BadTech Is the Next New Thing

Forget about Martech, Adtech, or even Madtech. The next big thing is BadTech.

I’m referring to is the backlash against big tech firms – Google, Amazon, Apple, and above all Facebook – that have relentlessly expanded their influence on everyday life. Until recently, these firms were mostly seen as positive, or at least benignly neutral, forces that made consumers’ lives easier.  But something snapped after the Cambridge Analytica scandal last March.  Scattered concerns became a flood of hostility.  Enthusiasm curdled into skepticism and fear.  The world recognized a new avatar of evil: BadTech.

As a long-standing skeptic (see this from 2016), I’m generally pleased with this development. The past month alone offers plenty of news to alarm consumers:

• Google tracks location even after users turn off Location Sharing.
• telecom lobbyists have successfully blocked close to 70 privacy bills so far this year.
• big gaps in social media efforts to block even someone as clearly horrid as Infowars’ Alex Jones – famous for claiming the Sandy Hook school shooting was a hoax.
• Facebook reinstated social monitoring vendor Crimson Hexagon despite concerns that government agencies were using it to monitor public activities.
• Amazon’s facial recognition software falsely matched 28 U.S. Congress members with mugshots.
• Artifical intelligence training data often creates unintentional bias and there's no standard method to prevent this.
• Russian hackers continue to attack U.S. (and other) elections.

There's more bad news for marketers and other business people:

• clients' customer data was exposed by Salesforce.com (although there’s no evidence that anything was actually leaked).
• up to 70% of video spend goes to unauthorized sellers.
• fake followers comprise up to one-third of Instagram influencers’ audiences.
• few organizations are succeeding in their AI investments.

Not surprisingly, consumers, businesses, and governments have reacted with new skepticism, concern, and even some action:

• Americans fear losing their personal data more than losing their physical wallet
• only Amazon ranks in the top five of the 20 most trusted companies.  Google, Apple and Microsoft are six, eight, and nine.  Facebook isn’t anywhere on the list.
• European Union puts teeth in regulations that require removal of extremist content within one hour.
• California legislature passes strong data privacy law.
• advertisers infatuation with blockchain is starting to fizzle.

But all is not perfect.

• BadTech firms still plunge ahead with dangerous projects. For example, despite the clear and increasing dangers from poorly controlled AI, it’s being distributed more broadly by Ebay, Salesforce, Google, and Oracle. 
• Other institutions merrily pursue their own questionable ideas. Here we have General Motors and Shell opening new risks by connecting cars to gas pumps.  Here – this is not a joke – a university is putting school-controlled Amazon Echo listening devices in every dorm room

• The press continues to get it wrong. This New York Times Magazine piece presents California’s privacy law as a triumph for its citizen-activist sponsor, when he in fact traded a nearly-impossible-to change referendum for a law that will surely be gutted before it takes effect in 2020.

• Proponents will overreach. This opinion piece argues the term “privacy policy” should be banned because consumers think the label means a company keeps their data private. This is a side issue at best; at worst, it tries to protect people from being lazy. Balancing privacy against other legitimate concerns will be hard enough without silly distractions.

So welcome to our latest brave new world, where BadTech is one more villain to fear   It's progress that people recognize the issues but we can't let emotion overwhelm considered solutions.  Let’s use the moment to address the real problems without creating new ones or throwing away what’s genuinely good.  We can't afford to fail.

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.

The Personal Network Effect Makes Walled Gardens Stronger, But There's Still Hope

I’m still chewing over the role of “walled garden” vendors including Google, Amazon, and Facebook, and in particular how most observers – especially in the general media – fail to grasp how those firms differ from traditional monopolists. As it happens, I’m also preparing a speech for later this month that will touch on the topic, which means I’ve spent many hours working on slides to communicate the relevant concepts. Since just a handful of people will see the slides in person, I figured I’d share them here as well.

In pondering the relation of the walled garden vendors to the rest of us, I’ve come to realize there are two primary dynamics at work. The first is the “personal network effect” that I’ve described previously. The fundamental notion is that companies get exponentially increasing value as they capture more types of information about a consumer. For example, it’s useful to know what’s on someone’s calendar and it’s useful to have a mapping app that captures their locations. But if the same company controls both those apps, it can connect them to provide a new service such as automatically mapping out the day’s travel route.  Maybe you even add helpful suggestions for where to stop for fuel or lunch.

