Ad spending is finally moving where the eyeballs and ears actually are. What does it mean when media makers really know who’s watching? Are we entering a golden age of targeting? How does it change how products are created and marketed?
Kirkpatrick: Carolyn Everson, somebody who I admire tremendously and know fairly well from Facebook, and Dave Morgan, who I know super well, from Simulmedia, who is one of Techonomy’s closest friends and supporters. Carolyn oversees all ad sales at Facebook, but really interestingly—did you bring that slide we talked about, by the way?
Everson: I did, but I don’t think they can use it. They were trying to figure out if they can use it.
Kirkpatrick: Okay, well, if we can use it, let us know, Jill. Will you do that? Okay.
In any case, what’s interesting about the slide is how big picture of a view Carolyn has adopted, as she’s basically running the biggest, fastest growing ad platform in the world. It’s becoming a landscape-altering advertising medium, Facebook is, and I’ve always said the targetability of it was something that was unstoppably distinct and unique.
So I don’t know what to say to start out—I mean, the point is to discuss—and Dave wrote an article for Techonomy about this just this week, that, we’re really moving into an entirely different landscape of marketing and advertising. I know what Dave thinks, and I’ll ask him to sort of state that again from what he wrote about the other day. But when you think about the big picture of how the landscaping for marketing and advertising is changing, what is your biggest observation?
Everson: Well, this is the most significant shift we’ve ever seen as marketers, as business leaders. Davos dubbed it the fourth industrial revolution in January, and when you look back to the prior three industrial revolutions, they we’re viewed as dramatic, disruptive, people had a lot of fear about what was going to happen with the economy and jobs, and yet this one is moving faster than anything we have ever seen and it’s being driven by a number of factors. One is just the explosion of connectivity. You know, we now have about 60% of the world that’s still not connected, which if you think about what the opportunity is when the additional few billion people come online, it is going to fundamentally rewire all economies at scale. It will change the way we do financial services, education, healthcare. It’s going to be incredibly dramatic, I think, to the global economy.
So connectivity is one theme, and underneath that of course is mobile, the fact that we now all have a supercomputer in the palm of our hand that is a 100,000 times more powerful than the computer used to send the first man to the moon, gives us information at our fingertips, that also for marketers completely rewrites the rules around what’s expected. Now that you have the most personal device you’ve ever had, the expectation from consumers is that if you show up on my mobile phone, you must be showing up in a relevant, useful, delightful way. And so the combination of the science and the art is really at a stage that we’ve never seen before in the industry.
What is the same? Content and creativity matter. Brands matter incredibly, at a very high level. Storytelling is incredibly important. And so there’s some similar craft skills that have been important since you wrote the first television ad or you wrote the first radio ad or print ad. But using the sophistication of the data so that you show up in a really relevant way is changing all the way marketers are thinking. And it’s not only changing the way they’re marketing. I would argue this is a much bigger, profound shift than marketing, and that’s why—if we can show the slide we will—but the way we think about it is businesses not only have to rewire the way they do marketing, they often have to rewire the way they do business. The disruption that’s happening on a given day, of 1,000 apps trying to get approved from IOS and Android means 1,000 companies every single day are trying to take over—here’s the chart that I use, which will build. A and B is sort of your traditionally large companies. Pick whichever vertical you want them to be. It can be travel, it can be CPG, it can be auto, retail, etcetera. A and Bs have been around a long time. Some of them growing at single digits, some are flattening, some are declining. You have then the X, Y, Zs that are coming into the market. Xs have completely disrupted a particular brand or category, or in some cases an entire industry.
So for example, I would say if you were to take the travel industry—let’s take retail, for example. Amazon is clearly an X. Now, where is it on the X line? You can debate that. However, there are players in the market that look at Amazon as more of an A and B, and it’s flattening out and they’re coming in to try and disrupt Amazon, like Jet and ContextLogic and other e-commerce companies. You get the Zs, who get a lot of venture capital. They get very excited, they come into the market with a big splash and then they implode.
The challenge is, if you’re an A or B company, the data is very much against you. The average Fortune 500 company used to have a projected lifespan of 75 years. Now the projected lifespan of a Fortune 500 company is 15 years. So the rate of disruption is at a pace we’ve never, ever seen before. So what do you do if you’re an A or B? I mean, from what we see, you’ve got four options. Number one, you acquire an X or a Y to inject that into the system. Number two, you build a parallel org. You put it in Silicon Valley or Israel or India and you try to build up a second business model. Number three, you invest. You at least have a venture fund so you can at least partake in the growth. The fourth, you rewire your culture. It’s really hard to rewire a culture. But I’ve got to say, most A and B CEOs that I speak to are very much trying to rewire their culture.
