Tagadvertising

On Business Models & Incentives

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We’ve been discussing ethics & responsibility in IoT specifically, and business more generally, a lot lately. This seems more relevant than ever today, simply because we see so much damage done because wrong business models—and hence, wrong incentives—drive and promote horrible decision making.

One blatantly obvious example is Facebook and its focus on user engagement. I’d like to make clear I pick Facebook because it is simply the best known example of an industry-wide trend.

Advertisers are sold on “engagement” as a metric since the web allowed to measure user behavior (ie. what used to be called “Web 2.0”, now “social media”). Before that (early Web), it was various flavors of page impressions as a proxy for reach. Before that (print, TV) it was calculated/assumed reach based on sampling and the size of print runs.

It’s important to keep in mind that these metrics have changed over time, and can change and be changed any time. They aren’t a divine hand-down, nor a constant in the world. They are what we, as an industry and society, make them.

Now, for a few years advertisers have been sold on, and have been overall quite happy with, having their ad efficiency and effectiveness on engagement. This term means how many people didn’t just see their ads, but interacted (“engaged”) with them in one way or another. Typically, this means clicking on them, sharing them on social media or via email, and the like. It’s a strong proxy for attention, which is what advertisers are really after: They want potential customers to notice their messages. It’s hard to argue with that; it’s their job to make sure people notice their ads.

That said, the focus on engagement was driven forcefully by the platforms that profit from selling online ads as a means to differentiate themselves from print and TV media, as well as the online offerings of traditionally print/TV based media. “Look here, we can give you much more concrete numbers to measure how well your ads work”, they said. And they were, by and large, not wrong.

But.

The business model based on engagement turned out to be horrible. Damaging. Destructive.

This focus on engagement means that all incentives of the business are to get people to pay more attention to advertisements, at the expense of everything else. Incentivizing engagement means that the more you can learn about a user, by any means, puts you in a better position to get them to pay attention to your ads.

This is how we ended up with a Web that spies on us, no matter where we go. How we ended up with websites that read us more than we read them. With clickbait, “super cookies”, and fake news. Every one of these techniques are means to drive up engagement. But at what cost?

I truly believe you can’t discuss fake news, the erosion of democracy, online harassment, and populism without discussion online surveillance (aka “ad-tech”, or “surveillance capitalism”) first.

Business models, and the behaviors they incentivize, matter. Facebook and many other online advertisement platforms picked horrible incentives, and we all have been paying the price for it. It’s killing the Web. It’s eroding our privacy, the exchange of ideas, and democracy. Because where our communications channels spy on us, and the worst and most troll-ish (“most engaging”) content floats to the top because of ill-advised and badly checked algorithmic decision-making, we can’t have discussions anymore in public, or even in the spaces and channels that appear to be private.

It doesn’t have to be that way. We can choose our own business models, and hence incentives.

For example, over at ThingsCon we were always wary of relying too much on sponsorship, because it adds another stakeholder (or client) you need to accommodate beyond participants and speakers. We mostly finance all ThingsCon events through ticket sales (even if “financing” is a big word; everything is mostly done by our own volunteer work). Our research is either done entirely in-house out of interest or occasionally as a kind of “researcher-for-hire” commission. We subsidize ThingsCon a lot through our other work. Does that mean we lose some quick cash? Absolutely. Do we regret it? Not in the very least. It allows a certain clarity of mission that wouldn’t otherwise be possible. But I admit it’s a trade-off.

(A note for the event organizers out there: Most of the sponsors we ended up taking on were more than happy to go with food sponsoring, a ticket package, or subsidizing tickets for underrepresented groups—all entirely compatible with participants’ needs.)

If we want to build sustainable businesses—businesses that will sustain themselves and not poison their ecosystem—we need to pick our business models and incentives wisely.

Social Media: Not about marketing, but changing the company

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Don't just talk. Listen! Just broadcasting with more & smaller megaphones: Not the way you want to go.

There’s one good thing about the live-streamed and much discussed Vodefone press conference where the telco presented their new brand strategy: We have another good example to discuss the relationships between companies, brands, social media and advertising.

