The Global Human Capital Journal

Converged Experience Presages Telecoms Transformation—Reexamining the Value Proposition

CTOs Chris Rice (AT&T), Pieter Poll (Qwest), Mark Wegleitner (Verizon) and Matt Bross (BT) agreed that the discrete services that telecoms now offer would morph into a seamless, hyperavailable cloud of communications services. The converged experience will be seamless, feature-rich and accessible when, how and where consumers want. Telecoms' ability to deliver will drive their stock prices in the near term and was the focus of the discussion.

From an operational perspective, telecoms have been too focused on product/service P&L. Now they have to eliminate barriers between products, so the customer can have a context-appropriate, seamless experience. The first phase of this transformation is bundling existing services; however, the real value will come from innovating new services. All applications will be unified around an IP (Internet Protocol) infrastructure. Telecoms don't need to integrate networks; they need to build networks that interoperate.

Between the lines and longer term, telecoms must reexamine their value propositions because we are coming to the end of the era in which custom applications and proprietary interfaces were necessary to integrate networks' "islands of automation." Network-centric software and distributed applications increasingly interoperate natively.

The Rise of the Niche Will Transform the Mass Model—The UGM Threat Is the Opportunity

The advertising industry is at a crossroads. It came of age during the Industrial Economy, and explosive growth coincided with the development of the mass media and the focus on "brand" TV and print advertising. Big media and advertising reflect Industrial Economy values and sensibilities: produce big numbers efficiently and innovate when necessary. Amortize existing investments. The problem is, Knowledge Economy customers want to be communicated with as individuals. Since advertising's processes have been built with big numbers in mind, they are expensive, and the numbers don't work when agencies try to address niches.

Efficiency in advertising has given rise to a value chain that is as heavy with inflexible infrastructure as the airlines' hub and spoke system. Advertisers remain focused on "reach," the number of eyeballs that view their messages (and respond when it's measurable). That's how advertising effectiveness is measured. Advertisers are resistant to changing this system, and that makes emerging technologies like mobile video and social networks of secondary interest to them. Meanwhile, innovators are developing technology and offerings to help early adopters to take advantage of the emerging media.

User-Generated Media (UGM) is a quintessential opportunity/threat. Although amateurs do not produce comparable quality as professionals, they can afford to address niches since their production costs are lower. We predict that they will increasingly disintermediate professional marketers: their relevance is often high because amateurs are focused on what interests them, while professionals are drafting communications to appeal to big numbers but to few people in particular. Astute agencies will explore collaborating with individuals to bring down production costs and increase relevance.

Content Providers Hobbled by Conventional Thinking—UGC May Fill Content Vacuum in Plum Mobile Video Market

At Digital Hollywood Chicago, speakers held that video would grow significantly as a portion of content experienced on the three screens. However, no panelist gave a compelling reason that video would grow—and there are many problems that will dampen adoption in the short- to medium-term. I question whether they are just trying to drive demand to drive their businesses. Don't forget that this conference is digital Hollywood.

Myopia is content owners' biggest problem: they seek to repurpose existing content for the mobile screen to amortize past investments. This logic permeates their thinking and prevents innovation. Meanwhile, consumers are awakening to the excitement of consumer-produced content, the prices of software tools are falling, and skills are increasing. True, the production quality is usually amateurish, but UGC (user-generated content) is usually free, fresh and relevant—to niches, which is where the action is. Users produce content for fun, and they can afford to address topics that "professional" content cannot. Mass-produced vapid content will still have a place in the consumer entertainment universe, but it will decreasingly be the default.

Mobile video may be especially well suited to UGC: attention spans are short, so relevant short videos, created by other consumers, may be most relevant because they may be "about" the situations in which viewers find themselves. Professional content providers could not afford to make videos of bank bloopers, rude bus drivers, or comical playground incidents. In addition, telecoms' networks won't be ready to carry high production value video for several years, so UGC production quality may be suitable.

If Hollywood doesn't wake up to the opportunity within the next 2-4 years—when mobile video will be at an inflection point—they will have difficulty recovering.

But Legacy Thinking Makes Agency Ecosystem Vulnerable to Disruptive Change—Who Will Be Their Southwest?

Technology is remaking the advertising business because it is beginning to enable individualized targeting via automated tools. It is not a moment too soon.

The ultimate context for this session is that technologies are driving interactivity, which is becoming the default for marketing communications. Legacy players in the marcom value chain have mixed feelings: they want to leverage their investments in legacy processes, people and relationships, and many of their clients are not pushing for interactive or its latest incarnation, digital video.

Thought leaders and visionaries are frustrated by their colleagues' reticence because they perceive that marketers' worst fear—irrelevance—will soon ensue unless they begin to make serious investments in digital video and Web 2.0, which highlights peer-to-peer interactivity.

When it burst into public view with the growing popularity of the Internet ("Web 1.0"), "interactivity" represented new capabilities and sensibilities. Viewers of marcom messages could react to the messages by clicking, and these clicks could be tracked very economically.

