Software Has Stopped Eating the World

This August will see the tenth anniversary of Marc Andreessen’s famous claim that software is eating the world. He may have been right at the time but things have now changed: the world is biting back.

I’m not referring to COVID-19, although it’s fitting that it took an all-too-physical virus to prove that a digital bubble of alternate facts could not permanently displace reality. Nor am I juxtaposing the SolarWinds hack with the unexpectedly secure U.S. election, which showed a simple paper trail succeed while the world’s most elite computer security experts failed.

Rather, I’m looking at the most interesting frontiers of tech innovation: self-driving vehicles, green energy, and biosciences top my list. What they have in common is interaction with the physical world. By contrast, recent years haven’t seen radical change in software development. There have certainly been improvements in software, but they’re more about architectures (cloud, micro-services) and self-service interfaces than fundamentally new applications. And while most physical-world innovations are powered by software, the importance of those innovations is that they are changing physical experiences, not that they are replacing them with software-based virtual equivalents.

Even the most important software development of all – artificial intelligence – measures much of its progress by its ability to handle physical-world tasks such as image recognition, autonomous vehicle navigation, and recognizing human emotion. Let’s face it: it’s one thing for a computer to beat you at Go, but quite another for it to beat your dance moves.  Really, what special talent is left for humans to claim as their own?

The shift is well under way in the world of marketing. One of the more surprising developments of the pandemic year was the boom in digital out-of-home advertising, which includes outdoor billboards and indoor signage. The growth seemed odd, given how much time people were forced to spend at home. But the industry marched ahead, spurred in good part by increased ability to track devices as they move through the physical world. It’s a safe bet that out-of-home ads will grow even faster once people can move about more freely.

Indeed, the industries hit hardest by the pandemic – travel and events – also show that virtual experiences are not enough. Whatever their complaints before the pandemic, almost everyone who formerly traveled for business or attended business events is now eager to return to seeing people and places in person. The amount of travel will surely be reduced but it’s now clear that some physical interaction is irreplaceable.

In a similarly ironic way, the pandemic-driven boost to ecommerce has been accompanied by a parallel lesson in the importance of physical delivery. Almost overnight, fulfillment has gone from a boring cost center to a realm of intensive competition, innovation, and even a bit of heroism. Software plays a critical role but it’s a supporting actor in a drama where the excitement is in the streets.

Still closer to home for marketers, we’ve seen a new appreciation for the importance of customer experience, specifically extending past advertising to include product, delivery, service and support. If the obsession of the past decade has been targeted advertising, the obsession of the next decade will be superior service. This ties into other trends that were already under way, including the importance of trust (earned by delivering on promises through fulfillment, not making promises in advertising) and the shift from prospecting with third party data to supporting customers with first party data. Even at the cutting edge, advertising innovation has now shifted to augmented reality, which integrates real-world experiences with advertising, and away from virtual reality, which replaces the real world entirely.

This shift has substantial implications for martech.

- The endless proliferation of martech tools may well continue, especially if the definition of “tools” stretches to include self-built applications. But the importance of tools that only interact with other software will diminish. What will grow will be tools that interact with the real world, and it’s likely those tools will be harder to find and (at least initially) take more skills to use. It’s the difference between building a flight simulator game and an actual aircraft. The stakes are higher when real-world objects are involved and there’s an irreducible level of complexity needed to make things work right.

- As with all technology shifts, the leaders in the old world – the big software companies and audience aggregators like Facebook and Google – won’t necessarily lead in the new world. Reawakened anti-trust enforcement comes at exactly the worst moment for big tech companies needing to pivot. So we can expect more change in the industry landscape than we’ve seen in the past decade.

- New skills will be needed, both to manage martech and to do the marketing itself. The new martech skills will involve learning about new technologies and tighter integration with non-marketing systems, although fundamentals of system selection and management will be largely the same. The marketing skill shift may be more profound, as marketers must master entirely new modes of interaction. But, again, the marketer’s fundamental tasks – to understand customer motivations and build programs that satisfy them – will remain what they always were.

It’s been said that people overestimate short-term change and underestimate long-term change.  The shift from software to physical innovation won’t happen overnight and will never be total. But the pendulum has reversed direction and the world is now starting to eat software. Keep an eye out for that future.

