By Christopher Rollyson Pervasive Consumer Connectivity Vision Upstaged by Enterprise Web 2.0 Collaboration
 Cisco’s John Chambers is a master technology marketer who quickens your pulse with technology fire and brimstone. However, as the long-time CEO of Cisco, which epitomized the rise of the (Silicon) Valley when it was briefly the most valuable company in the U.S. in 2000, he has seen the company through the tech bust and proven that he has substance and staying power. Although a hypemeister extraordinaire, he may have crystallized the promise of the Enterprise Web 2.0 better than any other speaker at Digital Hollywood Chicago.
Chambers’ demos of whiz-bang consumer entertainment scenarios were intriguing but far less interesting to an enterprise-focused audience than his accounts of how Cisco had drastically increased its already-leading efficiency in mergers and acquisitions by collaborating with Web 2.0 tools like wikis. We anticipate that his consumer-focused vision will be consummated far in the future, but his message about enterprise collaboration is achievable this year—for those who are looking for it.
Chambers described an emerging future of networks and communication that revolved around pervasive video, which will drive customer experience, collaboration and value. The world is entering a fundamentally new era in which communication is morphing from one-to-many to many-to-many. This will drive a new degree of collaboration and innovation, and it will change business models. Telecoms are not “coming back,” and there will be significant consolidation. Video will rise to prominence and will be created and experienced on any machine or device.
Network-Focused Vision and Business Models
 Web 2.0 is not new; it is like the Internet was in the 1990s. Telecom is old; the new focus must be Internet (digital) video, which will drive business process change. Video, voice, text, telepresence, blogging all drive more broadband; we have to redefine broadband; we must remove barriers. We estimate that this message is primarily to his clients, telecoms and global enterprises. The latest Cisco routers aim to intelligently deliver the right content to the right (user-operated) device, according to individual preferences, automatically.- In the 1990s, we put orders online and outsourced manufacturing. We gave customers input into product development. In 2006, value and product development have slowed (we’ve pateaued). We have to take it to the next level.
- At Cisco, collaboration is producing incredible value, and we’re able to work must faster. For example, we acquired Scientific-Atlantic in 2005, and the transaction took 45 days to close. In February 2007, we closed the Webex acquisition in 8 days. We do most of the work on the Cisco wiki, and employees, partners and customers have appropriate access.
- Another proof point: Cisco’s innovation pipeline model (circa 2000) took thousands of innovation ideas and vetted the total down to about 250. We then eliminated all but three, and we acted on those. This year, through our Web 2.0 technology-enabled collaboration, we are doing 18 innovation projects. We have checked our command and control methods at the door. It increases scale and speed, and we feel that it will be sustainable. We are changing our business models to leverage these new capabilities.
- Cisco’s vision is that the network is becoming intelligent—from technology and human perspectives. Web 2.0 collaboration is making the Web intelligent. When you add unified communications (integrated video, text, audio, graphic), telepresence and open architectures, you realize that resources are available anytime, anywhere anyhow, and the network can infer your preferences based on where you are and what you’re doing and history.
 From a technology perspective, numerous “resources” that are contained by applications will leach into the network. Examples are security and quality of service.- From an enterprise operations perspective, we can tap global services and virtual relationships worldwide (as new resources come on line in India, China and elsewhere).
- We can get it right by listening to customers. Virtualization is key on the business side; everything has to be online.
- Voice and video are the future, not text. (Interaction with devices) must be simple; people must get what they want in one click. Each subsequent required click loses customers.
- Proprietary technology and solutions are over. Everything must be open, must be architected like the human body: get anything anywhere, anytime you want.
- For example, we will change the experience within the stadium. HDTV offers the ability to see a game from any angle; currently you can choose from 30 angles (and they are not mutually exclusive). People will pay a premium for this.
 (demo with Hotel California) Listening in your car. You turn off your car and it resumes playing on your smartphone. Once you are in your house, the handheld hands off the song to your home stereo, but it fires up a music video. H-D pictures will drive additional demand.- (demo with fantasy baseball) In fantasy baseball, you can pick plays (and presumably knit them together into a game; the plays are the building blocks to the game). You can purchase tickets on the device and receive the receipt, which you show to the ticket taker to gain admittance at the stadium.
- Three screens: content will be (created and) viewable on any device; we will have anytime calendars, and open architecture, which will provide additional revenue. Consumers will drive change. Everyone and everything will be connected.
- Telepresence (and video) will drive demand for our business. Video routers will be a huge growth area.
- Japan is experiencing 3-500% annual network growth.
- We will change the definition of broadband and set-top boxes (which are dumb catchers of data today; they will become far more interactive). People will pay for experience and guaranteed quality of service.
Analysis and Conclusions
- Chambers’ speech had a technology context, but the most important message was that Cisco was demonstrably accelerating innovation by adopting a collaborative model. Closing corporate transactions like acquisitions far more quickly is proof of an enterprise-scale reduction of transaction costs. That enables Cisco to undertake more transactions and to therefore be more responsive and adaptive. Growing their innovation pipeline six-fold is another huge advantage.
- Few people in the (communications) business would dispute the content of Chambers’ vision, but the big question is timing. It may take a couple of generations to be comfortable with being online and reachable from anywhere, anytime. It’s too Big Brotherish. But privacy is already shifting significantly, and this shift will continue. This uneven comfort level with the loss of privacy will serve to dampen adoption.
- Network operators (Cisco’s clients) like video because it is the most resource-intensive content we have and therefore drives utilization of network resources the most. Let’s not forget that Cisco is hawking video routers. Abstracting up a level, however, video is scalable, rich communication, and it is a closer facsimile of face-to-face communication than print. Humans’ first scalable communication was pictures, then writing. Of course, video incorporates audio and therefore stimulates vision and hearing. It does not yet incorporate touch, smell or taste.
- The network is becoming more intelligent, and this is a natural progression of the ongoing revolution in computing. Computers used to be islands of automation. Then they were connected, and connections served to make their computational power available to more people. Distributed computing and pervasive networks have diminished the relative importance of “computers” because software and hardware resources and services exist within the network, and abstracting out services makes sense in many situations.
- For most of humans’ existence, we have not had writing, and perhaps writing as a means of communication will diminish. However, for most cultures, writing is a key developmental activity that helps to develop analytical thinking. If it diminishes, how will its disappearance affect humankind’s analytical abilities?
By Christopher Rollyson Consumer Mistrust Will Slow the Reality of Mobile Personalization Vision
Panelists at Digital Hollywood Chicago constantly spoke about mobile as the most “personal” of the three screens—for several reasons. The phone number is individual, so all the device’s activity can be attributed to a person, whose preferences and needs can be deduced from the activity. In addition, the mobile (phone) accompanies the individual almost everywhere, so it offers a wide scope of visibility into his/her activities, location and interactions.
The mobile device will soon lose the “phone” moniker because the device morphing into a portable digital hub. “Smartphones” have seen much slower adoption than hoped, but functionality, power and capability are steadily increasing while prices fall. Apple’s iPhone was constantly mentioned as the promising breakthrough device.
