Throwback gadget: shareware

Back before the internet became ubiquitous, software was distributed by bulletin boards. It was expensive to dial into a board, so magazines uses to have storage media pre-loaded with applications on the front of them.

For much of the late 1990s and early 2000s my parents used to use MacFormat magazine CDs and floppy disks as coffee coasters. One disk may come with bloatware such as the installation software for AOL, Demon or Claranet. The other disk would be full of free or paid for software.

The paid for software was often written by a single developer. It was a labour of love / cottage industry hybrid. Often the developers wrote the software to deal with a real need that they had, it was then passed on as they thought others would benefit as well.

Open source software the way we understand it now was only in its infancy in terms of public awareness. Packaged software was big money. As recent as 2000, Microsoft Office for the Mac would have cost you £235. Quark Xpress – the Adobe Indesign of its day would have cost in the region of £700+ VAT.

Into the gap sprung two types of software: freeware and shareware.

Freeware was usually provided as is, there was little expectation of application support. It would become orphaned when the developer moved on to other things

ChocoFlop Shareware Style

 

Shareware usually had different mechanisms to allow you to try it, if you could see the benefit then you paid a fee. This unlocked new features, or got rid of nag screens (like the one from image editing app Chocoflop).

In return you also got support if there was any problems with the app. Shareware hasn’t died out, but has become less visible in the world of app stores. One that I have been using on and off for over 20 years is GraphicConvertor by Lemke Software. It handles any kind of arcane graphic file you can throw at it and converts it into something useable.

Kagi Software were one of the first people to provide programmers with a way of handling payments and software activation. Kagi provided an onscreen form to fill out, print, and mail along with their payment. it was pre-internet e-commerce.

I can’t remember exactly what utility programme I first bought for my college PowerBook, but I do remember that I sent the printed form and cheque to a developer in Glasgow. I got a letter back with an activation code and a postcard (I’ve now lost) from the Kelvingrove Art Gallery and Museum.

Later on, Kagi were one of the first online payment processors.

From the late 1990s FTP sites and the likes of download.com began to replace the magazine disk mount covers. Last year Kagi died, making life a little more difficult for the worldwide cottage industry of small software developers. it was inconvenient, but now with PayPal developers have an easy way to process payments and there are various key management options.

It’s time that we talk about micro-influencers

Much of the social marketing today for consumer brand is done through what is called influencer marketing. For a number of these influencers who have a large social following, working with brand has become very lucrative. But one of the hottest tickets at the moment within communications agencies are ‘micro-influencers’; Edelman Digital lists it as a key area in Digital Trends Report . There is widely cited research by Marketly that claims there is an engagement ceiling (at least on Instagram). Once a follower count gets beyond that, engagement rates decline. This micro-influencer sweet spot is apparently 1,000 – 100,000 followers.

What are micro-influencers?

Brown & Fiorella (2013) described micro influencers

Adequately identifying prospective customers, and further segmenting them based on situations and situational factors enables us to identify the people and businesses – or technologies an channels that are closest to them in each scenario. We call these micro-influencers and see them as the business’s opportunity to exert true influence over the customer’s decision-making process as opposed to macro-influencers who simply broadcast to a wider, more general audience.

Brown & Fiorella wanted to focus on formal prospect detail capture and conversion. It sounds like an adjunct to integrating marketing automation from the likes of Hubspot and Marketo into a public relations campaign.

This approach is more likely to work in certain circumstances:

  • Low barrier to conversion (e-tailing)
  • Business-to-business marketing – for instance Quocirca did some interesting research back in 2006 that showed endorsements by a finance directors peers at other companies was likely to have a positive effect on a prospective supplier

Brown & Fiorella’s thinking tends to fall down, when you deploy their approach to:

  • Consumer marketing
  • Mature product sectors
  • Mature brands

Brand preference and purchase is much more dependent on reach and repetition to build familiarity and being ‘top-of-mind’ as a product.

Most money in influence marketing is spent in the consumer space as B2B marketing tends to struggle with:

  • Reach
  • Volume of conversation interaction

(At least outside of the US).

