The Last Word on This Election Year

All week I have been trying to devise a clean getaway post for the year 2012 and it has been a struggle.  Then performance on demand, Wall Street Journal columnist Peggy Noonan did the heavy lifting for me in this weekend’s edition of her column, Declarations.  Because I can’t say it any better than she does, here is an extended excerpt from her article on what she got correct and wrong in covering this year’s Presidential Election, in particular, what she got quite right:

In writing about what struck as the president’s essential aloofness, I said there were echoes of it even in his organization. I referred to a recent hiring notice from the Obama 2012 campaign. “It read like politics as done by Martians. The ‘Analytics Department’ is looking for ‘predictive Modeling/Data Mining’ specialists to join the campaign’s ‘multi-disciplinary team of statisticians,’ which will use ‘predictive modeling’ to anticipate the behavior of the electorate. ‘We will analyze millions of interactions a day, learning from terabytes of historical data, running thousands of experiments, to inform campaign strategy and critical decisions.’ “

This struck me as “high tech and bloodless.” I didn’t quite say it, but it all struck me as inhuman, unlike any politics I’d ever seen.

It was unlike any politics I’d ever seen. And it won the 2012 campaign. Those “Martians” were reinventing how national campaigns are done. They didn’t just write a new political chapter with their Internet outreach, vote-tracking data-mining and voter engagement, especially in the battleground states. They wrote a whole new book. And it was a masterpiece.

Hats off. In some presidential elections, something big changes, and if you’re watching close you can learn a lesson. This was mine: The national game itself has changed…

For those who followed the FiveThirtyEight blog by newly minted celebrity Nate Silver most of the year, the numbers were the story, and the importance of understanding the underlying truth to the numbers brought a new tone to political commentary.  Data tells a story, but the story is seldom obvious.  You have to dig through numbers to see what they are saying.  Statistics don’t create strategy, they inform it.  You try an unending number of contact experiments in outreach, measure tactical responses carefully against controls, see what is working and what is not, reevaluate and act.  The secret is, you must do this on a one to one basis, scale personal interaction without treating people as a mass, without using a blunt instrument to address pushback and slow acceptance.

Data can be aggregated and cut, but it comes from somewhere, individual people.  If you read the data in geographic and demographic segments, it can help guide both strategy and tactics, allowing you to be responsive in near real-time.  Your core remains your ideas — conviction, creativity, and vision — but how you express those ideas better to achieve consensus, how you improve your message, how you harness the power of a devoted following to add their deeply personal beliefs to the mix and build a unified voice with impact, that is where data is your friend.  Yet it’s critical to fully appreciate and understand that friend, with humility, with nuance.

There isn’t much commentary I recall from the endless talking heads covering the election, but one almost throwaway interchange I remember was led by longtime political analyst Jeff Greenfield.  He was admiring just how expert Nate Silver’s predictions had been across the board, calling the electoral votes in advance for all 50 states, when he sort of joked, and I paraphrase from memory, “Well, I guess those of us who got into journalism because we liked English in school so much we could use it as an excuse to avoid math, we can’t make that assumption anymore.”  That simple concept seemed profound to me.  In the same way we can no longer draw clear lines in organizations that identify and confine analog departments, the separation between language and numbers in our thinking has naturally blended.  They may appear to be separate areas of study, but our connected world of internet communication, social media, dramatic global speed, and authority transfer to communities has put words and mathematics on a collision course of unified discipline.  As integrated tools, they are perhaps becoming more the same than they are different, inseparable in decision-making.

The lesson here is hardly isolated to politics, it is a story of marketing at large.   If you have spent any time trying to understand e-commerce, you know well the power of data and the risk associated with ignoring it.  Great products and services have no substitute, but as a former boss taught me long ago, good marketing helps bad product fail faster, and bad marketing can undermine the best of innovation.  Both right and left brain are now requirements to win in business.  Fail to master either at your own peril.

My last word on this election year: Analytics.

Necessarily reflective of authentic, individual voice.

Thank you so much for continuing to share this journey with me.  Here’s to an informed and inspiring new year!

More Words Next Year!

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Facebook After The IPO

I bought a small amount of Facebook in the IPO.  It was a flyer.  It was unscientific.  It was counter-scientific.  It wasn’t meant to be a life-changer either way.  It was kind of like a lottery ticket, with a long time until the ticket would be drawn, and at the worst some remainder value on my ticket if I lost.

