It would be impossible to capture the disruptive influence the latest digital technologies are currently having on the world in a single blog post. But what Zeitgeist has collated here are some thoughts and happenings showing the different ways technology is changing our lives – from the way we do business to the way we interact with others.
Last night saw a highly enjoyable occurrence. No, not the Academy Awards in general, which as ever moved at a glacial pace as it ticked off a list of predicted favourites. Rather, it was a specific moment in the ceremony itself, when host Ellen DeGeneres took a (seemingly) impromptu picture of herself with a cornucopia of stars, tweeting it instantly. The host declared she wanted the picture (above) to be the most retweeted post ever. The previous holder was none other than the President of the United States, Barack Obama, whose re-election message saw over 500k retweets. It took Zeitgeist but a few minutes to realise that Ellen’s post would skyrocket past this. Right now it has been retweeted 2.7m times. Corporate tactic on the part of Samsung though it may have been, Zeitgeist felt himself feeling much closer to the action – being able to see on his phone a photo the host had taken moments ago several thousand miles away – and the incident helped inject a brief air of spontaneity into the show’s proceedings. Super fun, and easy to get definitive results in this case on how many people were really engaging with the content. But can we quantify how much Samsung and Twitter really benefited from the move, beyond fuzzy marketing metrics? Talking heads on CNBC saw room for improvement (see below).
The big news of late in tech circles of course has been Facebook’s $19bn acquisition of messaging application Whatsapp. Many, many lines of editorial have been spilled on this deal already. In the mainstream media, many commentators have found the price of the deal staggering. So it’s worth reading more considered views such as Benedict Evans’, whose post on the deal Zeitgeist highly encourages you to read. Despite the seemingly large amount of money the company has been acquired for – especially considering Facebook’s purchase of Instagram for a ‘mere’ $1bn – Evans sagely points out that per user the deal is about the same as Google made in its valuation when it purchased YouTube. So perhaps not that crazy after all. The other key point that Evans makes is on Facebook’s dedicated pursuit to be the ‘next’ Facebook, or conversely to stop anyone else from becoming the next Facebook. With a meteoric rise in members (see image below, as it outstrips growth by both Facebook and Twitter), Whatsapp was certainly looking a little threatening.
The worry for investors is how Facebook will monetise this platform, when the founders have professed an aversion to advertising. Is merely ensuring that Facebook is the ‘next’ Facebook a good enough reason for such acquisitions? Barriers to entry and sustainable advantages will be few and far between going down this route. The Financial Times, in its analysis of the acquisition, points out that innovation is quickly nipping at the heels of Whatsapp. CalPal, for example, is one example of a mobile application that lets users message each other from within an app. In the markets, there has been a relatively sanguine response to the purchase, but only because of broader trends. As the FT points out,
“External forces have also helped to push the headline prices of deals such as WhatsApp into the stratosphere. A global excess of cheap money, along with a scarcity of alternatives for growth-hungry investors, has boosted the stock prices of companies such as Facebook and Google.”
One of the most visibly exciting developments in technology in recent years is the explosion of the wearable tech sector. But it is Google’s flagship product, Glass, that has met with much ire and distress. An excellent piece of analysis appearing in MIT Technology Review last month hit the nail on the head when it identified why Glass was having trouble winning people over. The article rightly identifies the significant shift in external appearance inherent in making the switch from a device that needs to be taken out of a pocket as makes it clear when it is being interacted with (you need to cover half your face with the product to talk to someone, for example). The article also details the savvy approach Google have taken to the distribution of their product. It’s always sensible to try and mobilise the part of your base likely to be evangelists anyway so as to build advance buzz before a full-blown release. But to get them to pay for the privilege, as Google are doing with their excitable fans, dubbed Explorers, is a stroke of genius for them. However, the key issue, and what the article states is an “insurmountable problem”, is that “Google’s challenge in making the device a successful consumer product will be convincing the people around you to ignore it as well”. It this fundamental aspect of social interaction that is worrying many, and now Google is worried too. As detailed in the FT, the company has acknowledged that the product can look “pretty weird”. Recognising it has a “long journey” to mainstream adoption, it published a list of Dos and Don’ts. Highlights include,
“Ask for permission. Standing alone in the corner of a room staring at people while recording them through Glass is not going to win you any friends… If you find yourself staring off into the prism for long periods of time you’re probably looking pretty weird to the people around you.”
It indicates that Google may have a significant ‘Glasshole‘ problem it needs to attend to. The case may be overstated though. One of the problems may just be that potential customers have yet to see any practical uses for it. This is beginning to change. Last week, Virgin Atlantic announced a six-week trial of both Glass and Sony smartwatches. The idea will be for check-in attendants to use the devices to scan limousine number plates so that passengers can be greeted by name and be instantly updated on their flight status.
