Digital Tonto

The Right Way to Be Wrong

Greg — Sun, 05 Sep 2010 04:31:51 +0000

We’re all wrong sometimes, probably more than most of us like to admit. Spouses, if we choose good ones, are usually very helpful in pointing out just how often that is.

We like to applaud visionaries, but they blunder just as often as anybody else and usually more spectacularly. If you are ever going to get anything right, being wrong is just part of the territory.

It’s not something they teach you in school. Smart people are supposed to have the right answers, but it takes much more than intelligence to fail fruitfully. Everybody is right some of the time, but to be wrong and do it well requires a special mix of genius and character.

Cargo Cult Thinking

A while back I wrote about Cargo Cult Marketers. I got the name from a famous speech that Richard Feynman gave about islanders in the South Pacific who, after World War II, built mock airfields hoping to attract valuable cargo. They thought they had seen it work before and just couldn’t grasp why treasure never fell from the sky for them.

It’s easy for us to fall into the same trap. The world is a confusing place and data is rarely clear cut. Even after a thorough analysis, reasonable people can often disagree on what conclusions to draw. On the other hand, if you believe something to be true, you can always find some evidence somewhere that will support your claim.

As Feynman himself said, “The first principle is that you must not fool yourself – and you are the easiest person to fool.”

Enron

When I started my career, it wasn’t in media or marketing, but finance. Specifically, financial derivatives based on natural gas. Our biggest client was Enron, an up and coming company with some very smart traders. They made a killing because they simply knew more about the market than anyone else.

But they didn’t stop there. They assumed that the principles which made them successful in natural gas were universal and wanted to capitalize on their infinite wisdom. Enron looked unstoppable and Fortune named them one of America’s most admired companies. Everybody cheered as they sought to apply their philosophy to new markets such as electricity, water and even broadband.

Of course, there were some telltale signs that they might have had it wrong and their new businesses were hemorrhaging money. However, rather than allow for the possibility that their vision was misguided, they moved the losses off the books with the help of their auditor, Arthur Anderson.

The result: both companies went down in the greatest corporate meltdown in American history. Jeffrey Skilling, the Enron CEO, is still in prison while Ken Lay, the Chairman, only escaped his sentence by dropping dead at his Colorado vacation home. Enron and Arthur Anderson have become synonymous with foolish avarice and failure.

LTCM

One of the foundations of modern finance is the Black-Scholes model, which values financial options. It’s not a stretch to say that it forms the basis for the vast majority of derivatives trading that occurs today.

So it was with great fanfare that Myron Scholes, one of the creators of the model, along with Robert Merton, with whom he shared the Nobel prize, became partners in a new hedge fund, LTCM. They were to put their famous brains to work on complex mathematical models that were sure to earn billions for their investors.

Unfortunately, they soon found that the real world differed from their models and had to massively leverage their fund in order to achieve the impressive results that were expected of them. Initial losses resulting from the Asian financial crises cascaded into a disaster that not only brought down the firm, but almost took the global banking system with it.

Merton and Scholes vaunted reputations took a severe beating. To make matters worse, in related litigation that followed Schloes testified that he could not comment on illegal tax avoidance strategies adopted by LTCM because it was not his area of expertise. (He had written a textbook on the subject).

So it seems that even Nobel laurette’s can be not only be wrong, but also thoroughly disingenuous.

Einstein Misses the Boat

Einstein is notable mostly for his successes, not for his failures, although they are probably just as important. Despite the fact that he had pioneered some of the seminal concepts of quantum theory, he was unable to accept its main implication: that God does indeed play dice with the universe.

Einstein therefore found himself on the wrong side of the most important scientific debate of the 20th century and his career as a serious scientist was effectively ended. J. Robert Oppenheimer, who would become his boss at the Institute for Advanced Studies, once remarked that Einstein was “completely cuckoo.”

Yet, there is a substantive difference here. Einstein’s lapses were more successful than most people’s successes. His debates with Bohr are considered the height of scientific discourse and his EPR paradox led to the first successful teleportation by scientists at IBM in 1993, just to name two instances of his fruitful failures.

While few took his science seriously past the 1930’s, the man remained revered. Just a few years before his death, Einstein’s 70th birthday party was enthusiastically attended by 250 of the world’s most eminent scientists and he continues to be a hero and source of inspiration to this day.

Getting at the Truth

Einstein differed from Lay, Skilling and Scholes because he cared more about the truth than he did about being right. He felt strongly that quantum mechanics couldn’t be true and did everything he could to prove it wrong. Every time one of his points failed, he conceded and moved on.

The result was that he made an important contribution by keeping his interlocutors honest. He didn’t sulk in a corner or try to doctor experimental results. He was never petty or dishonest.

In the same spirit, Richard Feynman said, “The idea is to try to give all the information to help others to judge the value of your contribution; not just the information that leads to judgment in one particular direction or another”

And therein lies the difference: Some people want to be right while other want to make a contribution.

- Greg

What Happened to Yahoo?

Greg — Wed, 01 Sep 2010 04:09:47 +0000

Yahoo is an enigma. Once the sugar daddy of the online world it has become the poor relation who makes everybody uncomfortable. It’s still around, but seems hapless and adrift. What happened? Is there a future for Yahoo?

A recent insider account gives some answers, but raises even more questions about Yahoo and where online media is really headed.

Paul Graham’s Version of Why Yahoo Lost

Paul Graham is a true Silicon Valley veteran. He has developed his own programing language, pioneered spam filters and, as a founder of Y Combinator, is a real hi-tech trend setter. In 1995, he founded Viaweb, which he sold to Yahoo in 1998 and subsequently joined the company.

He recently wrote an essay on his site which gives his inside account on what happened at Yahoo. It’s highly instructive, both for what it said and for what it didn’t.

He makes two main points:

1. An Innovators Dilemma

When Graham first arrived at Yahoo, he was surprised that Jerry Yang, one of Yahoo’s co-founders, wasn’t interested in making the site’s ad inventory more efficient. Although technology Graham had developed would help e-commerce advertisers extract a lot more value, the idea was essentially dead on arrival.