Brown and Fiorella are 180 degrees away from the approach of consumer marketing maven Byron Sharp and his ‘smart’ mass marketing approach. This means that PR and social agencies are often out-of-step with the thinking of marketing clients, their media planners and other agency partners.

Engagement matters less than reach or repetition of brand message for mature sectors or brands. For many consumer brands the drop off in engagement amongst macro-influencers is a non-issue, a red herring.

The only part of the engagement measure that I would be concerned about in that case would be content propagation amongst my defined target audience – how widely had it been repeatedly shared as this would affect total reach.

If the client and planner are using Sharp’s thinking then this audience would be wide, but a certain amount of the propagation would be wasted – for instance outside targeted geographies.

From the perspective of communications agencies I can understand the obsession with engagement being part of their DNA. These businesses are in the offline world are engagement agencies; whether its politicians, regulators, fashion stylists, movie set designers, editors, journalists, TV producers or DJs.

Why are micro-influencers a hot topic now?

The most obvious reason is that more popular ‘macro-influencers’ are well informed about their commercial value which has been driven up to a point where they look expensive in terms of cost, even if you charitably look at it on a ‘per follower’ basis.

On the supply side of the equation influencer representation benefit from having more ‘inventory’ that can be sold at various price points to marketers.

Challenges in influencer marketing

From a marketing perspective there are a number of issues in influencer marketing – these factors are either unknown data points or represent an issue with the brand experience

  • Quality of brand placement
  • Cost per reach
  • Consistency of reach (how confident is the media planner that the influencer will achieve a certain level of reach)
  • Message repetition amongst the audience that I want to reach

Which makes it harder to factor into an econometric model that would help justify the investment in influencer marketing as a contribution to sales.

Let’s have a look at data around a campaign for a smartphone manufacturer that has been touted as successful by the agency involved. We don’t know the cost as its likely to be client confidential.

  • 2 million YouTube views (we don’t know how many of these were driven by advertising)

  • 75,000 likes

  • 13,587,159 impressions driven by 6 influencers

  • 10,689 clicks from 90 posts

  • 10 million impressions for the promotion of a colour variant of the smartphone model and 92,320 engaged

  • 4.6% engagement rate (which we’re assured is 41% higher than the industry average for branded content)

What this doesn’t tell us:

  • Reach amongst target audience
  • Repetition amongst target audience

Which could then be used to provide an estimate of its contributory factor to sales if you had an econometrics model. You can’t access how it works next to other tactics and there are limited outtakes for the learning marketing organisation.

Quality of brand placement

Many brands have struggled to get their brand in the influencers content in a way that:

  • Represents it in a meaningful way (for example beyond unboxing videos, one smartphone looks rather like another)
  • Doesn’t feel ad-hoc or awkward

Some luxury brands have managed to get around this by keeping control of the content; a good example of this is De Grisogono – a family-run high jewellery and luxury watch brand. They work with fashion bloggers that meet their high standards and invite them to events. (It’s obviously an oversight on their part that I haven’t had an invite yet.)

De Grisogono provides them with high-quality photography of its pieces and the event. They get the best of both worlds: influencer marketing but with a high standard of brand presentation which raises the quality of the achieved reach.

There is a school of thought that micro-influencers will be easier to manage in order to assure quality of brand placement. However, micro-influencers are likely to be aspiring macro-influencers and each will have a clear line of demarcation in their own head that they won’t cross. The reality is one of complexity dependent on:

  • Brand power
  • Relationships
  • Credibility of proposed idea
  • Impact on aspirations – could they get more followers by taking a stand and strategically burning a brand?

Cost per reach

Influencers tend to talk about themselves in terms of the number of followers that they have. However many followers seldom engage with the influencers content. This happens for a number of reasons:

  • The follow button is often used as a book mark or a like button
  • Algorithmic changes to social platforms and the volume of the social firehouse itself drown out brands (and these influencers are all about the brand of ‘me’). Whatley and Manson’s research at Ogilvy on the decline of organic reach in Facebook pages  is worthwhile having a look at

Followers as a data point is not the straight analogue of reach that the industry and influencers would have you believe based on how they present their data.