Kirkpatrick: Trying, but succeeding in many cases?
Everson: It’s super hard to do. If you look at, again, the history, the first time the Fortune 500 list was created as 1955, and if you look where are those companies in 2015, 85% of them are gone. So what does gone mean? A third have been merged or acquired. A third still exist, but they’re no longer Fortune 500 companies; they’ve shrunk. And a third are just totally gone. Very few companies can deal with it. And the disruption we’re seeing now, those Xs and Ys, we’ve never had it coming at this pace, ever in the history of business.
Kirkpatrick: We had a great discussion opening today on the Internet of Things and Industrial Internet and how that’s transforming business, and we really didn’t get to the culture question, although all four of the panelists believe very deeply that the implications of that transformation are vast for what kind of company, in terms of its own mindset, will be able to thrive in the future.
But Dave, let’s just bring you in here, because you are a big picture thinker. Your company has figured out a way to target traditional TV advertising using digital techniques, which is quite sophisticated, and you even work with Facebook to some degree in doing that. But when you listen to Carolyn and when you look at the landscape, what do you think is going on at the biggest picture level?
Morgan: So I think—and let’s focus on the large enterprises that sell consumer goods and services. You know, they’re entering into a world where everything has been mapped out in a very long-term, very constant notion that we’ll just keep doing this things, you do sort of exception-based planning, if something doesn’t work, you just try to understand what didn’t work and you patch that. And we’ve shifted now to where we have a consumer-driven economy. And so we had all these big brands that were built for decades sort of in the post-WWII era on manufacturing, distribution, logistics. And so marketing and branding was there’s only three peanut butters that are going to make it to the little general store in the little town: Jiff, Skippy, and Peter Pan. Just be better than one of those. Or how do those three work? Now we have a world where there’s theoretically thousands of peanut butters available to everybody, from what you’re going to get in Union Square to what you can get from Amazon. And none of these companies, none of them, are designed to think like consumer companies. They’ve never been designed to think and listen. They’ve relied on the wholesalers and the distributors. I mean, think about this, how many bottles or cans of soda or water or liquid does the Coca-Cola Company sell to consumers in the United States every year?
Kirkpatrick: Like zero?
Morgan: Zero. They sell syrup, they sell to distributors, they sell to wholesalers. None of the—well, historically—US auto manufacturers are allowed to sell cars to consumers in the United States. They have to take their orders from dealers, who more often than not have franchises with their competitors too. So they’re not wired for that so they don’t understand that. So I think the big deficit that’s happened, and that is going to really collapse a lot of these companies, is they stop marketing. They don’t understand how to market. It is the lowest paid member of the C suite by far in those companies.
Kirkpatrick: The CMO?
Morgan: The CMO or the person who’s running marketing.
Kirkpatrick: Is that right? I didn’t know that.
Morgan: Oh, yeah. I mean, you think about—you know, they don’t last very long. Everything they do is sort of on the lowest cost. So if you had someone you cared about, a cousin or someone that got arrested, you would want to have the highest priced lawyer take care of them if you could. But when they want to market their product, they actually want to find the cheapest agency, and that’s what they talk about, like how little we pay. They don’t talk about what the return was. And I think they’re going to get killed, and they are getting killed now by pure digital companies, and then they’re going to get killed by the hybrid companies. And I think it’s a really interesting—and from your perspective, now you’re doing this, which will it be? Will it actually be the digital companies that will hybridize and add the legacy characteristics to their companies—because they’re pure marketers at heart in most cases—rather than the legacy companies trying to buy the digital.
Everson: It’s such an important point that Dave’s mentioning on the cost. So the whole industry has been run on what I would describe are proxy metrics, meaning we look for the lowest CPMs, we measure impressions, we measure video views or clicks. And if you look at the Xs and Ys, why they’re so good and why they’re growing so quickly, they measure everything on business outcomes. Are we driving customer acquisition? Are we driving mobile app installs? They measure and optimize to a degree where we have some of our Xs and Ys that literally have hundreds of thousands of options for their ads per day. That is not the way a traditional A or B company operates, right? The entire industry has been wired to produce a 30-second spot, have it last a period of time. And so not only to the marketers have to rewire their culture, but the whole entire ecosystem around them does.