It was only later that Graham realized why. Advertisers were already overpaying for banner advertising, so Yahoo had no interest in optimizing in order to extract “fair value.” Why get a good price when you’re already getting a great price?

Banners were big business in those days. Online media was so small that even the paltry amount of budget that major advertisers like P&G were spending seemed like a windfall. Internet start-ups, meanwhile, were willing to spend anything in order to gain”eyeballs” and win investors.

Graham had suggested that Yahoo invest in Google, but at the time it appeared that there wasn’t nearly as much money in search as there was in media content. It was a classic case of a disruptive innovation. Yahoo didn’t see the sense in taking money from a solidly profitable business to put into an unprofitable one.

2. Lack of a “Hacker Culture”

The issue that Graham speaks most passionately about is the poor programing environment at Yahoo. From his point of view, they were so obsessed with positioning themselves as a media company (partly because they didn’t want Microsoft to see them as a competitor), that they gave programmers short shrift.

He points out that project managers were called “producers” and areas of the company were called “properties.” It seems that Yahoo’s management was much more concerned with marketing strategies than building great products (which would make them bad programmers AND bad marketers).

Most of all, he says that they lost their start-up culture way too soon. While most tech companies eventually get put under adult supervision, the Yahoo guys wanted to be “suits.” This is in stark contrast to what he sees at Google and Facebook, who preserve their hacker culture at all costs.

Hey, But Yahoo Won, Didn’t They?

Although it seems like Yahoo blew a big lead, the truth is that they bested every competitor dating from the time of Graham’s involvement with the company. Lycos, Altavista, Excite and Go are all distant memories. MSN only survives because Microsoft is willing to finance it in perpetuity. Yahoo might seem beaten, but only because it is the last man standing.

Moreover, although Mr. Graham insists that Yahoo compares unfavorably with Facebook, the numbers tell a different story. Last year, at the height of the crises, Yahoo had net income of nearly $600 million on revenues of $6.4 billion, far surpassing Facebook’s zero profits on $700-$800 million in revenues.

Meanwhile, Google, seems to be trying to be more like a media company. Over the past few years, they have been putting a serious effort to market themselves to ad agencies while gobbling up display advertising assets.

An Industry at War with Itself

Tolstoy wrote, “All happy families are alike; each unhappy family is unhappy in its own way.” The digital world is a collection of unhappy families, mostly because everybody is confused. With some many ideas flying around and so much money at stake, who wouldn’t be?

Problems are poorly defined and solutions are untested. Technologists want to build cool stuff, marketers look to fill consumer needs and finance people want to see a profit. Who’s right? Well, companies that lose money on lousy products that nobody wants don’t last very long. People with different perspectives and varied skill sets need to learn to work together.

Having spent ample time in both digital and traditional media, I find the digital world no less myopic, but far less integrated than established industries. I would suspect that the companies that will survive are the ones that manage to find a common purpose long after the high growth phase has extinguished itself.

It Ain’t Over Till it’s Over

I’m no Yahoo apologist, nor do I aim to quarrel with Paul Graham’s narrative. If anything, the Yahoo story shows just how confusing the digital business is. Yahoo’s business model seemed like a sure thing ten years ago, just as search and social look dominant now.

There is, however, a need for a little perspective. Back in the 19th Century, railroads dominated the corporate world, but by the beginning of the 20th their customers had overtaken them. Power alternates between infrastructure and destinations as technology changes. Value in the supply chain is constantly shifting and usually the money goes to the weakest link.

As I wrote before, the really exciting innovation lies in the crap, not where the customer is well served. That’s why it always seems like the new companies know something the incumbents don’t. Becoming successful is one thing, surviving in a competitive marketplace is quite another.

As Google’s revenue growth slows and Facebook struggles to win profits even as it’s audience reaches saturation levels, they would do well to ask themselves not how Yahoo lost, but how they survived the onslaught.

One thing is certain: It’s too early to be picking winners.

- Greg

The Future of Content

Greg — Sun, 29 Aug 2010 03:54:31 +0000

They say that content is king, and they’re right, but what kind of content? Who will produce it? Can anyone make a decent living doing it?

These are important questions and simple answers are elusive. However, it’s not exactly the riddle of the sphinx either. Content has been evolving for centuries, even millennia, and, in truth, the underlying principles haven’t changed very much.

As technology improves, the variety, consumption and investment in content increase as well. Therefore,the future of content, as we shall see, is very bright indeed.

Quality Content

Content quality is something that gets talked about quite a bit. SEO specialists say it will improve inbound links. Paywall advocates insist people will pay for it and editorial departments proclaim that only the anointed few are able to produce it.

Yet “quality” really is in the eye of the beholder. F. Scott Fitzgerald and Albert Camus were both accused of being hacks in own eras. Dickens and Dostoyevsky were originally published in serialized, rather than book form (which explains the excessive length) and Kafka was more like what we would consider a blogger today than a real author.

However, a few things are clear. Some content attracts significantly more engagement on social media, other content is read by a wide audience and some content people are willing to pay to subscribe to. Perhaps most tellingly, branded content routinely commands 10-20 times the ad rates of social media sites.

So, while it’s hard to define “quality,” you can be sure that it exists and that it matters.

Crowdsourced Content

Crowdsourced content is one thing that everybody can agree they love to hate. There’s just something creepy about editorial algorithms guiding masses of fringe freelancers or outright amateurs who replace dedicated professionals that have a true passion for what they do.

However, most of the fear-mongering is entirely overdone. As this excellent article about demand media shows, crowdsourced content doesn’t truly compete with more traditional fare. The algorithms are designed to find under-served topics like “How to Grow Avacodo Trees,” not looking to compete with established journalists.

What’s more, croudsourced content is helping to make producing quality content easier and more efficient. What journalist doesn’t use Wikipedia? Who hasn’t used royalty free services photo services like iStock or used Dewolfe for background music. If you haven’t, you probably should.