In the arts, digital technology has inspired much innovative work, as well as helped broaden its audience. David Hockney, on the England’s greatest living artists, recently exhibited a series of works produced entirely on his iPad at London’s Royal Academy of Arts. He is far from alone. Last week’s anniversary issue of The New Yorker featured work from Jorge Colombo on its front cover, again produced entirely on an iPad. Such digital innovation allows for increased productivity as well as new aesthetics. When done well, art can also involve the viewer, encouraging interaction. Digital technology helps with this too. Earlier in the year The New York Times covered how the New York City Ballet redesigned part of their floor in a new scheme to attract new visitors to the ballet. The result, roughly life-size pictures of dancers arranged on the floor, has seen great success, and an explosion of content on social media platforms like Instagram, where users have taken to posing on the floor as if interacting with the images (see above). It’s a simple tactic that now reaches a far greater audience thanks to new digital technologies.
A recently published book, ‘Now I know who my comrades are: Voices from the Internet Undergound’, by Emily Parker, seeks to demonstrate the ways in which digital technology has made helped to coalesce and support important activism in regions such as China and Latin America. But, as The Economist points out in its review, the disappointing situation in Egypt puts pay to some of the author’s claims; there are limits to how productive and transformative technology can be. In business, these hurdles are plain to see. A poll taken by McKinsey published last month shows that “45% of companies admit they have limited to no understanding on how their customers interact with them digitally”. This is staggering. For all executives’ talk of the power of Big Data, such technology is useless without the proper structures in place to successfully analyse it. We also perhaps need to think more about repercussions of increased technological advances and how they influence our social interactions. In the recently opened film Her (starring Joaquin Phoenix, pictured below), set in the very near future, an operating system is launched is so pervasive and seamless that it leads to fraught, thought-provoking questions on the nature and productivity of relationships. When does conversation – and more – with a simulacrum detract from interactions with the physical world? These considerations may seem lofty, but as we illustrated earlier, the germination of such thoughts are being echoed in discussions over Google Glass.
So technology in 2014 heralds some promise for the future. Wearable tech as a trend is merely the initial stage of a journey where our interaction with computing systems becomes seamless. It is on this journey though that we need to make sure that businesses are making the most of every opportunity to streamline costs and enhance customer service, and that individual early adopters do not leave the rest of us behind to deal with a bewildering and alarming new way of living. One of our favourite quotations, from the author William Gibson, is apt to end on: “The future’s already here, it’s just not very evenly distributed“.
The latest issue of Foreign Affairs features the cover article “The Rise of Big Data” by Kenneth Cukier and Viktor Mayer-Schoenburger, which mostly details some of the incredible ways companies like UPS, Google and Apple have come to rely on vast arrays of numbers in order to run their businesses better. But data has always provided a problem in that it gives a substantive assurance of certainty that has a propensity to foster overconfidence in those relying on it. The article attempts to address this:
“[K]nowing the causes behind things is desirable. The problem is that causes are often extremely hard to figure out… Behavioural economics has shown that humans are conditioned to see causes even where none exist. So we need to be particularly on guard to prevent our cognitive biases from deluding us; sometimes, we just have to let the data speak.”
The sentiment here is admirable, and the context perceptive. But the final part of the quotation (my emphasis) assumes wrongly that data can speak objectively, that there is a fundamental ‘truth’ in a number. All too often though the wrong things are measured, or not all variables are measured. What data does not record, or worse, cannot record, can often be overlooked. While ostensibly data is there to provide assistance with building models and predicting future trends and movements, it sometimes leads to a very narrow view of one particular future, and fails to account for possibilities, that, though while unlikely, could potentially be devastating. This is what Nicholas Taleb writes about in his by turns unreadable but seminal work, Black Swan. The fictional, paranoid loner Fox Mulder of the hit series The X-Files had it right fifteen years ago when he lamented “in a universe of infinite possibilities, we may find ourselves at the mercy of anyone or anything that cannot be programmed, categorised or easily referenced”. The financial system before 2008 was a victim of such narrow thinking.
Hendrik Hertzberg, in his Talk of the Town column “Preventive Measures” in this week’s The New Yorker, made the adroit analogy with the 2002 film Minority Report in our quest to categorise and predict acts of crime. Hertzberg points out that in reality this “turns out to be a good deal more difficult than investigating such an act once it occurs”. Indeed, such prediction methods are being implemented, just with somewhat less efficacy than in the Tom Cruise movie. The stop-and-frisk procedure currently employed by the New York Police Department points to a sustained effort to engage in preventative measures to reduce crime, effectively what Cruise and his myrmidons were doing, albeit without the help of psychic imagery as in the film. While the psychic “Pre-Cogs” turned out to occasionally disagree, the success rate with stop-and-frisk is even less attractive. “In the final months of 2012″, writes the New York Times, only 4% of stops resulted in an arrest. But what is this low figure telling us…?
Hertzberg also alludes to the dilemma of mountains of data, produced without concern for oversight or management; producing more just because it’s possible to produce it, rather than thinking about the implications:
“This fall, the National Security Agency, the largest and most opaque component of the counter-terrorism behemoth, will [open] a billion-dollar facility [analysing] intercepted telecommunications… each of the Utah Data Center’s two hundred (at most) professionals will be responsible for reviewing five hundred billion terabytes of information each year, the equivalent of twenty-three million years’ worth of Blu-ray DVDs… that’s a lot of overtime.”