I think to Dave’s point, there are Xs and Ys that very much want to be like As and Bs on that chart. They want to be around for the next 100-plus years. They want to build brands. But they built that core digital, everything is oriented around the consumer. And if you were going to start a financial services company today, it would be a FinTech company. It would be some type of mobile payments. If you were going to start a commerce company today, you’re likely going to put it on a mobile device and build an m-commerce and e-commerce strategy. If you’re building a travel company, it’s going to look a lot more like Airbnb or Uber or some type of a shared economy. So everything is being rewritten in a way that the As and Bs have to fundamentally change the way they work. It’s going to be a real big challenge.
Morgan: Yeah, think of it—look at the razor business. So we have Dollar Shave Club, which is a five-year-old company, maybe six. It’s already the number three, it’s coming in very close to number one and two. You have the number one, Gillette, owned by Proctor & Gamble, which will certainly not be owned by Proctor & Gamble in the next 24 months, which is supposed to be the greatest marketing company, but will not be holding onto its brands anymore as it starts—because it’s got activist shareholders. It’s not adding any value. And so if a franchise like that can be collapsed that quickly by a venture capital-financed startup making the exact same kind of product from the same factories in China—you know, what does the legacy of Cincinnati and Proctor & Gamble mean if it can be beaten in one of its biggest products so quickly?
Everson: The challenge for any A or B is how capital allows the Xs and Ys to grow with permission for extended periods of time to not be profitable. There’s completely different rules for how an X and Y can acquire capital and grow and not be asset-intensive when you compare that to A and Bs, who have to produce quarterly results. So we’ve got two sets of standards which are making it incredibly difficult for As and Bs to rewire themselves.
Morgan: And different cost structures. Because if you think—the Dollar Shave Club didn’t think it needed to own factories and own distribution and own logistics and own a lot of physical real estate to its business. So it didn’t even have to raise that capital to do it, so it needed a lot less, and it had a lot of tolerance.
Kirkpatrick: Well, one of the common things about your two business—which kind of was evoked for me by the comment about CMOs trying to spend as little as possible, and while they’re getting paid less than everybody else, which is an interesting side point—is that you two both are extraordinary targeters, right? And you can therefore deliver predictable results that might cost more in some cases than a traditional ad, but could be tied to specific outcomes, right? Just talk a little bit about that psychology and how that’s been received by the marketers. And obviously, it’s your biggest selling point, but just talk a little bit about it.
Everson: Well, I think the shift from proxy metrics to real business metrics and just the relentless focus on are we driving a business outcome, that’s been our mantra in the market and everything we do is oriented towards are we driving a business outcome. And I think we have a pretty unique position in the marketplace around that. A lot of other media companies are not talking about, “Don’t buy us unless you actually think we’re driving a business outcome,” because they have a very hard time proving that—
Kirkpatrick: You say that to them?
Everson: Absolutely. I tell clients, “Don’t invest with us. Unless you think we’re driving your business, you should not be investing with us.” It’s a very different message than I think they hear from other more traditional companies. But I deeply believe that the CMO is—there is one word for a CMO at the end of the day: growth. They’re responsible for driving growth in the business, and in order to do that, every dollar that they invest needs to be working for them. It may be a short term, did we drive any commerce or a customer acquisition or some type of offline conversion? It could be a long-term objective around building a brand. Some of these things don’t happen instantaneously. Brands can take a very long time to build. But all that we do is oriented towards business outcomes.
So for example, let me take a car company. If you talk to the folks in Detroit, they will tell you that the majority—it’s like over 99% of their television budgets are actually not working efficiently for them at all. Which makes sense. If I were to ask this room how many people bought a car this last weekend—we’ll try it. Has anybody bought a car in the last 30 days, in this room? Okay, a few people.
Kirkpatrick: Three people.
Everson: Okay. So for the few people that raised their hand, they do not probably want to see another ad from another car company anytime soon.
Audience 1: I told my husband this morning I can’t see another ad.
Everson: Okay. You don’t want to see one. What you might want to see, if you’re like me—we buy these cars that are like computers now. I don’t even know how to work half the thing. I’d like maybe, if somebody’s going to message me, tell me at least how use the car that I just bought. [LAUGHTER] Tell me—right? So but maybe—and then out of the rest of you, let me ask the question again. How many of you think—
Kirkpatrick: Right, the manual is not going to help.
Everson: How many of you think you’re going to buy a car in the next three months? Okay, so guess what?
Kirkpatrick: Another three. Okay.
Everson: The ads should be laser-targeted to them with very specific messages. We know what car you may be driving, we know you’re coming off lease, so we should become much more efficient with our spend. And that’s what we’re trying to do. We’re trying to get the right message to the right person at the right time, which I know sounds like Pollyanna, but guess what? We can do that now with the capabilities we have.