Mobile devices will change relationships far more than the first screen (TV) or the second screen (computer) because they will touch everyone, their capabilities will rival laptops’ within 2-3 years, and they are inherently social. Social networking via video sharing, Web browsing, email, SMS, IM, music sharing and voice calling is on tap in the latest smartphones. The problem is, their features are so difficult to access that 90% of them are not used. The iPhone, leveraging Apple’s legendary design and software prowess, may blaze the trail.
 There are myriad server-side offerings that enable people to connect and communicate with their mobiles. Think of Amazon.com’s collaborative filtering (based on what I buy, Amazon can suggest things to me based on what others buy) as well as deep, real-time data mining and social network software that assist people across all modes of communication. Moreover, mobile increases the power of the collaborative filtering idea by triangulating IP (Internet protocol), geography, time (when calls are placed, Web sites browsed, financial transactions executed, coupons redeemed) to provide the ultimate insight into what consumers are doing (and therefore what they may want to do). In theory, providers can gather and use this information to help individuals connect with each other, and they can use it to help advertisers to understand consumers and ostensibly to serve them relevant and helpful messages.
Panelists
- Collin Bruce, Director of Marketing, Hitachi Embedded Business Group—director of marketing with the Embedded Business Group of Hitachi America Ltd., leads the company’s marketing efforts for the Hitachi Entier embedded database product in North America.
- Scott Driggers, CEO and co-founder, Gemini Mobile—With deep connections into the global wireless industry, Scott Driggers excels at building and growing international teams. Driggers has been instrumental in guiding the development of Gemini Mobile’s Japan, U.S. and China operations and customer base. Prior to Gemini, Driggers was based in Japan for Vodafone AirTouch, where he held various line management positions in marketing, planning, strategy, and business development.
- Dharma Kuthanur, VP Strategic Accounts, July Systems—Dharma manages strategic relationships for July Systems, a provider of integrated solutions for mobile content retailing. He has over 16 years of experience in high technology, having held senior positions in marketing, business development, software development and management consulting with Lucent Technologies and Veraz Networks, among others.
- Bill Godwin, Vice President, Business Development Strategy, Zannel—Bill Godwin is responsible for creating and driving Zannel’s business development strategy and establishing new partnerships with content companies and network operators. A seasoned entertainment industry executive, Godwin comes to Zannel from Warner Bros., where he managed partnerships and product launches with Verizon, Qualcomm, Sprint, Cingular, T-Mobile, Alltel, Amp’d and Rogers, among others.
- Joe Sipher, Co-Founder and Chief Product and Marketing Officer, Pinger—Sipher co-founded Pinger in 2005 with the goal of creating an innovative service for voice. Before Pinger, Joe and Greg started Virgin Electronics, the consumer electronics arm of Richard Branson’s Virgin Group where Joe served as SVP Marketing and Development. Joe previously served as the worldwide vice president of marketing at Handspring and before that was Palm’s first and only Palm Fellow.
- Stephen Venute, Vice President, Strategic Alliances, MyStrands—Venute spent 8 years at AOL, where he was responsible for directing complex global marketing alliances with some of AOL’s largest and most strategic partnerships. He helped pioneer numerous successful online ROI initiatives and launched several Internet-first programs. Prior to joining AOL, Stephen spent several years with McCann-Erickson, based in Prague, the Czech Republic, where he managed a portfolio multinational and local advertising partnerships.
- Moderator: Ranjan Mishra, Senior Partner, Oliver Wyman—Primarily focusing on wireless and convergence sectors, Mishra has worked extensively with senior telecom industry executives. He has established wireless carriers and new entrants such as MVNOs and ASPs. He is known for pioneering work in market-level strategy, reinventing business design for wireless players (including MVNO strategy development), and helping clients achieve higher productivity from their capital assets.
“Personal Mobile Experience” Adoption Factors
- Personalization will drive value in every aspect of the mobile experience: content, features, and advertising. Personalization is organic, as it changes over time.
- Mobile will morph into a kind of “Second Life” community worlds that cross boundaries with the “first life” world. People will have avatars, personalized views, built in social players and alerts for everything.
- Sports will play a prominent role in connecting people due to the importance of time-based events and collective experience as well as the inherent focus on information.
- Mobile is analogous to on-the-go snacking and communicating, not full meals. Experience will be governed by short attention spans.
- Services will become increasingly sophisticated; they will consider activity, geographical space, time of day, response and myriad other information-based details that algorithms will hammer into preferences. They will compare these “profiles” and draw collective conclusions (akin to collaborative filtering).
- “Generation Y” (born 1985-2001) prizes immediate availability and real-time response, and they often have numerous threads going—across several modes of communication. This trend will impact demand for mobile.
- Carriers that invest time and resources into gathering and synthesizing the data will create significant opportunities for themselves.
- Mobile devices will go through growing pains. As devices gain in capabilities, users will increasingly download/install applications to enable further customization (much as people “customize” their PCs today by installing additional software). However, customization will also bring viruses and other nuisances. Having viruses disable mobile phones will pose a significant problem for mainstream consumers, who do not relish playing technologist with their phones. This will significantly dampen the adoption of mobile software.
- Mobile social networking will focus on extending existing capabilities. LBS (location-based services) will increasingly enable people to find each other based on geography. Generation Y watches TV on mobile phones, and interacting with shows will be popular with them.
- Mobile operators, having to justify (and leverage) their massive infrastructure investments, stifle innovation. They are focused on amortizing infrastructure, not where the customer is going. This is a reality, especially in the U.S., where device makers do not reach customers directly, but through carriers, who subsidize devices and lock in customers.
- Mobile advertising will play an important roll in bringing new elements to the mobile experience.
Analysis and Conclusions
- Personalization will happen far more slowly than anyone hopes due to customers’ lack of trust in providers and numerous systemic limitations of value chain players—even though personalization can be a win-win for customers and providers. The transformation of mobile will unfold slowly.
- Advertisers have engendered a profound mistrust in consumers, and many panelists mentioned customers’ intolerance of ads on their mobile phones.
- The word “commercial” (“advert” in the UK, “la pub” in France) elicits a distasteful reaction in customers because many are inane and irrelevant.
- Adoption patterns differ widely for various niches of customer groups, but most advertisers are accustomed to large segments. Their business models are predicated on reaching big numbers. This doesn’t map to the emerging reality.
- Sellers will have to earn trust of buyers (customers) so that they give up privacy to enable more personalization. This will be a slow process for many.
- Relevance requires the seller to have some true insight into the individual with whom they are trying to communicate. Mobile offers mechanical (read “economical”) data capture, digital analysis and conclusion-drawing via software.
- To reflect on the opportunity for carriers, think about how Amazon.com delivers its value proposition. In effect, it offers elements of social networking via reviews and profiles and mechanical personalization via collaborative filtering. Mobile will offer a far richer data set from which to deduce customers’ desires.
- To work economically for carriers or other players, personalization will be mechanized. Providers will draw conclusions from digital communications and mash them up into preferences via algorithms. However, from a customer perspective, the bar will keep getting higher, and providers will have to fine-tune a bevy of inputs. That will be the art. As Stephen Venute pointed out, people and their preferences are constantly changing. It will probably be useful to consider usage profiles as life cycles.