The other problem this data poses – and increasingly this goes for many industries that are jumping on the Big Data bandwagon – is that intelligence departments and businesses alike are now technically able to put quantifiable targets and figures to what they want to achieve, without considering whether such targets are actually applicable. Police claim the low stop-to-arrest ratio implies that they are preventing crimes by stopping someone before they act. There is nothing to argue otherwise. The New York Times article alludes to the debate over what ratio or percentage the Supreme Court would be comfortable with under the tenet of “reasonable suspicion”. This leads down a dangerous path where we treat data as an answer to a question, rather than as supporting evidence to an answer.
Microsoft has been trying its hand at a bit of innovation of late in an attempt to raise some of its lost brand equity, and stem the larger market decline in PC sales, which has recently started accelerating. (On a side note, Deloitte have a caveat to these figures, saying the true measurement is in usage, not units).
One of the ways this innovation has come about is in the release of its Surface product, which has interested many but earned the ire of erstwhile manufacturing partners as Microsoft has pursued its own path, making the product in-house. Its new operating system, Windows 8, has struggled to gain traction with consumers. The president of Fujitsu, one of Microsoft’s partners, declared interest to be “weak” back in December last year. The most obvious step-change from previous iterations is the slate screen that greets users upon booting up. On proceeding through this, users then come to a more familiar Windows layout.
In yesterday’s Financial Times, Microsoft said it was preparing to “reverse course over key elements of its Windows 8 operating system”. Envisioneering analyst Richard Doherty was quoted as saying it is the biggest marketing fiasco since New Coke. The only difference being, Doherty comments, that Coca-Cola acknowledged their error three months in, whereas Microsoft is pushing eight months now since launch; Coca-Cola conversely paid more attention to what its customers were saying about the product. “The learning curve is definitely real”, said head of marketing and finance for the Windows business, Tami Reller.
Today’s FT featured an editorial entitled “Steve Ballmer was right to gamble on change”. Opening with a quotation by Bill Gates, saying that to “win big you sometimes have to take big risks”, the editorial cites Kodak as a primary example of a company that refused to take risk, and ended up succumbing to creative destruction at the expense of trying to protect legacy revenue streams. We’ve written before about Kodak and creative destruction. The editorial calls for a revival of a “climate of creativity” at the company, and certainly that is what Ballmer is trying to instill, very nobly and with good reason. Zeitgeist’s bone of contention is with the following, seemingly logical statement,
“…disruptive innovations are disruptive precisely because the new technology does not appeal to traditional customers. Instead, it appeals to the customers of the future.”
We would argue that Microsoft’s customer base is made up overwhelmingly of what might be considered “traditional” customers. Users who find familiarity with a long-established incumbent, who have no interest in OS alternatives like Linux, Apple, Android or Mozilla. They are not looking for a revolution. By all means change your product, but it must evolve, not look like a completely different way of computing when you switch it on. This point is confirmed nicely by a recent piece in Harvard Business Review, which details how to get customers to value your product more. The author, Heidi Grant Halvorson, describes the importance of knowing the right emotional fit for your customers’ mindset. The article elaborates,
“motivational focus — whether he tends to view his goals as ideals and opportunities to advance (what researchers call “promotion focus”), or as opportunities to stay safe and keep things running smoothly (“prevention focus”). While everyone has a mix of both to some extent, most of us tend to have a dominant focus.”
We would argue that users that prefer Microsoft Windows OS to other systems would strongly fall into the latter category. Change is perhaps inevitable, but Microsoft are choosing a precarious path with such radical changes aimed at a group little interested in such fundamental alterations to the way they interact with such an integral device.
While it’s difficult nowadays to write about telecoms or the mobile sector without drifting off into other areas of the TMT industry, Zeitgeist spent an evening last month as a guest of Accenture in Cambridge, discussing the successes and failures of the recent Mobile World Congress in Barcelona. It came in the middle of a year so far that has already some significant shifts from mobile companies, in terms of branding, operations and revenue streams.
2013 has seen some interesting news in mobile. The week before last marked, incredibly, the 40th anniversary of the first phone call made from a mobile phone. This year also saw Research in Motion renaming itself to BlackBerry, with shares sliding 8% by the end of the product launch announcement for its eponymous 10 device. It saw Sky acquire Telefonica’s broadband operations, while responding to major complaints about the speed of its own broadband service. It has seen Huawei, which in Q4 of 2012 sold more smartphones than either Nokia, HTC or BlackBerry, come under scrutiny particularly in the US for its lack of transparency. Moreover, after much editorial ink spilled on Facebook’s lack of initiative and innovation in mobile, the release of the ‘super-app’ Chat Heads has piqued interest as it looks to compete with Whatsapp, Viber, iMessage et al., which Ovum reckons cost MNOs $23bn in lost revenue every year. This news mostly pertained to developed markets; JWT Intelligence’s interview with Jana CEO Nathan Eagle features some interesting insights on mobile trends in emerging markets.