Kirkpatrick: Well, and I know you can do that in a different way, Dave, but I want you—I want to go to the audience, because I’m sure there’s a lot of interest in asking you guys some things. But you wrote in Techonomy this very interesting piece, Dave, about how really the central function of companies increasingly is becoming marketing. So talk about what you mean by that.
Morgan: Well, Peter Drucker said 60 years ago that the only purpose of the corporation was the creation of customer and the only two business functions that mattered were marketing and innovation and everything else was cost. And I think that, for a bunch of reasons, most of the large companies that grew up in the ’60s, ’70s, ’80s, and ’90s did not have marketing at the center. They actually made the management of their costs and financial leverage sort of the center of the business. I think that in this digital economy now, marketing has to move back to the center. I think we’re going to see a real change. I think one of the biggest resistance to change in the companies have been a fear of looking back for the way they used to do things, and it’s why change has been so slow. And I think that that’s going to change because the companies can be disrupted so quickly. I mean, we wouldn’t expect the food business, for example, to be hit as hard as it is, but you go down here and you’ll see Amazon pickers in the grocery stores. And you know, Walmart has 50% of its business today is food and groceries. And it’s going to get hammered. And so I think we’re now going to see marketing become much more central. I think we’re going to see people that are going to become CEO, and I think we’re going to see a model where people will model themselves—what I’ve written was that they’re going to model much more on a Mark Zuckerberg kind of person who listens, who is a savant to the product and to the consumer, than they will on a Steve Ballmer, who was a Proctor & Gamble-trained brand manager who was all about managing channel.
Kirkpatrick: So one of the things I was trying to get at with Arun, when he talked about crowd-based capitalism, is the implications for product development. Because that is a big subset of the theme you’re talking about, which is if the company’s primary function is marketing and innovation, these two things have to be feeding each other really, really intimately, right? And that’s what your system essentially makes possible. It’s not just about selling stuff more effectively; it’s about making more of the stuff that people really want by listening to them better. Is that—
Everson: The famous example at Facebook, and we have numerous ones, is how we because a place where people actually shared photos. How did that happen? Engineers were watching—because you have to go back five, six years, where we weren’t a place that you posted photos. It was text. But the engineering team was noticing that every day people were changing their profile picture. It was the only way they could change their visual identity on Facebook, and they’re like, aha, people like to actually express themselves visually. Next thing you know, Facebook becomes the largest photo sharing website in the world by a huge factor. By really being completely oriented around the consumer—our belief is that that’s where the innovation comes from. It’s also the innovation that led us to Instagram, because of visual. It led us to buy WhatsApp, because we saw how much they wanted to do messaging and pull out Messenger. You’ve got to be oriented around the consumer, and it’s an easy thing to say, but a very hard thing to do.
Kirkpatrick: But this is what you and I were talking about at lunch, Dave, that it’s—you can see Amazon and Facebook doing it, because they are fundamentally digital companies that listen, by definition, all the time and they’re always watching everything their customers do, and as a result, constantly changing the product that they create, right? But you were saying that’s the way every company has to become, and we were talking about how hard it is for other companies to do that.
Morgan: Yeah, I mean, there isn’t a question, if they don’t understand the consumer and aren’t listening and aren’t able to change the product, change manufacturing, innovate into it, they’re not going to survive. It’s just not going to be possible. And I think that what is hard for people to accept is that we have these ideas that these lines, like the A and the B, that they’ll just sort of slowly go this way. I mean, they won’t. And it’s like the Ernest Hemingway line, when the Hemingway-esque character in “The Sun Also Rises” is asking the English boyfriend of his love interest like how he went bankrupt—because he was a trust fund kid—
Kirkpatrick: How’d he go bankrupt, right.
Morgan: And he said, “Well, how did you go bankrupt?” And he said, “Well, two ways. Gradually, then suddenly.” [LAUGHTER] And that’s what’s going to happen to the As and the Bs. I mean, they are just going to—it will go that quickly.
Kirkpatrick: Okay, I want to hear some audience reaction to any of this. Okay, I like Michael and I haven’t seen him in a long time. So I’m going to call on him again. Michael Schrage—please wait for the mic.
Michael Schrage: Michael Schrage with MIT. I just want to reinforce the point, but use it to ask you to expand on it. Very few poets are great mathematicians. How many of the As and Bs—Carolyn, you said explicitly, people shouldn’t work with you unless they are prepared to invest for a change in business outcome. How many of people you talk with, and please be as honest as you can without embarrassing anybody, are quantitatively capable of taking advantage of the portfolio of targeting and predictive analytics, deep learning, machine learning options that you have? Is it 50%, 20%, 2%?