That doesn’t mean that we don’t continue to do professional photo shoots or use professional composers, it just means that we often need something that’s just “good enough.” So perhaps the question about quality can best be answered in this way: If you can’t outperform crowdsourcing, then you’re not really quality.

Semantic Mashups

The idea of mashups probably started in music, where DJ’s blend two or more songs to create something new. The technique has also become popular with videos on YouTube, mostly parodies of movie trailers (with varying quality). However, mashups are becoming much more important than simply keeping fraternity boys amused.

Through the use of API’s, data and technology from different sites can be combined to create something new and useful. For instance, this site combines Google information, Yahoo images and YouTube videos to create celebrity galleries, while this one tracks election results. You can find an extensive list of mashups here.

The semantic web will take mashups to a new level. As RDF and other technologies make the data that underlies web sites increasingly universal, information can be combined, analyzed and displayed as never before. For a glimpse of what’s to come, take a look at this Hans Rosling Ted Talk.

Three Trends to Bet On

While the future is uncertain and, given the passions aroused, it’s easy to lose sight of what’s really important, there are three truths that seem to be as close to eternal as we can hope for in the media world.

Stable Ad Spend to GDP Ratio: With all of the ups and downs in media statistics, there is one that is amazingly consistent: the ratio of ad spend to GDP in developed countries (it tends to rise in emerging markets). As long as economies expand, you can be sure that there will be more money to finance content.

Media Fragmentation: Another constant is that over time we get more of everything. Radio, for instance, which was presumed dead fairly early in the last century, has increased revenues in almost every year since. In truth, the dominant trend is toward greater media diversity.

The Power of Creativity: For anybody who’s been fortunate enough to work with truly creative people, it’s hard not to be amazed by what they are able to come up with. As I’ve written before, the core media mission is to inform, entertain and inspire. There doesn’t seem to be any shortage of talented people who think up new and exciting ways to do that.

So the future of content is indeed bright. If history is any guide, there will continue to be an abundant supply of able people willing to produce it, money to finance it and an increasing variety of platforms on which it can thrive.

And even blogs to talk about it..

- Greg

A Short Guide to Consumer Targeting

Greg — Wed, 25 Aug 2010 04:58:40 +0000

Marketing’s most basic question is who to target. You need to know who you want to sell to before you can determine market potential, promotional budget and overall positioning. In other words, you can’t do much of anything without a viable target.

Probably because it’s so important, people can get very passionate about one targeting method or another. However, what’s most important about building a consumer target is that it’s clear, understandable and actionable. It’s a means to an end, not an end in itself.

Here’s a short guide to targeting consumers more effectively:

Targeting Basics

The essence of targeting is defining attributes that make your consumers different from other people. It does no good to describe your consumer as “an intelligent, sophisticated consumer” (as opposed to stupid and naive?). While we all want to think of our customers as attractive people, nice phrases don’t lead to meaningful action.

Furthermore, you want to direct your efforts to your most profitable prospects: the heavy using, high yield consumers. These people usually make up only a small fraction of your total client base, but account for the majority of sales. Even more importantly, they tend to be vastly different from the rest of your customers.

Effective targets usually fall into one of three categories:

Demographics: Basic characteristics such as sex, age, education and occupation tell us a lot about a person. Sometimes, simple life stage questions, such as whether somebody is married or has children can also be highly be highly revealing.

An advantage of demographics is that they are concrete. Someone was born on a certain day, is male or female, has a certain job, etc. There’s very little room for respondent bias or misunderstanding.

Psychographics: How a person feels about certain things can tell us even more about their intentions. Some categories such as cigarettes, beer and cosmetics are almost indiscernible demographically. Even expensive durable goods can be very responsive to psychographics, as was aptly describe in the book, Trading Up.

Consumer research routinely monitors attitudinal statements like “I like to be the life of the party” and “I wish I could spend more time with my family.” So targeting psychographically isn’t much harder than targeting demographically, although you need to make sure that you have agreement among a group of statements and pay careful attention to the wording of the question.

Targeting the Consumer “Job”: Clayton Christensen, most famous for his work on disruptive innovation, points out that consumers hire products to do a job, and different people will use the same product to do different things. Therefore, it’s important to know what type of activities potential customers are engaged in.

His most often used example is of a fast food company whose research revealed that a lot of milkshakes were getting sold in the morning to commuters who wanted a quick snack that they could consume with one hand. These people needed to be courted much differently than kids using milkshakes as an after school treat.

While many marketers like to champion one form of targeting over another, in my experience, all three can be effective (just as sometimes all three can seem ridiculous). The most important thing is that the segmentation is clear and actionable. If you aren’t getting distinct separation or the analysis doesn’t point you in one direction or another, it’s not very useful.

Future Targeting

While the methods described above are effective and will probably remain so, things are progressing. As I wrote a while back, digital technology is making new kinds of targeting possible. Two of the most exciting ideas are:

Social Targeting: Who you are connected to says a lot about who you are and what you will do because your social interactions often reflect your interests. As data becomes more robust and the processing power needed to break it down it become cheaper, social network analysis will increasingly play a role in how we target consumers.

Adaptive Targeting: Salespeople know a good prospect when they see one because they learn through interacting with consumers over time. They also sense when things change and new consumer behaviors develop.

In the future, neural network algorithms, similar to the ones credit card companies use now to spot fraud, will be utilized to adapt consumer targets to changing market conditions. These will be able to combine a wide variety of attributes and self calibrate according to response.

Common Sense Targeting

It’s better to be generally right than precisely wrong. Probably the greatest pitfall that marketers fall into is taking their targets too seriously. Any realistic framework will leave a lot of viable consumers unaccounted for. Marketing is about gradients, not on/off switches.

The reason we use targets is to focus our efforts where they are most likely to have the greatest effect. That doesn’t mean you should ignore those that don’t fit narrowly defined parameters, it just means that every budget is limited and choices have to be made. As I wrote before, one of the problems with digital media is that it tempting to make campaigns too precise.

In the end, probably the most important thing to remember is that targeting is just a starting point. Just because you can define a group of people, doesn’t mean you can engage, or even understand them. That takes time, patience and real passion.