Reach numbers that are presented are often not that much more useful:

follower

(Data via Golin, TapInfluence and Marriott)

Consistency of reach

So influencers may give us follower numbers or ‘total reach’ calculations but how do we know what reach their brand placement content is likely to achieve? At the moment, I don’t know how consistent influencers are, I have a ‘personal time’ data project currently in progress on it. More on that hopefully in a later post. There isn’t off-the-peg data that I know of, so I am pulling together a data set.

Message repetition

Until we understand the ‘quality of brand placement’ we wouldn’t be able to understand whether a piece of influencer content was a point of content delivery. We’d also need to know do audiences of influencer A also look at media channels or other influencers that we have in our overall media plan. There often isn’t an overall media plan and there often isn’t sufficient quality of audience data for influencers.

More information
Edelman Digital Trends Report – (PDF) makes some interesting reading
Instagram Marketing: Does Influencer Size Matter? | Markerly Blog
Influence Marketing: How to Create, Manage and Measure Brand Influencers in Social Media Marketing by Danny Brown & Sam Fiorella ISBN-13: 978-0789751041 (2013)
Facebook Zero: Considering Life After the Demise of Organic Reach

Jargon watch: lights out production lines

If you are of a certain age, ‘hand made by robots’ brings to mind the Fiat Strada / Ritmo a thirtysomething year old hatchback design that was built in a factory with a high degree of automation for the time.

Fiat subsidiary Comau created Robogate, a highly automated system that speeds up body assembly. Robogate was eventually replaced in 2000. The reality is that ‘hand made by robots’ had a liberal amount of creative licence. Also it didn’t enable Fiat to shake off its rust bucket image. Beneath the skin, the car was essentially a Fiat 127. Car factories still aren’t fully automated.

Foxconn is looking to automate its own production lines and create products that truly are ‘hand-built by robots’. Like Fiat it has its own robots firm which is manufacturing 10,000 robots per year.

Foxconn has so far focused on production lines for larger product final assembly (like televisions) and workflow on automated machine lines: many consumer products use CNC (computer numeric control) machines. That’s how Apple iPhone and Macs chassis’ are made. These totally automated lines are called ‘lights out production lines’ by Foxconn.

Foxconn is looking to automate production because China is undergoing a labour shortfall as the population getting older. Foxconn uses a lot of manual workers for final assembly of devices Apple’s iPhone because the components are tightly packed together. It will be a while before Foxconn manages to automate this as robotic motor control isn’t fine enough to achieve this yet.

More information
Foxconn boosting automated production in China | DigiTimes – (paywall)

Belated Christmas Gift: updated set of marketing data slides

I started pulling together and publishing different data sets focused on online marketing from social platforms to the size of mobile screens. I think that it might be useful for strategists and planners. Feel free to use. If you do find them useful drop me a note. You can scroll through the embedded version below and download the PowerPoint version here.

Opportunities for PR and brand communications from 2017 onwards

2016 has been a watershed year in the western world. Political forces that were simmering, but previously untapped manifested themselves in populist victories. Political norms that were common currency for the past two decades have been brought into question and there will be societal impacts and changes in consumer tastes.

Businesses are being buffeted by these changes. In the case of the UK; supply chains will be re-engineered over the next two years to address the country’s departure from the European economic bloc. Most companies that I have spoken to are working on the assumption of the hardest Brexit:

  • No trade agreement with the EU
  • No customs union with the EU
  • No passporting for services such as banking
  • No agreement on storage of EU or US personal data in the UK
  • No free movement of EU talent
  • Problems with the WTO as countries look to settle scores like ownership of the Falkland Islands and Gibraltar

This presents communications teams with opportunities and challenges:

  • There will be new regulatory and legal environments for companies to navigate
  • Corporate and social responsibility programmes will need to be recalibrated
  • There will be change management as jobs are moved abroad and facilities closed
  • Brands will have to work smarter with less
  • Consumer data based systems will need to be redesigned to meet the new legal and country boundaries imposed upon it
  • UK businesses will need to prepare for permanent handicap on their profits