By Christopher Rollyson The Challenge of Consumer/Advertising Misalignment: How to Finance Free Content
At Digital Hollywood Chicago, few disputed that broadcast TV and mass advertising’s golden age had passed and that several technologies and cultural shifts were pressuring senior marketers to change. To fully appreciate this challenge, one has to consider the three screens through which most consumers experience “content. ” What consumers do with the changing capabilities of each screen changes their expectations and behaviors about their experience with all three screens, dramatically increasing opportunities and threats. Interactivity is increasingly available for TV (video). Convergence among the three screens is another important thread. Younger generations of consumers have little tolerance for the concept of mass advertising.
The most rapacious symptom of the weakness of the mass broadcast advertising model is the widespread adoption of the PVR (personal video recorder), which enables (home) viewers to record TV programs—and to skip advertisements. A couple of eye-opening facts: 1) on average, TV programming contains 8.5 minutes of advertisements during each 30 minute segment of programming and 2) 70% of adverts are fast-forwarded through or eliminated. And these numbers pertain to (mostly) non-digital (analog) content; digital, with its omnipresent metadata, will undoubtedly offer more options for avoiding advertising. The model is clearly broken.
 The alternative is far from clear. In much of the world, “free” content is made possible by commercial advertising, so if that model is to survive, a solution must be found. Moreover, mobile video is in its infancy, and advertising on “the Internet”—the computer being “second screen”—is still immature. The “first screen” is ailing.
The emergence of digital content is transformational due to metadata and its myriad uses. For example, data can be “aware” of how people are interacting with it, and it can inform content owners/distributors, with viewer consent. Data can be chunked and mashed up more easily (think of songs in a playlist, or chapters on a DVD). Data—and its components—are far more searchable (find chapters of DVDs, not only the whole unit). Of particular interest to advertisers is the ability to be aware of what content (“data”) people are consuming, and when. They yearn to deliver targeted advertising.
Panelists
- Mark Renshaw, SVP One-to-One Marketing Solutions, Arc Worldwide—Mark transferred in May 2006 to Arc Worldwide’s Chicago office from Singapore, where he directed Arc’s digital marketing efforts across Asia-Pacific. As SVP of one-to-one marketing solutions in the US, he will oversee teams in Chicago, New York and San Francisco as they respond to clients’ increasing needs for digital marketing solutions.
- Ed Forman, EVP ICTV—Ed rejoined ICTV in 2006 with the goal of combining the choice and control of the Internet with the responsiveness and video quality of television. Ed returned to the company after co-founding and serving as CEO of Switched Media, a developer of solutions for mass customization of live video streams that merged with ICTV.
- Juli Black, Central Region Sales, Tivo—Juli has been on the cutting edge of technology, marketing and advertising for over a decade. In the early to mid 1990s, GPS was an emerging technology in the civilian marketplace, and Juli managed marketing and sales efforts in several wireless and GPS ventures.
- Tom Rosenstein, VP Business Development, SeaChange International—SeaChange provides digital video systems that are changing television. Its powerful server and software systems enable television operators to provide new on-demand services and to gain greater efficiencies in advertising and content delivery. With its Emmy-winning MediaCluster technology, SeaChange has thousands of systems that are helping broadband, broadcast and satellite television companies to streamline operations, expand services and increase revenues.
- Brian August, SVP Corporate Development, TitanTV—Brian August serves as Senior Vice President of Business Affairs and General Counsel for Titan TV. Most recently, August served as a digital media attorney in NBC Universal’s corporate transactions group. Prior to that, he was Senior Vice President for Legal Affairs and Corporate Secretary at Send Word Now. August is responsible for building the relationships and brokering the deals with major broadcast groups and television affiliates needed to bring TitanTV Media’s vision for a web-based TV network to life.
- Jeffrey A. Dachis, CEO & Senior Partner at Bond Art and Science—Jeff is the CEO and a Senior Partner at Bond Art and Science, an interaction design firm that specializes in cross platform information systems. Bond’s strategy, design and technology capabilities focus on simplifying complex interactions. Bond was founded in 2006 by five veterans of the digital interactive industry. Bond is made up of colleagues from Razorfish, with deep expertise in web strategy, technology, interaction design, visual design, and systems development.
- Moderator: Terry S. Bienstock, CEO, MobilActive—former EVP & General Counsel, Comcast Cable: Terry Bienstock is currently CEO of World Extend, LLC. a New Jersey-based distributor of managed application publishing and secure remote access solutions for business and consumer markets. WorldExtend has revolutionary products to deliver to a business a low cost software-based VPN, and has developed a virtual computer on a TV set to bridge the Digital Divide. He also manages and advises other ventures relating to new media platforms, such as Video-on-Demand, digital video recorders, broadband and mobile services.
Symptoms of Advertising’s Malaise
- The majority of ads are being skipped, which undermines advertising. The advertising ecosystem monetizes the universe of free content. It is a tectonic shift.
- Advertisers need to “buy the individual,” not the station. They have depended on network stations to “know” their geographical audiences and determine advertising mix, but this does not work as well as it once did (the mass market is splintering).
- Advertisers have been experimenting with making shorter ads that are less likely to be skipped, and placing the ads in different places. Cox is offering VOD (video on demand) after ads have been viewed.
- Agencies have experimented with one second and five second advertisements.
- Will brands begin to create content instead of advertisements? Thus far, the single-sponsor model has been a failure.
- VOD is four times the normal CPM in hyperlocal markets (presumably because the viewer must “order” it, thereby issuing a trackable action; in broadcast, people accept programming, but operators or advertisers do not know if they are really watching).
- Advertisers are also experimenting with paying people to watch adverts.
- Everyone is somewhere all the time; location is a powerful context for advertising, and it is trackable. The geographical dimension can increase relevance of advertising, but people must give permission to be tracked.
- Direct response is a powerful way to understand consumers and increase relevance.
Infrastructure Constraints
- The operators’ infrastructure significantly limits what advertisers can do. It is a “dumb pipe” that is largely unable to capture interaction; it delivers content. Most old STBs (set-top boxes) are likewise unable to capture what content is being watched. New STBs have greater capabilities.
- STB manufacturers want to retain the walled garden. Many STBs do not interface easily with home networks. Manufacturers want to understand what viewers are doing because advertisers pay well for this information. Viewers, however, have other ideas. They want to control their content, move it around and view it when and how they want.
- The television advertising-content-distribution ecosystem prevents innovation because it is so inflexible and constrained. Content is immobile due to licensing restrictions (rights to music, scripts, video, etc. are all separate). Television produces far more content than any other source, yet very little is reused (other than reruns).
- Operators and advertisers are constrained by their antiquated billing processes. They are designed to bill for subscription services. On demand will require many more granular billing capabilities.
Disruptive Developments
- Tivo revolutionized the first screen by enabling consumers to record programs, delete adverts and have much more control over viewing. It also was one of the first DVRs to capture viewing data. Tivo is paid extra when viewers record advertisements.
