Advertising and marketing: Here to stay or things of the past? Both AND neither…

 

Next month I’m speaking at this Meetup event titled “The way we think about technology and experience design”. To preview some of the ideas I’ll be exploring, here’s a few thoughts about the role confirmation bias (a.k.a “myside bias”) plays in our workplace decision making.

Is it time to rethink our basic assumptions about the necessity of advertising and marketing? Are those industries caught up in confusion over the role technology plays in the modern economy? Is it a mistaken assumption to assume we’ll always need advertising campaigns, or that marketing activity will always play a key role in influencing the things we choose to buy?

The answer to all of those questions is “Yes”, but reaching that conclusion is almost impossible if you work in those industries because it sounds highly implausible.

It sounds implausible because we all have a basic challenge when it comes to understanding changes within things we understand as systems. In this case, most people assume consumption and commerce – i.e. Buying products and services – are part of a system that includes advertising and marketing, so, logically, without them, the whole system will fail. After all, how will anyone buy anything, or business make money, if they don’t advertise and market themselves like they do now? That sounds like a perfectly logical question, but it’s not, it’s irrational.

It’s irrational because we intuitively understand that systems change all the time without collapsing the behaviour that creates them. History is full of examples of precisely that. Things we take for granted, like democracy, civil liberties, human rights, legal frameworks, free education, free markets and freedom of speech were all concepts that were hailed as dangerous notions that would lead to anarchy, chaos and the collapse of civilisation. But they didn’t.

So why is systemic change easy to understand in the past, but so hard to understand before it happens? The answer is, of course, because it’s a thinking problem…

 

“Half the money I spend on advertising is wasted, the trouble is I don’t know which half”

Since the turn of the 19th/20th century, when the father of modern advertising, John Wanamaker first paid writers and artists to put words and pictures onto outdoor billboards for his general store, our lives have become intertwined with businesses built on pressing our emotional buttons to influence our behaviour when it comes to spending our hard earned free time and money.

Today, that world is in a quiet state of chaos. Globally, the advertising industry’s profits are in decline, marketing companies can’t predict if their new campaign on Twitter will win big or turn into an embarrassing parody, and PR firms are struggling to justify their existence in world where people are as likely to broadcast selfies in social media as read a puff piece about product X in a glossy magazine.

Increasingly, it’s getting harder to even tell advertising, marketing and PR agencies apart.

Meanwhile, there’s a new generation of businesses that don’t try to sell us anything so much as insinuate themselves into our relationships, or into our daily routines, in subtle new ways using digital technology and service models rather than trying to sell us products.

It’s not just the preserve of social networks and apps, even industrial giants are experimenting with new kinds of business model that bypass the media almost entirely, leaving the Mad Men out in the cold.

This chaos in the creative industries (as they’re often called) is being caused by the changing role of technology in our lives, and in particular, one aspect of it that’s unique to computing as a phenomenon: Data automation. As the automation of systems that process data that describes our behaviour increases, the basic role of decision making in certain kinds of activity is diminished. Which means as increasingly complex automated systems are reshaping the world of commerce.

And that’s bad news for certain kinds of service industry built around influencing choices that won’t be made anymore… and advertising, marketing, design, development and a whole raft of services that exist now fall into that category.
 

Data automation changes our understanding of decision making and choices

Data automation, like mechanical automation, refers to the idea that as technology advances, computer systems can increasingly be used to automate not just the capture and storage of data, but the decision making value of the data itself.

In simple terms, that means things we currently assume only humans can do, like surfing the web, shopping, choosing what to watch on TV, searching for information and so on will become automated by computers that use complex sets of data about all of those activities to do them for us.

Now that might sound a bit scary. Naturally you’ll feel challenged by it and say “What about choice?” or fear that somehow, that sort of automation will allow corporations to control society in some kind of RoboCop style dystopian vision of the world… but it’s nothing like that at all. It’s actually a common thread in our lives already, and we accept it without question and in fact, positively welcome it.