MarTech Plot Lines for 2021

“Apophenia” – seeing patterns where none exist – is both occupational hazard and job requirement for an industry analyst. The CDP Institute Daily Newsletter provides a steady supply of grist for my pattern detection mill. But the selection of items for that newsletter isn’t random. I have a list of long-running stories that I follow, and keep an eye out for items that illuminate them. I’ll share some of those below.

Feel free to play along at home and let me know what stories you see developing. Deep State conspiracy theories are out of bounds but you’re welcome to speculate on the actual author(s) of the works attributed to “Scott Brinker”. 

Media

Everyone knows the pandemic accelerated the shift towards online media that was already under way. A few points that haven’t been made quite so often include:

- connected TVs and other devices allow individual-level targeting without use of third-party cookies. As online advertising is increasingly delivered through those channels,  the death of cookies becomes less important. Nearly all device-level targeting can also include location data, adding a dimension that cookies often lack.

- walled gardens (Facebook, Google, Amazon) face increasing competition from walled flower pots – that is, businesses with less data but a similar approach. Retailers like Walmart, Kroger, Target, and CVS have all started their own ad networks, drawing on their own customer data. Traditional publishers like Meredith have collected their formerly-scattered customer data to enable cross-channel, individual-level targeting.  Compilers like Neustar and Merkle are also entering the business. None of these has the data depth or scale of Facebook, Google, or Amazon but their audiences are big enough to be interesting. The various “universal ID” efforts being pursued by the ad industry will enable the different flow pots to cross-pollinate, creating larger audiences that I’ll call walled flower beds unless someone stops me.

- shoppable video is growing rapidly. Amazon seems unstoppable but it faces increasing competition from social networks, streaming TV, and every other digital channel that can let viewers make purchases related to what they’re watching. The numbers are still relatively small but the potential is huge. And note that this is a way to sell based purely on context, so targeting doesn’t have to be based on individual identities. That will become more important as privacy regulations become more effective at shutting off the flow of third-party personal data.

- digital out-of-home ads will combine with augmented and virtual reality to create a fundamentally new medium. The growth of digital out of home advertising is worth watching just because DOOH is such a great acronym  . But it’s also a huge story that doesn’t currently get much attention and will explode once people can travel more freely post-pandemic. Augmented and virtual reality are making great technical strides (how about an AR contact lens?) but so far seem like very niche marketing tools. However, the two technologies perfectly complement each other, and will be supercharged by more accessible location data. Watch this space.

Marketing Technology

- data will become more accessible. That marketers want to be “data-driven” is old news. What’s changing is that years of struggle are finally yielding progress toward making data more available and providing the tools to use it. As with digital advertising, the pandemic has accelerated an existing trend, achieving in months digital transformations that would otherwise have taken years.  Although internal data is the focus of most integration efforts, access to external data is also growing, privacy rules notwithstanding. Intent data has been a particular focus with recent announcements from TechTarget, ZoomInfo, Spiceworks Ziff Davis, and Zeta Global.

- artificial intelligence will become (even more) ubiquitous. It seems just yesterday that we were impressed to hear that a company’s product was “AI-powered”. Today, that’s as exciting as being told their offices have “electric lights”. But AI continues to grow stronger even if it doesn’t get as much attention (which the truly paranoid will suspect is because the AIs prefer it that way). Marketers increasingly worry that AI will ultimately replace them, even if it makes more productive before that happens. The headline story is that AI is taking on more “creative” tasks such as content creation and campaign design, which were once thought beyond its capabilities. But the real reason for its growth may be that interactions are shifting to digital channels where success will be based more on relentless analytics than an occasional flash of uniquely human insight.

- blockchain will quiet down. I’ll list blockchain only to point out that’s been an underachiever in the hype-generation department. Back in 2018 we saw it at least as often as AI. Now it comes up just rarely.  There are many clear applications in logistics and some promising proposals related to privacy. But there’s less wild-eyed talk about blockchain changing the world. Do keep an ear open, though: I suspect more is happening behind the scenes than we know.

