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2019-12-10

Digital Trends 2020: Master the Art of Value Creation

‘It began in the smoke-filled gaming rooms of South Korea in the late 1990s… farmers collectively earned hundreds of millions of untaxed dollars.’ The Economist, 2019
The farmers in question weren’t agriculturalists. They were gamers who spent hours playing ‘MMORPG’ games (think World of Warcraft) for the sole purpose of collecting ‘gold’ – digital currencies traded for useful items – which they could sell to other players for real-world cash.
The practice now props up the economy of Venezuela, much to the chagrin of the games’ developers, some of which ‘sell virtual gold themselves, and dislike competition’.
There’s a lesson here for your digital strategy.
Many businesses often fail to spot revenue opportunities in their own ideas.
That’s nothing new; think of Alta Vista, and the numerous other pre-Google search engines that disappeared.
But in 2020, brands will come under unprecedented pressure to master the art of digital value creation.
Some pressure will come from the ground up.
Former digital bit-part players have matured into driving forces. Content publishers, influencers and start-ups are evolving novel, scalable business models off the back of monetized digital experiences. Consumers are speaking with their wallets.
From the top down, appetite for ‘growth investing’ has waned.
Behind the scenes of high-profile IPO embarrassments (or lack thereof), tech unicorns are now diverting into R&D around new profit centres, with promising early results.
Established businesses are watching closely. Banks, in particular, are making smart investments designed to defend and grow their existing market shares.
As pressures build through 2020, one thing is certain.
If you don’t start mining your own gold, somebody else will.

1) Virtuous circles in the creator economy

2019 saw huge gains for the creator economy: small publishers fulfilling a public appetite for branded content, and the various businesses spinning off it.
Unlike some early digital publishers which struggled to turn a profit, many are now managing to monetize in innovative ways.
Youth culture media platform Complex earned its reputation off long-form, advertiser-friendly entertainment. Its ‘Hot Ones’ show spun out a $10m hot sauce business. It also has a show called ‘Sneaker Shopping’, and is rumoured to be launching a sneaker marketplace in 2020. Complex now turns over $200m.
A newer business, Kyra TV, is tracking $10m this year: a threefold increase on 2018, off the back of diversifying into brand integrations, social commerce and talent management for influencers.
You only have to read the comments on PAQ, Kyra’s YouTube fashion show, to see that a Netflix show is a likely next step, as are new commerce lines and more influencer events.
These businesses are interesting for two reasons.
A screenshot from Kayra's PAQ Ralph Lauren 100th episode special
One: what I call the Media x Marketing x Enterprise business model, whereby an audience-and-creator network, profitable in its own right, provides a springboard for complementary business.
Two: they produce the greatest value at small scale.
Consider also:
  • Jungle Creations which, through its online communities sold $4m personalised animal socks last Christmas
  • LadBible, an £20m company which evolved from viral video publisher to fully-fledged media business. It has recently launched female-focused channel Tyla, and a Facebook Watch shows with David Attenborough.
  • IMGN Media, owner of some of the biggest meme accounts on Instagram, is now creating original shows for Snapchat.
  • The Social Chain Group, now part of a much larger German ecommerce group, is combining social publishing with ecommerce and social listening to identify shopping trends on social and fulfil demand through their expertise in product and logistics. Surely this is a truly end-to-end proposition.
Traditional media companies have set up competing businesses (News UK’s ‘The Sun Social Studio’ , set up to sell video content to brands, claims a 3m audience), but you wonder if these behemoths have missed the point.
'Rather than ten TV shows consumed by billions of people, we now have hundreds of millions of shows... You could be only one of ten people in the world interested in a niche topic, but chances are you’ll find content for it'.
The reason the creator economy works is that consumers are flocking to their own niche topics - presumably in flight from irrelevant mass media-messaging.
And that’s why Tangent made a calculated bet, earlier this year, on AIM listed social video group Brave Bison. The group, run by ex-Google and Buzzfeed GM Kate Burns, is part media owner, part agency and owns some of the biggest channels across Facebook, Instagram, YouTube and Snapchat. It won’t be long until commerce, licensing and events support an already diverse business model.
Where eyeballs flee, brand budgets will follow, so expect more from the creator economy in the coming year.

