Digital Darwinism

by Tom Goodwin

  owned media like websites and stores, brochures, blogs, or e-mail newsletters;

  earned media like reviews, PR, organic search;

  paid media, which is primarily what we’ve always thought of as advertising – paid media placements where the business gets to control the message entirely.

  The marketing layer: supporting communications

  Supporting the communications layer would be the marketing layer, a much more diverse array of activities that a company undertakes to both sell products and create the brand. You could argue that it is this layer that creates the full meaning of brand and the full understanding in a consumer’s mind of what a product or service is, what it means, what it’s worth and more. This layer includes:

  Place: the geographical location where the product is offered, the type of distribution channel used and increasingly the strategy behind distribution – placement both in terms of where the product is for sale, as well as the context and precise location within the store or online where the product is found.

  Pricing: the amount a customer pays for a product or the sacrifice or effort people are prepared to make to acquire a product.

  Promotion: generally, the sum of all marketing communications is to make the offer or brand known and understood to potential and current customers in order to persuade them to take an interest or buy the product. This is generally understood to include advertising, PR, sales promotion, direct marketing, and increasingly, influencer marketing, owned media, sponsorship and a dazzling array of new techniques or even old techniques which for some reason are considered new again, like branded content or native advertising. It’s this part of the marketing layer that the outermost communications layer most directly builds on.

  The product layer: what you make

  The product layer is the ‘what’ of a company: the part of the business that represents its reason for existence. It’s effectively the mechanics of how a company operates and the product it makes, but in the broadest terms. Products are increasingly deemed to be more than just the tangible physicality of a product. Car companies are not just about the experience of having the car, but the experience of buying and maintaining the car. The business of mobile network companies is less about providing data and voice well, and more about having quality service, providing access to unique content, building partnerships with useful tangential services, and much more.

  In the modern age, products encompass everything that you experience as an owner or user. They include all touchpoints: the check-in desk at the airport; the clerk at the bank; from the form you fill in to get insurance to the terms and conditions, the labelling and merchandising of the policy. Products run deep. For example, in cars they include the after-sales service, the e-mails before your lease ends, the feeling of ownership in its totality.

  The process layer: the how

  The process layer is the ‘how’ of a company: everything that gets things made. It includes the culture and how people are expected to behave, how and why people are recruited, the training they undertake, and the spirit and attitudes they are likely to have and represent. Is the company autocratic, democratic or (unlikely) holacratic? Are people empowered to make decisions or hiding in a culture of fear? Does the company seek to outsource as much as possible or keep control? Process is the organizational chart, the way decisions get made, meetings are arranged, how people are judged and supported, promoted and fired. It covers systems too, the technology used to underpin a company. Does it use Slack, Dropbox, video-conferencing software? What are the security features like, is the company open-plan or tucked away in cubicles, is it open- or closed-minded?

  Mission

  It’s hard to understate the importance of the mission, yet few companies have one. If Nike says, ‘If you have a body, you are an athlete’ and that their role is to ‘bring inspiration and innovation to every athlete in the world’ then you know what you are supposed to be doing and not doing when you work there. If IKEA stands for ‘making everyday life better for our customers with well-designed products’ it’s pretty empowering. The mission is the raison d’être: it’s why everyone goes to work, it’s how people focus, celebrate, prioritize. The mission of the company is what supports everything else. It drives and reinforces the culture and processes, which then design, refine and make the products and experiences, and which are then communicated to the market.

  So we get new questions. How deeply are you applying new technology? What is the new context in which you now operate? What new consumer behaviours can you work around and leverage?

  A prioritization framework for innovation

  When Andy Warhol said that everyone would be famous for 15 minutes, he understood the modern era well. It sometimes seems that everyone in business is trying to build a personal brand, get a following, be retweeted or faved, or whatever your preferred terms of approval are.

  As I will discuss later, we are impatient for success, we seek change that is fast, easy and tangible, more than stuff that makes a difference. If we were to draw a matrix plotting change from easy to difficult on one axis, and the amount of difference brought about by that change from irrelevant to vital on the other, we’d have a matrix like the one in Figure 5.2. We don’t favour the change that makes a difference, but the one that we can do most easily.

  Figure 5.2 Problems and opportunities matrix

  We would expect subjective, sensible, strategic business minds to care less about what is fast, and more about what is profound. We would expect that people would first of all focus on the most transformative projects, the ones that will profoundly reduce costs, or increase revenue, or ideally both. Often the things that really make a difference are rather boring: a new distribution centre in Kansas; a new invoicing backbone; an entirely new way to process payments in a bank; rethinking your customer relationship management (CRM) strategy and data architecture to manage customers over the long term, send them personalized e-mails, and ensure you don’t send new sign-up offers to existing customers. These things run deep. If a car company is really keen to get CRM right, then the dealership data needs to talk to the Tier 2 dealer network, which then needs to work with HQ data. Each of these systems has probably been built by different people, at different times on different systems. If a fast-food company is going to improve its customer service at all its locations, it’s going to have to work with thousands of tiny franchise operators as well as those large franchise owners that can be a bit of a pain in the neck. A lot of the things that will actually make a difference are very hard to do, but as human nature wants us to feel as if we’ve achieved something, we focus on what we can do most readily and which requires least cooperation with other people.

