The advertising and marketing world is finally starting to get its head around Web 2.0. Apart from a small number of agencies and clients, who embraced change swiftly, and nimbly re-formulated their organisational structures and internal processes, the industry in general has been incredibly slow to adapt.
For an industry that prides itself on innovative thinking, and utilising creativity effectively to drive corporate objectives, the last few years have not been our finest hour. Now, thanks in large part to the recession, clients and agencies are finally being forced to look much harder at their budgets, their processes, and their creative product.
The problem is, things are changing faster than the industry can keep up. No sooner has the agency world got its head around Web 2.0, than the semantic web (aka Web 3.0), powered by linked data, rears its sizeable head.
We are now entering the era of the intelligent internet, where consumers intuitively interweave their daily online and offline lives through smart devices that are powered by advanced operating systems (OS) and GPS-functionality.
This new breed of smart device enables: enhanced, multi-dimensional social networking functionality; enhanced connectivity to friends, family, colleagues and brands; and enhanced opportunities for highly targeted, location-based advertising and marketing.
This phase of the internet is now here, and it is only a short matter of time before it becomes truly mainstream.
This post looks at the future shape of a converged, vertically integrated Web 3.0 economy; and the fundamental impact it will have on brands, advertising and marketing.
The fact is that consumers are far, far ahead of the advertising and marketing industry at the moment. Clients are aware of this and are trying to adapt their organisational models to reflect the fast-changing behavioural shifts in developed societies. Agencies are likewise trying to understand how they can completely change their monetization models without totally decimating their revenue streams.
The problem with all of this, for the advertising and marketing world, is that the nature of technological change within today’s society is driving increased convergence across highly differentiated industries. The lines that have been drawn between the worlds of entertainment, computing, hardware, operating systems, and telecommunications are blurring rapidly.
And the pace of change is accelerating as a consequence of two primary factors.
Firstly, consumers are adopting new technologies faster than ever before, as a result of: widespread, ultra-fast wireless broadband; increased choice of platforms and providers; and a vastly increased level of trust in technology generally (versus the hesitant adoption of new technologies just a few years ago).
Secondly, the recession is proving to be a catalyst for powerful organisations to look beyond their narrow field of vision for incremental future growth opportunities. This is a sound defensive strategy at a time when rock-bottom share prices weaken companies’ abilities to ward off aggressors, but is also a progressive offensive strategy at a time when vertical integration appears to be the organisational model for the market leaders of the future.
This vertically integrated model is the reason why the likes of Microsoft, Google, Apple, Cisco, and Oracle have all recently taken up very aggressive positions versus their competitors, in fields that have not previously been their natural domain.
Oracle, for example, has just bought Sun Microsystems. This is big news, in so much as Oracle are predominantly a database and business software company. By buying Sun, for $7.4bn, Oracle have effectively acquired a hardware firm that delivers tightly integrated ‘systems’ of hardware and software to corporate clients.
Additionally, Oracle’s purchase of Sun gives it both Java (a programming language that powers both business applications and software that runs on mobile phones) and Solaris (an operating system used as the platform for Oracle’s databases).
The point about this purchase is that it clearly demonstrates Oracle’s strategic objective to have vertically-integrated ownership of sophisticated operating systems, the technology that powers them, the platforms on which they run, and the hardware in which they will be consumed.
By integrating these elements, from previously differentiated industries, Oracle is creating a powerful position from which it can mass customise highly tailored solutions to clients, whilst at the same time enjoying economies of scale and increased margins. It’s a strategy that seems to be prudent in a long-tail economic environment where margins are being squeezed.
Oracle, as we know, exists in the corporate space. But this example is important from a consumer perspective for two key reasons.
Firstly, because it is directly relevant to the advertising world in terms of the increasing power that the operating systems and hardware owners will have in a Web 3.0 environment. This will be a world where content, data and information live in the ‘cloud’, and where brands need to intuitively understand the intersection at which they can add tangible value to consumers.
Secondly, the move towards vertical integration and diversification is happening at lightning speed in the consumer space as well. Again, from a marketing perspective, the ability for brands to create technologies and/or content that is relevant and has true utility within a closed, but community-based open-source, environment is the key to future success.