- Greg

Why The Web Wins

Greg — Sun, 22 Aug 2010 04:38:33 +0000

Is the Web dead? Hardly.

Nevertheless, some serious people, most notably Chris Anderson of Wired, are saying that it is. While the argument is intriguing, it is surely wrong and betrays a serious misunderstanding of what the web is and where the digital world is going.

Make no mistake, the web, conceived in a single month but embellished over two decades, not only survives, but thrives. In fact, it’s just getting started.

What The Web Is

I wrote about the difference between the Web and the Internet a while back, but here’s the short version: The Internet is a bundle of hardware and protocols that moves information around the world more efficiently than anything ever has before. The web, however, is software that lays on top of the Internet.

Tim Berners Lee created the basic architecture for the Web in November 1989, which consists of three components: HTTP, URL and HTML. The first two are mere formalities. To get an idea of what they do, think about a standard business contract which, in the preamble, designates the parties and the body of law under which the contract will function.

HTML, or the HyperText Markup Language, however, was a stroke of genius. It’s what makes the Web so special. There are two basic elements:

Markup Tags: These are what gives the web its universality. They work very much like the script in your school play. Just as scripts have little instructions in the text so that the actors will know to present the words (wryly) or (angrily), HTML tags instruct computers to <make this bold> or <make this blue>.

HyperText links: These give the web its connectivity. Berners-Lee originally created the web so that people could find important documents. He realized that any hierarchical system would fail because importance is all about context. Therefore, he made it easy for anyone with a web page to tell people to <go to www.digitaltonto.com> to find information that might interest them.

It was from these two basic ideas, universality and connectivity, that the Web gets its unique power. We can access documents no matter what machine or software we are using and those documents will point us to other documents no matter what machine they are on or what software were created on.

That’s what created the revolution. Any information we want is not only a few short hops away, but we can access that content with a standard browser. As I’ve explained before, the successful memes are the ones that get replicated. You can only pass on what you have access to.

The Non-Web Web

Of course, there is a lot on the Internet that’s not on the Web and that’s why Anderson and others think that the Web’s best days are behind it. The basic idea is captured by this graphic from the Wired article in which Anderson makes his case.

Sources: Cisco estimates based on CAIDA publications, Andrew Odlyzko

Take a quick glance and you quickly grasp the point. Before the web, most traffic was taken up by specific applications and file transfers (FTP stands for “file transfer protocol”). Throughout the 90’s, the web exploded, but has been declining as a percentage of total traffic for a decade.

However, a closer examination tells a different story. First of all, the graph shows percentage of traffic, so it would be a mistake to assume that web usage is actually on the decline. Secondly, the emerging bandwidth hog is video, most of which lies on web sites (unless there’s something I’m missing).

Yet the real argument that Anderson and others make is the rise of the “app.” In their narrative, the “walled garden” is returning in the form of Apple, Android and Facebook. The idea is that new innovations are becoming so popular that they don’t need the universality of the web.

Moreover, they make the argument that these new giants have a powerful profit motive to close themselves off. Anderson points out that once the railroad, telephone and electricity industries matured, they consolidated into closed systems ruled by industry giants.

A Very Weak Argument

I’m not sure what history book Anderson was reading, but he should seriously think about reading some others. I don’t see how the example of three mature infrastructure industries have anything to do with Web content. As I’ve noted before, media is fragmenting, not consolidating. It’s hard to see how the analogy is relevant.

Moreover, much of the new technology he cites, such as Twitter clients, i-Pad apps and RSS feeds are inseparable from the web. Who would use any of these things if they didn’t link to web sites through hypertext links?

Finally, many of his other examples that truly are separate from the web, such as Skype and World of Warcraft, reflect the new capabilities of increased bandwidth, not any shortcoming of the Web. People are using Skype to have private conversations they used to have by phone, online gaming is an improvement over consoles.

Just because some things don’t lend themselves to universality and sharing (and never did) doesn’t mean that the web or anything else is dying. Interestingly, both World of Warcraft and Skype use web sites for marketing, customer service and billing.

A Simple (but not simplistic) Explanation of What’s Really Going On

So far, we’ve just been quibbling with details. What’s truly at the heart of the Wired article’s argument is that the Web will not survive because of economic reality. In effect, that value is more easily generated by proprietary environments than with open ones.

I don’t see any reason why that’s necessarily true, nor does the Wired article provide one. A much more plausible explanation is given by Clayton Christensen, who originated the concept of disruptive innovation. In this view, there are two basic forms of organization:

Integrated Organization: This means that everything is proprietary and done in-house. Fully integrated organization is most effective when technology is new and doesn’t work very well, when it’s hard enough to get things to work even without fussing with third parties.

Modular Organization: Eventually, some people get really good at specific aspects of the job and they specialize. As technology matures, interfaces become standardized and different entities are able to work together more effectively. Openness and cooperation prevail.

As an example, take the auto industry. In there early days, integration was dominant. As they got better at building cars, companies started to specialize. Today, the big car companies mostly design and assemble cars. A network of hundreds of component companies actually manufactures them.

So it shouldn’t be surprising that the most exciting new technologies are on proprietary platforms. Standards take time to develop and great innovators like Steve Jobs can’t afford to wait for the rest of the industry to catch up in order to launch a breakthrough product.

Eventually though, it becomes more profitable to be modular, which is why Macs now use Intel, instead of their semi-proprietary PowerPC chips. That’s also why AOL went from bully to wimp in a few short years. Nobody has come up with an idea so big that it can out-compete the collective power of the marketplace in perpetuity.

The Next Web

Meanwhile, the web continues to evolve. HTML5 promises to make universal much of the functionality that was long the domain of proprietary technologies such as Adobe Flash and Microsoft Silverlight.

Moreover, the semantic web is gathering steam and promises to create universal databases that link not just documents, but information itself. Just as it’s hard to imagine Internet apps that don’t link to web pages, it’s difficult to see how they will be able to cut themselves off from global ontologies and remain competitive for long.