Interestingly, 2013 thus far has also been witness to the beginning of more flexible contracts and payments. At the end of March, T-Mobile USA announced it would offer the iPhone to customers for cheaper than its rivals, and customers would not have to sign a contract. It effectively ends handset subsidies – something which Vodafone pledged to do last year and was punished by the stock market when it failed to do so – spreading the full cost of the phone over two years “as a separate line item on the monthly bill”, which may strike many as still quite a commitment. Customers must pay the bill for the phone in full in order to be able to end their tenure with the network. The New York Times elaborates, “Despite T-Mobile’s promise to be more straightforward than other carriers, some consumers might still find it confusing that they have to pay an extra device fee after paying $100 up front for an iPhone.” In the UK, O2 is going a similar route. At the end of last week the company announced similar plans to T-Mobile. While still keeping contracts as an option, the FT explained the company was looking to a plan, dubbed O2 Refresh, “that decoupled the cost of the phone from the cost of calls, texts and data. Customers will be able to buy a phone outright, or pay in instalments over time, and then sign up to a separate service contract that can be cancelled or changed at any time.” Although O2 said in the article that they expected customers to pay the same as they would on a standard contract, the new plans by both network providers will surely add to customer churn. Brands will have to work harder to develop true loyalty rather than relying on the lock-in feeling that adds to switching costs for many customers. Conversely, this added flexibility may make the providers feel less like utilities, creating more choice and differentiation.
At the aforementioned conference Zeitgeist attended last month, Accenture hosted an evening they dubbed “MWC: Fiesta or Siesta?”. It soon became apparent that many of the speakers invited were less than enthused with the conference this year. This was partly because there were no extraordinary leaps in technology or hardware on offer. It was also because of, as one speaker lamented, “the proliferation of suits”. Another speaker complained it was like listening to The Archers: long storylines “that ended up having no conclusion”. The very essence of the conference though is not about trendsetting, or cool new consumer devices. Mobile operators are utilities, the excitement around such an event is not going to be as visceral as that of SXSW or Embedded World. It led some to wonder whether the “real innovation was being developed in such ‘niche’ events, away from the “glitz”. Moreover, perhaps Samsung’s decision not to launch their new S4 handset at the Congress alluded to this lack of excitement, or at least a wish not to be drowned out by other announcements.
Among exciting trends on display at MWC, M2M – something Zeitgeist has written about before – was front and centre at the conference, particularly with regard to cars. Phablets continued to make their foray into the consumer’s view, with bigger screens meaning more data transfer. Zeitgeist wondered whether such a transition would put even more pressure on networks already struggling with large data handling. And although Firefox’s new OS gave some – including those at GigaOm – hope that it could provide more innovation through diversified competition in the marketplace, others, including Tony Milbourn, Executive Chairman of Intelligent Wireless, speaking at the event, thought it “underwhelming” after “lots of hype”. Bendable screens were also to be found at MWC, but those speaking at the Accenture conference like Richard Windsor of Radio Free Mobile said it was early days and much was still to be seen from this new type of phone. Its potential though, he readily conceded, was formidable. Wearable technology was a huge issue at the conference and one that Zeitgeist is particularly interested to see develop, especially as companies like Apple, Sony and Google enter the fray.
It seemed then that the Mobile World Congress failed to reflect what is turning out to be a tumultuous year in telecoms. Not only is there an increasing desire to address consumer needs – in the case of more flexible contracts and more consumer-facing company names – but as economies sputter their way toward ostensible recovery we are also starting to see M&A activity return to the sector. Time will tell whether new technologies, such as M2M or bendable screens can breathe new life into the sector.
The videogame industry, like many of the protagonists in the games it creates, is under attack. The competition is fierce. Not only is there healthy competition amongst legacy companies – including Nintendo, Sony and Microsoft – but new devices are increasingly distracting consumers, and digital disruption elsewhere is changing the way these companies do business.
Part of the problem is cyclical; the market has gone longer than usual without a major new console launch from either Sony or Microsoft, which in turn makes game manufacturers hesitate from making new product. But the industry needs to be wary that their audience has changed, in multiple ways. Sony are now starting to talk about their PS4 (due to be released in around six months’ time), beginning with a dire two hour presentation recently that failed to reveal price, release date, or an image of the console. And the word over at TechCrunch? “A tired strategy… [O]verall the message was clear: Sony’s PS4 is an evolution, not an about-face, or a realization that being a game console might not mean what it used to mean.”