Vertically integrated brands that deliver synchronised solutions to consumers are already here, but it is my opinion that we are just at the start of the convergence phase in the lifecycle of this economic era. And this state of flux could have serious implications for some of the biggest brands in existence today, as well as for the advertising world.
Apple, for example, has had huge success recently by diversifying its hardware offering into the smart mobile device space (with the iPhone and iPod range), and by creating a proprietary and category-changing operating system that intertwines its software products (such as iTunes and the App Store) with the hardware. But what is Apple’s next step to cement its place at the top table in a converged environment?
Google has diversified from being a pure search engine to developing the Android operating system for smart mobile devices, and is taking on Microsoft in it’s own back yard with the development of the Chrome browser for Windows, and Wave (a highly advanced, sophisticated mix of realtime email and social connectivity that will redefine internet communications). But again, where does it go from here?
Microsoft, in turn, has unveiled Bing, a search engine designed to challenge Google’s dominance. It has also had great success by diversifying from its phenomenally successful PC-based Windows operating system with the Windows Mobile Platform, and hardware products such as the Xbox, which is more of a connected home entertainment system than a pure games console. It has just been announced that Facebook & Twitter will be available on Xbox Live soon. Where next for Microsoft, I hear you say?
It is my personal opinion that these behemoths of the modern world are just beginning a new cycle of convergence and consolidation, where they are looking to acquire other organisations that can add incremental value to their existing integrated offerings.
By acquiring the elements of the ‘vertical mix’ that they are missing (for example, Microsoft or Google buying a mobile hardware manufacturer) they will strengthen their competitive advantage further, and increase their ability to deliver seamless, intuitive, synchronised, and highly tailored mass customised solutions to consumers through a variety of ‘owned’ platforms (even if those platforms are built on open-source technology).
If we look at entertainment, YouTube has already gone under the hammer, and the behemoths are fighting ugly in the war for control of brands such as Facebook & Twitter, as they try to acquire the content that people want to interact with. The television networks, and the newspaper industry, both currently on their knees, are ripe for plucking.
The question is, after entertainment and content, what is the next step in the pursuit of global domination?
It is purely conjecture, and a personal opinion, but the answers I keep coming back to are mobile hardware and telecommunications networks, media owners of outdoor digital signage, and both in-home and out-of-home entertainment companies. If I am right, it will mean the brandscape we now exist in will alter dramatically, and the communications industry will change at a most fundamental level.
It may be that the likes of Nokia, Samsung, LG, Vodafone, Telefonica and Deutsche Telecom can evolve their models to become key players in the new, cloud-based Web 3.0 world, and I truly hope that they do, because a couple of them are brands that I have a personal affinity for.
Nokia, for example, have just launched Ovi, an operating system that connects all of your maps, music, content and friends, and is designed to compete with the Google’s and Microsoft’s of this world. It is Nokia's stated strategic objective to become an internet company, rather than a hardware manufacturer. But is it too little too late?
What can a telecoms giant, such as Vodafone, for example, do to ensure that it remains competitive in a world where software and OS are the differentiators? How will the telecom networks become more than just pipes in which other peoples content is streamed? And if that is their future, what defence do they have if Google and Microsoft come knocking with a big bag of cash?
Equally, OOH billboards will be dynamic and digitised, and both in-home and out-of-home entertainment will become extensions of the synchronised online/offline community-based architectures that people cocoon themselves within. These industries fit the bill perfectly from a vertical integration perspective.
Obviously, predicting the future is a fool's game, and I could easily be totally wrong. As I’ve said, this is pure conjecture.
But from a purely strategic perspective, it seems to me that these are the types of industries highly likely to be in the cross hairs of Google and Microsoft very soon, hunted aggressively and without mercy in the next phase of the race for full vertical integration.
And the implications of this revolution on the advertising and marketing world are huge. The model for targeting consumers will be hugely data-driven, and the SEO algorithms that have propelled Google to such heights will be reworked to include GPS and linked, social data into the equations. Owning the platforms through which consumption, participation and interaction take place is a natural next step.
This formula will become the standard mode through which branded utility, content, and information will be processed. Advertising agencies and marketers of all shapes and sizes need to be thinking now about how they will provide relevant solutions in a world where consumers are protected within the strictly guarded walls of vertically integrated, data-led eco-systems, and where highly tailored, mass customisation is the norm.