There is also a wave of change for consumer businesses. Whole categories of products – carbonated drinks, cereals and spreads are losing market share to substitute products. This is hitting the large FMCG (fast-moving consumer goods) brands including:

  • Unilever
  • Coca-Cola
  • General Mills
  • Nestle
  • Kelloggs

Consumer brands have looked to counteract this in a number of ways:

  • Putting their spend where it will do the best work by using zero-based budgeting (ZBB)
  • Restructuring brand architectures – moving away from preventing brand damage through brand extension to brand consolidation to maximise the benefit of marketing spend. Coca-Cola is a prime example of this
  • Brand architecture will create a tension in the organisation. On the one hand the societal norm will be for local brands rather than global, on the other you have the corporate desire to cut and simplify to maintain margins. Whilst some companies may kill brands, others may sell them on to local companies, which will then try to squeeze as much value out of the brand equity as they can
  • Move away from micro-targeting to ‘smart’ mass-marketing – the key exponent of this is Byron Sharp at the Ehrenberg-Bass Institute at the University of South Australia

Opportunities in terms of new products that communications agencies can offer

  • Internal communications programme – site shutdown or company shutdown as a product
  • CSR audit as product
  • CRM (customer relationship management) audit as product

Focus on clients based on their strategic intent if they are implementing ZBB, here’s a quick guide I did earlier this year.

Businesses have six paths to growth
Zero-Based Budgeting

Path versus agency discipline
Zero-Based Budgeting

If your client programme lies in parts of the spectrum where you won’t benefit, then as an agency you have a few choices:

  • Identify and grow your business within other brands of a clients business
  • Look at rivals for opportunities
  • Treat the current business as a cash cow

A second aspect of risk analysis is brand consolidation. There is not much that an agency can do with the change in brand architecture like Coca-Cola. The clients are likely to cut costs.

A clearer source of risk will be ‘local gems’ this is a consumer brand that is only sold in one country (it may be known under a different name in other countries). These brands are likely to be closed down or sold on, particularly if they are in declining growth sectors such as margarine spreads, cereals or carbonated drinks.

If you have only started planning about looking for replacement brands in your portfolio, it may already be too late. Best case scenario is that the brand is bought by a local FMCG company.

Looking at previous brand sales like Radion washing powder as an example the acquirers will not support it with significant marketing spend. Instead, they will look to maximise their investment by mining existing brand loyalty and awareness.  Depending on the product category and the target audience will depend on how fast inevitable brand decline will be.

Either way it is not a particularly attractive piece of business or large or medium-sized agencies. An incumbent agency will have to repitch for the work as it will fall outside the purview of existing contracts and business relationships.

Advertising agencies have a head start in terms of their planners having a clear grip on what Sharp’s concept of smart mass marketing means for their discipline. PR agencies need to articulate this and reflect it in their account planning. They are still struggling to get to grips with social and are championing concepts like ‘micro-influencers’; that don’t fit into Sharp’s world view. They are effectively burning client respect.

PR agencies need to think much more in terms of programme audience reach and repetition for audiences, rather than the current focus on influence.

Why Amazon wins?

Much has been written about how Amazon has:

  • Amazing data and uses it as a way to try and better understand intent
  • It has access to large amounts of capital so it can scale internationally and defeat local e-tailing champions
  • Amazing logistics foot print to satisfy consumer needs quickly

But one of the biggest factors in Amazon’s success is the quality of competition that it often faces.

Let me give you an example that happened to me this week. I have kept the vendor’s name anonymous because they are no worse than many other e-tailers – and they make damn fine iPhone cases.

I got an iPhone 7 Plus when the phone first came out and ordered a protective case from my usual preferred case manufacturer. I ordered direct because Amazon hadn’t got it in stock at the time. The supplier sent me two cases instead of one – probably an order fulfilment error.

