in Q3 2010, mailed discs still accounted for 41% of the home video rental market. But Netflix seems willing to take that chance, eyeing millions in freed up costs and a bet streaming video is the future.

Sex, the savior of 3D

If you fret, like David Pogue of The New York Times, that post-Avatar 3D just isn’t catching on in homes, no worries. Penthouse and Playboy entered 2011 in a race to create the first three-dimensional porn TV channel. This is key because where pornography goes, other media follow.

Porn has been at the forefront of media for centuries. The daguerreotype, the first major photographic technique, was invented in 1835, and only 17 years later an estimated 40 percent of the photos sold in Paris were of nudes. Hot sales of risque books in the 1870s — more than 100,000 porn stories were bought each year in New York City — helped the publishing industry take root in America. Porn even decided which type of VCR you owned in the 1980s, after a Sony Beta and JVC VHS tape format battle. (Sony tried to prohibit porn on its tapes, JVC didn’t care, and the rest was history.) Which brings us to our century. Video formats have been stuttering online for a decade, but testing and enhancements by porn sites, competing furiously to give users the best viewing experience, helped refine the Internet streaming technology which allows you to watch clips at Hulu and now.

So what could happen if Hugh Hefner and friends push porn into TV’s third dimension? No one admits to buying a $400 box just to watch sex, but innovation in the erotic arena could intrigue enough that device sales begin to scale. Analysts predict the piddly 3.2 million 3D TVs sold globally last year may grow to 91 million by 2014, but only if enough 3D content is produced to entice viewers. It’s no coincidence that the primary demo for porn and tech gadgetry is men in the prime of life. So if your hubby buys a 3D set for the basement, be proud — he’s likely an enthusiastic early adopter.

Image: Mi Pah

In defense of Yammer’s one-way communication

What does it mean when a social network posts a billboard criticizing billboards? We debated this with Darryl Ohrt last week:

This is such an interesting debate. Let’s put aside that outdoor advertising is the second-fastest growing medium in the U.S. after Internet advertising, or that Americans continue to have record commutes and spend more time in cars than ever before, or that the outdoor industry now has launched new metrics to improve targeting against different demo groups.

I’ll get to the crux: “futility of one-way communication.” There is a huge vibe in advertising circles now that this is bad, it doesn’t work, “we’ve been doing it wrong” — and all this chest-beating is baloney. All the people on ad panels who say this take money from clients with the express intent of influencing others, and one-way communications is primarily how that happens.

Of course one-way communication works. The entire premise of advertising is to get people to buy things they don’t need, or at least don’t know they need yet. None of us asked for cameras on cell phones or minivans, yet those products were created and pushed on us with one-way messaging, and we adopted them. There are far too many products in the world, each shoving their way toward us unwanted, and to suggest that one-way messaging doesn’t work neglects the core need of society to push ideas to others.

Individuals do this, too, of course. A scan of Twitter shows that the majority of messages are one-way broadcasts — here’s a witty thought, here’s a link, please click to my post, etc. Engagement is a fine idea but the truth is humans are egocentric, get up in the morning thinking about themselves, and spend the vast majority of time trying to influence others.

The sneakers you wear and the color of your hair are attempts to tell a story. Your clothes are a one-way attempt to express who you are. You didn’t engage with your audience before making the decision to broadcast those expressions to influence others. You’re pushing it out, one-way.

We attempt to influence others with each opening of our mouth, each key on a keyboard, each expression of our being.

As far as this being old media, well, yeah, people still drive 2 hours a day past billboards. People also watch 5 hours and 9 minutes a day of TV and read boatloads of content in magazines, PC screens and tablets. The delineation of impressions between “old media” and “new media” is a bit silly when it’s really about consumer modality, most of which is passive receipt of message from distance fields (billboards) or closer fields (laptops). Most people watch a lot.

So hat’s off to you, Yammer, for proving one-way communication works. Glad to see the billboard is getting you so much buzz.

Nike’s GPS watch and the new age of dongles

This is more than a Nike+ SportsWatch with GPS that allows you to track your runs without using an Apple iPod. It’s proof that we’re entering an age of dongles.

