What's The New Normal For Big Brands?

What's the ‘New Normal’ for global brands? By which I mean that following the collapse of global finance, the ensuing reshuffle of the world’s powerhouse economies and rapid growth of vast technological platforms, what do global brands care about and to which companies and sectors are they turning for assistance? I keep returning to three thoughts. Firstly, that corporations and brand-owners’ aims haven’t really changed a great deal. They want the same business outcomes, such as awareness, sales, loyalty and product differentiation, that create and support Mega-Brands and the shareholder dividends that follow. Secondly, media and marketing remains in the throes of huge waves of what the economist Joseph Schumpeter alluringly called ‘creative destruction’; the painful process by which one economic order is gradually replaced by another. In the context of media and marketing, creative destruction has come in the form of digital IP technology breaking open the barriers between previously separate industries to create a single global platform upon which vast new networked media oceans surge. Finally, most global corporates have been quietly shifting their investments into fast-growing markets for years. Now, as growth falters in Europe and the US, these booming economies seem to promise a golden future. Many such as Brazil, India, China and Indonesia see the creative destruction of technology, media and telecomms as a welcome opportunity. They invest enthusiastically in new...

...technologies, for example fibre optics, leapfrogging Europe and the West's creaking infrastructure and complex vested interests. In doing so, they drive the pace of change within marketing and media even faster.

In other words, while Mega-Brands still want to reach the same sunny commercial destinations the waters they must navigate have become murky and unpredictable, as the tectonic plates that shape media and marketing continue to drift.

The response from some brands to this turmoil seems to be to wait it out until the seas calm, waters clear and navigable routes become more visible. The difficulty with that approach is that plotting a course through these wild new networked media oceans isn't about to become any easier. More likely, perhaps, is that these waves of creative destruction are, in fact, the New Normal.

Connectivity Expands The Mind

Which begs the question, what's driving this constant change and flux? ‘It’s the technology stupid’, right? Well yes, but that's only one side of the story. There is no doubt that the development of the Internet, Web, broadband, open source, mobile IP and Moore’s Law have blown apart the barriers between TV, telecoms, Hollywood, software, retail, web services, publishing, gaming and even finance. However, it’s the role of consumers (aka people) that is determining which way the tides flow.

For the first time, individuals have access to the same information and communication platforms that the telecomms companies, media-owners, technologists and brands used to rule. This has unleashed a sense of individual freedom, choice, possibility and a pioneering spirit that is powerful even in comparison to the enormous influence that Mega-Corps continue to wield. Futhermore, this spirit is shared across the globe meaning connectivity, as well as travel, can now broaden the mind as people share-and-compare online and chip away at the cultural barriers that divide them.

The range of expression for this freedom is almost as varied and distinctive as the technologies that power it along. From micro-blogging and hobby forums, to online communities and social networks, to video-sharing and online gaming, to commercial marketplaces and peer-to-peer file sharing, to militant subcultures such as the ‘hacktivist’ group Anonymous and controversial whistle-blowing website WikiLeaks. Each reflects a different aspect of this new pioneering global spirit.

All of which has given a seismic jolt to the world’s top corporate super-predators. Slowly, Mega-Brands have realised that consumers (aka people), who use to operate alone and maintain predictable habits, behave differently in networked media oceans. Massive, dynamic groups of consumers range across vast areas like giant schools of fish exploring new territories and exchanging real-time information as they go.

This means many established marketing techniques such as targeting are rendered increasingly redundant. By the time the research has established what’s happening consumers have moved on leaving brands firing messages into empty, silent waters. Furthermore, this modern consumer behaviour creates opportunities for new breeds of data-driven companies, such as real-time media bidding and retargeting providers, frequently backed by the deep pockets of Silicon Valley's Sand Hill Road.