I then get an email from this week:

Keep your Pixel and Pixel XL protected and pristine. XXXX Certified XXXX Protection

Protect your Google Pixel and Google Pixel XL with XXXX Certified XXXX Protection.

Commute with Confidence with our Commuter Series or choose Rugged Daily Defence with our Defender Series.

Shop Google Pixel Shop Google Pixel XL

Let’s think about this for a moment. They have me buying a cover for an iPhone 7 Plus. The average consumer replaces their phone probably on a two to three year cycle

Citigroup estimates the phone-replacement cycle will stretch to 29 months for the first half of 2016, up from 28 months in the fourth quarter of 2015 and the typical range of 24 to 26 months seen during the two prior years.

(Wall Street Journal – Americans Keep Their Cellphones Longer)

They have a number of pieces of information about me:

  • Date of purchase
  • Model of phone that I purchased a case for
  • Colour combination that I selected
  • Gender (based on my title)
  • Address
  • Email

They will also know information about the phone model itself since they make an Apple certified product:

  • Dimensions
  • Date of release

They also know based on previous Apple launches that this handset is likely to be in the product line for two years, one year as the flag ship product and the next as a cheaper line.

So why did they decide to send me the Google Pixel email?

I can think of three likely hypothesises:

  1. The company’s email marketers don’t have access to information that could be used for targeting – good for privacy, not so good for successful email marketing campaigns
  2. The email marketers had the data but didn’t bother to use it – poor work
  3. The email marketers viewed the Pixel as a much buy device and considered me a likely purchaser – their opinion would be at odds with reviews of the Pixel

Using Occam’s razor the answer is likely to be one or two. It’s not that hard for Amazon to win with competition like this.

Outside the London bubble

A quick trip north provided me with a couple of consumer insights from outside the London bubble.

Business winners

Discount supermarkets – last time I was in Aldi and Lidl they started featuring brands we’d recognise like Kelloggs cereals. This time there has been a move away from recognised brands.

Untitled

Instead, there has been a drive on premium private label products at discount retailers. Consumers have been primed by the likes of Sainsbury’s, Tesco’s Finest and Marks & Spencers. Specially Selected is Aldi’s take on premium private label.

Untitled

It is largely indistinguishable from other supermarket premium offerings.  Shoulder surfing at the checkout allowed me to see premium products sprinkled throughout other people’s trolleys.

Private cab consolidation – Delta Cars was one of a number of private hire cab companies in the Merseyside area. Taking a leaf out of Uber’s book, they now have their own app.
delta

They also have scale and muscle, a number of prominent out-of-home display sites were covered with ads for their app and looking for new drivers. In an area of high unemployment there was a veritable war for ‘talent’.

Secondhand phone shops – in Birkenhead town centre there were four resellers of pre-owned mobile phones. iPhones seemed to do well mainly because they were built to last. Feature phones commanded a premium in comparison to what you got for the the money in a smartphone.

zanco fly

These shops also sold really small Chinese-OEM branded GSM phones.  A quick Google shows that they are used by prisoners because they can be hidden on, or in their body.
Untitled

Entrepreneurs have made this connection obvious by branding their device HMP – complete with a crown. British prisons are known by the suffix HMP. For instance, HMP Pentonville.

These secondhand stores also seemed to do a decent trade in pre-owned DVD and to a lesser extent Blu-Ray discs. My Dad didn’t know any people at work who had Netflix. I am going to bring the Apple TV back  one time, just to see how they get on with it.

Bargain and close-out stores – B&M and Home Bargains are two local brands that have a mix of discounted products from close out DVDs and packaged consumer goods. They often have special pack sizes for items like breakfast cereal. They move away from the Poundland format however also selling electronics goods since they are not restricted to the £1 price. These stores seemed to have the most foot traffic of any I’d seen.

Pound Bakery versus McDonalds. The Pound Bakery and Pound Cafe provide Greggs-type fodder. The interiors are bright but comfortable. They seem to have stolen at least some foot traffic from the local McDonalds.

