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Mobile Fix – January 11              Not a subscriber yet? Sign up here

So it’s been a while and there is lots to catch up on.

Apple

The big news over the last few weeks was Apple finally coming off the rails. We’ve talked about device sales having to peak at some time and the interesting question now is how they fill the gap. Their services revenue has grown substantially over the past couple of years and their ambitions for music and video will drive this further.

So too does the shift away from ownership, towards an Apple Prime service where your monthly fee covers all their content and the latest hardware. We see the these new business models emerging in various sectors, from fashion with Rent the Runway etc through to cars with Polestar from Volvo.

But when you look for substantial revenue streams to replace iPhone sales you have to look at advertising. And when the fastest growing segment of a $500bn industry flows through the device you make, it would be insane not to get involved.

The Apple presence at CES shown above is part of this shift. The Apple emphasis on privacy is designed to put pressure on their GAFA rivals — who have got rich from tracking that makes many people feel uncomfortable. At least when they understand what is actually going on.

Hiring a vocal Facebook critic to their Privacy team is more evidence that Apple are ready to fight over tracking. The new ITP2 rules change the game. 

Steve Jobs saw iAds was a way for app developers to make money. He was right but the revenue came through more focused rivals and iAds disappeared. The logic remains and using privacy as a lever could make a new attempt more robust. And having an Ad free Prime service versus a free ad supported version should justify a higher Prime fee.

Location

One of the most obvious and common uses of digital tracking is location.Having spent the last week in New York it has been invaluable. But like most things it can be misused and the press having been digging into the downsides of location.

Two recent articles cover the topic but conflate quite different approaches. One in the FT sees the Weather Channel (owned by IBM) selling data suggesting certain weather conditions may make it likely people in a location could have an overactive bladder, so may buy more drinks.

Another in Vice looks at another level of intermediaries that sell location data to bail bond people looking for individuals.

Both are worth reading though I would argue that the first case is just the ad industry getting smarter over the Signals that could make an ad investment perform better. But the second use case gets the creepy headline and worries people.

We need to make the case better for targeted ads and highlight the permission options.

Future of Ads

So starting 2019 we should be thinking about the future of ads. Three long pieces do just that but are quite gloomy. One on the dark future of advertising says

The end result will be ad targeting so effective that you may well question the notion of free will altogether

But this what great salesman have always done — In Dover Street Market the staff don’t show me to the coolest Balenciaga sneakers — but they do for my 18 year old son. I get the slightly boring classic knitwear.

Another article on the end of the ad supported web rightly mentions the huge volume of ads — our friends at Ezoic work on how sites can show the right mix of fewer ads and make more revenue than a plethora of ads across each page. The piece ends with the reservation that we need to ensure that creators are paid for their work.

A third piece is better thought through and looks at the bloodbath as news and content sites pull back and merge or close. Much of this is because ad revenue is hard to come by as most flows to GAFA. But maybe that can change ? We have seen evidence that context matters in how ads perform — someone reading a story on a newspaper app or site is more likely to be affected by an ad than when they are scrolling through a social feed and clicking to a story then clicking back.

As advertising gets smarter does context become a more powerful signal? And the first party data News titles have on their readers may turn out to be more sustainable than the third party data relied on now.

As our Advertising Trinity argues, Brands People and Content creators all benefit from advertising done well. I remain an Ad Optimist. What about you?

Retail

One of the side benefits of my week in New York was a chance to see who retail is doing over there. I plan to write a longer piece on this, which i will share next week.

In the meantime this HBR piece on how algorithms will curate shopping is really interesting. And so too is this look at how the drops of trainers has changed over the past couple of years. Scarcity and a sense of occasion are still vital but tech is changing the experience. And rather than fighting off people wanting to tax you outside the shop, the brands are now fighting the bots.

A new Bain report looks at what retailers can learn from Asia. A long report from Business of Fashion and McKinsey on the State of Fashion is a must read, especially the pieces on digital and ecommerce. The link is in the video description. And if that’s your thing the HighSnobiety white paper on the new Luxury is worth a read too.

Voice

As viewers migrate to OTT the ad model is under question with companies like Roku trying to rethink the customer experience. Pausevertising is one innovation being considered by Hulu and AT&T
 
It is still an immature market with too many players, which can confuse consumers and advertisers.  This analysis shows how much cross over there is on movies etc on Amazon and Netflix. And this FT piece uses Friends to highlight the complexity - AT&T own the rights and make $100m a year from Netflix - but surely they will use their asset to drive subscriptions to their own service?. At some point. The supply of programing isn’t going to slow - the FT piece talk of this and a leaked deck from Jeffrey Katzenbergs new mobile video service predicts they will invest up to a $1billion on content.
 
But this is based on subscriber levels. And there is the chicken and the egg of newTV. And most content businesses. You need rare / scarce content to attract eyeballs and you need eyeballs to pay for the content  - whether they be monetized by subscriptions or ads or a combination. In sports it is equally challenging - as Eleven seem to be finding.
 
Every OTT player needs to have their target consumer understand what content they have, understand how to access it and understand the value. Only then might they subscribe.
 