The Music Industry - A Canary In The Mine

So, where did this all begin? Big Music was one of the first sectors to be hit by IP-driven waves of creative destruction that dragged it from its cosy backwater into unchartered networked media oceans. The industry was subsequently torn up by technology super-predators that have come to view the whole music sector like a ‘feature’ or promotional tactic for their own cloud-based streaming services or to help sell more groovyware.

For example, Apple took a big bite out of the music business and in 2001 created iTunes. Less than a decade later the service was delivering twenty-five per cent of all music sales in the US and sixty-nine per cent of digital sales, helping to turn Steve Job’s company into one of the most valuable in the world. The music industry’s weakened position was recently put in perspective by music journalist Wayne Rosso who noted that, 'Larry, Serge and Eric could buy the entire music industry with their personal money'.

It seems that Big Music’s problem was not taking the powers of creative destruction and newly emboldened customers seriously. Edgar Bronfman Jr., boss of Warner Music, earlier this year commented that, ‘the consumer has won,' revealing a warped complacency that networked media’s super-predators can smell from hundreds of miles away - like blood in the water. The battles that rage in media and marketing today are driven by an undercurrent of fear at following in the footsteps of Big Music.

That said, there are still numerous examples of companies that refused to believe these forces of IP-driven creative destruction would affect them. Nokia chose to ignore the strategic threats that much of the telecomms world spotted. The company used to rule its own very large and valuable territory until the launch of the iPhone dragged it into the wider networked media ocean where it has been all but gobbled up by top-feeder Microsoft. Today, Nokia is worth thirty-two per cent of what it was worth five years ago, with much of that demise down to the iPhone’s launch in 2007.

Creative Destruction Hits TV

What's happening right now? The waves of creative destruction are currently being felt most acutely within TV. ‘We know that Apple has destroyed the music business – in terms of pricing – and if we don't take control, they'll do the same thing on the video side’, said Jeff Zucker, the then boss of NBC Universal in 2007. Zucker has since lost his job but today his words seem prophetic, as the TV and video industry does its best to fight off the attentions of new streaming companies such as Hulu and Netflix - the current darlings of the networked media world. However, establishing a new food chain in such a valuable industry is far from straightforward.

Hulu’s relationship with its old-guard owners, including Comcast, GE, NewsCorp and Disney has become increasingly dysfunctional. The web TV service was launched to help defeat the YouTube powerhouse but its success has become a problem as it threatens to undermine the business model of its parental shareholders.

Meanwhile, Netflix recently announced it has more subscribers in the US than Comcast the largest cable provider. A fact that Netflix founder Reed Hastings seems all too aware puts him in direct competition with the old school; a fight that, for now, he seems keen to avoid.

In the meantime, YouTube itself is trying to turn from a platform for consumer-generated media to a one-stop video portal, possibly to give the flagging Google TV project a shot in the arm. While in the UK, YouView aims to bring apps to mainstream TV next year.

An Unpredictable Environment

So what's next? Microsoft’s recent purchase of Skype was a reminder of the unpredictable nature of IP-driven creative destruction and the uncertain climate it creates for the rest of the media and marketing world. No one really saw Redmond's move into a VoIP service coming and many remain confused by the deal. However, whatever the rationale, Microsoft now competes on multiple fronts within the new networked media oceans including enterprise, gaming, social networking, cloud computing, creative services, news, search, display, mobile and now telecomms. This reflects Steve Ballmer’s belief that, ‘all marketing will be digital and all digital will be marketing’, a view that he seems prepared to bet the company’s $50bn war chest on.

It’s possible that the world of finance will be the next Mega-Biz to feel the undertow of networked media. Early web pioneers such as PayPal and Zopa have recently been joined, and in some cases overtaken, by a new wave of innovators. Facebook, well-known as having a population bigger than most countries, has effectively created its own currency in the shape of Facebook Credits; tokens that can be bought online as well as off-the-shelf in high-street retailers. Square, the brainchild of Twitter founder Jack Dorsey, that allows anyone with a smartphone to take credit card payments, has been successful enough to attract investment from Visa. Whereas in China the Q Coin, a currency used on the giant social QQ network, has caught the eye of the Chinese government as it's increasingly used for off-line (tax-free) transactions.

