Why Google & FB Will Not Rule The Digital Marketing World

Google & Facebook: Digital Marketing 800lb Guerillas

The 800lb guerillas in the marketing world are Google and Facebook. Specifically, the burning question on the minds of many brand managers, advertising executives, and digital marketers is: to what extent and for how long will both companies continue to transform and dominate the world of digital marketing? I’ve spent semester lot of time thinking about potential answers.  Personally, I continue to find business theory and the history of the commercialization of the internet to be the most compelling lens through which to attempt to view what the future may hold.

The history of the internet is one of openness, a culture in which the major participants have actively held disdain for centralization. Further, broadly speaking, business industries oscillate between periods of interdependence, in which to optimize business performance vertically integrated and closed systems, such as wall-gardens, prevail, and periods of modularization, in which business performance is optimized through flexibility and the coordination of a few companies working at arm’s length. It is my view that the current dominance of Goggle and Facebook is largely attributed to the considerable performance gap, which is driven by attribution deficiencies and ROI measurement inaccuracy, in digital advertising.

As theory would predict, the interdependent wall-gardens of today are necessary for both Facebook and Google to optimize business performance and capture value. However, as the performance gap closes, over the medium to long term I predict that the digital advertising market will evolve as most markets in the history of the internet, and business more broadly, have and evolve into a decentralized and modular ecosystem comprised of a number of players executing in specific niches within the digital advertising value chain. Or said differently, Google and Facebook will cease to be the 800lb guerillas in the industry and instead gravitate to a niche within the value chain that they own, a stark contrast to their current roles of generating 100% of both the value creation and value capture within the digital marketing industry.

“History doesn’t repeat itself but it often rhymes” – Mark Twain

To understand the current Internet ecosystem, a good place to start is taking a look at its early beginnings. Specifically, the 1982 Bell Systems anti-trust ruling that resulted in the spinoff of AT&T. The ruling ultimately led to the lack of a dominant firm in the computing or communications industry, which proved to be crucial to the growth of the internet. The ruling played a pivotal role in the growth of the internet because it resulted in an environment of decentralization where multiple organizations had the discretion to act. This decentralized environment has persisted over the last ~20 years of the internet’s existence. Moreover, while there have been brief periods of dominance by individual players, market dominance has not persisted over an extended period in any Internet vertical. What we see over and over, in the manufacturing of mainframes, email services providers, chip manufacturing, web browsers etc, is the process of creative destruction at work.

Specifically, each market experiences innovation from the edges, in which entrepreneurial players experiment and innovate to create better market solutions that create value for consumers and erode a portion of the incumbents’ value, resulting in a decreased and more narrow scope for each player in the value chain. It is my view that moving forward the internet will remain a decentralized ecosystem. In addition, creative destruction is as healthy as it has even been within the digital advertising vertical, as illustrated by Data Xu, Acxiom, Shop Kick, Oracle, to name a few, of the many innovative companies, experimenting and successfully innovating at the edges of digital marketing. It is my prediction that, just as it has thus far in every major internet vertical, creative destruction and innovation from the edges will produce a few companies that gradually erode some of the value creation of both Google and Facebook, resulting in increased specialization by both incumbents to protect value, over time.

 

Interdependence vs. Modularity: It’s all About Circumstance

In Innovators Solution, Clay Christensen provides the below diagram as a framework to help businesses answer the question of whether they should integrate or outsource.

The left side of the diagram indicates that when there is a performance gap—when product functionality and reliability are not yet good enough to address the needs of customers in each tier of the market—companies must compete by making the best possible products. In the race to do this, firms that build their products around proprietary, interdependent architectures enjoy an important competitive advantage against competitors whose product architectures are modular, because the standardization inherent in modularity takes too many degrees of design freedom away from engineers, and they cannot optimize performance.

Moreover, over time, integrated companies get better at meeting the needs of consumers, closing the performance and delivering functionality and reliability at or above the expectations of consumers. Yet, once companies overshoot the desired performance, nonintegrated competitors disrupt the integrated leader. These competitors are typically modular in nature which allows them to compete on the criteria in the upper left of the diagram – speed, responsiveness, and convenience because they can update and redesign individual subsystems without having to redesign everything, as the entirely vertically integrated incumbent does.