- no-code will continue to grow. If anything has replaced AI as the buzzword of the year, it’s “no code” and related concepts like “self-service” and “citizen [whatever]”. It’s easy to make fun of these (“citizen brain surgeon”, anyone?) but there’s no doubt that many workers become more productive when they can automate processes without relying on IT professionals. The downside is the same loss of quality control and integration posed other types of shadow IT – although no-code systems are more often governed than true shadow IT projects.  In addition, no-code’s more sophisticated cousin, low-code, is widely used by IT professionals.  It’s possible to see no-code systems as an alternative to AI: both improve productivity, one by letting workers do more and other by replacing them altogether. But a more realistic view is to recognize AI as a key enabling technology inside many no-code systems. As the internal AIs get smarter, no-code will take on increasingly complex tasks, making it more helpful (and more threatening) to increasingly skilled workers.

Marketing

The pandemic has changed how marketers (and everyone else) do their work. With vaccines now reaching the public, it’s important to realize that conditions will change again fairly soon. But that doesn’t mean things will go back to how they were.

- events have changed forever. Yes, in-person events will return and many of us will welcome them with new appreciation for what we’ve missed. But tremendous innovation has occurred in on-line events and more will surely appear in coming months. It’s obvious that there will be a permanent shift towards more digital events, with in-person events reserved for situations where they offer a unique advantage. We can also expect in-person events to incorporate innovations developed for digital events – such as enhanced networking techniques and interactive presentations. I don’t think the significance of this has been fully recognized.  Bear in mind that live events are often the most important new business source for B2B marketers, so major changes in how they work will ramify throughout the marketing and sales process.

- remote work is here to stay. Like events, marketers’ worksites will drift away from the current nearly-all-digital mode to a mix of online and office-based activities. Also like events, innovations developed for remote work, such as improved collaboration tools, will be deployed in both situations. The key difference is that attendance of most events is optional, so attendees can walk away from dysfunctional changes. Workers have less choice about their environments, so harmful innovations such as employee surveillance and off-hours interruptions are harder for them to reject. Whether these stressors outweigh the benefits of remote work will depend on how well companies manage them, so we can expect a period of experimentation and turmoil as businesses learn what works best. With luck, this will mean new attention to workplace policies and management practices, something many firms have handled poorly in the past. Companies that excel at managing remote workers will have a new competitive advantage, especially since remote work lets the best workers choose from a wider variety of employers.

- privacy pressures will rise. The European Union’s General Data Protection Regulation (GDPR) wasn’t the first serious privacy rule or the only reason that privacy gained more attention. But its enforcement date of May 25, 2018 does mark the start of an escalating set of changes that impact what data is available to marketers and how consumers view use of their personal information. These changes will continue and companies will find it increasingly important to manage consumer data in ways that comply with ever-more-demanding regulations and give consumers confidence that their data is being handled appropriately. (A closely related subplot is continued security breaches as companies fail to secure their data despite best efforts.  Another is the continued misbehavior of Facebook and other social media firms and increasing resistance by regulators and consumers.  That one is worth a channel of its own.)  Marketers will need to take a more active role in privacy discussions, which have been dominated by legal, security, and IT staffs in businesses, and by consumer advocates, academics, and regulators in the political world. Earning a seat at that crowded table won’t be easy but making their voice heard is essential if marketers want the rules to reflect their needs.

- trust is under fire. This is a broad trend spanning continents and stretching back for years (see Martin Gurri’s uncannily prescient The Revolt of the Public, published in 2014),  Socially, the trend presents itself as a loss of trust in institutions, the benefits of technology, and credentialed experts in general. In marketing, it shows up as companies voicing disappointment with data-driven analytics and personalization, as consumers not trusting companies to manage or protect their data, as workers' fear that AI systems will harm creativity and codify unfair bias, as widely-noted gaps between what customers want and companies deliver, as “citizen developers” preferring to build their own systems, and as buyers preferring peers, Web searches, social media, and pretty much any other information source to analysts reports.  

Trust is the theme that connects all the stories I’ve listed above.  Without trust, consumers won’t share their data, respond to marketing messages, or try new channels; governments will push for more stringent privacy and business regulations; workers will be less productive; and all industry progress will move more slowly. The trust crisis is too broad for marketers fix by themselves. But they need to account for it in everything they do, adjusting their plans to include trust-building measures that might not have been needed in a healthier past.  The pandemic will end soon and technologies come and go.  But trust will be a story to follow for a long, long time.

Interpublic Group is Buying Acxiom Marketing Services for $2.3 Billion. Here's Why.

