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.

Building & The Illusion of Connectivity

This is the excerpt for your very first post.

your-network-expands-every-yearThe photo to the right encapsulates the narrative that surrounds the “connection economy” we live in. This narrative is a story of a world in which people are more connected to one another than at any time in human history and the connections simply keep growing. Through social networks we have instantaneous access to more people than ever. I can snap a 15 sec video and within seconds all of my friends know what I am doing in that precise moment. Even more precise is my ability to leverage live streaming platforms – my family and friends can literally see things as I see them, in real time.

However, the “connected economy” is an illusion. The opposite is actually taking place – we are becoming less connected with one another because of our belief and dependence on the connection narrative. Twitter, Facebook, Instagram, Snapchat – they are all shortcuts. Shortcuts around the process of actually taking the time to connect with people at a human level. Shortcuts around calling all 15 individuals that you sent your most recent snap to and actually sharing with them how you are doing.

This illusion is like swimming with a life jacket on. In a life jacket we are confident, we feel like we are one with the water. Likes and follower requests play the same role in the “connected economy”. Our 5,000 followers on Facebook and our 500+ connections on LinkedIn make us feel connected – one with all of the people in our lives. However, the moment we are setting ourselves up for is the moment when we have to take the life jacket off and attempt to navigate the waters of life. In that moment we realize that we don’t know how to swim. It is in that moment, the moment in which we need human connection, when we really need people to call on, that we feel like we are drowning. This is because we have spent our lives learning how to build relationships wearing the life jacket of social media. It is in that moment we realize that we have been fooled by the illusion of connectivity and instead are more alone than ever.

It is not that social media outlets and the access they afford are inherently negative and have no benefit in the world we live in. Instead, I believe they are tools and should be used as such. Relationships are like building a house. To build a house you need tools – hammers, screws, nails, etc. However, the most important part of a house is the foundation. The foundation of relationships starts with meaningful human interaction. The role of social media is that of a tool that we can use to enhance the foundation.

I think connection and meaningful relationships are the scarce assets of our generation. I am interested in exploring ways to help all of us put down the hammer and the nails and instead, figure out how to make the foundation stronger.