  It’s pretty easy to innovate at the edge

  The outermost (communications) layer offers the easiest possible innovation. It requires the least organizational effort, the most superficial of conversations, is easiest and fastest to achieve and is the most highly visible.

  Innovation at the communications layer is also the fastest way to show the world you’re ahead of the industry. Deliver a can of coke to construction workers in Jakarta with a drone and stick the video on YouTube. Job done. Place a vending machine in a shopping mall in Dubai and give free ice creams to those who smile, make a case study video, overlay some U2 – and celebrate at Cannes. Create an app where you upload swishes of your hair to Instagram and get someone famous to tweet the winner – this is easy.

  Communications innovation in the digital age just requires embracing new platforms, new gadgets, new start-ups – and away we go. Innovation at this level is normally pretty cheap, involves few stakeholders internally, can be outsourced to agencies and is quite easy to get a budget for. If you want to spend $50,000 on a chatbot, the money comes quite quickly as the PR results can usually be easily measured to show success. If you want to give an iBeacon start-up $25,000 to try something in one location or $100,000 for a VR experience at a tradeshow, then you won’t need to reach
far upstream into your client’s complex organizational politics. In fact, you can probably get rewarded with some decent press merely for announcing an intent to do something.

  Communications-level innovation is everywhere. The pages of TechCrunch and Adweek are littered with emoji hacks, buttons on shoes to order pizza, a 360-video ad on Facebook, something with a 3D-printed trinket, and the award winners in most advertising festivals feature heavily with this fast, snackable, digestible, quick innovation. Realistically, in my role as head of innovation in a large global media agency, it is my job to do this. I want to make my clients look good, to find new partners to work with, to do small incremental projects that push boundaries. The problem is that it rarely makes a difference to the bottom line. It’s all innovation for innovation’s sake, never or rarely to make a difference.

  Innovation at the marketing level

  Innovation at the marketing layer makes a bigger difference, but is harder to bring about. Dollar Shave Club, Warby Parker, Casper and Wayfair are examples of companies that have considered new ways to go to market, new ways to price or distribute. They have gone against many industry norms, but are not, at the core, radically different companies to their predecessors. At this layer, change is much harder. IKEA seems to find it extremely hard to create an online business when they know it is store visits that drive incremental and impulse purchases, when they know delivering furniture isn’t cheap and they’ve got billions invested in retail footprint to serve people another way. Yet unlike many, IKEA is working hard to change, announcing partnerships with third-party companies to find ways to sell online more efficiently (Meixler, 2017).

  Better examples include companies such as e.l.f. Cosmetics. The company started with only 13 make-up products, and its launch was inspired when the founders saw women with expensive cars buying bargain-price cosmetics at 99-cent stores in Los Angeles. It has a very simple, tiered pricing approach, selling high-quality cosmetics at $1, $3, and $6 price points. The company launched online only when it realized that the only way to get a listing and a feature in Glamour magazine was to ensure that products could be distributed nation-wide. The company shuns any paid advertising but uses influencers and social media to spread the word and hosts an active blog that includes celebrity sightings.

  Applying new thinking at the process layer: the how

  Going deeper into the core of the business, we now consider those companies that apply new thinking and new technology to the product and process layer.

  Companies like Blue Apron have not changed everything about food or grocery retail, but they have totally transformed how we buy it. They’ve taken industry norms and turned them on their heads. They don’t sell ready-made meals, as many before have tried. They sell pre-measured ingredients, with beautiful packaging, wonderful instructions, based on a subscription model. They lock the customer into a relationship with a company providing meals on demand, but with the added pleasure of cooking the meal yourself.

  Deeper transformation: companies built with new thinking at the core

  The companies that are truly different are those that have applied new thinking and new technology, and have worked around new customer behaviours and expectations at the very core of their business. They have taken tech to the very heart of what they do.

  The examples are clear and notable. We can look at Amazon, Alibaba, Facebook, Google. This offers another chance to talk about Airbnb. Figure 5.3, based on data from Bloomberg, shows the ascent of the largest public companies today since the launch of the iPhone in 2007, and demonstrates how modern-thinking, software-focused companies have exploded, while banks and energy companies have fallen in value. The world’s seven most valuable public companies are all in the technology sector.

  Figure 5.3 The world’s most valuable public companies, November 2017

  SOURCE Bloomberg

  However, even more interesting to investigate are those companies we don’t often think about.