In the world of corporate finance, SecondMarket Holdings Inc, the shadow market for pivate company share dealing, is a tiddler challenging the whales of the giant capital markets. But it's caused enough ripples to find itself in conversation with the SEC. Meanwhile, the seed capital arena has seen the arrival of Kickstarter, a service that facilitates 'crowdfunding' and, in just two years, has raised $40m for 20,000 projects.

Then there’s BitCoin, an open source, peer-to-peer service, designed by the mysterious Satoshi Nakamoto, that further blurs the lines between real-world and digital currencies. While still very much on the bleeding-edge one of its lead engineers, Gavin Andresen, was recently invited along to the CIA to demonstrate how the ‘cryptocurrency’ works, instantly providing the spook-type credibility that money, virtual or otherwise, just can’t buy.

The Mad Men Adapt To New Waters

In the meantime, Mega-Brands can only sit back and try and make sense of these titanic battles and the changes they bring to the markets in which they operate. For the most part global brands still choose to largely concentrate their financial firepower within the world’s largest advertising networks: WPP, Publicis, IPG and Omnicom. Relationships that continue to ensure the Mad Men remain major players in the new networked media oceans. Additionally, the networks have focused on their strengths as media brokers, creative branding gurus and consumer insight specialists, whilst trying to get the measure of the sleek new technology predators that have appeared in their territories during the last decade.

For instance, Sir Martin Sorrell, Grand Fromage at WPP, likes to point out that his company is Google’s biggest customer and therefore, presumably, enjoys leverage with Messrs Page and Brin that his clients can never achieve on their own. An approach that has served his company well when dealing with the big TV networks over previous decades.

However, even the bosses of the big four networks must wonder if they can hold out against the powerful predators that dominate the new networked media oceans. The brutal reality of their respective financial positions is remarkable.

When Google continues to pull in roughly $9bn of ad revenues each quarter, Apple can generate $6bn dollars of profit in the same period and a newcomer like Facebook can snaffle up $3.5bn dollars of Mega-Brand budgets in a single year, Messers Sorrell, Wren, Levy and Roth, once the super-predators of their industry, must now get used to being relative small fry. The advertising companies have valuations of between $5bn and $15bn which hardly makes them minnows. However, the technology companies with which they now share their food chain measure their worth in hundreds of billions of dollars and boast annual growth figures of twenty-five per cent.

Navigating Networked Media Oceans

In recent years, innovations such as blogging, Second Life, Skype, digital identities, social networks, virtual goods, app markets, location services, QR codes, smartphones, streaming video and groovyware like Kinect have been seen as weird and wonderful innovations that emerge from the web. However, in reality they are all just small examples of the creative destruction unleashed as the world’s media, technology and telecomms industries are drawn onto a single intertwined IP platform, a platform that itself continues to evolve and become more powerful.

The implications for brands as they adopt to this pace of technological change, as well as a more globalised world with powerful new economies, are to say the very least far-reaching. Tides of creative destruction that are drawing whole industries into these networked media oceans may be the New Normal for many years to come. Far from being phased by this new environment, consumers (aka people) embrace the freedom, convenience and choice networked media provides and enthusiastically push the boundaries.

The brands that establish the best fleets, skippers and navigational intelligence are likely to be the winners, positioning themselves to ride these constant waves of change. Others will be swamped, swallowed up by networked media super-predators or, worst of all, ignored as the giant shoals of consumers that they once used to shoot in a barrel disappear into vast murky waters, never to be seen again.

Comments

Hi James... it's been a long time... a really good synthesis of the structural and consumption driven changes... as I say on my own post, the pain of addiction to core revenue streams is laid bare for all to see.

Watch this space!

Posted by: Bruce Lewin | May 26, 2011 at 08:50 AM