Don’t believe me? Okay, here’s an example:

Most modern cars have systems that apply the brakes based on data automation to stop you skidding. And that’s a good thing. It means we are partially giving up our own role in the decision to apply the brakes, but the system can apply the brakes to an individual wheel, which is something we’d find very complex (imagine having four brake pedals). As self-driving cars emerge as the norm, we’ll be giving up more choice and making no decisions whatsoever when it comes to operating our cars. People are naturally sceptical about that prospect now, but ultimately that’s because we’ve got a problem intuitively separating the human part of the system we call driving from the component in the system we call transportation.

In a world of self driving cars, we’ll still have transport, we’ll still make journeys, but we won’t need to drive. That idea gives us a glimpse into a future where we still buy things, and businesses still sell them, but without the components of the commercial system that we call advertising and marketing.
 

The “Jules Verne Rule”

Now of course, at this point you’re probably wondering what self driving cars have to do with advertising and marketing, right? Because unless we all stop buying things, they feel like disciplines that will always be in demand.

That sounds logical, but in fact, it’s not logical at all because it assumes something inherently irrational, namely the idea that despite being products of evolution and the environment, somehow humans create things are neither. That doesn’t make sense, because everything we do is an evolutionary behaviour, including commerce.

Now you might argue that many things we’ve created don’t evolve because they are inanimate and inorganic, but that is misapplying the concept of evolution. Individual things don’t evolve. Individual fish didn’t one day spout legs and start breathing air. Evolution describes the aggregate of incremental change, not specific individual changes or choices. Sure, some things are written in stone, like the ancient graffiti on Roman buildings, but the phenomenon of writing graffiti evolves and phenomenon of building evolves, nevertheless.

In terms of how the economy is evolving through technology, let’s use an example from the past:

Jules Verne, one of the great science fiction writers of all time who, oddly, wrote science fiction before science fiction was even recognised as a genre of literature. In Verne’s books, perhaps most notably 20,000 Leagues Under The Sea or From the Earth to the Moon, he envisioned futuristic technologies but never imagined computers. Everything in Jules visions of the future was mechanical. If we lived in his future now, our iPhones would be clockwork.

This creates a thinking tool I call the Jules Verne Rule, which works very simply:

Your prediction of the future is limited by your experience of modernity, because you imagine the future as a linear continuation of the present. This means the things you predict are biased towards the things you take for granted now.

Using the rule is rather abstract if you’re trying to write science fiction, but it’s very useful for predicting the future direction of things we know and and understand today.

For example: Since the space programme of the 1950s, people have written and enjoyed stories about spaceships and aliens. Perhaps most famous being the TV series Star Trek. But for all it’s scientific content, using concepts from physics like spacetime and warp drive, the Jules Verne Rule identifies some very strange assumptions about the voyages of the starship Enterprise. Most obviously, unmanned drones are much more likely to travel into space than people.

Now we assume, as did Gene Roddenberry, that sending unmanned drones into space was merely a function of the technology, I.e. We don’t have the technology to send people into deep space like we do unmanned vehicles. However that’s misnomer, a faulty assumption based on the idea that vehicles need people to drive them, and the functions that vehicles perform need humans to perform them – because that’s how we understand those concepts today.

So by applying the Jules Verne Rule, we can make a prediction that in the 24th Century, the starship Enterprise will be unmanned, and if we encounter intelligent life in space we’re more likely to encounter their technology than lumpy headed Klingons or green skinned women who want to know “what is this Earth thing called kissing?” (Which I admit, is a bit disappointing).
 

Applying the Jules Verne Rule to the idea that “we’ll always need advertising and marketing in the commercial world”

The faulty assumption we’re taking into the future of commerce is the idea that we’ll always need some kind of unsolicited communication from brands in order to influence our choices. In other words, our consumption is dominated by the economic force called demand within the context of the economic concept called a market.