 In network terms, you can think of each application as a node with a value of its own and each connection between nodes having a separate additional value. Since the number of connections increases faster than the number of nodes, there’s a sharp rise in value each time a new node is added. The more nodes you own already, the greater the increase: so companies that own several nodes can afford to pay more for a new node than companies that own just one node. This makes it tough for new companies to break into a customer’s life. It also makes it tough for customers to break away from their dominant network provider.

My best visualization of this is to show the applications surrounding an individual and to draw lines showing how many more connections appear when you add nodes.  If it looks like the customer is trapped by those lines, well, yes.

The point that’s missing from the discussions I’ve seen about walled gardens is that personal networks create a monopoly on the individual level. Different companies can coexist as the dominant networks for different people.  So let’s assume that Google, Facebook, Amazon, and Apple each manage to capture one quarter of the population in their own network. If each member spends 100% of her money through her network owner, the over-all market share of each firm would be just 25%. From a classical viewpoint, that’s a highly competitive market. But each consumer is actually at the mercy of a monopolist.  (If you want a real-life example, consider airline hub-and-spoke route maps.  Each airline has an effective monopoly in its hub cities, even though no airline has an over-all monopoly.  It took regulators a long time to figure that one out, too.)  

In theory the consumer could switch to a new network. But switching costs are very high, since you have to train the new network to know as much about you as the old network. And switching to a new network just means you’re changing monopolists.  Remember that the personal network effect makes it really inconvenient to have more than one primary network provider.

The second dynamic is the competition among network providers to attract new customers. As with any network, personal networks hold a big first mover advantage: whichever provider first sells several apps to the same consumer has a good, and ever-growing, chance of becoming that consumer's primary network.

Once the importance of this becomes clear, you can recognize the game of high-stakes leapfrog that network vendors have been playing for the past two decades. It starts with Amazon in 1994, intercepting buyers before they can reach a physical retailer. A few years later, Google starts catching buyers in the browser, making searches before they’re ready to buy through Amazon. Then Facebook shows up, first with a social network where people discuss their purchases before they make a Web search, and later with a mobile app that bypasses the Web browser altogether. A decade after that, Amazon strikes back with voice search on Alexa, which can happen even before someone types in a social post.

Remember, this isn’t just about selling advertising. Vendors can share that pie. What they can’t share is control over one consumer’s personal network. Since that, in turn, gives control over actual purchases, it’s a much bigger prize and, therefore, worth a great deal more effort to win. Now you see why Amazon has put so much effort into hardware over the years.  It's not just that Jeff Bezos likes cool gadgets.

At this point, you might pause to wonder what happens next.  Is there something that can intercept consumers before they say what they're thinking?  AI- and/or implant-enabled mind reading are certainly possibilities.  But the next frontier right now is subscriptions, which let purchases happen without any specific action for a voice system to intercept.

This is exactly why subscriptions are getting so much attention right now.  (I do need to admit that Dollar Shave Club, Blue Apron, and Birchbox messed up my chronology by launching around 2011, several years before Alexa).

Of course, there’s nothing to prevent the network vendors from launching subscription services. In fact, the price of Blue Apron’s IPO was depressed precisely by the fear that Amazon would enter its business through the Whole Foods acquisition.

But what’s really interesting about subscriptions is they’re less subject to the personal network effect than other types of purchases. A subscription company comes to understand its customers’ needs in one particular area very deeply.  Potentially, it can fulfill those needs better than a company working from less detailed data gathered in other domains.

Certainly a great deal depends on execution.  But if I’ve trained my wine-by-mail company to understand my precise tastes, I’ll probably buy through them when I’m stocking up for my next party, even though Amazon knows I’m planning to have people over and has some general idea that my friends like to drink.

In short, the walled gardens are not impregnable.  Subscriptions might offer a way to help customers escape. But marketers are going to have to work harder than ever to create relationships strong enough to pull their customers away from the networks. All I can do here is to clarify the issues so marketers can better understand the tasks ahead.