We’ve written before on creative destruction in other industries, and talked before about shifting parameters for companies like Nintendo. The inventor of NES and Game Boy is currently struggling with poor sales of its new console, while at the same the chief executive of Nintendo America recently stated that digital downloads of videogames were becoming a “notable contributor” to their bottom line. Companies like Apple are surrounded by perpetual rumours of developing their own videogame platform. New companies in their own right, such as the Kickstarter-funded company producing the $99 Ouya, is among several players shaking up the industry. The upshot of such turmoil – a “burning platform” as the Electronic Arts CEO described the situation in 2007, referring to the dilemma of holding onto the burning oil rig and drowning in the process, or risk jumping off into who-knows-what – is a loss of market share. Accenture in January published a report predicting the demise of single-use devices such as cameras and music players whose revenues would be eaten into as more and more consumers flocked to tablet and other multi-purpose gadgets. Videogame console purchase intent was not researched, but it is not hard to make the analogy.
It was enlightening and reassuring then to read McKinsey Quarterly’s interview recently with Bryan Neider, COO of Electronic Arts. Some interesting take-outs follow. First, in 2007, the company recognised there was a problem: “game-quality scores were down and our costs were rising”. The company wanted to shift from having a relationship with retailers to having one with gamers. This meant having a focus on digital delivery. This fiscal year, digital is forecast to represent 40% of the overall business. Neider recognises this closeness to the consumer makes them even more susceptible to their whims and preferences, so they’re relying far more on data-backed analysis than they have before, including a system with profiles of over 200m customers. This data is used for everything from QA to predicting game usage. Neider elaborates,
“Key metrics answer the following questions: where in the game are consumers dropping out? What is the network effect of getting new players into the game? How many people finish a game? Did we make it too difficult or too long? Did we overdevelop a product or underdevelop it? Did people finish too fast? Those sorts of things are going to be critical… However, the challenge is that parts of the gaming audience are pretty vocal—they either really like a game or they really don’t like it. The trick is to find ways to get feedback from the lion’s share of the audience that is generally silent and make sure we’re giving these people what they want.”
Interestingly, the company’s structure was changed to reflect individual fiefdoms according to franchise – be it FIFA or Need for Speed – the needs for which are managed in that line of business. Each vertical competes with the others to deliver the highest rates of return, while also being able to draw on central resources (marketing, for example). Electronic Arts, as a developer of software for other manufacturers, will to some extent always be at the mercy of which devices are in vogue and the cycle of obsolescence. It is impressive though to see that the company has recognised the need to change the way it does business. The operational and technological sides of business don’t seem to have distracted Neider from the key insight in the industry, “Ultimately, we’re in the people business“.
The name Margaret Anne Lake might not ring too many bells. But if you were in the UK towards the end of the twentieth century, you’ll be familiar with her alter-ego Mystic Meg.
Having made her name as an astrologer in The Sun, Meg was catapulted into the national consciousness when she was given a slot on the fledgling prime time National Lottery draw programme.
In an attempt to build excitement and pad out an event that took two minutes to complete, Meg was brought in to ‘predict’ the winners.
Her predictions were suitably vague.
The norm was something generally along the lines of “the winner would live in a house with a 3 in the number, in a town beginning with L or M and have bought their tickets from a woman.” with a sprinkling of astrological terminology for extra authenticity.
However it would seem that back in the mid-to-late 1990s Meg wasn’t the only one struggling to see what the future held. Far away from the glamour of TV, a number of well-paid businessmen were busy making decisions that would see their organisations squander their dominant positions.
And a couple of weeks ago, after struggling along for years, both HMV and Blockbuster UK, once leaders in their categories, hit the buffers and called in the administrators.
The phrase caught on, partly because it made a point in a catchy way. But like many wisdoms, it doesn’t tell the whole story.
Just because something works now, doesn’t mean it always will. And those in position of responsibility have an obligation to future proof their organisation.
Back when Mystic Meg was in her pomp, the digital revolution that helped bring about the demise of both retailers was in its infancy. But signs of its potential were there, particularly for HMV.
The first was how people acquired their music.
Software that ripped files from physical storage, coupled with faster web connections, gave birth to peer-to-peer sharing. Programmes like Napster, Kazaa and Limewire removed the need for physical reproduction and distribution.
The whole entertainment industry never really came to terms with illegal downloads, opting to use legal threats and emotional blackmail, rather than adapting their businesses to meet the demand.
In reality, not all pirated content would ever have been bought legally. Peer-to-peer applications offered users the freedom to sample new artists they would never have paid for and get digital versions of music they already owned physically, easily and without it costing them money.
One of the reasons people wanted their music digitally is the second reason the digital revolution helped bring about the demise of the likes of HMV – the way people consumed and stored music.
The emergence of the digital music player, culminating in the release of the iPod in 2001 meant that people also wanted their music in a new format. They could now store their entire collection on one machine.
When people had upgraded their vinyl to cassette, and then their cassettes to CDs, HMV had been in pole position and reaped the profits. However a digital format didn’t require physical stores and HMV didn’t react. Their model was suddenly ‘broke’, but they didn’t realise in time to fix it.
Can such demises be avoided? The future is notoriously hard to predict, but there are some guidelines that can help companies avoid suffering a similar fate to HMV.
