Multi-homing on social networks

As last post of the year I'd like to cite this FT article, which talks about a recent Pew survey confirming that about 40% of adults divide their time between Facebook and another social networking platform. Professionals tend to spend a significant amount of time on LinkedIn besides Facebook (not a surprise) and a large proportion of women tend to use Pinterest besides Facebook. This is totally consistent with economic theory applied to platform competition in the presence of local (as opposed to global) network effects. Our paper with Kaifu Zhang, currently at CKGSB, describes exactly this phenomenon and analyzes how it may manifest itself in the presence of a 'dominant site' such as Facebook. If time spent on a platform relative to that spent on others is the relevant measure of market power, then worrying about Facebook's dominance has always been misplaced. Can Facebook really be anything to anyone over the Internet? Not really... Similarly, I find silly the recent arguments that Facebook is becoming increasingly irrelevant because young people spend more time on chatting sites and less time liking each others' posts. People seem to look for another big thing to which everyone is likely to migrate. But the dynamics of the Web are strongly influenced by local network effects meaning that it is an ecosystem of strong platforms rather than one big site that is likely to dominate social networking. Facebook, with its billion plus active members is certainly a strong candidate to be part of this ecosystem. However, worries about adequate revenue models for the firms in the ecosystem are well justified: it is still not clear how such a fragmented attention base can be efficiently monetized.

Will the cable bundle survive?

A recent article in The Economist about Comcast, nicely describes the challenges faced by the cable giant at a time when a hoard of start-ups challenge the traditional cable subscription model. People talk of "cord-cutters" (and increasingly of "cord-nevers") and there is a general sense that the traditional model needs to change somehow even if there is little consensus on what model(s) will emerge eventually. In all discussions however, the idea that the cable bundle has to break apart seems to come up and people quickly point to the experience of the music industry. Unbundled services over the Internet exist already (e.g. AppleTV) but it is too early to say if they will take over the cable bundle. Cord-cutting is still slow and the prices of cable subscriptions have kept increasing at 4-5% over the last years despite the slow recovery from the recession, which indicates that coach potatoes still see value in it. With the purchase of NBCUniversal, Comcast clearly bet on the future of the cable bundle. In fact, it tries to increase the value of the bundle by packing in even more services in it and making them more convenient in terms of search and access. It is a big bet but one should never under-estimate how lazy coach potatoes are.

Just today a great article in the FT complements the picture. It analyzes the cable operator market and how it is likely to consolidate.

Recent Evidence on 'Forecasting'

Forecasting is important in every aspect of life and in business in particular. Grossly simplifying, the last two decades' academic research came to the general conclusion that crowds do better than individuals, the so-called "wisdom of crowds (WOC)" hypothesis. One of the resulting 'innovations' is the idea of prediction markets where people trade securities whose payoffs are tied to specific outcomes/events. Market prices provide 'superior' forecasts for the likelihood of the events in question. With social media broadly available to large and distributed populations, prediction markets are thriving...
    Recent research conducted by IARPA seems to indicate that the WOC insight might be challenged - at least to some degree. Clearly, prediction markets do much better than the average expert participating in them. But it also seems to be the case that the top 2% of forecasters can beat the market by a relatively large margin. First, it seems that the elite forecasters do seem to do better systematically over time, so their performance is not just luck. Moreover, if you team them up, then together, they can beat prediction markets by 20-35%.
    Prediction markets are cool forecasting tools but their weakness is that they give away the forecast, so in business where one wants to generate superior insights it is hard to discover proprietary information this way. But what if firms ran forecasting tournaments to discover the few experts that can provide sustainable advantage for them? Of course, the question then becomes: at what price will these experts share their views with the firm!