However, this was merely a brief overture to a long opera: Web 2.0 represents interactivity on steroids because consumers are originating content and constantly interacting via the proverbial "three screens" (TV, computer and mobile).

Pervasive Consumer Connectivity Vision Upstaged by Enterprise Web 2.0 Collaboration

Cisco's John Chambers is a master technology marketer who quickens your pulse with technology fire and brimstone. However, as the long-time CEO of Cisco, which epitomized the rise of the (Silicon) Valley when it was briefly the most valuable company in the U.S. in 2000, he has seen the company through the tech bust and proven that he has substance and staying power. Although a hypemeister extraordinaire, he may have crystallized the promise of the Enterprise Web 2.0 better than any other speaker at Digital Hollywood Chicago.

Chambers' demos of whiz-bang consumer entertainment scenarios were intriguing but far less interesting to an enterprise-focused audience than his accounts of how Cisco had drastically increased its already-leading efficiency in mergers and acquisitions by collaborating with Web 2.0 tools like wikis. We anticipate that his consumer-focused vision will be consummated far in the future, but his message about enterprise collaboration is achievable this year—for those who are looking for it.

Chambers described an emerging future of networks and communication that revolved around pervasive video, which will drive customer experience, collaboration and value. The world is entering a fundamentally new era in which communication is morphing from one-to-many to many-to-many. This will drive a new degree of collaboration and innovation, and it will change business models. Telecoms are not "coming back," and there will be significant consolidation. Video will rise to prominence and will be created and experienced on any machine or device.

Consumer Mistrust Will Slow the Reality of Mobile Personalization Vision

Panelists at Digital Hollywood Chicago constantly spoke about mobile as the most "personal" of the three screens—for several reasons. The phone number is individual, so all the device's activity can be attributed to a person, whose preferences and needs can be deduced from the activity. In addition, the mobile (phone) accompanies the individual almost everywhere, so it offers a wide scope of visibility into his/her activities, location and interactions.

The mobile device will soon lose the "phone" moniker because the device morphing into a portable digital hub. "Smartphones" have seen much slower adoption than hoped, but functionality, power and capability are steadily increasing while prices fall. Apple's iPhone was constantly mentioned as the promising breakthrough device.

Mobile devices will change relationships far more than the first screen (TV) or the second screen (computer) because they will touch everyone, their capabilities will rival laptops' within 2-3 years, and they are inherently social. Social networking via video sharing, Web browsing, email, SMS, IM, music sharing and voice calling is on tap in the latest smartphones. The problem is, their features are so difficult to access that 90% of them are not used. The iPhone, leveraging Apple's legendary design and software prowess, may blaze the trail.

There are myriad server-side offerings that enable people to connect and communicate with their mobiles. Think of Amazon.com's collaborative filtering (based on what I buy, Amazon can suggest things to me based on what others buy) as well as deep, real-time data mining and social network software that assist people across all modes of communication. Moreover, mobile increases the power of the collaborative filtering idea by triangulating IP (Internet protocol), geography, time (when calls are placed, Web sites browsed, financial transactions executed, coupons redeemed) to provide the ultimate insight into what consumers are doing (and therefore what they may want to do). In theory, providers can gather and use this information to help individuals connect with each other, and they can use it to help advertisers to understand consumers and ostensibly to serve them relevant and helpful messages.

The Challenge of Consumer/Advertising Misalignment: How to Finance Free Content

At Digital Hollywood Chicago, few disputed that broadcast TV and mass advertising's golden age had passed and that several technologies and cultural shifts were pressuring senior marketers to change. To fully appreciate this challenge, one has to consider the three screens through which most consumers experience "content. " What consumers do with the changing capabilities of each screen changes their expectations and behaviors about their experience with all three screens, dramatically increasing opportunities and threats. Interactivity is increasingly available for TV (video). Convergence among the three screens is another important thread. Younger generations of consumers have little tolerance for the concept of mass advertising.

The most rapacious symptom of the weakness of the mass broadcast advertising model is the widespread adoption of the PVR (personal video recorder), which enables (home) viewers to record TV programs—and to skip advertisements. A couple of eye-opening facts: 1) on average, TV programming contains 8.5 minutes of advertisements during each 30 minute segment of programming and 2) 70% of adverts are fast-forwarded through or eliminated. And these numbers pertain to (mostly) non-digital (analog) content; digital, with its omnipresent metadata, will undoubtedly offer more options for avoiding advertising. The model is clearly broken.

The alternative is far from clear. In much of the world, "free" content is made possible by commercial advertising, so if that model is to survive, a solution must be found. Moreover, mobile video is in its infancy, and advertising on "the Internet"—the computer being "second screen"—is still immature. The "first screen" is ailing.

The emergence of digital content is transformational due to metadata and its myriad uses. For example, data can be "aware" of how people are interacting with it, and it can inform content owners/distributors, with viewer consent. Data can be chunked and mashed up more easily (think of songs in a playlist, or chapters on a DVD). Data—and its components—are far more searchable (find chapters of DVDs, not only the whole unit). Of particular interest to advertisers is the ability to be aware of what content ("data") people are consuming, and when. They yearn to deliver targeted advertising.