I really like Facebook.  I’m addicted.  I confess to being one of the first “grown-ups” on the site with an account going back to 2005 using a .edu email, investigating for business purposes (yeah, right).  I love to write and I love to read so Facebook is made for someone like me.  I tremendously enjoy sharing ideas, give and take, so that works for me, text more than pictures, it’s all good.  I marvel at the ability to stay in touch with people from all phases of my life, kind of like sending Christmas cards all year round, and without obligation to respond when I don’t have the time.  It’s a great platform.  I have invested a significant amount of time in carefully building my friends list (100% known to me, so don’t friend me if we aren’t at least acquaintances) and my much too long list of Likes.  I tried Google+ and it’s fine, I have an account and I post my blog entries there, but I’m not going to rebuild my Facebook network somewhere else, too much work, the switching costs are real.  Facebook is doing the job for me.  Not sure if I am doing the job for them, but we’ll get to that.

A lot of people asked me what I think about the > $100B valuation.  Here is what I wrote as a comment on Facebook in response:

The question is whether you believe FB can grow into its valuation. The answer is, who knows, but the multiples are very tough on any kind of fundamentals. No one has ever had a proprietary audience of almost 1B, that’s unheard of. The questions are: 1) can they hold them, or at least the valuable ones, without alienating people on privacy or losing them to the next big thing; 2) can they attack TV ad budgets with innovative, targeted campaigns that are both effective and not off-putting; 3) can they diversify beyond display ad revenue into transactions, research, and virtual currency; and 4) how will they deploy their cash for accretive acquisitions, particularly in mobile. That’s a lot to do, but at least they know what not to do having studied those who came before and puttered out. History (AOL, Netscape, the portal wars, et. al.) would suggest no, but remember when the smart money bailed on Apple and called it for dead. Suppose FB triples profit this year and next — well, at this price they’d be trading at less than 10x income, which is still aggressive, but not out of reality for a high growth company (today’s price is “augmented reality”). You’re paying a huge risk premium, so you have to believe they can deliver against that — which is a question no one can answer, hence the risk premium. If you think FB will perform like MSFT, AAPL, GOOG, INTC, WMAT and be one of the greatest companies of the early 21st century it’s ground floor, if you think it’s a fad, it will be an expensive adventure. Gee, I think I just wrote a blog entry!

Let me add a few more comments about Facebook.  I think they are doing a good job pushing the envelope on new horizons, but like all great software companies, they hit and miss.  Facebook aims to build community, which is noble, but it really wins on narcissism, that’s their secret sauce, and it’s primal.  People like to talk about themselves.  And post pictures of themselves.  We really, really do.  Okay, maybe not everyone, some just want to stay in touch with their kids halfway across the country, or meet new people with common interests, or reconnect with a pal from elementary school, or keep tabs at their own risk on an old flame, or support a political cause.  There’s a haute blend of secret sauces, but most of the recipe involves a chance to make yourself seen or heard where this previously required a lot more effort and guts.

The Like Button was brilliant, in one smooth swipe adopting the Fax Machine Factor — with each individual instance being more valuable as the aggregate network expanded exponentially.

News Feed was seminal, the turning point which bought them a shot at Built to Last.  Initially resisted, it was bold and visionary, a finishing move against direct competitors.  The true genius of News Feed remains the simple control that lets you quietly code out anyone’s posts that don’t interest you without hurting their feelings or having to drop them as a friend.

Facebook Connect was audacious.  Imagine if any of the portals had tried this earlier, expanding global registration beyond their own confines to widen the walled garden, and having that embraced by would be competitors!  All the web surfer experiences is they don’t have to create another user name and password, but if they want to do that, they still have the option (this is of course a two-edged sword, noted below under privacy).

Creating a robust platform for third-party app integration with an accessible and broadly supported set of APIs was sheer genius.  Facebook knew they weren’t going to be great at everything, why not let others create games and tools that feel like Facebook without being Facebook?

How do we know these features were game-changers?  Look how widely adopted and copied they have been.  That’s the rest of the digital social world confirming you got something right, all to your benefit.  On the other hand, true innovation at lightning pace means any developer will get some things wrong, and not be afraid of that.  Facebook has proven it’s in the club, with some less than customer friendly features that need attention.

Timeline makes little sense as a consumer experience, perhaps it’s meant to be something else, a comprehensive framework to compile marketing data, I don’t know.  What I do know is that it took away something useful, our ability to quickly scan someone’s self organized profile for affinity, and redeployed it as a pastiche of artifacts.  It reminds me of what a resume is not — it’s not a memoir.  All they had to do to make Timeline great was make it an option for those who wanted it and let the rest of us just keep our profiles.

The Facebook mobile app is not very good.  It was late to market, and the user interface appears cobbled together.  Data I/O is slow and cumbersome.  It does not update predictably or stay current with alerts.  It is still not optimized for tablet displays.