But enough of the tech stuff. In the end, it all comes down to this: The web wins and will continue to win because it facilitates connections. That’s what makes information networks so powerful. Collective intelligence trumps individual ego every time, which is why as integrated technologies advance, they become more open and modular.

The Web is not dead. In fact, the best is yet to come.

- Greg

Why Smart People Sometimes Say Stupid Things

Greg — Wed, 18 Aug 2010 04:34:10 +0000

Smart people accomplish things by finding solutions to important problems. This is a tough, disconcerting process that’s full of frustration and boredom. The great physicist Richard Feynman likened it to being a confused ape.

Yet succeeding isn’t enough for most people, they also want to be prophetic and that’s where they run into trouble. They try to codify their performance by making up simple rules that inevitably fail. It’s a trap that we all fall into sometimes, but should do our best to avoid.

What follows is a particularly instructive example of how, in the quest for simple, core beliefs, smart people can say some pretty dumb things.

The Ad Contrarian

Recently, I’ve become addicted to the Ad Contrarian Blog, written by Bob Hoffman of the Hoffman/Lewis agency. It’s a mixture of sharp wit and good sense that is highly readable and informative. If you’re at all interested in marketing, it’s a must read.

Mr. Hoffman is more than just a blogger. He runs a highly successful ad agency with $120 million in billings and A-list clients such as McDonald’s and Toyota. Judging from their reel, they do very fine work and serve their clients well.

The trouble came when one day they got bored and decided to formulate their success by creating three simple rules that they felt would encapsulate their approach. The result is something that might make sense, as long as you don’t think about it too much.

Performanced Based Advertising

You can read the document they provide for yourself here, but basically it based focuses on three principles:

1. Advertising is most productive when it’s focused on changing behavior, not attitudes:

On the surface, this would seem to be highly sensible. You want people to buy your product, right? Who cares about a lot of feel-good fluffiness? Well, as I wrote a while back, psychographics are important for many reasons, among them:

Targeting: For many categories (i.e. cosmetics, beer, cigarettes) attitudes are the only effective way of defining consumer groups. People’s sex, age, education and occupation often tell you next to nothing about what they will do or buy.

Long-Term Strategy: As Mr. Hoffman loves to say, “It’s easier to convince you to eat a Big Mac then to convince you that eating a Big Mac is a good thing to do,” and he’s right. However, what people think about Big Macs will have a measurable effect on sales in the long term. In fact, changing attitudes is how you build a sustainable brand advantage.

His client, McDonald’s, understands this well and goes to great lengths (including the development of its own proprietary survey) to track consumer attitudes about its brand as well as competitors in every country in which it does business. When those numbers start slipping, you can be sure that they do something about it.

Moreover, it’s tough to see how Hoffman Lewis puts this principle into practice. Their reel is full of adorable kids treating their mothers to a birthday lunch, middle aged football heroes having cute conversations with old ladies and the like.

I’m not knocking the ads, they are good spots which would make any agency proud; but I’d be willing to bet my considerable wealth (of experience) that they put a lot more time and effort into the emotional impact of their ads than the quick price offer they sometimes throw in at the end.

2. Advertising messages should be created for, and directed at, the heavy using, high yield customers in your category:

Okay, here he has some factual ground to stand on. Sales gurus call this the 80/20 rule, while economists have branded it the Pareto Principle and mathematicians describe it as a Power law. Whatever you want to call it, it takes about 5 minutes of volumetric analysis on any basic research survey to work out that heavy consumers make up the bulk of sales.

Yet how does one go about targeting heavy consumers? You have to describe them in some way; either demographically, psychographically or by activity (i.e. commuters, family outing, etc.)

In reality, you target people who have specifics wants, needs and preferences. A heavy user could hit you with a bus and you probably wouldn’t know it was a heavy user (unless of course, you have an alcohol client).

It’s hard to see how the process he so vehemently advocates (focusing on heavy consumers) doesn’t end up with a result that he so adamantly decries (i.e. demographic and attitudinal targeting). It’s true that attitudes are often misused by silly marketers who psychoanalyze toilet paper, but you can’t legislate good sense.

3. We don’t try to get them to try our product by convincing them to love our brand; we convince them to love our brand by convincing them to try our product.

This one is a bit baffling for a guy who runs an agency that does such image intensive advertising. Nevertheless, he’s making the same mistake that I ascribed to direct response marketing, assuming that the only objective is immediate sales.

There are a lot of reasons why sales might not be the primary objective. For instance a brand that is effectively converting a small base might want to increase awareness. Another might want to use social media to encourage advocacy. A third, might notice that its internal attributes are falling in tracking research and want to change attitudes.

Good marketing, much like anything else, is about solving problems. That means you have to identify the problem first. Things like awareness, consideration and advocacy are just as important as immediate sales (and, incidentally, not much harder to measure).

Should brand managers ignore obvious problems in order to serve a maxim?

The Problem with Rules

A while back I explained why marketing rules are useless, but nothing shows it better than Hoffman Lewis’s “Performance Based Advertising.” The problem with simple axioms is that they are either too general to be meaningful or too specific to be useful.

As I mentioned above, Mr. Hoffman is a highly capable, intelligent man. He could just say, “We work very hard at what we do and hire talented people that really care about getting results,” but he didn’t. The luster of a codified system was too tempting. If he fell into the trap, then we’re all at risk and there’s where the lesson lies.

To solve problems that matter, we don’t need axioms; but the discipline to approach problems without prejudice toward one solution or another. As for me, I’ve only found one rule that’s really worth following and, since all bloggers are hypocrites, I’ll share it with you:

Find a problem. Solve it. Repeat.

- Greg

Happy Birthday Digital Tonto!

Greg — Sun, 15 Aug 2010 03:35:24 +0000

It’s hard to believe, but it was only one year ago when, during a late night scotch drinking session, I came up with the dubious idea of starting a blog. A few days later (with some help from my developer friends: Pasha, Aleksey and Yuri) Digital Tonto was born!

I’d like to thank everybody for their enormous support over the last year. I never thought anybody would actually want to read anything that I wrote, much less participate in such an enthusiastic and meaningful way. I’ve learned a ton from your comments and suggestions.