1. Be alert to new and niche competitors
Back in the 1980s and 1990s, HMV may have considered their competition to be the likes of Tower Records, Virgin and Woolworths. When they all disappeared, it might have seemed that HMV had won the battle. In reality they were all killed by the same bullet. The game changed as companies diversified.
Back in 1981, following a dispute with Apple Corps, Apple Computing agreed not to enter the music business. Now, iTunes offers over 28,000,000 songs.
Just because someone isn’t a direct competitor now, doesn’t mean they never will be.
2. Keep an eye on the Path to Purchase
HMV didn’t suffer because people suddenly stopped wanting to buy new music or watch films. What changed was how people acquired their material.
Online downloads provided a new way to access digital music. For those who wanted physical media, Amazon et al provided an alternative way to buy CDs and DVDs. Now that nearly 80% of UK households have broadband connections, consumers can stream films at the press of a button or watch a dedicated Movies channel.
Sometimes people will still want physical media immediately, but just not often enough to sustain a business as big as HMV.
3. Understand the next generation
Many years ago, I worked in Woolworths. A large proportion of the music we sold was to youngsters spending their pocket money on their latest idol. While online might have been niche in the mid-to-late-90s, the youngsters of today have grown up with it. As a result, consumers under 35 won’t have had the opportunity to develop an engrained habit of buying their music in physical stores like HMV. Buying entertainment online is no longer an alternative, but the norm.
4. Play to your strengths
While online retailers can offer lower prices and a wider catalogue, physical retailers offer immediacy and have the opportunity to provide enhanced in-store engagement.
Shoppers want convenience, value and experience.
Browsing for and buying music, film and computer games ought to be a fun, pleasurable act. Online shopping will continue to grow across pretty much every category. Physical retailers need to understand their role in fulfilling shoppers’ needs. Sometimes it will be about delivering the product quickly and easily, but sometimes it will be making the act of shopping an enjoyable experience that merits a slight price premium.
5. Be prepared to change
Taking all of the above into account, it might be easier to spot how a business structure that is dominant now might not be so successful in the future. It is often said that defending a title is harder than winning it in the first place.
However, it can be done.
McDonalds have long dominated the fast food industry. Just over a decade ago, their restaurants were tacky red and yellow places with plastic seats.
Yet they saw that their competition was no longer just the likes of Burger King, but also other food outlets and increasingly the likes of Starbucks et al who offered a more pleasant in-store experience.
Now their outlets have all been refurbished with designer furniture and offer free wifi.
They also observed other trends that would impact them. From obesity to ethical sourcing of produce and packaging, they adapted their business to stay one step ahead.
Their menu still offers the old favourites, but also includes lighter options. Their burgers come from British and Irish farms and much of their packaging is made predominantly from recycled materials.
As a result, they are still thriving on the high street.
Whither the sage of a shop assistant? At a time when we as consumers have access to all the information we could want about a brand and its products via our smartphones, of what use is it to have someone tell me something that I am unlikely to take at face value, working as they are for said brand? Why even bother being in the store at all when I can be buying my item at home? The luxury goods company PPR (owners of Gucci, Saint Laurent Paris, Balenciaga et al.) could be said to have recently adopted a similar mindset. A new joint venture with e-tailer Yoox is sure to shake things up. Honcho Francois-Henri Pinault said recently, “While the whole industry has been resisting e-commerce for the last 15 years it’s now realising it’s inescapable”.
Not everyone believes such a move is inevitable. Chanel is steadfastly refusing to sell its principle collections – from ready to wear to handbags – online for the foreseeable future, according to a recent interview with the CEO. While this might strike some as akin to sticking one’s head in the sand, the reasoning the company gives centres around the unique experience of going into a store to buy a product, rather than sitting at home in one’s pajamas. From a strategic point of view, the idea is sound. Reducing avenues of purchase encourages a scarcity factor that high-end fashion must rely on. It also ensures that the products are seen in the best light possible, incredibly important when justifying such a premium. It’s interesting to note that though the thinking may be sound, it is certainly not appropriate for every luxury brand to be resisting the lures of online shopping in such a dramatic way. Chanel is – and always will be, in multiple ways – a very special company, an exceptional brand, in the literal sense. Like Apple though, it’s practices are to be emulated with caution, as a great paper by McKinsey Quarterly highlights. “Outliers are exactly that…”, the report states.