Privacy Settings remain pretty rough, albeit less so than one or two years ago.  There was even a joke with Muppet stand-up comic Fozzie Bear going around Facebook on IPO day declaring the reason the company went public is, “They couldn’t figure out the privacy settings, either.”  Granted the surprises of late have been fewer, but the third-party stuff via FB Connect can be woefully weird to control — do you really want your friends to see every song you’re listening to on Spotify or every article you’re reading on HuffPo?

This past week I spent a full day with some twentysomethings reviewing technologies that were and weren’t appealing to them for e-commerce.  The discussion of Facebook was unlike anything I had ever heard, immensely contradictory.  They could not imagine a world at any time in the future without Facebook, it was as much a part of their lives as food, which they currently couldn’t afford.  Yet they admitted they were using Facebook less each year that went by since high school, and they expressed vast mistrust for the Facebook brand, terrified of what would happen to all the personal information they had unveiled and were becoming predisposed to hold back.  How’s that for twisted logic?  Can’t live without it, using it less, and minimal trust for the brand — some action items there for the development and marketing teams.

It’s barely the second inning for Facebook so there’s a lot of time to recover.  Here’s my advice: win the trust war and you will go from being Good to Great.  Edward R. Murrow and Walter Cronkite helped CBS get there — even when there was little question that what William S. Paley wanted was what the Man Men were selling.  The namesake founder of my beloved corporate alma mater went on TV every Sunday night and became Uncle Walt, which resulted in many millions of folks subsequently vacationing at highly developed former swampland in Central Florida.  Facebook can win a big piece of the ad game if trust is front and center, central and foremost, and transparency is not buzzword.

A motto like “making the world more open and connected” is cool, but be careful that these don’t just become words in your press kit, literally about 1/7 of the world is watching.  Do it, don’t say it, win us over and hold us forever so your name goes on the list with the unforgettable.  Miss that and the stock price will be the least of your concerns.  Now you’re playing for legacy, where Like has to become Love.

I am purposely publishing this after a single day’s trading and before the market opens again.  With the FB stock price a hair above the IPO price for a deal everyone desperately wanted, it’s now everyone’s deal on a level playing field.  The only thing that will hold or improve that stock price over time is consistent greatness.  It’s commencement.  It begins.

Evolving The Ad Measure

Last week I spent a day and a half at a four-day conference in Los Angeles known as Digital Hollywood. I can remember speaking at this conference a number of times back in the bygone CD-ROM years, when QuickTime v1.0 was all the rage and the notion of getting postage stamp video to play on a PC was gleefully deemed the dawn of FMV (full motion video, which was still about 10 years and many versions of QuickTime to come). Digital Hollywood has been growing steadily since 1990 and is now hosted in multiple locations throughout the year. It has become well-attended and thrives on emerging trends and technologies that carry with them opportunity and hope.

While I can hardly say my tour through the panel discussions at this conference was exhaustive, my experience was that many people were there in search of the question: If I build it, will they pay? The broad desire seemed to be for so many passionate and creative souls, if they put their heart into creating digital content, is there any chance at making even a modest living at it? The big media companies continue to study the little companies, still trying to solve the riddle of how digital pennies can replace analog dollars before the next wave of Creative Destruction breaks on our Company Town shores. The little companies and individual voices remain excited by the notion that self-publishing has zero barriers to entry, and with no constraints on distribution, anyone can be in the communications game through YouTube, a blog, a web site, an email newsletter, a Facebook page, and with just a little bit of push a mobile app. The breadth of creativity screams freedom as well as opportunity, yet when you gather in the halls, creative satisfaction seems to be outpacing financial satisfaction at almost every level of the pyramid.

When asked about business models, studios and individuals alike tend to respond most often with the word “advertising.” There are actually several ways to monetize digital content (subscription, syndication, e-commerce, data mining research), but the approach you hear most is advertising. It continues to strike me as ironic that the greatest and most liberating technologies of our day so often point to something as old school as advertising to fuel them, as I am sure it surprised pioneers from Google to Facebook. We have seen the shift in advertising wreak havoc with print and radio and outdoor, and finally it is beginning to put pressure on television. My question remains, why aren’t traditional television ad budgets under significantly more duress?

A very quick primer on advertising, there are two basic kinds: brand and direct response. Brand marketing attempts to get you to encode a message and take action later, direct response attempts to create instantaneous demand and get you to take action now.