In honor of the occasion, I’d like to share some of my favorite posts.

(Click on the title to read each post)

The Primal Forces that Drive Social Networks: This was the first post that I wrote about social media and network theory and I still think it’s one of the best. Take a look and let me know if you agree.

How Companies Fail: I wrote this at the height of the crisis and leaned heavily on Jim Collins’ book, How the Mighty Fall, but added quite a bit of my own experiences. A year later, I think it still holds up.

Advertising on The Brain: I’ve been studying the intersection of neurology and advertising for several years and have found it as fascinating as it is useful. This post gives a good overview and I continue to use it as a reference for new posts. I also had a lot of help on this one from ad creative extraordinaire, James Sinclair.

Less Numbers – More Math: I strongly believe that we have way too many numbers in marketing and not nearly enough understanding of them. Since I’ve entered the agency world, I’ve only become more convinced that there is a serious dearth of basic skills. I wish more marketers would read this post.

Lessons Learned in a Tulsa Steakhouse: I’ve written a handful of posts based on personal stories, but this one is my favorite. Having just re-read it I like it even better than I remember. If you missed this one, I strongly urge you to check it out.

Dr. Feynman’s 6 Principles of Trendspotting: I’ve always been a big fan of the physicist Richard Feynman and thought he has a lot to teach marketers, especially the way he attacked problems. He looked not only for solutions, but also thought about what new issues those solutions would create and think about how to solve them too!

He not only anticipated nanotechnology and quantum computing, but described accurately what would have to be done to create them. Read this post to find out how he did it.

Cargo Cult Marketers: Another concept I took from Dr. Feynman is the idea of Cargo Cult Marketers. These are people who look for facts to support their point of view rather than make the emotional effort to refine their thinking. Take a look and see if you recognize anyone you know!

6 Ways to Spot False Gurus: I LOVE this post! Apparently, everybody else did too. It has been the most popular article since Digital Tonto began. If you missed it, here’s a second chance.

How to Succeed with Certainty: I’ve written a lot about uncertainty, but this post is still my favorite. Unfortunately, most of you didn’t agree and it wasn’t one of my most popular. So I’m including it here both out of spite and as a birthday present to myself!

But seriously, check it out. Anytime you can read about Albert Einstein, Andy Grove and the alcohol ridden beat poet Charles Bukowski in the same article, it’s worth a look.

The Internet, The Web and The Future of Media: This post makes the very important, but often overlooked, point that the Web and the Internet are two different things and you really do need strategies for both of them. If you haven’t already made that distinction, read this post and find out why you should.

How to Build Cooperation: This one uses both game theory and evolutionary psychology to explain how to build more successful relationships. It also explains why all tourists are suckers, so if you’re planning a trip, you might want to take a look.

Justin Bieber, Social Networks and How Numbers Can Lie: Unfortunately, it is often overlooked how the new science of social networks can give us insight into everyday marketing math. This post attempts to correct that by applying Barabasi’s “fitness model” to the Justin Bieber phenomenon.

Stupid Strategy: We could all be a little smarter if we thought a little dumber. I was glad to see that so many people liked this post. It was also one of my favorite, not least because it contained one of my favorite G.H. Hardy quotes: “For any serious purpose, intelligence is a very minor gift.”

So there you have it, a collection of my favorite posts over the past year. Thanks again for all of the thoughtful support that has made Digital Tonto so much more successful than I ever thought it could be.

Feel free to add any of your favorites and your suggestions of how Digital Tonto can be improved in the coming year in the comments below.

- Greg

5 Reasons Why Traditional Media is Making a Comeback

Greg — Wed, 11 Aug 2010 04:52:50 +0000

What ever happened to those big fat sloppy media companies that “just didn’t get it?” Dead? Buried? Nope. The profits are rolling in.

Companies from Time Warner to News Corp to NBC have reported increased earnings that beat analyst’s most optimistic forecasts. Even Time Warner’s magazine division posted impressive results and, what’s more, the supposedly dead newspaper industry is showing signs of life.

What’s going on here? Weren’t these companies supposed to be steamrolled by the digitized social media colossus? Actually, the media rebound was predictable and, moreover, the comeback is here to stay. Here’s why:

It’s The Content, Stupid

As I wrote in an earlier post about the future of media, the core mission of media is to inform, entertain and inspire. That has not changed nor is there any indication that it will. While it might be fun to keep in touch with your fraternity brothers on Facebook, that’s not really content.

Leading media companies are full of extremely talented people who know how to uncover information the rest of us can’t and tell stories that we enjoy watching, hearing and reading about. It’s no accident that so much of what we see on social media is actually links to mainstream media.

While amateurs can often come up with worthwhile stuff as well, it shouldn’t be surprising that the most sought after content is produced by those who have devoted their life to their craft. The rest of us are just winging it.

The Newer the Media, The Worse it Works

Shooting a TV ad is pretty amazing, not least because of how efficiently modular the process is. Different people with different skills, sometimes coming from different countries meet, often for the first time, and get everything up and running in a few hours. In a matter of days, locations are chosen, sets are built and the ad is shot and edited.

Compare that to digital. When I was running a large media company, we had two programming environments: one for our portal and one for our content sites. When we switched a developer, it would take him months to get up to speed. Moreover, the interfaces between functions (i.e. marketing, development, sales, etc.) were even worse than within the developer’s group.

In new media, we just don’t have that much experience built up. Problems are not clearly defined, solutions are relatively untested and the context is constantly changing. Is it any wonder that nearly 90% of media budgets still go to traditional media.

Social Media

Strangely enough, given the excess of bile coming from social media gurus, social media itself seems to be helping traditional media rather than hurting it.

As an article in Time magazine shows, social media contributed to the largest TV audience ever for the last Superbowl and TV viewing in general is at or near all time highs in both the US and the UK. One by-product of the paywall debate is that newspaper sites depend heavily on social media for audience.

As I noted in an earlier post about social media and power laws, social media and mainstream media are much more symbiotic than they are competitive. As long as there is a conversation, you can be sure that professional editors and programmers will have a major role to play.