For those who haven’t been following the discussion, here’s the short-short version: Vodafone are re-branding themselves. Hired to help them is Scholz & Friends, a large ad agency. From now on, they target what they call “Generation Upload”, the new generation of consumers that’s always on and shares their stuff online. Also, Vodafone now wants to treat their old, trusty customers at least as good as new customers.

Duh.

Anyway. Back to the point. Thomas pointed out:

[…] Scholz is an advertising company. They are not business consultants. And social media won’t change that. They talk to marketing directors about ads, not about products. They might talk about products over coffee, but they will never change a companies behaviour. Claiming to do so, claiming to listen, claiming to put the customer first and then not living up to the expectations is worse than not even rise all sorts of expectations that can never be fulfilled.

This really nails it: You can’t just use social media for marketing and advertising and hope that anything will change. It won’t. Not a single one of your company’s problems will be solved, not a single customer more happy with you. (Your management might be happy ’cause everything seems new and hip, but this shouldn’t be the benchmark.)

Social media – and more importantly, underlying principle of dialog with your customers on eye level – requires a corporate culture, and structure, that allows for dialog. Requires it even! In some areas, that’s perfectly normal and doesn’t require a large change: If you buy clothes, you can always expect that the sales person will talk to you, particularly if it’s a small owner-run business. Nothing new there.

For larger corporations, sometimes it’s not as easy. They need to change. A lot. To change, you don’t hire an ad agency.

(Although some common sense might come in handy, as Johannes points out.)

It’s a problem many companies have, it’s hard to figure out who to hire to help you navigate this weird space that’s called Social Media. (I’m not pitching my services here – I’m just a one-person outfit, not in competition with said large agencies, although I sometimes work with them.) Instead of ad agencies, hire business consultants. Let them help you. (If instead you still want to hire communications consultants of any sorts, be prepared to change after their advice.)

(Edit: If you’re an ad or PR agency, here’s your part of the deal: If you offer social media services, make sure to negotiate the privileges required to change your client’s company, not just their image. You, too, face a very different challenge than a few years ago.)

It’s not about finding a new wrapping for your old dusty product. It’s about inventing a new product. Maybe that requires tearing down your old factory and building a new one.

Just for completeness’ sake, here’s a screenshot I took today (almost a week after the press conference) on the Vodafone website:

so-called vodafone flatrate Screenshot: A Vodafone offer touting a smartphone and the “SuperFlatInternet” plan (not a real flatrate)

Not only is it – as far as I can tell – not a new product, but it’s also a prime example of intransparent, misleading pricing. (Quoted prices: Monthly 44,95; monthly 49,95; monthly after six months: 59,95.) And there’s not a trace of a true internet flatrate.

Not following up on new announcements: Bad. Also, another example Why The Telcos Are Doomed.

Update 16 July 2009: Point in case, Laura Porto Stockwell over at Digital Dialogs came to the same conclusions and has a neat Forrester report to back her up. (via Johannes)

Photo by ehnmark (Creative Commons). Screenshot (Creative Commons).

Vaynerchuk on Social Media ROI

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Gary Vaynerchuk strikes with another awesome rant: “You Down With ROI?… Yeah You Know Me“. Are social media in trouble because of the U.S. financial crisis? Nope, it’s magazines, radio and TV who are in trouble, say Vaynerchuk. And guess who agrees: Yours truly.

Because social media have a number of clear advantages over traditional media when it comes to advertising. Says Vaynerchuk: “ROI. I am talking about Return on the Investment of your advertising dollar. Traditional media advertising is incredibly expensive and doesn’t provide nearly the rate of return you can derive from intelligent web-based marketing campaigns in 2008 and beyond.”

Not only are social media much cheaper both to produce and to advertise on, they also have more value – in their respective niches.

Video: Consumers Have Changed, Advertisers Haven’t (And That’s Bad)

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Just stumbled over this not-so-new-but-still-very-good movie produced by (if I’m not mistaken) Microsoft. In just two minutes and seventeen seconds it shows exactly just what is wrong with advertising today: While consumers have changed considerably over the last few years, advertisers often still try to stick to their old methods – and worse: to their old attitude. Advertisers still throw their messages at consumers and wonder why they’re leaving. Instead, as Jeff Pulver points out, they should seek a conversation.