When you watch a network television show in its time slot and a commercial tells you how the floor wax you are seeing in action will get your floors to sparkle, that’s brand advertising. It is meant to get you to remember the brand you saw on the commercial in a positive light when you are in the floor wax section of Safeway. That is achieved with reach (how many individuals see the commercial) and frequency (how many times they see it) which add up to affordable tonnage. If you are my age and can still recite the ingredients in a Big Mac, you have a pretty good idea how much money McDonald’s invested in the reach and frequency for that brand campaign when we were kids, super tonnage to burn into memory that pithy creative construct.

Mad MenBrand advertising is usually measured in terms of broad sales increases in a product line or shifts in competitive market share as a result of the campaign. Skippy buys an ad schedule across TV, print, and radio, spends a certain amount, then measures over a period of time what impact it has on sales of their peanut butter. They may experiment then with new commercials, or add weight to TV and subtract it from print, trying to get the best return on investment possible. You can imagine what an inexact science it is, but if you pay X for your ads and get more than X in increased sales, you at least know your campaign paid for itself, and from there, the sky is the limit. In the 1960s and 1970s with three TV networks, it was really hard to go wrong with the kind of TV buys we now enjoy memorialized in Mad Men.

Direct response advertising used to be the less polished hard sell stuff we saw on late night TV or UHF, where the commercial or infomercial shows you a miracle vacuum cleaner obliterate a thick pile of goo and then gives you an 800 number to respond now and buy it. It is also the kind of advertising that worked well in print and catalogs via mail order. To this day it remains simple and exact to measure because there is little noise in the equation. You run an ad, your switchboard lights up with orders or it doesn’t. You know what you paid for the ad, you know how many orders you got. It’s not very glamorous, but compared to brand advertising, it is easy to evaluate and research is precise.

The glamour factor shifted with the internet from brand to direct, because the economics shifted with the internet at huge scale. On the internet, direct response, or performance based advertising, mostly trumps brand advertising. In the digital world, brand advertising became known as display advertising—in the consumer vernacular, banner ads (industry jargon sometimes calls them dots and spots) where payment is rendered by the advertiser for delivered inventory—insertion order invoiced tonnage just for showing up. The click-through rate on most display ads today is almost not worth measuring, but that does not mean they are not impactful. Most of the ads you see on Facebook are display, lots of reach and frequency, and much better targeted by interest level than ye olde TV.

Yet the glamour business of the internet remains keyword advertising, the logical evolution of direct response advertising, the sponsored links that have been most successful for companies like Google but are also used in comparative shopping sites and similar layouts where the ad buyer does not pay for an ad to be seen, the ad buyer pays for a click on the keyword link, and then counts on a certain number of clickers to follow through to transaction (that means buy something). Here again, the direct response model is more precise than the brand model and can be measured with sophisticated analytics, while the dots and spots—and now with video streams commercial insertions in Hulu and YouTube much like TV only shorter—should be fully intended to contribute to downstream sales activity, but are much harder to evaluate mathematically.

In the world of TV, brand still rules. In the world of internet, direct response still rules. The reason? Performance, also known as Return on Ad Spend (ROAS). You can still drive big sales and shifts in market share via a TV brand campaign, and you can do the same with an internet direct response campaign. So my fundamental question remains: why hasn’t the science of efficacy and research advanced to show how display campaigns online can approach the same sort of massive scale impact on consumers that they have on TV?

There are many things we can measure in both brand and direct response campaigns, some would argue too many. If McDonald’s stopped spending completely on TV and moved all that budget to the internet at better prices, would it have a negative impact on their business? Probably, or they would do it. The question is, how much can they move, and how much more affordable can it be for them to start moving more of it? How can they tie market share gains back to internet display campaigns? Attitude and usage studies—the kinds of email surveys you get asking if you have seen or remember a campaign—aren’t nearly enough to convince them they can move billions of dollars of burgers at the counter without an accompanying TV vehicle. They need digital brand campaigns that sell goods and services at scale and science to attribute the success—and we don’t yet have either.

Going back to our passionate content creators at Digital Hollywood—what do I think they should be worried about for their sustenance? I think their fate will be cast by leapfrog advances in advertising research, and I think those advances will come. With advances in the science of display advertising efficacy in digital platforms whether fixed or mobile, the big brand dollars will have to shift from television to non-television. It is not just a question of eyeballs (mind share, share of voice) shifting with a generation that has grown up digital, it is a question of what works, the reach and frequency and cost efficiency to make or break predictable sales of consumer products. When we have that science to show how digital spending improves on the job of TV, the big brand dollars will shift and content opportunities will flourish.

Almost every graph trend shows that the future for digital media is nothing but bright, but until the research and reporting platforms rescue brand advertisers from the opaque, illusive promise will remain greater than reality. That shouldn’t last much longer. Tell your digital research departments to put those monster TV budgets in their gun sights and keep innovating. It’s really good money if you can get it. And we will.