Saturday, February 27, 2010

The Adolescence in Digital Measurement

Browsing through some of the most recent books about Web Analytics I could not stop realizing that we are still in the early stages of understanding consumer’s behavior in the digital world. Most analytical approaches are continuing to focus primarily on traditional website metrics: Unique visitors, Bounce rates, etc. It feels like Web Analytics have stalled in understanding consumer behavior on individual websites and have failed to push themselves into a larger digital universe, that include any digital medium, from the web to mobile to ebooks, and in best case even beyond the digital sphere.

Some of these books are attempting to understand “Engagement” and suggest different ways of build the right engagement metric. But in most cases it is just a compilation of traditional website metrics. Most marketers are still trying to understand consumers in a channel centric and specific way, whereas consumers have long moved beyond the separation of all the different media, communication, and sales channels. They consume and interact with brands and services first, with channels last.

Quite often this fallacy can be explained by the fact that we look at things that can be measured instead of asking ourselves what should be measured. The vast and immediate access to data and metrics are not just overloading our systems to decipher anything meaningful, they are hindering us as well to really identify of what should be measured.

The biggest strategies of moving the digital metrics discussion to a next level should be:

  • Move beyond metrics that are only relevant for one channel to metrics that are relevant and actionable across multiple channels.
  • Realize that website metrics are only a very small portion of all relevant metrics. It’s more productive to go broad than going too soon very deep.
  • Set not only standards of how to measure certain things but more importantly understanding what is a “good” and what is a “bad” value in certain metric category. I have seen so many marketers who look a comprehensive metrics sheet and can only utter “interesting”, since there is no context to evaluate these figures.
  • Don’t overemphasize “Real-Time” metrics that give everyone an illusion of constantly optimize every single marketing output. Yes, it is important to build a learning organism and mechanism but it’s not the most important action to deploy it in “real-time” manner (which means actually a delay of a few seconds, minutes, or hours) as extracting the right recommendations from the analyzed metrics. We focus too often on the optimization of the very small variable (e.g. blue or red color in a banner) versus understanding the truly big variable (e.g. Invest in paid search or in DRTV).

It’s still early in the world of “Digital Metrics”. We are at best an excited and curious young adult, at worst an overeager, naïve, and overly aggressive teenager.

Monday, February 08, 2010

Fuzzy problems

While rereading a 10 years old book by Tom Kelley, describing the success ingredients of his design firm IDEO (one of the most innovative firms over the last 30), I encountered the description of one of the most common problems that he and his team are facing within the design practice: Fuzziness. Kelley described it as encountering a fuzzy instead of a clearly defined problem which seems to be the cause of many failed design solutions, or in our world marketing programs. Quite often challenges that we are trying to solve were never clearly defined, they remained fuzzy despite (or because of) the team’s anxious eagerness to work on a solution. It becomes very obvious while watching the numerous commercials during the Super Bowl on Sunday.

This famous and unique media property (the most expensive not just in the US but in the world) is the same visual location in time (CBS between 6.30 and 9pm EST) but the problems that these different brands are trying (or sometimes pretending) to solve is very different from each other. My guess is that most marketers could not describe succinctly of what their presence in the Super Bowl is trying to attack or solve as a problem. It seems that this is driven by a few factors:

  • Pressure of mainstream spending behavior - Everyone else likes to be on the Super Bowl, so let’s do it, too. They all can’t be wrong.
  • Immediate solution focus - Let’s start working on the solution now, we are already behind schedule
  • The misunderstood power of reach – the brand can reach as many people as nowhere else without realizing (or admitting) that most of the brands advertised are at best only for 10% of the US population.

Too often we love to work as fast as possible on a solution without spending the time, energy, and intelligence to understand the problem. The enemy in our marketing discipline is more often the eagerness to create something interesting without the focus and filter of understanding and defining the problem.

Fuzzy problems are expensive. Most problems can be scored on a scale between 0 and 1. At 0 one does not even realize that there is a problem, at 1 the problem is clearly defined and understood. Everything in-between is a higher and lower degree of fuzziness. The Marketer’s obligation is to get as closely possible to 1 and not stop already when they have barely moved above 0. It might be a good exercise for any marketer to judge in any given project where one is on this 0 to 1 problem fuzziness scale. My bet is that we would be surprised of how low we would score very often our clear understanding of the problem, all translating into a high degree of fuzziness. And fuzziness is expensive.

Thursday, February 04, 2010

Digital Margin

Over the last weeks I traveled to South Africa and a few European countries to meet with colleagues and some local industry experts, all with the goal to better understand how marketing agencies are dealing with the accelerating influence of digital marketing. Independent of how brands are spending their marketing investments, from less than 2% in South Africa to over 30% in the UK on digital and mobile activities, a lot of the marketers on the service side of our discipline are asking the question of how they can truly make a decent margin on digital work. The question has moved from how much they should invest in the build out of their digital capabilities into the challenge of how to make money with it.

The large agency holding companies (IPG, WPP, Omnicom, Publicis) report EBITA numbers of between 6% on the low end and 15% on the high end. It’s very difficult to find out the profit margins of the various pure digital agencies within the holding companies, so one has to rely on estimates and insights derived from industry experts. There definitely seems to be a challenge for larger traditional agencies to make decent margins on their digital work. After discussing this with a few knowledgeable marketers some explanations rise to the top:

  • Scale: Even most pure digital players had a difficult time to create a decent margin until they reached a sufficient size to not just recoup initial investments but have the expertise and size to monetize on their offering. Size does matter. Interestingly enough smaller very specialized boutique agencies can make good money, too, due to low overhead cost and flexible delivery mechanisms. But most small digital departments within a large marketing offering have huge trouble to generate a positive short or medium term ROI on their personnel and infrastructure expenses.
  • Premium versus Discount pricing: A lot of the large marketing service firms know that they have to expand their digital offering. Therefore they are willing to discount their digital work to enter this fast growing discipline. After winning the work (by buying it through cut throat prices) they often realize that they can not deliver the work with sufficient quality while simultaneously loosing money. It takes take them much longer than ever envisioned to build a profitable digital practice, and quite a few of them still have not achieved it.
  • Lack of paid search capability: A lot of the marketing service firms have either still not realized that paid search is almost 2/3 of all digital spend, or they lack the internal media planning expertise to build it out in a smart manner. They are victims of the separation of creative and media offerings in the 80ies and 90ies. For a lot of these companies it might be too late to ever regain the lost territory.
  • Resource allocation: The haste of hiring digital talent leaves quite a few large marketing service players with too much unbillable or incorrectly hired expertise that drags down any profitability. It’s very challenging for traditional marketers to identify and attract the right digital personnel that can build a well oiled delivery machine while creating brilliantly engaging and business building digital programs.

While a lot of marketers at service firms talk about the urgent need to expand the digital side of their business, they are flying blind in how to make it happen without eroding their good margin from their more traditional core business. It will be interesting to observe of who is able to make this transition to not only great but profitable digital work.