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.

Choosing The Right Pair of Glasses

You see what you expect to see.

Nothing is inherent.
Change is always possible.

In 1454 the German goldsmith Johannes Gutenberg invented the printing press. 1454, a time when most people couldn’t read, yet alone use a printing press to write or type!

In 1901, Wilbur Wright told his brother Orville that man would not fly for fifty years. Two years later, the brothers built and flew the world’s first plane.

Grover Cleveland, the 22nd and 24th president of the United States, remarked in 1905 that, “sensible and responsible women do not want to vote. The relative positions to be assumed by man and woman in the working out of our civilization were assigned long ago by a higher intelligence than ours.”

In 1909, the Scientific American published, “the fact that the automobile has practically reached the limit of its development is suggested by the fact that during the past year no improvements of a radical nature have been introduced.”

In 1977, Kenneth Olsen, president and founder of Digitial Equipment Corporation, a major American company in the computer industry at the time, remarked, “there is no reason for any individual to have a computer in their home.”

Nothing is inherent.
Change is always possible.

Yet, our brains make it difficult for us to embrace this reality. As, for the most part, we do not first see and then define, we define first and then see.

As humans, our tendency to categorize is reflexive, automatic. We need to know what something is before we can figure out how were supposed to relate to it.

Hence, our frame of reference and categorization of people, brands, products, and ideas impact how we view the world.

This frame of reference impacts how we interact with people. Our ability to build relationships.

It impacts our ability to trust. It impacts the way we view business leaders and the businesses that provide the products and services that we depend on.

Just as people aren’t inherently evil. Business and capitalism aren’t inherently bad.

What matters is our frame of reference.

The beauty is that, like when choosing which new pair of glasses to buy, we have the freedom and liberty to choose the lens through which we see the world.

To do this, we must be open to trying on several new pairs of glasses.

We must be open to listening through multiple new pairs of headphones.

Most importantly, this willingness and openness must occur often and with intentionality.

The power of embracing this freedom allows us to adjust the posture of how we view the world. It allows us to cultivate and embrace entirely new ideas, products, people, and opportunities for connection.

Ultimately, you see what you expect to see.

Thought Leaders: Perception vs. Reality

We are all thought leaders, if we choose to be.

It’s a choice that is needed today more than ever.

Modern economic history is comprised of three major economies:

First, there was the agrarian economy, when the bedrock of American production and prosperity was farming.

Next, was the Industrial economy, when people left farms to work in factories.

The last few generations have thrived as a result of the knowledge economy, with know-how and analytics fueling the engine of growth.

However, the days of the knowledge economy are over, as increasingly intelligent machines know and have the capacity to know more than any human mind.

Today, we are at the cusp of the Connection & Ideas economy. In this world connections create value and ideas fuel the engine of growth, as the tried and true methods of the last few generations no longer work.

However, it’s not just any connection, but connections that are meaningful and rooted in generosity.

Not just any idea, but the deliberate exchange of ideas.

In order for this new economy to thrive, each of us must choose to be thought leaders.

We must choose to move and inspire people with innovative ideas.

We must turn ideas into realities that foster meaningful connections.

We need ideas about how to educate and prepare students for the Connection and Idea economy.

Ideas that provide affordable Healthcare at scale, allowing members of our communities to live longer and more connected lives.

Ideas about how to mobilize and enhance the lives of those that have been displaced by technology, re-establishing their connection to the economic engine that they desperately want to help shape.

You have thoughts. You can be a leader. The choice is yours.

Dear Marketers: The World Has Changed.

For marketers and brand managers, there are fundamentally three ways to grow a business and the emergence of e-commerce is and will continue to have a significant impact on the levers brand managers and marketers can pull to grow their business in a meaningful way:

  1. Increase prices: The rise of e-commerce has created a world of abundant, free, and easily obtainable pricing and cost information for consumers. It has created a world of incredible pricing and cost transparency, arming consumers with the tools necessary to ensure that they are paying the lowest price available at all times — eroding margins and mangers abilities to increase prices.
  2. Increase Purchase Frequency: E-commerce platforms are increasingly looking to push consumers into subscribe and save models that allow consumers to order goods on a predictable basis. While this doesn’t directly prevent consumers from purchasing more of a good, at it’s core it is changing consumer consumption behavior, as consumers become “trained” and comfortable with only consuming the quantity that they have ordered over a set period of time. Thus, decreasing the need for increased consumption, making it ever more efficient.
  3. Increase Number of Purchasers: Arguably, the most challenging and costly lever that brand managers and marketers have at their disposal, yet the lever least impacted by e-commerce in a negative manner. This will be the key objective of brand mangers and marketers over the coming years, as they look to grow their business. However, it is a daunting challenge, as it has become increasingly difficult to get the attention of consumers, who are overwhelmed with options and have diminishing attention spans.

Marketers and brand mangers — if we want to grow the businesses we run, moving forward we will have to:

Create products that our consumers cannot live with out.

Products and experiences that consumers would truly miss if they were gone.

Products and experiences that make people feel more connected to the world that they live in.

Products and experiences that cultivate authentic, not transactional, relationships.

This is a tall task. The world has changed. How are you helping your business grow?