- TV, with Tivo or not, remains entertainment-focused and engenders passive behavior. It is difficult to encourage interactivity with television viewers. This will be difficult to change.
- However, some (younger) viewers multitask, searching for information related to programs, IMing their friends or gaming. This can cloud the picture for advertisers, but it offers new opportunities, too. The picture is becoming more complex.
- User-generated advertisements are a potential disruptive force. Major advertisers are experimenting with letting consumers mash up segments of ad content, and many are holding advertising contests. Superbowl 2007 featured two consumer-created ads.
- Will television advertising adopt a Google model (in which consumers create and place ads and are paid when other consumers buy something off one of their ads)?
- The impact that mobile video and advertising will have on the industry in general is uncertain. It will add to advertisers’ insight into what advertisements are effective and what content people are watching, when and how. Mobile is individual, and preferences and movement can be tracked on an individual level.
- The IP (Internet Protocol) world will disrupt everything because it will enable extensive calls to action and interactivity. More interactivity will enable advertisers to be more relevant.
- SMS shortcodes (on signage or print adverts; when sent via SMS they generate a coupon or other offer) have potential.
- Mobile will see “long form” advertising as soon as network speeds increase. It’s already there in Korea and Japan.
Analysis and Conclusions
- One of the most intractable problems facing advertisers was not mentioned, probably because advertising executives do not know how to deal with it: consumers’ profound mistrust of advertisers. Viewers loathe advertisements, and many find them demeaning. However, a root cause is that advertisements are mass messages, and they are often designed to appeal to the lowest common denominator. If advertisers had more information about individuals’ interests, they could theoretically show more relevant messages. Before they can track viewers’ habits, however, they must ask permission, and mistrust will prove to be a formidable barrier to overcome.
- Another challenge: every element of the advertising business is predicated on large numbers, and viewership is splintering, which is exacerbating the misalignment of advertisers and viewers. Technology enables new ad insertion techniques, but advertisers must think beyond large numbers and retool its buying processes to enable targeted niche buys. This will be extremely difficult. Clients will have to be convinced first.
- Panelists’ angst at the inflexibility of the television content ecosystem was palpable. They are frustrated because technology is enabling new possibilities, and viewers’ expectations are changing, but they are in multiple straight jackets: legal, infrastructure cost and uncertainty. They agreed with GHCJ’s suggestion that their inflexibility was analogous to the airlines’. What will prove to be their Southwest Airlines?
- However, what was most interesting was what was not discussed: how to create advertising that would make people want to watch it. This idea is far more transformational than trying to target the same inventory of commercials more sharply. Advertisers have failed to create advertising that people want to watch. If 70% of commercials are rejected, one can assume that the remaining 30% are not eagerly experienced. This signifies a severe misalignment problem. It is the root cause.
- Advertisers are receiving less return from their investments; the only reason they don’t reduce investments is that there are few alternatives.
- No one mentioned product placement as an alternative to “product/brand advertising.”
- When people execute purchases from the first and second screens, they provide trackable transactions. The first screen is trackable to the family but not the individual. The second screen can be more specific because computers are IP devices and they are shared less often than TVs, but the third screen (mobile) is most specific since most people do not share mobile devices.
By Christopher Rollyson Mobile Video: A Perfect Storm for User-Generated Content?
 At Digital Hollywood Chicago, mobile was constantly heralded as the emerging “third screen” because it would enable content consumption regardless of time or place, and most speakers posited that video would grow significantly as a portion of all content. However, there is little video content available for mobile viewing, so why should consumers get excited about it? Will mobile shine as the most personal view into the consumer, or will it turn out to be the third wheel?
All mobile value chain players are frenetically trying to build a new digital world around the mobile device, and this world will be comprised of the familiar triad: devices, networks and content, much of which will be video. Currently, video is the highest value content medium. This session examined the current stage of development to technology and business models.
Internet pioneers who remember the thrill of squealing modems connecting in the early days have a useful metaphor with which to regard video on mobile. We are very much in the early days: networks in most geos are inconsistent, and their ability to deliver high quality video is spotty. On the devices front, screens are growing, but battery life is a difficult problem to overcome, especially where video is concerned, and device capabilities often depend on network operators’ dictates.
In our opinion, the mobile entertainment experience is unique because the viewer’s attention span is subject to interruption—by definition—so the most relevant content needs to be enjoyable with interruptions. Moreover, device and network limitations change expectations about “quality.” Can user-generated content fill part of the content void? Think about on-site customer reviews of stores, hotels and restaurants, commuting snafus and airport horror stories. For certain mobile entertainment, context may be more important than “quality.”
Panelists
- Peter Linder, Director End-to-End Network Solutions, Ericsson AB—Mr. Linder’s role covers Broadband Access, IP Softswitching for Telephony and Multimedia applications as well as the installed base of AXE. Prior to his current position he was Technical Director for Broadband access, when Ericsson re-positioned towards Public Ethernet and introduced Ethernet DSL access, the most powerful IPDSLAM in the market to date.
- Roger Wood, SVP & GM Americas, Amobee Media Systems—Roger Wood is responsible for Amobee’s dealings with wireless companies, mobile entertainment publishers and advertisers in the Americas. Prior, he served as General Manager of the international business for the consortium of start-up mobile operators which became T-Mobile USA.
- A. Pierre Yurow, Director Business Development, Bling Mobile—Pierre has spent the last ten years initiating and maintaining agreements with mobile carriers, MVNO’s, content providers, ODM’s; system integrators and enterprise partners
worldwide and worked previously for Cellfire, Proteus, Wcities and Cellular One (now AT&T).
- Nicholas Reichenbach, VP Bplay—Nicholas Reichenbach has over ten years of experience in the music, media, technology, games and entertainment industries. He has successfully brokered international partnerships with companies such as MTV, Universal Music, Sony/BMG, THQ wireless, Hands On Mobile (Mforma), Glu Mobile and Nokia through various projects.
- James Bruce, Mobile Products North America, ARM Semiconductor—James Bruce is ARM’s North American segment manager for mobile products and has 10 years marketing and business development experience in mobile and consumer electronics technologies, both from the device and the network perspective. James has extensive experience dealing with handset manufacturers in Asia and Mobile Operators both in the US and Europe.
- Brett Azuma, Head of Ovum North America, SVP of Ovum RHK—James Bruce is the Head of Ovum in North America. In this role, he is responsible for Ovum’s business in North America including Advisory Services and Sales. Brett has 20 years of experience in marketing, engineering, sales and operations.
- DeWayne Nelon, CEO Ortiva Wireless—With more than twenty years of telecommunications industry experience, Nelon is a recognized expert in the delivery of mobile video over highly variable wireless networks.
- Moderator: Antonio Atwater, President SN Holdings—SN Holdings was originally called SourceNet which was a startup ISP launched in 1995. SourceNet later became a CLEC, developed a unique voice, data and video services offering and IPTV middleware, converged over DSL, that was later spun off and is now known as Myrio Corporation.