Yesterday brought news that Acxiom had agreed to sell its marketing services business to Interpublic Group, a major ad holding company, for $2.3 billion. Acxiom will retain LiveRamp and do business under that name. Acxiom had restructured itself in March into the Market Services and LiveRamp groups and announced it was looking at strategic options, so the deal wasn’t especially surprising. But it’s still a milestone in the on-going evolution of the marketing industry.

For historical perspective (and assuming Wikipedia is correct), Acxiom got its start in 1969 compiling mailing lists from public sources such as telephone directories. The company grew to do all sorts of list processing, to manage custom marketing databases, to do identity resolution and to provide data enhancements for marketing lists. Although technology was always central to Acxiom's business, it was ultimately a services organization whose chief resource was a large team of experts in databases and direct marketing. It was also a favorite target of privacy advocates in those quaint days before online data gave them something much scarier to worry about.

Acxiom bought LiveRamp in 2014 for $310 million, as a logical extension of its identity data business. Since then, LiveRamp has grown much more quickly than the rest of Acxiom, currently accounting for about one-quarter of total revenue. Interesting financial note: Acxiom stock closed today at 39.45, giving it a market cap of $2.66 billion. Extracting the $2.3 billion that Interpublic is paying for everything else, this leaves LiveRamp with an implicit value of $360 million – not much more than Acxiom paid, and even less if you add the $140 million LiveRamp paid in 2016 for identity matching firms Arbor and Circulate. That’s shockingly low and suggests either an error in my calculations (let me know if you spot one) or that the market has serious doubts about something.

But we’ll worry about LiveRamp another day. What’s interesting at the moment is Interpublic as Acxiom’s buyer. At first it seems to buck the trend of private equity firms buying martech companies: see Marketo, Integral Ad Science, Aprimo, and Pitney Bowes. But this report from Hampleton Partners gives a more comprehensive perspective: yes, private equity’s share of marketing deals doubled in 2017, but the main buyers are still big agencies and consultancies. Indeed, Interpublic competitors Denstu and JWT are among the top three acquirers in the past 30 months, along with Accenture. And bear in mind that Acxiom is really more of a services company than technology developer.  It will be right at home with an agency parent.

So, what will Interpublic do with Acxiom? Some comments I saw said their main interest is Acxiom’s data business, which compiles and sells information about individuals (remember those phone books that started it all?)  However, I disagree.  It's not that I fear privacy regulations will kill that business: I expect third party data sharing will continue.  In fact, new rules should work in Acxiom’s favor.  As a company that privacy watchdogs have barked at for decades, Acxiom is likely to thrive after less responsible providers are driven from the business and as data buyers seek sources they can trust.  Indeed, Interpublic’s own discussion of the deal (click here to download) makes several references to data sales as an incremental revenue stream.

But it seems pretty clear that Interpublic’s main interest lies elsewhere. One of the nice things about ad agencies as buyers is they’re really clear in their explanations of their purchases. Interpublic’s deck lists their strategic rationale for buying Acxiom Marketing Services as acquiring “data solutions that enable omnichannel, closed-loop marketing capabilities and power exceptional marketing experiences.” A bit further on, they define the strategic fit as gaining “world class data governance and management capabilities [which] allow us to fully support clients’ first-party data”.  They also say “data assets have intrinsic value that will grow over time”, but I read this to mean they're most interested in managing each client’s own (first party) data.

This makes total sense. When Acxiom was founded in 1969, customer data was only used by a handful of direct mail marketers who were considered something between irrelevant and sleazy by the “real” marketers at big agencies and advertisers. Today, customer data management is considered the key to success in a future where every buyer expects a personalized experience. Ad buying itself, once an art form based on obscure (and often imaginary) distinctions among audience demographics, has become a mechanical process run by programmatic bidding algorithms. Indeed, the fraud-infested, brand-unsafe online ad market is now the shadiest corner of the industry.

The change is perfectly symbolized by the Association of National Advertisers (ANA) purchasing the DMA (originally Direct Mail Marketing Association): data-driven marketing is now main stream, even though the data-driven marketers are still not in charge. (If the data marketers had really taken over, DMA would have bought ANA, not the other way around.)

This is the world where Acxiom's expertise at managing customer data is needed for Interpublic to remain at the center of its clients’ marketing programs. If Interpublic doesn’t have that expertise, other agencies and digital consultancies like Accenture and IBM will provide it and displace Interpublic as a result. It’s not a new trend but it’s one that will continue. Don’t be surprised to see other data-driven marketing services firms find similar new homes.