Simplistically, if we need a pair of jeans (demand), we’ll go out looking for jeans and discover a competing set of branded jean products (in the market). The commercial need for the people who make jeans, therefore, is to somehow get us to choose their particular brand of jeans. That takes two distinct things, one is advertising (discovery) and the other is marketing (making us relate to the brand). Those disciplines need visual communications (design), emotional communications (branding) and systems to facilitate the mechanical process of selection (UI) and the emotional process of influencing our decision making when we select products and services (UX).

That all makes sense, but consider this:

Supposing your clothes, your phone and your washing machine could talk to each other.

That’s not as crazy as it sounds. The wireless technology exists to that today.

Now, let’s take that a step further and say your talking clothes and home appliances could also share what they know with everyone else who owns the same kind of kit, and analyse the relationships between them.

Again, that’s not crazy, that’s the basic concept of big data in the cloud.

Finally, let’s throw a different business model into the mix, built on connectivity and big data processing:

Let’s invent a subscription clothing model, whereby your jeans are replaced, by delivery to your door, with styles that match the choices of people with your data profile on an ad hoc basis.

That’s no different from a number of existing businesses that have shifted from retail product business models to service oriented subscription models.

In that automated scenario, demand and consumption merge into a new economic force, which I’m calling use. There is no market in the traditional sense. On the commercial side, the business need changes from influencing B2C demand, to influencing B2B supply, which is (because the subscription model is driven by data) no longer dependent on branding or messaging so much as it’s dependent upon continuous consumption between the consumer and the business that has a relationship with them. That also means that the demand for ubiquitous products like jeans becomes subject to peak demand forces rather than market demand or fashion.

If that sounds complex, consider Amazon is doing something very similar. It’s a branded relationship that takes products out of their marketplace, to a certain degree, and turns many different shopping behaviours into one commercial relationship. Apple does the same with the way it rolls up services and products with devices via iCloud, the App Store and iTunes. Google does the same kind of thing. Ebay too. All of those businesses are messing around with traditional neoclassical economics, changing the relationship between supply, demand and consumption in ways that rely on data automation and configuring products and services around users, rather than expecting users to configure them for themselves from a competitive marketplace.

What our subscription clothing company example illustrates is a world where the functions of advertising and marketing aren’t bought by the media dollars of a brand, but a byproduct of localised, tangible expressions of consumer needs. This is something in economic theory called Emergent Behaviour or Emergent Order: The idea that centralised control of resources and decision making is less effective (and therefore a less efficient method for distributing value within the economy) than the localised economic order that emerges from the daily process of living.
 

Zero cost production and subscription economics

If you remain sceptical, consider the fact Emergent Behaviour is at the heart of the business disruption we associate with the Internet. It explains the way that websites, blogs and social media have diminished the role of TV adverts and billboards in our lives. It explains why marketers are all trying to create ‘influencers’ and encourage ‘word of mouth’ marketing as opposed to their traditional marketing practices. It explains a world where we get our news free on Twitter rather than buy a newspaper, and how more books have been written and self published in the last decade than were published in the entire 20th Century.

Which leads us to the final piece of the puzzle. You see, it now costs nothing to publish. Publishing used to be a business, like marketing and advertising, but now it’s a localised function of the technology products we take for granted.

The massive, consumer-facing public systems we use for publishing also give us automated functionality for design and layout. We see the kind of processing power and software capabilities that once meant only business could afford to create certain kinds of media, like TV and movies, are now bundled into phones that come free with a mobile contract.

Our devices and the systems we use them for enable anyone to reach a wide audience, something that used to be centralised in the form of broadcast media.

The Jules Verne Rule applies again here, debunking the assumption of the last century that in the future, we would still expect to pay for writing, design, art and publicity.

This is what is referred to as zero cost production, something that neoclassical economic theories never considered because it didn’t exist back then. It has accelerated the effects of Emergent Behaviour. It’s overall impact is to shift away from product-centric business models to something more social, called value models or outcome models.

Now obviously, there’s a lot of nonsense that gets the word ‘social’ attached to it, so in this case let’s define what we mean by “social” in an economic context. If you’re familiar with the work of Karl Marx, you’ve probably heard the concept of commodity fetishism or the propensity for products within a marketplace to embody the social relationships between the people who make them, the people who sell them and the people who buy them. That is the social context of a product or a service in the centralised, pre-digital era.