Key Video-on-Mobile Trends
- The video experience on the mobile device must be constant and consistent; the viewer will not endure stops, stalls or rebuffering. This requirement is a challenge for most network operators, who still struggle with dropped voice calls in most geos. Video is that much more demanding.
- Content owners want to look at the third screen as another outlet for their content (most of which has not been created for mobile). Reformatting content for the small screen can destroy most of the economic incentive to reuse content; however, companies such as Ortiva are fielding tools to automate that process. For example, their algorithms edit according to human viewing behavior, focusing on faces rather than ancillary objects.
- In the U.S. and select other developed countries, mobile devices depend on the second screen (computer) to manage content, but as networks’ speed increases, the link between mobile and computer will be broken. Within two years, network speeds and mobile devices’ graphics and processors will put mobile device performance on par with computers.
Key Mobile Advertising Trends
- Advertising will support content in some situations, but a prolonged experimental period will ensue before advertisers get it right. In Norway, initial studies indicate that consumers actually like ads, and viewership increased (they must have better adverts than the rest of us ,^).
- Emerging solutions will make adverts more relevant so that they add value in themselves. Software can track consumption and location, and compare these actions against sophisticated databases. Some clickthroughs are 30%.
- Other advances are emerging in advertising insertion; in the future, software will detect the device and send the right version of the content, with the appropriate adverts.
- There is a shift away from CPM (cost per thousand views) measurement and pricing—toward CPA (cost per acquisition) because mobile is often closer to the sale. Advertisers are even starting to do revenue sharing deals.
- Despite these developments, consumers often flatly reject advertising, especially younger customers who have limited/no experience with TV. We are in the last generation that will tolerate adverts. Note that this demographic tests as having the highest propensity to watch mobile video.
- Four- and five-year-olds expect free content, but content owners will require payment somehow. Youth will drive mobile video. This generation is constantly connected, and the multifunctional mobile device will enable them to remain connected everywhere.
- Advertisers want banner advertising.
Business Model Trends
- The subscription model is a possible alternative to advertising.
- Currently, carriers subsidize content to change consumers’ habits and increase their need for bandwidth, but they will not be willing to do that forever.
- It will not be easy to convince consumers to accept geographic tracking. All mobile devices are trackable. Advertisers would love it. One possible solution is to track people to glean their responses and activities while abstracting the data so that it is not attached to the person. This approach is employed by many websites now.
- Instead of channels (by which we distribute content), we should focus on the individual (and let him/her pull content from the carrier or third party).
- As content owners develop sophisticated tools to automatically format content appropriately, we will have content that is not created for any particular device.
- The small screen captures 100% of the viewer’s attention.
- Disruption in adjacent entertainment areas suggests the risks of complacency: Tower Records and Blockbuster. Broadcast TV may suffer a similar plight.
Analysis and Conclusions
- Video on mobile is an emerging medium, and no one knows how it will play out, and the transformation of mobile will unfold slowly. Very little content exists, so consumers have little choice. Focus groups may indicate that people will not tolerate advertising to receive free video, but in fact, there is little content available. Only when consumers are faced with desirable content and the concrete choice of either monthly charges or advertising to pay for it will we know their real feelings.
- The mobile experience is unlike any other “content consuming” experience because people are moving through space and interacting with the world. The attention span is different; the small screen captivates because people entertain themselves during windows of “dead time” (waiting in line, etc.), but it is fleeting, dependent on the conditions of alternative, real world that surround the customer. For customers in this situation, having smaller chunks of content will probably provide better experience.
- To encourage adoption of mobile video, device makers, carriers and content providers have to focus on the big problems, the customer experience. It has to be easy and seamless. The iPhone has promise for breaking through. Widespread adoption will occur when the customer does not have to play technologist to make things work.
- Buying video should be easy, especially since consumers are by definition on the go when they use their mobiles as entertainment devices. It will often be an impulse buy.
- Billing systems are out of alignment with these trends. Carriers’ billing systems are a gold mine in Europe, where people buy a wide range of products and services through them. Enabling consumers to have advertising for one type of content and pay-per-content for another would add significant value. This audience expects choice.
- Business models are uncertain; consumers are not accustomed to seeing ads on their mobiles, where many customers still pay by the byte for content. It is uncertain under what conditions consumers will accept advertising to enable “free” video.
- The killer app here may be consumer-generated media, as virtually all mobiles now have video cameras, and the YouTube phenomenon has millions making and sharing video.
- With a little imagination, we can see that consumer-generated video can add richness to customer ratings of retailers. E-Commerce mavens live and die by their 1-5 star rating. Now, Google maps is serving as a platform for numerous brands of customer reviews of retailers, professional services providers and any seller of goods and services. These reviews are currently mostly text, but pictures and video can turn any customer into a newscaster. Google is the ultimate intermediary that enables other customers to find the store and the reviews.
By Christopher Rollyson Now Everyone Is a Producer—How Will User-Generated Content Affect Traditional Media?
User-generated media (UGM) represents a poignant dichotomy within the context of Digital Hollywood Chicago: panelists and speakers represented a full spectrum of players that provide the capability for people to communicate, work and entertain themselves, but they have in common that they represent business interests. These players are in the business of commercializing communication. Consumers (aka “users,” “people”) represent personal interests: they communicate because they want to; they have little commercial interest in most of their communication.
Panelists grappled with this reality but did not address it directly. They explored business models for UGM—and mostly came up empty. The problem that UGM poses to providers is two-fold: UGM costs providers money in terms of bandwidth and other resources. It also carries a considerable opportunity cost, which is hard to measure but palpable: it crowds out commercial content by occupying customers in two ways: creating UGM and experiencing others’ UGM.
UGM is also difficult to compete against because its producers play by much different rules: they usually produce for free, while commercial producers have high costs. UGM producers look at situations in different ways: since their goal is to communicate and gain attention, they have fewer constraints than commercial players, who strive to make a profit True, UGM producers have fewer resources and skills, so they lose in almost any bake-off with commercial producers. Except relevance, credibility and trust.
Panelists
- Venu Vasudevan, Ph.D., Director, Mobile Platforms, Applications Research Center, Motorola Labs—Venu Vasudevan oversees Mobile Platforms research at Motorola Labs developing next generation platforms and services for Motorola’s vision of Seamless Mobility.
- Kristin L. Holland, Partner, Katten Muchin Rosenman—Kristin L. Holland helps clients resolve business disputes. She maintains a diverse civil trial practice and has significant experience with intellectual property, fiduciary duty and real estate claims.
- Mark Renshaw, SVP One-to-One Marketing Solutions, Arc Worldwide—Mark transferred in May 2006 to Arc Worldwide’s Chicago office from Singapore, where he directed Arc’s digital marketing efforts across Asia-Pacific. As SVP of one-to-one marketing solutions in the US, he will oversee teams in Chicago, New York and San Francisco as they respond to clients’ increasing needs for digital marketing solutions.