Everson: So we have three million advertisers right now on Facebook.
And if you took the Fortune 100 companies, I would tell you that at the senior levels they totally get what needs to be done. Totally. Intellectually, from an intellectual curiosity standpoint, from the mandate. If you talk to the more, like the 24-year-olds who have only grown up in this world, they get it. Where the problem often is, is in the middle layer, the middle management. So even when CMOs or CEOs declare that they want a shift to be more business outcome, value-driven, use the data to be targeted, obviously, all the things that we’ve just talked about, stuff gets lost sometimes in the system. And certain companies are doing everything they can to reduce that friction, but I would say—I mean now, look, we’re many, many years into this journey, right? If you were to ask me that four or five years ago, when I first got to Facebook, we were still only talking about like shares and comments. We weren’t even driving the conversation the way we needed to, and we’ve made a very significant shift over the last handful of years, which basically took the position we want to be here a lot longer than any of our individuals are going to be here, and in order to build a lasting company, we’ve got to do one thing, and that is to drive growth for clients, and we need clients to trust and believe we’re driving their growth, so we want to be fully measured. The top and very junior ones get it. It’s the middle-management that sometimes trip us up.
Morgan: It’s not the math issue as much as just being empirical, just being willing to recognize that you might need to be rational, and that’s what’s missing a lot of times is the believe that marketing can be irrational.
Audience 2: Hi, We do a lot of big data analysis, around counterterrorism data more recently. A lot of this typically was agency data over the past four or five years. One of the things that we’ve seen is—and you keep talking about disruption. One of the big things with the agency world is getting them to shift quickly enough where they have a tremendous amount of spend. On the State Department—and really with a lot of these non-governmental actors, what we’re seeing as the challenge—ISIS has a 250-person social media shop that operates, and they’re buying media through third party agencies and that sort of thing. What can we do to partner with organizations like you to kind of provide some of the educational disruption that’s necessarily needed inside of not just the NGO space, but the government space?
Everson: So we have a program—one of the biggest things that we do is education to try to inspire the agency community and marketing community at large. And so we have now over 200,000 people that have used something called Blueprint, which we basically take all the training that we give internally at Facebook—we all go through the training, we are tested twice a year. I mean, it’s very intense. You have to understand what’s going on with the product. We’ve made that completely available to the agency ecosystem. And so I’d be happy to follow up with you after, if you think that could be of use to the government organizations. I don’t believe any government organizations, to my knowledge, have taken the courses. It’s all online. It’s free. That gives them the basic tools, and the it becomes more advanced on how to think about utilizing our platforms.
Audience 3: I run a website for tech-savvy folks over age 50 and our marketing budget is infinitesimal, so I struggle with every dime that we spend. And we’ve spent a lot of time looking around, and the only place we’ve found that actually delivers the audience that we want with pinpoint accuracy is Facebook.
Kirkpatrick: She hates hearing that.
Everson: Can I take you on all my meetings?
Audience 3: And we’re getting roughly about a 5% conversion rate, which we think is pretty good, on most of the stuff we’re putting in. But I deal with all of these other companies, especially in consumer tech, that just don’t understand what it is we’re trying to do, and have absolutely no clue as to how to market to a tech-savvy 50-plus audience, where you guys have got it nailed. What is it going to take to bring the rest of the world along with you?
Everson: So every time I hear that either a marketer doesn’t know how to utilize us or an agency, I view that as my problem and my fault and my team’s fault, and we just got to continue to do a better job. Because we have a platform that has proven, again and again, that it drives business growth. From anybody taking the money out of their pocket, which are the small businesses—I mean, they’re your toughest customers, because they’re taking the money out of their pocketbook or out of the cash register and they’re giving it to you. And sometimes it’s $10 dollars a day budget, and that to them is all they can do and they’re depending on us to drive their business. We view it as we’ve got to now reach the other—we have 50 million businesses that have a presence on Facebook, and only 3 million are advertising. So just do the math of 50 million minus 3 million, 47 million businesses that we need to get to. It’s not just businesses. A lot of those are nonprofits, etcetera. But we’ve got a lot of work to do. So I view it as our job to educate the market. It’s hard. Scaling this education is one of the biggest challenges. That’s why we have the Blueprint. It’s why we have a team of people—but we don’t have enough resources to get out to the need. The need is so great. I live in Montclair, New Jersey. Every time I shop small in my town, people are like, “Can you please help me with my Facebook?” I’m ready to put my husband into business. He’s at home, working. I’m like, “You need to build a company to advise small businesses.” There is such a great need out there, but I view it as something we have to do.