Secondhand clothing – just off the main shopping area was a shop that bought  clothing by weight. It was sorted through – a select few items going on to be sold for vintage, the rest going to be sold abroad or recycled for industrial rags. Trade had been particularly brisk as people wanted money for Christmas. In general, the quality of the haul was disappointing as overseas buyers were not interested in H&M or Primark.

Business losers

Petrol stations – there was surprisingly little night time traffic. Consumers are reining in non-essential journeys. Which then begs the question is M&S Food’s move on to the garage forecourt a wise move? This also had implications for night life since people were going out less.

Cultural winners

  • Can’t pay, won’t pay – other people’s misery seemed to be popular entertainment.
  • Shopping television – in particular Idealworld seemed to be a popular back drop instead of talk radio. Talk radio was thought to be ‘too angry’ since Brexit

 

2017: just where is it all going?

We are entering a period of turbulence in much of the world and I suspect that there are going to be more changes over the coming years.

Smart watches still won’t be as big as fitness trackers. Fitness trackers will peak.

  • Smart watches are struggling for a reason to purchase. Apple’s Watch 2 was the product that they should have realised the first time around. It was fixing the bugs in the first version. But there is still no reason to purchase
  • Android Wear supporters seem to have laid off on development. Huawei Watches are now available for half the list price. Lenovo has laid its Android Wear ambitions aside.
  • Fitness trackers seem to have done a very good job at reaching health fanatics. However the market will soon become driven by replacement devices. There is a constant tension between buying a cheap device which requires low amounts of purchase consideration versus moderately expensive devices that competes agains the smartphone doing the job. It is interesting that Jawbone could not find a buyer and Pebble was sold to Fitbit

If there is a common content format and a rise in content (beyond brand marketing) then VR could take off (and hammer TV sales in the process – at least in single user situations. I still think that VR googles could act as a TV substitute for single person households, shared living and student dorms. When content is time-shifted or binge streamed you can get by without a TV tuner.

The key driver would be the high cost of housing. If you are a hipster living in a small bedsit, having a large TV is a waste of your precious space.

The ‘next billion’ smartphone users in the developing world won’t get their handsets as fast as everyone thinks. Why?

  • Much of the supply will come from small no-name brands. These brands currently are on razor thin margins. Smartphone manufacturers are being shaken out
  • Razor thin margins are crushing key component manufacturers, those that are left will prioritise big customers first
  • The Hanjin Shipping meltdown will hit small suppliers with valuable cashflow tied up in containers that can’t move. Hanjin is expected to precipitate failure in other shipping businesses as the industry still has massive over-capacity and financial institutions will be less interested in helping out distressed businesses. Mearsk’s acquisition of Hamburg Sud is a further sign of this
  • Increasing nationalism in key markets like Indonesia and India is requiring local investment in production lines and component sourcing. This will take the focus away from addressing other markets and likely temporarily rise manufacturing costs
  • Declining economic outlook in mature markets including China, the US and EU will affect the capital available to fund speedy expansion

Leaks about Uber’s finances and rising interest rates are likely to drive increased scrutiny of Silicon Valley businesses. Uber’s finances sound eerily like the investment money pits prevalent.

Media investment is going to pour into the Alt-Right at a VC level. Its been a void that they’ve left up to now. Given that many of the markets that they’ve tried to disrupt are going nowhere, expect Breitbart and Co. to start seeing VC funded competition.

2016: crystal ball gazing, how did I do?

Here are the predictions made at the top of the year

I expect Uber will continue to funnel money into China and still get sand in its face. Quite what this means for Lyft I am not so sure.

Uber raised more money, realised that things still weren’t improving and then got a face saving exit from the Chinese market. I’ll call that a win.

Twitter gets a change of management, but that doesn’t do any good… All of this would be bad news for potential advertisers and their intermediaries in the advertising and PR world.

God, where do we start with Twitter. It has had extensive management churn and a big staff lay-off. I don’t think that my own view about a change of management is correct though. I envisaged this as a strategic proactive more by the board rather than the current rotating door. I have been impressed by how well Twitter advertising has held up. Twitter might look like the Yahoo! of social media, but it still holds a lot of weight with the mainstream media which still counts for something.