- Terry S. Bienstock, CEO, MobilActive—former EVP & General Counsel, Comcast Cable: Terry Bienstock is currently CEO of World Extend, LLC. a New Jersey-based distributor of managed application publishing and secure remote access solutions for business and consumer markets. WorldExtend has revolutionary products to deliver to a business a low cost software-based VPN, and has developed a virtual computer on a TV set to bridge the Digital Divide. He also manages and advises other ventures relating to new media platforms, such as Video-on-Demand, digital video recorders, broadband and mobile ser vices..
- John Furrier, CEO PodTech.Network—PodTech is the leading online video network featuring original technology and digital entertainment programming. PodTech’s media platform allows professional content producers to deliver their content to millions of people who can easily find, share, and interact with it.
- Moderator: Scott Cohen, Partner, Red Tie Media (VideoADGames)—Cohen rejoined Red Tie Media as a full-time partner and consultant to interactive businesses in May 2006. In addition, he presently serves on the Board of Directors and/or Board of Advisors for several Internet and technology companies, after serving as President of Game Trust, Inc. from 2004-2006.
General Observations
- The Web is an open platform, while TV is closed.
- Procter and Gamble offered consumers to be part of an online community, and five percent of customers provided content.
- Operators and providers have viewer information; they know what you’re watching, while Google is pushing the envelope with satellite. Influence is being redistributed. Look at Al Jazeera.
- Privacy is always an issue: data drives experience, but operators/carriers and advertisers must ask permission to gather personal data in order to suggest content and target advertising.
- Facebook integrates on- and off-line; MySpace doesn’t; they are both havens of UGM.
- Narrowcasting is critical to responding to niches.
User-distributed Content
- The litigation between YouTube and Viacom will have major repercussions for how content is used (YouTube users record content and post on YouTube for others to view without paying).
- Content owners have lost control over distribution. Films, for example, appear on the Internet before their premiers. the Internet is unforgiving; one copy out there gets replicated innumerable times.
- UGM has seen some recent successes like Fatrant and Lazy Sunday; however, when users reuse copyrighted content, they are at risk of being sued.
- Realistically, content owners are not going to sue individuals, except under unusual circumstances because they could face extensive negative publicity.
- Content owners are very leery of VOD (video on demand). They don’t want to be perceived as losing control of content.
- All content owners want to control their content. There are two key aspects of control: what is published and how it is used and manipulated. Watermarking can be an effective tool.
User-created Content
- Brands are losing control over their content and brands, and agencies need to think beyond old assumptions to advise clients appropriately. Coca-Cola came close to issuing a cease and desist to the men that did the Diet Coke-Mentos videos on YouTube.
- Content owners need to be paid. Is the old model dead?
- New mobile devices have more features that enable self-expression.
- User-generated advertising? People are creating their own advertisements for their favorite products and companies for their MySpace pages. These can conceivably gain widespread attention.
- YouTube is like a big nightclub; you can find anything there. The scarcity is attention. It’s the endorsement model that creates popularity.
- People consistently respond to good content, no matter the source.
Business Models
- It’s a perfect storm: Creative Commons (broadly, “use with attribution”) and open source principles will drive the growth of UGM. The question is how and where will the industry make money on it?
- Why isn’t UGM of higher value? For one thing, it has no commercial value because no one paid to produce it, so its value is unknown.
- Why does content have to be free, subsidized by advertising? The subscription model definitely works, although not in every situation. Offer free and “premium” services concurrently. People do spend money; look at the prices of rock concert tickets, and how people take pictures and make recordings with their phones.
- Yahoo is broken, and its founder has returned. The value now is in data (not content?).
- Will advertisers go to the one-on-one model, or will they continue to deal with distributors?
- The Internet has profoundly affected advertising because it enabled digitally trackable interaction to advertising. It set the bar, and broadcast advertising is struggling to move in that direction. Integrating the two can provide more value, for example, by distributing (TV) shows on the Internet the day after they air.
- Sports have a special dynamic because very few people want to watch after the outcome is decided. That increases the value of real-time viewing.
- Will the Internet compete with TV, or will they converge? YouTube shows video. But there is a chasm between them: TV is largely a passive activity while people interact more with computers.
- The long form will emerge on YouTube (TV length video). But the UGM requires extensive infrastructure, and who will pay? (servers to store it, bandwidth to distribute it).
- From the mobile perspective, devices are increasingly multimedia, which enables rich citizen journalism.
- To develop business models, executives have to think beyond lead generation; content can lead viewers to websites, where they can interact more and buy something.
- The industry needs new talent to take advantage of new rules and emerging opportunities. The industry needs to develop new metrics and business models.
Analysis and Conclusions
- Video content creation used to be a specialty practiced by very few highly trained people. It is rapidly going mainstream. Increasingly mobile phones contain video cameras for recording video and sound, and ubiquitous PC programs make editing far easier than ever. “Viewers” are now producers as well, and this fact is disconcerting to the industry.
- Two control issues emerge here: brand control and content control. Coke lost brand control with the Mentos incident, but the instigators created their own content. YouTube members who post the latest episode are not creating content; they are distributing it.
- No one is suggesting that the professional content business is going away; however, its role as the exclusive purveyor of video, audio and print content has ended. The most successful business models will feature collaboration (explicit or implicit) among customers and producers.
- UGM has significant competitive advantage over “professional” media. It is relevant, free and passionate. Because it has no commercial requirement, it exists for passion, and people respond to passion. Professional content is too often comprised of ideas in a blender: it serves no one in particular; it was designed for mass appeal. On the other hand, production costs preclude professionals from making content for highly specific audiences.
- One way to increase relevance is to bring production and distribution costs down. Collaborating with customers is an obvious solution—even though it will have to be discovered.
- One of the professional media’s toughest problems is dismantling itself while carrying on its business. All of its costs and processes were designed for the mass advertising market. High production and distribution (network affiliates) costs necessitate vacuous programming and extensive advertising.
- However, if content creators and advertisers do not respond, people will increasingly forsake them for alternatives, including UGM.
- UGM will only increase over time, and the industry needs to accept this fact. Then it can experiment aggressively with how to help customers to create, distribute and enjoy their content—in a way that increases the value of professional content.
By Christopher Rollyson Redefining the Industry to Remain Relevant—The Significance of AT&T’s Big Bet on Mobile
 At Digital Hollywood Chicago, AT&T was busy redefining itself as a 21st century communications provider, and we believe that will increasingly mean focusing on content to provide profits. An AT&T veteran but new in 2007 as CEO, Randall Stephenson keynoted the conference by sharing his vision for AT&T and the future of the industry.
Telecoms provide the network infrastructure of distributed computing and global communications, but infrastructure is a tough business with thin margins and high capital requirements. All telecoms are trying to move up the value chain to escape commoditization pressure and relentless price competition. For example, Sprint is betting heavily on WiMAX to redefine itself as the enabler of digital relationships.
In the context of telecoms redefinition, AT&T’s alliance with Apple could be very strategic for each company, as AT&T can use Apple’s design excellence to increase subscribers and push advanced network services while Apple needs a telecom partner to drive its relevance in the growing third screen market with the iPhone. According to Stephenson, the industry must ask itself, “What is a communications company?” to take advantage of consumer empowerment (although he didn’t call it that). As usual, we will outline his comments before turning to our analysis and conclusions.
