Friday, January 12, 2018

The Light Bulbs Have Ears: Why Listening Is Voice-Activated Devices' Most Important Skill

If one picture’s worth a thousand words, why is everyone rushing to replace graphical interfaces with voice-activated systems?

The question has an answer, which we’ll get to below. But even though the phrasing is a bit silly, it truly is worth asking. Anyone who’s ever tried to give written driving directions and quickly switched to drawing a map knows how hard it is to accurately describe any process in words. That’s why research like this study from Invoca shows consumers only want to engage with chatbots on simple tasks and quickly revert to speaking to a human for anything complicated. And it’s why human customer support agents are increasingly equipped with screen sharing tools that let them see what their customer is seeing instead of just talking about it.

Or to put it another way: imagine a voice-activated car that uses spoken commands to replace the steering wheel, gear shifter, gas and brake pedals. It’s a strong candidate for Worst Idea Ever. Speaking the required movements is much harder than making them movements directly.

By contrast, the idea of a self-driving car is hugely appealing. That car would also be voice-activated, in the sense that you get in and tell it where to go. The difference between the two scenarios isn’t vocal instructions or even the ability of the system to engage in a human-like conversation. Some people might like their car to engage in witty banter, but those with human friends would probably rather talk with them by phone or spend their ride quietly. A brisk “yes, ma'am” and confirmation that the car understood the instructions correctly should usually suffice.

What makes the self-driving car appealing isn’t that it can listen or speak, but that it can act autonomously. And what makes that autonomy possible is situational awareness – the car's ability to understand its surrounding environment, including its occupant’s intentions, and to respond appropriately.

The same is ultimately true of other voice-activated devices. If Alexa and her cousins could only do exactly what we told them, they’d be useful in limited situations – say, to turn on the kitchen lights when your hands are full of groceries. But their exciting potential is to do much more complicated things on their own, like ordering those groceries in the first place (and, eventually, coordinating with other devices to receive the grocery delivery, put the groceries in the right cabinets, prepare a delicious dinner, and clean the dishes).

This autonomy only happens if the devices really understand what we want and how to make it happen. Some of that understanding comes from artificial intelligence but the real limit is the what data the AI has available to process. So I’d argue that the most important skill of the voice-activated devices is really listening.  That’s how they collect the data they need to act appropriately. And the larger vision is for all these devices to pool the information they gather, allowing each device to do a better job by itself and in cooperation with the others.

Whether you want to live in a world where the walls, cars, refrigerators, thermostats, doorknobs, and light bulbs all have ears is debatable. But that’s where we’re headed, barring some improbable-but-not-impossible Black Swan event that changes everything. (Like, say, a devastating security flaw in nearly every microprocessor on the planet that goes undetected for years…wait, that just happened.)

Still, in the context of this blog, what really matters is how it all affects marketers. From that perspective, voice interfaces are highly problematic because they make advertising much harder: instead of passively lurking in the corners of a computer screen, appearing alongside search results,  larded into social media feeds, or popping up unbidden during TV shows, voice ads are either front-and-center or nowhere. Chances are consumers will be highly selective about which ads they agree to hear, so marketers will need to gain their permission through incentives such as discounts and coupons. Gaining the consent required by privacy regulations such as GDPR* will be good practice for this but it will soon seem like child’s play compared with what marketers need to do on voice devices. So one change is marketers will need a new set of skills around creating aural ads and convincing consumers to agree to listen to them.

A related skill will be making those ads effective. Remember that people are vastly better at processing visual images than words.  That’s why we have the 1000:1 word:picture cliché. That efficiency is why visual ads can be effective even if people don’t focus on them – they are still being registered on some level and people will pay closer attention to those that look interesting at a glance. Aural ads will transfer much less information per moment of attention and chances are most of that information will be forgotten more quickly. We’re in early days here and there’s much to learn. But if you can buy stock in a jingle-writing company, do it.

Another obvious change will be that the device vendors themselves have more control than ever over the messages their customers receive. This gatekeeper function is already at the center of the business models for Amazon, Facebook, Google, Apple and others (increasingly including non-net-neutral broadband operators). But as fewer channels become available to reach consumers and as the channels themselves deliver fewer messages per minute, the value of those messages will increase dramatically. Insofar as separately-controlled devices compete for consumer attention, the device vendors will have even more reason to deliver experiences that consumers find pleasant rather than annoying. Of course, as I’ve argued extensively elsewhere, “personal network effects” make it likely that most consumers will find themselves dealing primarily with a single vendor, so actual competition may be limited.**

The gatekeepers’ control over their customers’ experience means that marketers will increasingly need to sell to the gatekeepers to earn the opportunity to reach consumers. What’s different in a voice-driven world is the scarcity of contact opportunities, which means that gatekeepers don’t have enough inventory (e.g., ad impressions) to sell to all would-be buyers. This isn’t entirely new: even today, impressions for Web display, paid search, and paid social are auctioned to a considerable degree. But a huge reduction in inventory (and the impact of serving ads that lead consumers to opt out, assuming they really have that option) will make the gatekeepers much more selective and, no doubt, raise prices. The gatekeepers will also have more conflicts with potential advertisers as they sell more services of their own, adding yet another level of complexity and more opportunities for deal making.

Finally, let’s come back to the sensors themselves. Assuming that the gatekeepers are willing to share what they gather, marketers will finally be able to understand exactly how consumers are responding to their messages. It’s not just that they’ll be able to know exactly who saw which messages and what the subsequently purchased. The new systems will be collecting things like heart and respiration rates, creating the potential to measure immediate physical reaction to each advertisement.  It almost seems unnecessary to point out that listening devices will also capture conversations where consumers discuss specific products, not to mention their needs and intentions. The grand mysteries of marketing impact will suddenly be exposed with thoroughness, precision. and clarity. The change will be as revolutionary as X-rays, ultra sounds, and CAT scans becoming available to doctors. As with radiology in medicine, these new information streams will require new skills that form the basis of entirely new specialties.