Further, Christensen’s’ theory of Interdependence and Modularity can be applied to the digital advertising landscape. Specifically, the vertically integrated, walled garden structure of both Facebook and Google is the result of their effort to close the performance gap that exists in digital advertising. Digital marketers are all too familiar with the challenges of attribution and the inability to accurately measure the ROI of marketing initiatives. To take it a step further, you could argue that the walled garden structure of Facebook and Google is necessary, as sharing the information with their clients would only imped the speed at which each company closes the current performance gap that exists.

However, industry consensus is that attribution challenges and ROI accuracy will be overcome in the near to medium future. At that point in time, the platforms of Google and Facebook will be forced to evolve, as tinkering with new features and functionality will no longer be in the interest of CMO’s. Instead, the focus and key performance driver will be learning. In this world, Google and Facebook will have two choices 1) cooperate and provide data to its clients to help them learn and foster closer relationships with their consumers, or 2) suffer the consequences of the commoditization of their data, resulting in lower advertising revenues.  However, if theory holds, option number two is likely to become a reality no matter what, as more nimble and modular companies come along to disrupt Facebook and Google because of their ability to quickly identify and conveniently match consumers across channels, with or without the help of Google and Facebook, because of 100% addressable media and accurate ROI measurement.

Exceptionalism is Dangerous

By no means is the prediction above inevitable. Specifically, the industry landscape will be shaped largely by the actions of both Facebook and Google. Both companies operate at large enough scale that it’s not inconceivable that they both can effectively execute actions that deter the entrance of smaller competitors. In addition, both companies have shown both a skill and willingness to acquire businesses that pose a threat to their core operations. However, to argue that the above prediction will not manifest itself in some shape or form would be to contend that the digital ecosystem/internet is exceptional in some way, which is a view that I think has proven to be misguided time and time again when it comes to technology, the internet, and business in general.

Which Line Are You Standing In?

I witnessed an interesting phenomenon at a recent marketing conference. The marketing conference attracted over 19,000 marketing and sales professionals. Professionals from a variety of industries, representing companies of all sizes.

There were two talks, in two rooms, right next to each other. To the right, there was a workshop entitled “Creating Ridiculously Good Looking Websites”. It promised 10 “growth hacking” tips to attract new users to your website.

To the left, there was a workshop entitled “Tell Your Story, Give Your Brand a Voice”. It promised to help you tell a better story that resonates with the consumers you want to attract and retain.

The line for the workshop to the right was wrapped around the convention center. Literally, hundreds of marketers shooting for a chance to learn how to “growth hack” their websites. Marketers looking for a shortcut to jolt their customer acquisition efforts.

The workshop to the left, had no line at all. The room ended up being only 25% full.

Why is it that we are so attracted to shortcuts? Why do we care more about the design than the stories that the design is supposed to help bring to life?

Why do we view the story of our brand as a stationary object — one that doesn’t need continual fine tuning?

Instead, we think of the story we want to articulate and then put it on the shelf and let it sit, while we spend time trying to “growth hack” our way to new consumers.

The answer: Brand building is hard. It takes time. A lot of time. It requires consistency. It requires truly listening to our consumers and telling them an authentic story that they actually want to hear.

Telling authentic and compelling stories is equally as hard. They both take a significant amount of emotional labor.

There is no grow hack to help us tell better stories. There’s no growth hack to make it less of an emotional process.

You know what is pretty easy? Building a website. There’s square space, weebly, wix, word press, shopify… and the list goes on. These companies walk you through how to put together beautiful websites. You can even offshore it for minimal cost. Website building and design is a increasingly commoditized category. Anyone can have a nice website, if they want it.

However, what you can’t do easily is build a brand. Tell a story that is authentic. Articulate a message that resonates strongly with an audience. So strongly that they are willing to change their behavior, get off of the couch and to go to the shelf or go online and give your brand a vote of confidence through their purchase.

You can have a pretty website. You can have great specs. However, people don’t care about facts or specs. People care about stories. Stories that match the frame through which they view the world. Build a brand that speaks to people.

Otherwise, you will not win.

This doesn’t only apply to companies. It applies to each of us. We are walking brands.

Ask yourself, what’s your brand slogan? What’s your story? What would others say? Does your brand resonate with your target audience?

You can’t “growth hack” your way to where you want to be. It takes time. It requires consistency. It entails emotional labor.

Will your brand help you win?