Redefining Telecoms for the 21st Century
Stephenson sees five key transformational forces at work in the market:
- The transition from wireline to wireless is accelerating, and the notion of mobility is critical to creating value for today’s (and tomorrow’s) customer.
- Mobility combined with IP (Internet Protocol)-based services is the context for creating value. Mobility refers to the customer’s experiencing content on the “three screens”: home entertainment (TV), computer and mobile (phone). IP can deliver services on any device.
- Entertainment is an integral part of the offering, and this holds true for wireless as well. Wireless is rapidly becoming the default. We will soon have multidimensional mobility.
- Subscription and advertising models will play key roles in bringing content to people.
- The customer is in charge: s/he is driving what is delivered, when, why, where and how.
Telecoms Insights and Opportunities
- Wireless is the common link, but providing seamless experience requires an advanced (expensive) network.
- Wireless is a far more personal way to communicate because it is with people everywhere they go.
- The decision of buying wireless service drives numerous (downstream) decisions (what network and device type determines features, what kind of content can be experienced and how it can be experienced).
- Carriers need to become wireless-centric as soon as possible. They also have to become innovation-focused to create excitement and demand. This is the context of AT&T’s partnership with Apple and its iPhone.
- The customer experience must be superb from the first day. AT&T is striving to get new subscribers through the iPhone, but they realize that experience must be excellent. As of 19 June 2007, 1.1 million customers had inquired about the iPhone, and 40% were not AT&T customers.
- The network must deliver what customers want, when they want it, and how they want it. It must be ubiquitous, with GSM coverage worldwide. AT&T also has 50,000 hotspots.
- Stephenson demonstrated a new service in which a customer, while talking on the phone, shot a video and “shared” it, real-time, with another customer.
- Another technology-led transformation is the move toward IP networks, which integrate voice and data. IPTV is the future of TV: it has more channels and far better picture clarity. Moreover, it points to the convergence of the three screens: digital “TV,” the computer and the mobile (phone).
- For B2B markets, wireless is also key, as is integrating global operations around GSM. The SMB market closely mirrors B2C.
- All services must be integrated and attached to the same account, whether wireline, wireless, content (“cable”) or mobile. It is a single sale and revenue commitment.
Analysis and Conclusions
What Stephenson did not say was even more interesting than what he did.
- The telecoms industry challenges that were mentioned at the conference kept reminding me of airlines, another capital-intensive infrastructure business. Capital concentration has played a big part of driving competitiveness, but it is extremely difficult for all players to make money. Moreover, big infrastructure businesses tend to be inflexible, and they get into trouble when the assumptions on which the are based shift. People inherently don’t value infrastructure very highly; it is too quickly taken for granted. When too many customer expectations change and the players can’t respond, they become vulnerable to new entrants like Southwest Airlines.
- AT&T’s relationship with Apple seems to be a case of coopitition: AT&T has an explicit three-screen strategy around which it hopes to deliver content seamlessly, but we think that Apple has a stealthy three-screen strategy as well. Telecoms always have the problem of moving up the value chain because their core competencies are network management, not customer experience and content.
- Stephenson’s point about entertainment was significant, and it was corroborated throughout the conference. People will not readily pay for infrastructure, but they will pay for content. AT&T is moving heavily into the content business, and they dream about leveraging a content model into the mobile phone as well.
- AT&T is betting big on the iPhone to create demand for its “advanced” network services. “Innovation,” real-time video sharing (takes the most bandwidth). Telecoms have been frustrated at the slow rate of adoption for their advanced services. (They should try cutting prices—significantly.)
- Mobility is so important because it provides a continuous consumption opportunity, and AT&T is attempting to add value with content. With its three-screen strategy, AT&T is competing in the first screen (cable) and also trying to distribute content to the other screens. Consumers can’t consume content when they are away from the “first screen” (TV) or the “second screen.” (office/computer). Now they can, via the advertising model. I’m not sure Stephenson did his homework here, though: as revealed in numerous other sessions, the ad model is broken, and it’s less tolerated by younger audiences.
- IP is the means to move content around. It may serve a role analogous to Java’s for IBM (Java—as an interface to object-oriented development—saved IBM’s un-integrated software and hardware offerings by enabling a robust integration platform and approach).
- There is a huge gap between AT&T’s vision and its ability to deliver. Personally, I have become an AT&T customer across most of its service spectrum (AT&T Wireless became Cingular became AT&T; SBC was my ISP and became AT&T; SBC wireline became AT&T). Their online account management is abysmal. To whit, I have a GSM mobile phone, but AT&T has no decent international rate plan. For my DSL service, AT&T has no access (even dailup) outside the USA.
- As is the case with other rollups, AT&T is trying to stitch together numerous un-integrated resources on the fly. From past experience, we can be safe in assuming that they will not be seamless and consistent for many years.
By Christopher Rollyson Reading between the Lines: Apple’s New Business Strategy reveals why Apple could emerge as a three-screen player par excellence.
 Apple’s name change in early 2007 was heralded as the company’s redefinition as a consumer products company. The conventional wisdom held that the lion’s share of the run-up of Apple’s stock price had been due to the excitement of the iPod and the successful rekindling interest in the company’s Macintosh computers. Moreover, Apple’s stock had limited headroom because consumer electronics heavies were getting into the market for music players, and this would leech profits. The iPhone looked great, but it was overpriced in a hyper-competitive market; it wouldn’t penetrate much beyond a few gadget freaks.
This prevailing view works great for Apple because it keeps people focused on the wrong things—literally. Apple’s business strategy is far more profound. It goes far beyond the SIC, hardware or even software. It is an experience strategy based on content and communications.
By Christopher Rollyson Rebooting Kraft—CEO Outlines Growth Strategy clearly shows the innovation imperative: A Play in Two Acts, Starring the Consumer.
 Irene B. Rosenfeld, Chairman & Chief Executive Officer of Kraft Foods, outlined her vision for relaunching Kraft at the Executives’ Club of Chicago’s Chicago CEO Breakfast on May 30, 2007 at the Mid-America Club. She was enthusiastic about the company’s second lease on life: having spun off of Altria this spring, the company is newly independent, and she was eager to share her plan to drive growth by addressing the “eye of the consumer.”
Kraft Foods is the second largest food company in the world and the largest in North America. It has seven brands that produce revenue of over $1 billion and fifty that bring in over $100 million each. Central to her strategy is leveraging Kraft’s formidable brand portfolio and other economies of scale. Rosenfeld “came home to Kraft” about a year ago, having had highly visible leadership roles at the company in the past and the top job at Frito-Lay immediately prior.
Continue reading Rebooting Kraft—CEO Outlines Growth Strategy at Executives’ Club Breakfast
By Christopher Rollyson Leadership, Trust and the Globally Integrated Enterprise reports on IBM’s CEO as he articulated a prescient vision for the enterprise—adapting to the Knowledge Economy.