Agencies
 
With WPP restructuring and Accenture buying highly rated agency Adaptly the changes in the Ad business continues. Adaptly are described as an adtech firm and as a Facebook marketing partner they have a deeper dependence on tech than a typical agency. We know them reasonably well as our parent company MDC invested at Series A and they spoke at our last VC conference. They look like a modern agency should look like.
 
By operating at the Marketing Partner level one guesses they can make better margins than an agency can - and a former WPP exec argues Agencies can’t do their best work as they are no longer paid enough.
 
The Inhousing trend - which is essentially deconstructing agencies - is both a cause and consequence of these changes and here Unilever Intel and others share their learnings
 
Most people seem to know the solution, but few feel confident in how to make this happen. A former big fish in media talks of bringing skill sets closer and embracing data and digital veteran Nick Roope talks of hybrid creatives.
 
Another agency veteran gets to the heart of the issue; the business is all about talent yet the business model has obscured this by focusing on the team quantity rather than the quality.
 
Will WPP sort this in its restructure? The old Irish joke seems appropriate; asking how to get somewhere, and being told “I wouldn’t start from here”.
 
DTC
 
The lure of Direct to Consumer brands for old school businesses continues. P&G have bought 5 year old beauty start up Tristan Walker. It’s clear from the article that both sides think they can learn from each other.
 
But as one investor points out these can be challenging investments as scaling remains unproven for many. The Bain focus is now on finding defendable brands. It’s a good read as they point out some things we agree with - not all these DTC businesses make sense as VC investments as their size is limited. And that Brand skills are still rare but essential.
 
Another good deck from VC Andrew Chen looks at what a16z are looking for in consumer start ups
 
As they run out of road with Facebook and Instagram DTC brands are taking their signal driven approach to OTT. This makes good sense and we are starting to see success. Terry Kawaja writes this good article on this topic.
 
A new deck on the High Velocity customer looks at how retail is changing to keep pace with new customer behaviours.
 
A new study from Bain on luxury  brands highlights the potential (although the badge of luxury no longer feels adequate) Online sales in luxury grew by 22% whilst retail grew by just 4%. This reminds us of a great quote from the LVMH Chief Digital Officer;
 
..our job isn't to bring luxury online - it’s to make online shopping luxurious
 
Business models & China
 
If advertising and subscription don't work what are the other business models that are worth trying? Lots to learn from China in another a16z talk - this time from Connie Chan. There is also an excellent article covering the same point.
 
Another example of a different approach from Japan where a new payments app grew its user base quickly by giving away money. Now that is as old as the hills, but the way it was done was smart. With many of the big Chinese gaming apps operated by BAT (who also run payments businesses) we think this sort of approach will be tried as the Chinese look to emulate the global success of TikTok.
 
More insight into how TikTok Chinese cousin Douyins handles brands. Some clues to what we should expect from Tiktok in 2019? eMarketer are looking at China and ecommerce with a new report.
 
TechLash
 
Australia is taking steps to rein in the Duopoly with a new Watchdog to monitor them. The first action is making Google unbundle Chrome from devices.
 
A move by Vietnam to insist on data being stored in the country is being strongly resisted by GAFA. It’s partly to avoid problems operating in that market but equally to avoid precedents being set that might be adopted by other markets.
 
The New York Times goes deep into location and privacy
 
Quick Reads
 
Our friends at Infectious and the World Federation of Advertisers have a good new report on the maturity of Programmatic around the world.
 
Spend anytime in the bookshops of London or Brooklyn and you see dozens of new magazines but the Business of Fashion thinks publishers should focus more on digital.
 
Instagram continues to court influencers now offering a Creator account to celebs.
 
Retailers are looking to minimise credit card fees by emulating Starbucks and Walmart with payment through their Apps. At an event earlier in the year a Banker told us that the amount paid in Credit Card fees by the airline industry is not that much less than the sectors total profits. These sort of moves will continue.
 
Amazon keep making bullish statements about their retail roll out and now they are targeting airports for their checkout free stores
 
It’s prediction time - Dans’ is a good place to start
 
Smart thinking on how to counter click fraud
 
What’s going on with retail in New York (it’s not good)
 
Just at Mobile Operator AT&T spends big on tech and content, Mobile Operator Verizon have changed their mind on that strategy and written down their Oath investments in Yahoo, AOL etc by almost $5billion.
 
Oath then getting hit by the biggest ever data fine for childrens data privacy doesn’t help. Our friends at SuperAwesome explain the issues and how their kidtech avoids these issues.
 
Finally - the core product of agencies should be great ideas and we were talking with Google this week about their endeavours to get creative agencies to appreciate the amazing possibilities of digital. This Whopper campaign is great and could only come from a team that knows how the digital world works. Why is this sort of work so rare?
 
And as we do the final polish on the Soulful Christmas playlist for next week, here is something to keep you going; a Christmas album from the David Frost show in the US in 1970 with an amazing Jazz band and northern soul legend Gerry Granger. Obscure but quite wonderful.

Fix is my thinking rather than that of MediaKitchen. We now have over 6000 subscribers across Google, Facebook, Snap, Amazon etc as well as many VCs, Brands and Agencies.

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