  One such example is Lemonade, a simple contents insurance brand based in the USA. They built their entire company around app-based mobile devices, using chat-like interfaces. They even employ sophisticated AI techniques to automate most of their service. But the re-imagination goes way beyond that. Insurance companies have long been rooted in the design theory of ‘dark patterns’. They make more money by denying claims and by discouraging them in the first place. Lemonade has completely turned the thinking on its head. Claims are paid near instantly, and are extremely easy to make using the chat interface. But the most remarkable feature is that you make your claim by recording a video testimony with your phone’s front-facing camera. It is both quick and easy, and is also likely to weed out those people who would feel uncomfortable lying on camera.

  There are other companies who remain uncelebrated but who are remarkably different. The mobile payments service Venmo, for example, does not charge for most of its transactions and allows people to send money to each other instantly. The business currently makes very little money, but could one day become a digital wallet, allowing people to buy things from shops and services, not just pay money to each other. Given the transaction fees that credit card companies charge, it’s easy to see how Venmo could make money fast with a new model. Other examples include TransferWise, which is a simple way to send money internationally at much fairer rates, and LendingClub which offers peer-to-peer loans.

  It seems that the speed of growth and increase in value of the world’s most successful companies are both closely correlated with their use of technology and (more importantly) the depth at which they apply it in their business. Figure 5.4 illustrates how some of the world’s top valued companies have grown exponentially since the release of the iPhone in 2007, thus offering a glimpse of how just one technology can unleash usability and the real potential for their services.

  Figure 5.4 The smartphone era: market-value rankings of companies since the first iPhone launched

  SOURCE Bloomberg, https://www.bloomberg.com/news/articles/2017- 09-11/apple-vaults-to-no-1-from-no-70-after-a-decade-of-iphone-sales

  Digitization vs digital transformation

  It’s interesting to compare how deeply people really take new thinking on board. In my opinion there is a huge gulf between companies retroactively applying new technology to old processes and systems and those having the courage to dig more deeply, invest more money and make deeper changes.

  Tesco started its dotcom operations way back in 1996 with the help of a fax machine. Initially they built a simple website, took some photos of what they normally sold and put them online. Quite soon orders began to come through rapidly to stores all around the UK. Realizing what they’d done, they quickly established a new procedure. Those orders for ‘online’ received at head office were faxed out to individual branches, where the overnight stock replenishers would pick the items ordered. This is the folly of incremental change, rather than the wisdom of building new. This is constantly adding new technology to make up for a rotten core. If a large grocery retailer like Tesco were to be built today, it would have an interesting choice. Does it even construct stores around the country and have a super-efficient online unit? Or does it bypass this altogether and be more like Ocado, with automated warehouses? Such a retailer would never deliver items to stores, but would only have people put out stock, then pick it and transport it to people directly. This is the difference between digital transformation, building with technology at the core, and digitalization, adding some tech on the edge to modernize the system.

  When Hertz loses my booking, which is often, I can use a video kiosk to phone up a call centre to complain. They get to see in 4K resolution quite how furious I am. If Hertz were to digitally transform, they’d look more like Zipcar or Uber. In the USA, cheques are still widely used and rather liked. Many US banks have realized how hard it would be to reinvent the financial institutions built on the foundations of the past. So, to make it easier, cheques can now be photographed and deposited via an app. Thi
s is the clearest example of merely sprinkling a contemporary digital interface on an archaic broken process. These cheques still cost a fortune and take many days for the bank to process, fraud is an ever-increasing problem and the whole system is wildly inefficient and just doesn’t make sense.

  So as we seek ways in which companies can best approach today’s challenges and opportunities to maximize future potential, let’s think more about how we can unlock growth.

  It’s fun to compare companies and industries that have embraced new realities and models with those that have not. Those who seem very excited about new technology and those who appear reluctant. Those who are rebuilding and reinventing and those who are remaking. Those who are happy to take steps backwards in order to move forward and those who want to build on foundations that just won’t support the future. We’ve learned the importance of depth in bringing about new growth and greater efficiencies. Now we should consider structure, timing, culture and other operational aspects.

  Create new value propositions

  Value is different in the digital age. I use a slower more expensive train to visit my parents in the UK because it’s got fast Wi-Fi and plug sockets. The best thing an Audi owner told me recently about their car is the app you can use to arrange the repair of scratches. I now favour Delta over American Airlines because their app tells you when the flight boards. Not many companies are thinking this way. In the USA I’d happily eschew credit card providers’ generous offers of air miles, speedy boarding and free bags on planes, for something that would cost a card issuer $1, a card that lets me pay with contactless. My time is most valuable. I would now choose a bank if it stored all my receipts digitally, I’d choose a car-riding service if it uploaded my receipts for faster expense processing. Value looks different in the modern age.