But what is the state of stores, and how important is service in these places? For luxury, we can assume a high priority of the physical shopping experience is connected to the person assisting you. Recent experiences at two different luxury goods stores highlighted jarring differences, monumentally affecting the way Zetigeist felt about the brand. Last month in New York, Zeitgeist visited Tiffany & Co. to find a Christening present. Without turning this article into a rambling letter of complaint, the section Zeitgeist found itself in was woefully understaffed, and when help was available, information turned out to be incorrect and, most importantly, not dispensed as if it were important to them. Zeitgeist left without buying anything. The experience was deflating enough to mention to the manager en route to leaving the store. Returning at the weekend to try again, the experience had not much improved. The item needed to be engraved. Taking it into one of the London stores upon returning home meant being greeted with the same mediocre level of service. No passion, no interest. This would be perfectly acceptable for somewhere such as Ernest Jones, but Tiffany is a massively, massively powerful brand. For many it is incredibly evocative, and speaks to nostalgia and deep-seated emotions with very personal connections. There is a dream that is Tiffany, that is replicated extremely well in their above-the-line marketing. It is completely absent in its physical embodiment, the store. Cartier, by comparison, manage to present a fantastical vision of their brand, while also maintaining a consistently excellent level of service in-store that brings cohesion to the image it evinces.
Louis Vuitton could not have presented a starker contrast to Tiffany. The brand had one brief flirtation with TV ads about four years ago. While also a powerful brand, it perhaps could not be said to elicit such powerful emotions as Tiffany, purely on the basis that Tiffany purchases might often be assumed to be gifts. Purchasing what is surely one of the cheapest things in the store, Zeitgeist was delighted to be led through the purchase process by an exceedingly-well trained woman, who was happy to go over the minutiae of the purchase, and knew answers to arcane questions when asked. It made the experience extremely pleasurable. Remarkably, the store went a step further, sending Zeitgeist a random act of kindness and imploring to get in touch if further assistance was required.
That kind of experience simply cannot be replicated online. If Amazon were to start selling Prada clothing anytime soon, the dissonance would be powerful. So while the luxury industry, and many in the retail sector at large, struggle with the idea of the shopper journey online, moreover how and where that connects with the physical journey, we cannot forget basics. The importance of good training, especially for demanding customer who are expecting a premium experience, cannot be overstated. Though smartphones and tablets may hold the data, it must be remembered that the purchase of a luxury product is often an irrational experience. The service and assistance received during purchase consideration may be an irrational influence, but it is an immensely powerful one. If a brand talks the talk, it must walk the walk, or face the consequences of failing to live up to its own promises.
Last week, Zeitgeist ambled down to Kensington Olympia again for yet another conference, this time the annual MediaPro Expo. Among the many speakers presenting over the course of two days, our main interest was captivated by prognosticators on the the media and entertainment industries.
First up was Matt Rhodes, client services director of FreshNetworks. FreshNetwork’s clients, among others, include Telefonica (parent company of UK telco O2) and luxury shoe brand Jimmy Choo. Matt spoke of the challenges of measuring success across multiple markets. Aside from logistical difficulty, one prominent problem remains in that different sectors / regions / countries will need different approaches, therefore will have different ways of quantifying success.
Mr. Rhodes was speaking with regard to social media strategy, but the thinking applies broadly to other strategic planning as well. KPIs and ROI can both be meted out from a centralised hub (whereas in a distributed mode, ROI will vary). The possible problems with this stem from an ignorance of the particularities of a market. Suggesting that every market needs a Twitter and Facebook account for the brand might seem like sound thinking prima facie. Both platforms have huge audiences and many companies have now had notable success with presences thereon. Matt contended that such a presence was simply not necessary in all markets. Some countries may not have Facebook, but, like Russia, have a popular alternative that, with a high amount of pirated content, would be unlikely to be suitable for branded communications. As with the Soviet state, a centralised option is probably less effective. Furthermore, in some markets you might in be in acquisition mode – vis a vis customers – but in others you might be experiencing trouble retaining them, requiring very separate strategies. “Having a global strategy often doesn’t make sense”, Mr. Rhodes stated.
Regarding Jimmy Choo, people who want to purchase products from the brand in Japan differ greatly from those same people in a market like New York. In Japan there is heightened desire for accumulating a lot of accessory purchases as well as perfume, whereas in New York the emphasis will be on fewer, more substantial purchases. The Catch a Choo experience in London had different parameters for success than did the one in New York. The reasoning behind a social media presence is often never thought of, increasingly seen just as a mandatory practice. Mr. Rhodes confined activity to set parameters, suggesting that social media was best put to use for launching new products, customer care, working with advocates, brand messaging and answering critics.
Next up, Darren Gregory, Insight and Innovation Director at Howard Hunt Group and Russell Morris of LoveFilm spoke in detail about the latter company. With cinema box office receipts making a small profit year-on-year (and with negative growth adjusting for ticket price increases), and 3D failing to make much of an impact on audiences anymore (see chart below), the film industry is looking to the likes of Hulu, Netflix, iTunes and LoveFilm for its salvation. Currently, digital streaming has failed to make up for the precipitous decline in DVDs, though we are still in relatively early days. Getting a consumer to switch from DVD to streaming / digital formats is harder than previous medium transitions, which involved moving from physically-owned, tangible product (VHS) to physically-owned tangible product (DVD). You bought your films from a physical, tangible store. Now there is a lack of a sense of ownership, as Zeitgeist has written about before. Now companies like Apple, who make beautiful, tangible products, are increasingly talking about hosting your content in a cloud. There is an inherent difference here then that means take-up of digital formats will be a harder case to make psychologically to consumers than previous media upgrades. It’s importance may increase as recently written about in The New Yorker, with traditional platform release windows – the time between a film’s release from cinema to VOD, to DVD, etc. – increasingly narrowing.