Lower Costs

Amid all the layoffs, one thing that got lost was the fact that media businesses were coming off some big, fat years. The creative side of the business has a lot of clout and when there is money lying around, you can be sure that they will have some great ideas about how to spend it.

Therefore, it shouldn’t be surprising that when there is a downturn a lot of the fat gets cut. Fringe ideas like Men’s Vogue get cut and aggressive new concepts get rethought. People learn to do more with less. The result is that media companies have pared down their product portfolios, streamlined their back offices and gotten rid of the some of the dead weight on their payrolls.

This has been a painful process with real human costs, but the business are a lot stronger for it. Many of the profits that exceeded expectations came from the cost side rather than from an up-tick in revenues. However, as ad market expectations are also being revised up, the future does look rosy indeed.

It Never Really Went Away

One of the most common misperceptions over the past few years is that media companies have lost money from operations. That has been largely untrue. Most of the enormous losses that were reported came from write downs, not operational losses. Since the Internet came on the scene, media operating margins have increased, not decreased.

The notion that a vibrant industry with some of the most creative people in the world would shrivel and die when faced with a tough economy and some new competition should have been ridiculous on its face. Nevertheless, many believed that to be the case and crowed on about the death of traditional media (and, in fact some still do).

“Old media” continues to be profitable because it has to be; there are no preferential valuations for simply doing an old job well. New media, on the other hand, still has to prove itself. Most start-ups fail because entrepreneurs generate new ideas much faster than consumers are able to adopt them.

It has always been thus and will always be so.

- Greg

Marketing Memes

Greg — Sun, 08 Aug 2010 05:09:39 +0000

Successful marketers spread ideas. Regrettably, some unsuccessful marketers do as well. There is no shortage of false gurus that gain fame and fortune for themselves while doing very little for any product or service. Bad ideas can spread just as well as good ones.

Memetics can help us understand why. Unfortunately, “meme” is a term that gets thrown around a lot without much thought. People often use it to denote something they think is new and cool, but that misses the point entirely.

Understanding how memes work can help us understand how both good and bad ideas get spread.

What’s a Meme?

The term meme was originally coined in Richard Dawkins classic book, The Selfish Gene. Simply put, it’s something that replicates information. Just as genes replicate genetic data, memes replicate cultural ideas.

The first four notes of Beethoven’s Fifth Symphony are a meme as are famous advertising slogans like, “Just Do It” or “Where’s the Beef?” Other memes are longer, like the Magna Carta or the US Constitution and some can be fairly technical, like Google’s PageRank algorithm.

Like genes, some memes are more successful than others. Some, like Google’s algorithm, get copied because they are useful. Others, such as David Beckham’s haircut, hitch a ride with other memes (i.e. playing sports) that they are bundled with.

Understanding how and why memes get replicated is an essential marketing function.

Two Hunters

Memes can spread in lots of different ways for lots of different reasons. Susan Blackmore, in her book The Meme Machine, describes how altruism can spread memes through a story about two successful primitive hunters, Kev and Gav. Kev, is a nice guy who shares his meat while Gav is a bit more selfish and keeps the proceeds from his hunt to himself.

Blackmore notes that Kev will come into contact with more people and they will be more likely to copy his style of hunting (i.e. type of bow and quiver, etc.). Moreover, other memes of his will be transferred as well, such as the type of feathers he adorns himself with, songs he likes to sing, etc..

Gav’s memes won’t be as successful. He won’t spend as much time with others so, whatever his merits, he won’t get copied as much as Kev. As information gets passed down, future generations will be more likely to adopt Kev’s memes than Gav’s.

Google, Microsoft and Apple

Google has tried very hard to be like Kev. Despite the occasional gaffe, they make an effort to be collaborative. They routinely give tours of their campus, are polite in meetings and do more than most companies to build cooperative relationships (at least in my experience).

Microsoft has a history of being more like Gav (although they do seem to have changed their tune in past years). This earned them enmity among the Silicon Valley digeratti, which made for a very poor product pipeline as well as a long and costly anti-trust battle.

Apple, as I wrote in an earlier post about Steve Jobs, is a bit of both. They are extremely user focused product wise, but Jobs’ overbearing personality creates problems for them. As the Ad Contrarian pointed out, a minor backlash has already started.

The important thing to note is that all three spread their memes successfully. Google though openness, Microsoft through some fantastic strategic decisions and Apple through inspiring products. Just as different genes are fit for different environments, memes can thrive for different reasons.

Search Engine Memes

Sergei Brin and Larry Page of Google have built an enormous business out of memes. They noticed that academic memes were not spread only by one paper citing another, but that the cites themselves became important. The more a paper was mentioned in other papers, the more important it was considered to be, which would lead to more readers and more references.

They built their search engine algorithm, called PageRank, on the same principle. The more links a page gets from other web pages, the higher it will appear in search results. So just like Kev sharing his meat helped spread his ideas, now companies share information to help spread their product memes.

Take Nike’s site. Of course, you can buy their products there, but they also have plenty of information about sports that isn’t directly related to anything they sell. The result: nearly 10,000 links and very good traffic results (I would assume great sales as well).

The PageRank meme has considerably changed the way other memes get spread.

Social Memes

A while back, I wrote a post about social search which raised another memetic issue: Why was PageRank so successful? At the time Google launched, Jon Klienberg of Cornell University had already developed the HITS algorithm, which many consider to be superior to PageRank (and has since been implemented into Ask.com and the Google Wonderwheel).

PageRank memes moved further and faster in the context of Silicon Valley; populated with a robust network of venture capital people, entrepreneurs and early adopters. HITS, developed by a university professor in the small city of Ithaca, New York was mainly circulated in academic journals.

As social media continues to develop, memes are not only circulating more efficiently, we can see where they go and how. It’s as if Kev not only sat around telling hunting stories, but could then go see who repeated them. This will revolutionize how we evaluate the memes we want to invest in.

Content Memes

I previously argued that content will stay free based on the economic reasoning that consumers have historically been more valuable to advertisers than content has been to consumers. I also pointed out that there is nothing to indicate that this has changed or will change in the future.