Fintech bubble that will take good ideas and bad ones down together. Banks are currently considered to be ripe for disruption. One of the key problems with this is that technologists think it will be easy to sweep aside regulations that banks operate under.

This one is still percolating out. Banks are looking particularly at Blockchain as the basis of a better transaction ledger/database. Informally, I have heard that VC funding has largely dried up on fintech start-ups; but the other shoe has yet to drop.  Zopa applying for a bank licence and becoming a bank felt like a watershed moment.

The internet in the EU will become increasingly regulated. At the moment the European Union is succumbing to The Fear. 

The fear has grown beyond terrorism to being overrun by immigrants (some of whom will be terrorists). The UK is well on its way to putting into law some of the most Draconian web laws in the western world from porn filtering to sharing citizen web history access with a wide range of government agencies.

Overall this has made less progress than I expected because Brexit became the existential challenge that the EU members will seek to vanquish.

We will have reached peak smartphone and tablet. China has now reached replacement rate for devices, there is a corresponding lack of paradigm shifts in the pipelines for smartphone design and software. Tablets have shown themselves to be nice devices for data consumption but not requiring regular upgrades like the smartphone or replacement for the PC.

We’ve certainly reached peak tablet. Smartphones are taking a longer while to shake out. What we are seeing is declining margins in smartphones. Apple increased its industry share of profits to 90% despite:

  • Making a weak update to the iPhone 6S
  • Having a declining market share
  • Having a higher cost in terms of bill of materials

There were some one-off factors such as the Samsung Note 7 recall and the collapse of Hanjin Shipping which curtailed the supply of some handsets.

VR in 2016 will be all about finding the right content. VR won’t work in gaming unless it provides e-gaming athletes with some sort of competitive advantage, if it does then gaming will blow things up massively. Gaming will not be the only content vehicle for VR, it needs an Avatar-like moment to drive adoption into the early mainstream.

There were two things that surprised me about VR in 2016.

  • It look Sony so long to get VR on to the PlayStation, it will be a while for us to see the impact of gaming on the use of VR. It certainly provides immersive experiences, but does it provide e-athletes with competitive advantage?
  • China blew the amount of VR headsets available out of the water, but there has been a corresponding dearth of content. The stuff on YouTube is nice demo-ware, but where is the ‘Breaking Bad’ of VR

One thing that people aren’t talking about is the role of VR googles as a replacement for a large TV set. I have heard that some of the most used apps for VR is Netflix.

Older predictions
2016: just where is it all going? | renaissance chambara
2015: crystal ball gazing, how did I do? | renaissance chambara
2015: just where is it all going? | renaissance chambara
2014: crystal ball gazing, how did I do?
2014: just where is it all going? | renaissance chambara 
Crystal ball-gazing: 2013 how did I do?
2013: just where is it all going?
Crystal ball-gazing: 2012 how did I do?
2012: just where is digital going?
Crystal ball-gazing: 2011 how did I do?
2010: How did I do?
2010: just where is digital going?

Pre Black Friday email marketing

I started receiving ‘Black Friday’ emails since the beginning of November. I eventually gave in and opened Apple’s email which arrived on the Tuesday morning.

Here’s what it looked like on mobile (iPhone 7 Plus)
Black Friday mobile email
Here is what it looked like on desktop email
Black Friday Desktop Email
Here is what the landing page looked like
Black Friday landing page

The call to action was to come back on Friday for great deals. There was a missed opportunity there was no reminder mechanism, no suggestion to bookmark the page and no way to build a list of things to purchase on the Friday.

Judging by the artwork, Apple wants the big push to be around the Apple Watch 2. Given the overall performance of smart watches as a sector this might be a bit ambitious, or indicate a supply chain imbalance in other product lines like the iPhone 7 and the new MacBook Pro?

If it was about lower price points, I would have thought that there would be more of a push on stocking fillers like the Airport Extreme or Apple TV to build buzz and store traffic?