LoveFilm has been around for seven years now. It is the leading European subscription service, with 70,000 DVDs available, including games by post, streaming to laptop, PS3, X-box, internet TV and iPads. It runs Tesco’s DVD rental business as well as partnering with Odeon and other companies. It has Europe’s largest addressable film community, and 50% of users access the site at least once a week. The addition of platforms like the iPad and X-box “fundamentally changed [the] business in the last six months”. The availability of games has increased their demographic reach, and in a year they have gone from 100k to 1m stream views per month.
Recently the company was bought by Amazon, and LoveFilm, like its new parent, is similarly obsessed with customer data in order to improve its service and by extension its bottom line. For example, they know that friends who recommend the service to others tend to have similar tastes, so the metrics they already have with the original customer can initially be applied to the new one. Mr. Morris next spoke about the changing nature of consuming content, with specific regard to watching film. Mr. Morris said that using their customer insight, they have divined that the way in which the customer watches a film dictates the kind of experience they are looking for. DVD rental, he said, is, for the customer, about getting that specific film in the cheapest way possible. Streaming, on the other hand, is a more spontaneous desire; “I want to be entertained”, he said. Said customer has just returned from a long day at work, etc., finds nothing on his television’s EPG, instead goes to LoveFilm. It is LoveFilm’s responsibility then to show the customer something they would be interested in. Mr. Morris elaborated further, using the recent film Tinker, Tailor, Soldier, Spy as an example. The film has performed exceptionally well both at the box office and in the critics’ pages. He predicted that while the film would be a success for DVD rental, it would be a total failure for streaming.
This is of course a fascinating discovery. What, however is the insight? What does this mean, long-term for the film industry? Well, it does suggest a shift in filmmaking, long-term. For, if, as the film industry hopes, digital streaming eventually becomes on of the principal means of consumption for audiences, especially as the platform release windows continue to narrow, then surely studios must increasingly pay attention and cater to the types of films people are watching via streaming platforms. In essence, the question is whether streaming take-up will become entrenched enough that it influences the very types of films that are being made. When Zeitgeist posed this question to Mr. Morris, he seemed ambivalent on the subject. When Zeitgeist asked about the plethora of competition LoveFilm was facing, which is beginning to slowly affect their bottom line, Mr. Morris was dismissive of such talk, confident in the strength of both their breadth of films available and the deep customer analysis (which includes looking at weather patterns). Asked specifically about the arrival of Netflix into the EU market, Mr. Morris predicted he would soon be seeing the “whites of their eyes”.
The last talk Zeitgeist attended was one given by Tess Alps of Thinkbox, the marketing body for commercial TV in the UK. With TV ratings at their highest since ratings began, and ROI up 22% over the past 5 years for advertisers, things are looking quite rosy for television at the moment. It is, however, like much of the media sector, dealing with volatile technological change. Ms. Alps acknowledged this with a “convergence sandwich” slide; the technology that delivers the medium, the device that you consume it on and then content sitting in the middle as the filler. Yummy, not to mention well-illustrated.
Ms. Alps went on to describe some of the main trends in the TV sector currently; enhanced quality (HD, 3D); all devices becoming a TV; connected / smart TVs; integrated communication between devices across home networks. The presentation continued with a sharing of quantitative findings; interviews with people who had been given prototype technology, using various devices for consuming a broad range of content. Thinkbox found a consolidation of viewing; using online viewing as a backup, only if the ‘live’ show on TV had been missed. Catch-up technology, whether through PVRs on the television or via the computer, was seen as essential. The TV, though, remained the go-to destination for consuming content, suggesting a hierarchy of platforms. There were complementary elements to this though; young people increasingly watch television with their laptops sitting by them, Facebook, Skype or some other program open. Zeitgeist wrote about this consumption conundrum last year. Realising this complementary trend, many companies are now creating campaigns that encourage use of television, laptop, iPhone, etc., for a truly immersive experience. Product placement is aiding this trend, with advertiser-funded programming such as that done by New Look for a recent television show, which encouraged contestants to design clothes online during the show, with the opportunity to be on screen by the end of the programme.
What the entertainment industry has been facing for a while is a fragmentation of viewers, easily distracted by multiple platforms, all enticing in their own way. What remains to be seen is whether efforts such as the ones mentioned by Ms. Alps can effectively remedy the situation by collating all devices to be used to enjoy the same piece of holistic content. Social media will surely play an essential role. With Disney up almost 8% today, entertainment analyst for Standard & Poor’s Tuna Amobi spoke to CNBC this afternoon, stating that he expected revenue from consumption of films via digital streaming to “ramp up significantly from here”. It will be interesting to see just how much our differing attitudes towards platforms influence the content that is produced for them.