 Samuel J. Palmisano, Chairman, President and Chief Executive Officer of IBM Corporation, outlined a new version of the enterprise at a lunch honoring him with the Executives’ Club of Chicago’s Thirteenth Annual International Executive of the Year Award April 12, 2007 at the Chicago Hilton. Entitled “Leadership, Trust and the Globally Integrated Enterprise,” his speech emphasized key points from his Summer 2006 article of the same name in Foreign Affairs. He was especially interesting to hear due to his experience with leading one of the world’s foremost global enterprises as well as his insight from serving global enterprises in every industry.
Yesterday’s model for the global enterprise, the multinational corporation (MNC), looks increasingly outdated due to widespread adoption of standards-based technology, increasingly standardized work processes and a liberalizing regulatory environment. Today, knowledge-based resources are available globally, and the enterprise’s means to create value is choosing how and where to tap the resources to best execute business processes. Moreover, the shift to the globally integrated enterprise means a profound culture shift and outlook, which we will address here.
Continue reading Leadership, Trust and the Globally Integrated Enterprise
By Christopher Rollyson The Internet, E-Business and Web 2.0 in Context
 Web 2.0 and social networks readily appear as hype, but I will argue that they are actors in a much larger drama, the emergence of the Knowledge Economy, which is currently in its third phase, Web 2.0 and social networks. By understanding the transformation of relationships among your customers and between your customers and your company, you will be in a much better position to guide your company through this area of tremendous change.
The Ascendance of the Knowledge Economy
The Knowledge Economy is a post-industrial economy in which value is primarily created through information, and differentiation is achieved by explicitly focusing on customer experience itself rather than on products or services. The life cycles of products and services will increasingly shorten. Leaders of companies with products and services who do not understand this face rampant commoditization from which there is no escape except through unprecedented innovation. We are in the third phase of the growth of the Knowledge Economy in which it is transforming relationships. Each phase is ongoing, but the emphasis shifts over time.
Phase I: Technology, 1969-1993*
 Pervasive networks of computers are the infrastructure of the Knowledge Economy, and its Technology Phase was largely invisible to business, government and society. Computers used to be designed and run as self-contained systems that were not connected to other computers. Software ran on dedicated machines. However, distributed computing is a different approach that emphasizes networks and “distribution” of software and hardware. The Internet itself is an excellent example of distributed computing. Engineering was the focus of this phase.
Phase II: Business Process, 1994-2001
The Internet and Java burst into the public consciousness in 1994 with the release of Mosaic, the first popular graphical browser that became Netscape. It was free and enabled anyone to view text and graphics. It led to the World Wide Web, a vast collection of html documents. During Phase II, the browser also became the de facto interface for enterprise systems. Before this, customers had to have custom software to have any access to computerized information.
In Phase II, companies were focused on using this new communication medium to change their business processes. E-Commerce enabled many companies to “go direct” to external customers, and “e-business” was its B2B and internal cousin. Online product reviews were a novelty, and the concept became entrenched in many cultures. However, the communication largely went from company to customer. Very few customers exchanged information with each other.
Phase III: Relationships, 2002-2015?
The focus of Phase III is peer-to-peer (P2P) communication. According to Sam Palmisano, the CEO of IBM, one billion people access the Internet today, but this will double by 2011. The Internet is increasingly inculcated into cultures around the world. A generation of people does not know life without it. The Web interface is increasingly easy to use, and broadband adoption is accelerating.
The scene is set for the transformation of relationships. What do friendship and connection mean? People now have “friends” and acquaintances around the world based on highly specific interests. They create digital text, audio, graphical and video knowledge, while intermediaries like LinkedIn, MySpace, YouTube and Technorati help people to find content and people with the same interests. They connect, communicate and act collectively very quickly and easily.
Your customers increasingly have access to customer-created content, and, even more disconcerting, they often believe other customers’ opinions rather than your employees’ or “experts.” New sites review professional services as well as products: doctors, high school teachers, lawyers and hospitals are rated 1 to 5, anonymously or not. Increasingly, anyone can find and connect with anyone else irrespective of distance, culture or age: the currency is common interest and willingness to collaborate.
The rise of the customer voice will dramatically change companies’ relationships with their customers because P2P communication can rapidly change customer expectations. Customers’ perceptions of value morph faster than ever before—and it will surprise many companies. This new market volatility is an opportunity for the companies that are plugged into their customers’ experiences.
Your Customers Are Increasingly Your Message
Not so long ago, customers were fairly isolated from each other. In the B2B arena, they interacted at trade shows and professional associations, once or twice a year. They viewed your ads, read your thought leadership in journals and had lunch with your salespeople. Your marketers strongly influenced the information customers used to make purchasing decisions. The B2B world is very specific: a supply chain analyst for newsprint had a very limited ability to get geeky with her peers. Today, however, newsprint geeks have blogs where they interact with each other constantly and share ideas about any aspect of the market, which can serve to destroy margins.
The B2C story is the same: customers blog and video your product doing things you would never believe, and they share their frustrations with its shortcomings as well as its glories. They discover, share and expose the intricacies of its differentiation. This information is available to your competitors as well. This increased knowledge exchange is shortening product and service life cycles. Customer communication about companies’ products is increasingly affecting purchasing decisions.
Reinventing Customer Relationships
- As I wrote in “Web 2.0 Means Marketing 2.0,” astute leaders will get in front of these trends. The Knowledge Economy will reward those who evolve their attitudes and communications with customers:
- Customer-generated content can be a tremendous asset, but your marketers and their proxies must get comfortable with losing control. This is not trivial.
- Increasingly, your influence over your message will depend on your ability to be honest with customers and consider their needs before the needs of the organization (also see The Transformation Imperative). Customers will reward companies that do this.
- The Knowledge Economy is defined by collaboration—voluntary sharing and cooperation among people. Pyramids and top-down power relationships will endure in some cases, but collaboration will increasingly be the rule. It demands companies to encourage fairness, respect and curiosity above all else.
- Companies that collaborate with their customers will outperform competitors that do not.
- By respecting and being curious about customers’ points of view, you can engage them on a different level. When your company responds to customers without excuses, customers often become delighted, and they can become your advocates. They will go out of their way to promote your company to their friends and total strangers via their blogs.
- By helping customers to discuss your company and offerings without trying to control the communication, you will increase your credibility and magnify the impact of your offerings. To arrive at this point, you must acknowledge customers’ influence.
- Everyone fears unhappy customers and public criticism. However, in most cases, it is a golden opportunity. Andy Sernovitz, the founder of the Word of Mouth Marketing Association, cites these results: on average, for every one person whom a happy customer talks to, an unhappy customer talks to five people and a formerly unhappy customer who is subsequently made happy talks to ten people (for more, see WOM Marketing review). The economics are magnified greatly online, where problems and resolutions to problems are visible by millions.
- This transition must be approached with care, but it offers companies a rare opportunity to significantly improve their market position. For more on the transition, see “Consumer Empowerment—A Rare Innovation Opportunity.
Acknowledgements
Several months ago, I was having a conversation with Dave Smith at the Illinois IT Association, and Dave outlined these three phases so eloquently that it really clicked with the Knowledge Economy direction I was doing. Thanks, Dave!
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