A dongle is technology key, usually a bit of hardware that forces you to use a certain software or operating system. Own an iPod? That gadget locks you to the Apple iTunes store. Dongles started back in the 1980s when software makers would set up unique connection pins so their software could only get power or data if you used the gadget. Today, falling tech prices have led the big content portals to build their own dongles: Droid phones with hot keys for Google search; Barnes and Noble Nooks that sell B&N books; the Amazon Kindle … the list goes on.

Consumers typically put up with dongles because the value of the content they are connected to seems worth it. You probably never think that your iPod constricts you to only Apple-sold music and videos, because the library is so big it feels like freedom, but you’re really in chains.

Now, however, with chip and screen pricing continuing to plummet, niche businesses can build their own dongles. Nike+, an online running log and social community, has relied on Apple iPod dongles since it launched in May 2006, back when devices that only played music were $150 and it took scale to get to market with tech. Today, dolls have cameras and Android tablets that act as microcomputers can be had for $200. So dongles are proliferating. LENA, for instance, is a gizmo that attaches to a baby’s clothing; it listens to all the words spoken to the child over the course of a day, parses male voices from female’s, and then uploads the data into a software program that tells the mom and dad whether they are speaking enough to their child — a Nike+ for language development.

Are tethers good business?

The obvious question is what portals are these new gadgets locking us into? But the deeper query is whether dongles are a sound strategy for marketers. Sure, it’s tempting to want to add technology to your service to lock your users into your proprietary system. Nike is obviously doing this; the new watch is much clunkier than the old Apple-powered ones, which are as of this writing conveniently out of stock. But as more businesses build walls to hold customers, consumers may rebel as they lose the ability to share across platforms. The corporate desire to tie a customer down is diametrically opposed to the human need to connect.

We’ll see how it plays out with Nike on the road. This will freak out the privacy advocates is a new service showing how far online tracking has gone, offering up phone numbers, home values, wealth estimates and even maps of houses for anyone you wish to track.

While a lovely user interface, Spokeo is really nothing new. Back in June 2008 Danny Dover posted a list of all the personal data elements Google could conceivably track about you — from every web site you’ve ever visited via Google search results pages to your stock portfolio, credit card, personal address, video preferences, friends and colleagues, even the time patterns on your calendars. If you’re a 100-year-old dwarf who likes to sleep late and then shop for shoes for your elf friends, Google likely knows it. Direct marketers have used similar mailing lists and PRIZM-segmentation schemes for decades to guess whether you will respond to Christmas catalogs with waxed-cotton hunting jackets.

For the record, most online targeting does not involve personally identifiable information — cookie snippets of code placed on your computer tag your device, and by proxy what type of person you are, but cannot ascertain your name, address, or other deeply personal data. (Google can do this because you’ve likely uploaded that data somehow in its vast ecosystem of search, YouTube videos, Gmail preferences, etc.) Yet in 2010, driven by a series of privacy faux pas such as Google’s Street View debacle, privacy advocates grew more anxious about such rising mountains of data. The FTC is backing a Do Not Track proposal that would allow consumers to opt-out, but we think that “fix” won’t work — primarily because it will only drive ad revenue to big publishers, make all ads less relevant, and hurt the little sites that many people like to read. Besides, marketers will find new ways around tracking such as “digital fingerprinting” that can divine individual computers and mobile phones without the use of cookies or consent.

We wrote in Bloomberg Businessweek over the holidays:

If Do Not Track moves forward, you’ll still see banner ads everywhere. They’ll be untargeted, with more off-kilter offers because no data about your preferences will be deployed to give you a golf ad, say, if you’ve been reading a lot of golfing articles. You’ll feel better about your privacy, despite the fact that website marketers could never track you individually, but rather could make wild approximations of the type of person you are. Thousands of small websites may disappear as dollars flow to consolidated publishing centers.

Is this too extreme? Surely, hobbyists will continue to write blogs and build sites out of love. But with $8 billion or more moving to the ivory towers of mainstream content, you’ll have fewer choices. There will be less innovation online. The Mashables and Huffington Posts of tomorrow may never get off the ground. Add video and soon the Web will be like turning on TV—perhaps with a few major networks, just like the 1960s.

The information is out there. Rather than fight it, consumers may just have to learn to manage it.