In the Emergent Order of the new, digital world, the social context of commerce becomes something money can’t buy, namely social capital. You could write a whole essay on social capital, so let’s suffice it to say the phenomena of crowd funding, self-publishing, self-marketing, freemium business models all rely on building commerce out generating a loose community around a combination of free and paid for commercial relationships. What is crucial to remember in those cases, is the free relationships create profits, Which is opposite of traditional commercial thinking, where the concept of free relationships reduce profits.

Which brings us to the crux of the reason why advertising, marketing, PR and the agencies that used to dominate the marketplace can’t survive. Their work is organised around business models that assume linear relationships between profit and loss, cost and benefit, markets and market share. But in a world where wireless, connected products become the norm the demand for campaigns and the people who make them, will decline because those relationships become non-linear.

An example of this non-linear redefinition of commercial wisdom is neatly summed-up by Adobe. When they stopped selling software and turned software into a subscription service, their profits went down, but after an initial blip, their stock price started to rise. Their profits are still down compared to the last decade, but their stock price is still rising. The reason is simple. The factors that influence their value have changed. The cost of their new model has, in traditional business terms, has been higher than the benefits (because of it’s effect on profits) but as far as the company’s valuation is concerned, the benefits have outweighed the costs. Their market share is no longer relevant, because they aren’t competing in a market in the traditional sense, either.

This non-linear behaviour is predictable. Back in the 1960s, Benoit Mandelbrot demonstrated that financial returns and risk are non-linear, and that’s precisely what the Adobe example shows – past performance is not an indicator of future returns. Neither is conventional wisdom.

We should anticipate a world of new non-linear business models, were entire markets from cars to clothes, get swallowed up by a scalable, on-demand subscription services that are built around ongoing commercial relationships. It won’t happen overnight, and it can’t happen without a significant increase in both cloud services and automated functionality. But it will happen, arguably, if you look at products like Nest or the Dollar Shave Club, it’s happening now.
 

The subscription of everything

In the data automated, value driven economy of the future, there will still be marketing and advertising, and public relations, media buying and all the services we see in the Mad Men world, but they will be functions of the systems that comprise business, not businesses in their own right. In much the same way we still have the functions of travel agencies, just without the travel agents. Or the functions of photography, but without film processing booths.

You might argue that today, we’re previewing elements of this by the role of public facing customer services using social networks. A decade ago, the idea of building branded relationships by handling angry customers in public would have been anathema to PR people, but as we see time and time again, customer services in public social network channels generates more positive PR than a slew of press releases or celebrity endorsements.

By the same token, we’ve seen the rise of customer reviews (again an example of Emergent Behaviour) playing a crucial role in influencing customer decisions, more than ad campaigns. We’ve also seen marketing agencies paying people to tell their friends about products in an effort to leverage social networks.

Now, all agency eyes are on so called ‘native advertising’ (which basically means paid editorial, or journalistically themed advertorial) and socially driven (and highly irritating) click bait campaigns to get people to play games to discover what kind of pet they are and invite their friends to do the same.

These trends are promoted by agencies but it’s the proverbial Turkey voting for Christmas. It’s eliminating the advert from advertising, it’s making marketing a social behaviour, not a strategy. It is unsustainable. It doesn’t address the core problems neoclassical economics faces in the new economy, like gathering sufficient data to deliver agile, personalised product and service design, or enable cloud based processing to configure product and service offerings for individual consumers rather than one size fits all models.

Only one survival option for agencies is left. Self-disruption. Break their own business models. Go freemium. Engineer technology solutions that move clients into the cloud. Build products that connect in the Internet of Things. Or build big enough audiences with mass scale social technologies that agencies start selling and distributing products and services directly. But of course, if they started doing that, they would cease to be advertising, marketing or PR agencies.

That’s the future.

Mad Men is most definitely in the past.