Making Mobile Ads That Work

Here is a link to the HBR article we have just published on mobile ads. Examining a large number of mobile campaigns across many categories, our main discovery is that - somewhat surprisingly - mobile ads seem to work for products that are "utilitarian" (e.g. they fulfill a practical need) and "high involvement" (they represent an important choice, e.g. they are expensive). The real learning from our study however, is that mobile ads seem to work by reminding consumers of the product and/or campaigns about the product, thereby making higher bandwidth communication (e.g. TV ads) more efficient. We believe that now is the time for really talking about integrated marketing communication.

Google under attack - again

And on multiple fronts...... First, the so-called Rockstar Consortium and Netstar Technolgoies have filed a major patent infringement lawsuit against Google and some of its mobile partners at the end of last week. More details can be read about the case here. The group is, essentially, a patent troll with some of the major tech companies behind it, including Microsoft, Apple, Blackberry, Sony and Ericsson. It has over 6 thousand patents related to mobile telecommunications technology, which were acquired with failed Nortel in 2009 for $4.5 billion. Google lost that bid against the consortium but later bought Motorola Mobility for $12.5 billion amassing some 17 thousand patents. Will this war chest be strong enough to defend itself in the lawsuit that attacks its hugely successful Android operating system in its very fundamental functions, such as "the ability to send advertising to people related to a search query"? Google has also been attacked on the content-side, held responsible for "not doing enough against piracy" by Senator Chris Dodd who has emerged as the main lobbyist of the Motion Picture Association of America. While nasty (as attacks are meant to be), this initiative is also pretty dumb as it completely misses its target, namely the companies who actually pirate the content and allow free streaming for everyone. These are just two of the recent major attacks against Google in the US. Hundreds of other claims are pending abroad, namely in Europe (see for an example here) where media companies are losing the plot of the Internet age. Not easy to be successful....

The evolution of tablet operating systems

This video by The Economist is a great summary of the evolution of tablet operating systems, showing how successful Android has been in this domain as well. Given the competitive dynamics, Android's share growth is likely to continue as it benefits from the cutthroat competition among tablet manufacturers. Moreover, it is built on the previous success of Android as a mobile operating system. The i-phone was launched in 2007 but even that year may not represent the beginning of the story. Rather, it is 2005, when Google purchased Android, a small mobile start-up at the time, with the goal to make search available on mobile devices. From the beginning, the idea was to make it an open system (even making the source code available), giving it away for free (with Google search embedded in it of course) and making it open for app developers. Even before the first Android phone appeared, there were already many apps available for Android. This strategy required quite some foresight from the Google founders on the evolution of the mobile Web.

Ad Agencies threatened?

With advertising dollars quickly migrating from traditional media to the digital world it is reasonable to expect that ad agencies will change as well. Digital marketing is all about measurement - goes the newly discovered 'big data wisdom' - so ad agencies need to adapt and acquire serious analytic and data-mining skills. To be fair, they all have been doing this in the last years, acquiring small boutiques or developing in-house digital analytic capabilities. For the industry it is more worrisome that, increasingly, large data-driven consulting firms seem to make a strong move in the digital advertising business. Deloitte, Accenture and Booz-Allen, the largest operations consultants have all developed capabilities in this area or picked up ad agencies specialized in digital marketing. The most recent such acquisitions are by Deloitte, which purchased a Seattle-based social media agency as well as another firm from Brisbane, specialized in Web development. Do consultants represent a threat to traditional ad agencies, given that they naturally have strength in data analysis? To some extent they always did. Professional services firms have invaded each others' territories before: accountants got into consulting, as did ad agencies themselves. Most consulting firms had marketing practices before and wouldn't shy away from 'strategic branding' projects. However, the current focus on data is missing the key issues in digital marketing: (i) creativity and (ii) integration. In a context when a large number of new tools are available for marketers, these aspects of value creation are far more important than analytics, much of which can be subcontracted to small data-mining boutiques. The point is not to say that "analytic capabilities do not matter" - they do - but that creativity and integration matter more than before with the proliferation of new media platforms and non-standard marketing vehicles. Do consulting firms have an advantage in these critical domains? Probably not.