2) Influencer marketing grows up

Toiling in the creator economy, influencers are finding themselves increasingly well rewarded for their efforts. The average price of a blog post rose from $7.39 in 2006 to $1,442 in 2019.
Some commentators have raised questions of a bubble.
Akash Mehta, who has 293,000 Instagram followers, told Wall Street Journal that he realised influencer marketing ‘has gone wrong’ when he was offered five times his usual $2k fee for a post, and didn’t believe he could deliver five times the value.
Regulators have started to crack down. Two of the Kardashian sisters have been warned about using their channels to promote diet products , fraud is on the rise, and there is widespread concern about the ability of consumers, particularly children, to identify paid ads.
Graph to show the rise in average cost of social media influencer price per blog post
One also wonders what happens to ‘influence’ when everyone is an influencer. Instagram is thought to have half a million of them.
As a client, this must make it tricky to know what distinct value ‘your’ influencer is adding to the mêlée.
Nonetheless, I wouldn’t forecast the bursting of any bubbles in 2020. Rather, the industry will undergo a natural correction, and grow into its own skin.
Businesses are springing up to help influencers and brands negotiate this change.
Kyra TV is amongst them. Two other businesses, Billion Dollar Boy and Goat (which was rumoured to be in talks with Jungle Creations around a possible merger) are two UK-founded businesses which have gone global and achieved multi-million-pound growth.
Such success, as an agency, can only derive from safeguarding quality, results and regulatory compliance for brands.
In another vote of confidence, financial services businesses – Social Lender and Karat – both lend to influencers based on their social media metrics.
The last one does sound like a dodgy side-bet on a misleading market signal (one wonders why a genuinely successful influencer wouldn’t be able to borrow based on their financial health).
But it does clearly show widespread appreciation of the underlying value of influencer marketing: helping brands zero in on micro-audiences, with minimal creative or intermediary cost.
Expect a bumpier, but nonetheless highly profitable, ride for influencers in the next year.

3) Proprietary digital environments bear fruit

About five years ago, everyone was worried about basket abandonment, and a lot of marketers were in trouble over white-elephant smartphone apps that nobody used.
Now the conversation has flipped upside-down.
Marketers appreciate that digital proprietary environments can be exceptionally profitable – if the environment lends standalone customer value.
Brands such as Volkswagen – which may only see a transaction once every few years – aims to connect its vehicles to the internet of things from 2020, to simplify parking and allow in-car deliveries.
Underpinning this trend is a smarter approach to customer data. Some of the early (post-2016) successes in this space were loyalty environments, such as Starbucks’ app, and Virgin Red - where customers actively shared their data in exchange for a more fun, or more personal customer experience.
More recently, as companies increasingly migrate their data into single enterprise CRMs, this same possibility is becoming available to every kind of brand.
As for the transaction: it’s fundamental, yes – but fixating on it can also be a distraction.
A graph to show the rise in google search trends for 'conversion rate optimization'
The rise in Google Search Trends for ‘conversation rate optimization’ is likely to due to the growing availability of out-of-the-box transaction tools.
A recent deal between Rezolve, a payments tech company, and Samsung, may herald the coming of one-touch-payments, now commonplace across east Asia, for Western consumers and brands.
You can plug these tools into your app at will – but without inherent value in the payment environment, there’s no reason to expect customers to stick around and spend.