However, there is also a good memetic reason why advertising is a very effective way of financing content. The reason that information wants to be free is that memes want to be successful (because ones that aren’t don’t survive).

A great example is The New York Times previous paywall, called Times Select, which made some content (like columnists) a premium service that had to be paid for. While some people (like me) actually did subscribe, the columnists lost influence and revolted. More recently, The London Times added a paywall and immediately lost two thirds of its audience.

For memes to survive, they need to replicate and spread.

Synaptic Memes

Of course, the main vehicle for spreading memes is our own brains. We see and hear things, remember them and pass them on. Of course, we forget most of the memes we come across. There are just too many memes competing for our attention for them all to be successful.

Scientists now have a pretty good idea how this happens. (See Advertising on the Brain). We remember memes that are either repeated a lot, which takes a lot of money and effort, or those that are highly emotional. Put a human face on a banner and you are sure to get more clicks.

It’s safe to assume that people remembered more about Kev’s hunts that were fraught with danger than the others. This is a good example of how genes and memes interact. Those who carry memes that are useful for survival tend to live on and pass on their genes.

How to Use Memes

Memes, like genes, don’t really exist, at least not in the sense that they can be generally defined with any specificity. It is their function that distinguishes them, not their structure; and their function is to propagate themselves.

For all the mindless debate about traditional vs. digital, push vs. pull and branding vs. direct response, the reality is that memes have a variety of ways to achieve their goal. Just as the title of Dawkin’s book suggests, it helps to think of memes as selfish, and our product memes don’t want to be held hostage to our marketing memes.

As marketers, we often lose sight of the difference. For whatever attractions a particular marketing channel might have for us, it is the success of our products that determines the success of our strategy, not the other way around.

- Greg

6 Simple Tips for Digital Marketing Success

Greg — Wed, 04 Aug 2010 04:30:06 +0000

Wanna jump on the Next Big Thing? Then you have probably already failed.

The problem with new media marketing channels is that most of them don’t work very well. Compared to traditional media, there is a lack of experience, established best practices and standard operational interfaces. In short, we’re just not that good at it.

However, as the old saying goes, “You don’t need to outrun a bear, just the guy running next to you.” In that same spirit, here are 6 simple tips that will help you achieve well above average performance.

Think about the House You Want to Build Before the Tools You Want to Use

Many people start their digital strategy by saying, “I want to do social media,” or “Let’s do some microsites and flash games.” That’s the completely wrong way to go about things. You wouldn’t bring a contractor to work on your house and say. “I want you to use one of those cool new wrenches,” would you?

As the Ad Contrarian puts it, “There’s no bigger sucker than a gullible marketer who’s convinced he’s missing a trend.” No words could ring more true.

Digital strategy, just like any other kind of strategy, should start with the problem you want to solve. Maybe you want to inform people about your products, or drive transactions or build a community. Whatever it is, you need the right tool for the right job and that means the job needs to come first.

Usability First

Whatever you’re doing online, your success will depend on consumers being able to use it. If it’s complicated or frustrating or they just can’t see any clear benefit to engaging with it on a regular basis, your message won’t get through to users. They’ll be somewhere else.

The whole point of the “great digital revolution| is that it’s interactive – it puts consumers at the center. If you’re trying to build a web site that looks “different” for difference’s sake, or build an “innovative” social media strategy, you’re not thinking about the user, but about impressing your colleagues (who are probably no brighter than you are).

Luckily, there are two excellent authorities who can help you get started: Steve Krug and Jacob Nielsen. Click on respective links, receive their wisdom and start on your path to becoming a usability Olympian!

Start Small and Iterate to Scale

Despite the acrimony that often divides them, web developers and marketers do have one thing in common: big dreams. My first few years running development were plagued by enormous projects that never seemed to end. Often, they never actually did.

Eventually, I got smart and started demanding that we launch new projects as modestly as possible. We often would plan later phases at the same time as the earlier ones, but would keep the first version as bare bones as possible.

The results were outstanding. Our performance against deadlines improved immensely and the quality of our projects advanced as well. Moreover, when we did run into problems, they were much smaller and easier to solve. Finally, the user feedback we received on the earlier stages made further development much more informed.

So instead of launching a massive six month or year long project, you are almost always better off breaking it into smaller pieces (a few months at most) and then building it out in iterations.

Be Transparent and Understandable to Stakeholders

Like any other kind of activity, digital strategy needs to be understood by the people who are supposed to benefit from it. If they don’t get it, then either you are not meeting their needs or your organization isn’t ready to do whatever it is you’re planning on doing.

Again, you need to start with objectives. If you are planning to drive transactions, your sales team needs to be on board. If you want to interact with the consumer, the brand manager should be the #1 cheerleader. If the major stakeholders aren’t completely enthusiastic about what you’re doing, you will most probably fail.

Good digital strategy starts and ends with good sense.

Perpetual Beta

I spent a few weeks in Silicon Valley a while back and got hooked on a term they seem to love to use out there: Perpetual Beta. The beta phase, for those who speak only colloquial English, is when software is launched but still being tested and improved. Therefore, a product “in beta” considered unfinished.

Perpetual Beta, therefore, is a product that will continue to be considered unfinished for years after it has been launched. Gmail, for instance, was still in beta five years after it appeared. It had already become the most successful e-mail service in the world and was still considered unfinished.

Compare that to the typical brand manager who considers her digital project complete after a few months. Is it any wonder that most digital marketing isn’t very effective?

Get a Sense of Perspective

Although you might feel like your falling behind, you’re probably not doing as bad as you think. Just because there are a bunch of weirdoes running around speaking in tongues doesn’t mean that everything that has a neologism attached is really important.

The truth is that we are still in the beginning of it all. We’re on the ground floor. Digital marketing, in effect, is still “in beta.” It’s okay to mess up, as long as you manage to do it cheaply and quickly. The only real sin is to value “knowing” over thinking and learning.

We all still have a long time to learn and there are still a lot of exciting things to come.

- Greg