In short, voice-activated devices will change the world in ways that have nothing to do with the interaction skills of chatbots or ease of placing orders on Alexa. Marketers' jobs will change radically, demanding new skills and creating new power relationships. Visual devices won’t really go away – people are too good at image processing to waste the opportunity. But presenting information to consumers will ultimately be less important than gathering information about them, something that will use all the sensors that devices can deploy.

Who knew the sentient housewares in Disney's Brave Little Toaster were really a product roadmap?

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*General Data Protection Regulation.  Have we reached the stage yet where I no longer need to spell it out?

** The essence of personal network effects is the value of pooling data to create the most complete information about each customer. In many ways, situational awareness is another way of describing the same thing.

Tuesday, January 02, 2018

What's Next for Customer Data Platforms? New Report Offers Some Clues.

The Customer Data Platform Institute released its semi-annual Industry Update today. (Download it here).  It’s the third edition of this report, which means we now can look at trends over time. The two dozen vendors in the original report have grown about 25% when measured by employee counts in LinkedIn, which is certainly healthy although not the sort of hyper growth expected from an early stage industry. On the other hand, the report has added two dozen more vendors, which means the measured industry size has doubled. Total employee counts have doubled too. Since many of the new vendors were outside the U.S., LinkedIn probably misses a good portion of their employees, meaning actual growth was higher still.

The tricky thing about this report is that the added vendors aren’t necessarily new companies. Only half were founded in 2014 or later, which might mean they’ve just launched their products after several years of development. The rest are older. Some of these have always been CDPs but just recently came to our attention. This is especially true of companies from outside the U.S. But most of the older firms started as something else and reinvented themselves as CDPs, either through product enhancements or simply by adopting the CDP label.

Ultimately it’s up to the report author (that would be me) to decide which firms qualify for inclusion.   I’ve done my best to list only products that actually meet the CDP definition.*   But I do  give the benefit of the doubt to companies that adopted the label. After all, there’s some value in letting the market itself decide what’s included in the category.

What’s most striking about the newly-listed firms is they are much more weighted towards customer engagement systems than the original set of vendors. Of the original two dozen vendors, eleven focused primarily on building the CDP database, while another six combined database building with analytics such as attribution or segmentation. Only the remaining seven offered customer engagement functions such as personalization, message selection, or campaign management. That’s 29%.**

By contrast, 18 of the 28 added vendors offer customer engagement – that’s 64%. It’s a huge switch. The added firms aren’t noticeably younger than the original vendors, so this doesn’t mean there’s a new generation of engagement-oriented CDPs crowding out older, data-oriented systems. But it does mean that more engagement-oriented firms are identifying themselves as CDPs and adding CDP features as needed to support their positioning. So I think we can legitimately view this as validation that CDPs offer something that marketers recognize they need.

What we don’t know is whether engagement-oriented CDPs will ultimately come to dominate the industry. Certainly they occupy a growing share. But the data- and analysis-oriented firms still account for more than half of the listed vendors (52%) and even higher proportions of employees (57%), new funding (61%) and total funding (74%).  So it’s far from clear that the majority of marketers will pick a CDP that includes engagement functions.

So far, my general observation has been that engagement-oriented CDPs appeal more to mid-size firms while data and analysis oriented CDPs appeal most to large enterprises. I think the reason is that large enterprises already have good engagement systems or prefer to buy such systems separately. Smaller firms are more likely to want to replace their engagement systems at the same time they add a CDP and want to tie the CDP directly to profit-generating engagement functions. Smaller firms are also more sensitive to integration costs, although those should be fairly small when CDPs are concerned.

There’s nothing in the report to support or refute this view, since it doesn’t tell us anything about the numbers or sizes of CDP clients. But assuming it’s correct, we can expect engagement-oriented vendors to increase their share as more mid-size companies buy CDPs. We can also expect engagement-oriented systems to be more common outside the U.S., where companies are generally smaller. For what it’s worth, the report does confirm that’s already the case.

If the market does move towards engagement-oriented systems, will the current data and analytics CDPs add those features? That’s another unknown. There’s already been some movement: four of the original eleven data-only CDPs have added analytics features over the past year.  But it’s a much bigger jump to add customer engagement features, and sophisticated clients won’t accept a stripped-down engagement system. We might see some acquisitions if the large data and analytics vendors want to add those features quickly. But those firms must also be careful about competing with the engagement vendors they currently connect with. Nor are they necessarily eager to lose their differentiation from the big marketing clouds.  Nor is there much attraction to entering the most crowded segment of the market with a me-too product.

So most data and analytics vendors may well limit their themselves to their current scope and invest instead in improving their data and analytics functions. That will limit them to the upper end of the market but it's where they sell now and offers plenty of room for growth.  Certainly there’s a great deal of room for improved machine learning, attribution, scalability, speed, and automated data management. If I had to bet, I’d expect most data and analytics vendors to focus on those areas.

But I don’t have to bet and neither do you. So we’ll just wait to see what comes next. It will surely be interesting.


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*CDP is defined as a marketer-controlled system that builds a persistent, unified customer database that is accessible by other systems.

**To further clarify, customer engagement systems select messages for individuals or segments.  Analytics systems may create segments but don't decide which messages go to which segment.  And execution systems, such as email engines, Web content management, or mobile app platforms, deliver the selected messages.