4) Unicorns diversify revenue

Few companies are under more pressure to create value than the tech unicorns. Venture capitalist Fred Wilson (whose almost childlike blog design belies his considerable business profile) wrote in September on the important distinction between software companies, and service businesses enabled by software.
I believe that we have seen a narrative… that as software is eating the world (real estate, music, exercise, transportation), every company should be valued as a software company at 10x revenues or more.
And that narrative is now falling apart.
Software companies (Wilson names Zoom and Datadog; you could also add Facebook and Google to the list) are cheap to scale because the software itself is the main source of value. These businesses enjoy healthy margins.
Uber’s and WeWork’s main sources of value – cars, drivers, and fuel, and prime real-estate – are expensive.
Such businesses are now investing heavily in creating new revenue streams.
FTSE 250 IWG Plc – WeWork’s competitor – makes handsome profits off selling services into its clients , and is working towards lessening its dependence on property leases as a profit centre. Tangent started working with IWG mid-2019 and I’ve been blown away by the amount of innovation projects in the pipeline, as well as the organisation’s determination to win.
Uber Australia, meanwhile, will soon allow riders to exchange Uber Rewards points into the program of an as-yet-unnamed airline .
This would generate direct revenue (the airline would buy the points off Uber in such a transaction), but that’s only part of the story.
Uber has a stated objective to create an ‘operating system for everyday life’. The decision to consolidate its food delivery and taxi apps into a single environment is more significant than it appears.
Thanks to its ‘blitzscaling’ approach, the startup now has millions of engaged customers across multiple spending categories. Inevitably, as the brand’s digital footprint grows, those customers will become more numerous, and more engaged.
‘Operating system for everyday life’ almost makes you think ‘offline Google’.
Whether WeWork succeeds in following up the success of IWG remains to be seen; the point is, certain agile technology unicorns have won investor backing for a reason.
Some commentators scoffed at the IPO hiccups of 2019, but 2020 may pack a surprise.

5) A data gold-rush in financial services

Not every form of digital value creation is consumer-facing.
For all the great UX innovations by challenger banks, some far more interesting machinations are underway at major financial services firms.
A startup called Fidel raised $18m in September 2019, to allow developers to build apps, powered by real-time customer data, from the card networks of Visa, MasterCard and American Express.
This data is almost certainly the richest, most detailed profile of You The Consumer in existence.
Your bank and your card issuer have been sitting on this goldmine for years, but until recently, they lacked both the motivation and the tools to do anything with it.
That has now changed.
With interchange fees slashed, card issuers are now pressed to replace that lost revenue stream. Banks, meanwhile, have an incentive to fend off the challengers. Under PSD2, they face pressure to create unmatched value out of your data, before a competitor beats them to it.
This altered state of play will see banks making far greater use of card-linked offers (CLOs).
CLOs – under which generic offers are issued to large numbers of customers - have always been fairly unpopular.
Startups such as Krowd (backed by Barclays), and Tail, now allow banks and affiliated brands to issue hyper-targeted offers to micro-segments of customers for minimal investment.
Visa and MasterCard, meanwhile, could feasibly follow American Express and evolve into more recognisable consumer brands in their own right.
There’s more.
Google will offer checking accounts in America next year; Amazon and Apple both already offer credit cards. The Economist argues that these moves are primarily a data-grab: jumping on highly-informative payment data in order to better promote relevant products and services.
A contributor to the article added:
‘…as Big Tech starts to own consumer relationships, banks could lose clout… They could end up akin to utilities, providing low-margin financial plumbing.’
Arguably, no greater customer value has been created in recent years than by the GAFA quartet.
They may be about to pull off the same trick again.

New rules, new game

A characteristically prescient Harvard Business Review article from 2013 said:
Value creation in the past was a function of economies of industrial scale: mass production and the high efficiency of repeatable tasks. Value creation in the future will be based on economies of creativity: mass customization… the ability to find a solution to a vexing customer problem; or, the way a new product or service is sold and delivered.
You wonder how many business leaders have truly cottoned on.
In the last 18 months, in particular, consultancy work has formed a growing share of Tangent’s business. Brands and businesses increasing call on us to help them adapt to an evolving digital landscape.
Indeed, this is what’s underpinned our own growth over the last few years, whilst many other independent agencies have been bought out, or gone bust.
And yet, for all the many impressive cases of value creation across the digital world, many businesses remain fixated on ‘mass production and the high efficiency of repeatable tasks’.
Cheaper goods and services; faster, slicker experiences.
These things are important and often highly profitable, but they don’t make the greatest use of the unique power of digital innovation: to build entirely new foundations on which to serve and engage with your customer.
What stands out now, in the digital space, is just how broadly this phenomenon is playing out.
Tiny businesses, right down to individual influencers, and right up to the world’s largest finance and technology firms, are harnessing data and agile tools in order to echo some of the most exciting business developments of our time.
It’s easy to say, with the benefit of hindsight, but this was always inevitable.
Improvements such as ‘faster’ or ‘cheaper’ – even ‘more personalized’ - can only ever spiral in on themselves to the point of infinitesimal change.
Altogether new, different forms of value is where the digital future lies.

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