The language was quite interesting

Our one-day shopping event will be here before you know it. Come back this Friday to tick everyone off your list

‘Tick everyone off’ in British English also means – annoy everyone or make them upset. Perhaps the copywriting could do with some finessing, given how that this is likely to be viewed at a glance if Apple is lucky by many consumers.

Just one more thing: Apple’s unpleasant surprise of a MacBook Pro

My initial reaction to Apple’s MacBook Pro wasn’t overwhelmingly positive. Now that I’ve tried one very briefly, I was even more unimpressed than I was at the launch.

Thin

I didn’t feel that much of a weight different between my current machine and the new model MacBook Pro. Who gives a flying fuck about the laptop being even thinner than the current MacBook Pro? You have to wonder if Apple really believes customers are gagging for a thin incompatible clamshell of mediocrity? I’d be more interested in power density of the battery – more charge and better performance from the laptop. Some connectors that I actually use would be great as well.

Display

If you already have a retina display laptop this is exactly the same.  The touchpad display is interesting, but it seems to take no account of finger span in the way the controls work on a couple of the default apps that I tried from the perspective of a touch typer.  I suspect that the 11″ MacBook Air was killed because Apple is desperately hoping sales will go to the iPad Pro.

Tactile experience

Apple made a big deal of the keyboard, but the truth of it is that it was wasted. The real effort was not about user experience and more about making things thinner. It isn’t the improvement on the previous MacBook Pro keyboard experience despite the clever engineering involved.

Real world performance

I’m a bit spoiled from a tech point of view. I am working on an early 2015 model MacBook Pro (Retina) 3.1GHz Intel Core i7 with 16GB of RAM and 1TB of solid state storage. I have an attached SuperDrive by USB and two Apple Thunderbolt displays.  The graphics performance is adequate with an Intel Iris Graphics 6100.
about this mac
Having had a quick play with the new MacBook Pro there didn’t seem to be a real world performance difference. You probably would need a machine that is five years old or more to get a speed bump.

Working class truths, populism and dark futures

Following president Trump’s election and the British plebiscite on European Union membership there has been lots of hand wringing about workers who traditionally participated in legacy industries being outside society.
We won't pay for their crisis - Mancunian protest sticker
Here is what we have to deal with:

  • The ‘traditional’ jobs aren’t coming back
  • Middle-class roles are already being disrupted
  • There is a declining  return on investment in further education, yet lifelong learning is a compulsory requirement
  • Globalisation is working at an aggregate level, but isn’t working at a local level
  • Western society has fractured. It will become more fractious once the realisation takes hold that:
  1. It can’t be resolved by simple measures, populists might listen – but can’t solve anything. Jobs are governed by a multiple factors that affect both cost and demand considerations
  2. It can’t be solved in a relatively short time frame. You can’t build the necessary eco-system and supporting industries to bring the jobs back; even if the economics made sense
  3. Governments don’t have their hands on the levers of control, the best governments can do is actively manage decline. Technological disruption puts the levers of control with a smaller group of people
  4. There is a lack of willingness by those with the money and the power to solve it – primarily due to the pressures that drive their behaviour
  5. Existing social welfare safety nets aren’t sustainable

The realisation that populism doesn’t deliver is likely to cause a further visible outburst of anger. Which should be good news for the private security industry. This could result in civil or international conflict. It has already happened. Factors that contributed to the Arab spring and the Syrian civil war included a large under-employed population living in stagnant economic conditions with no hope in sight. This probably sounds familiar.

I am ruling out some sort of positive ‘black swan’ event which changes the game completely and provides meaningful work with great wages across societal boundaries. If I could reliably predict these, I would be writing this from my private Airbus A380.

Instead I can see four broad categories of outcomes, all of which are ugly:

  • Carry on – carrying on isn’t likely to be sustainable as societal pressures go to breaking point
  • Managed decline – from a rational point-of-view the most ‘possible’ solution. Unpalatable from a voter perspective. It begs the question at what point would the UK economy bottom out? Managed decline makes the most sense as an interim measure whilst a country works out what its new place in the world is and charts a path towards it based on careful strategic investments with limited capital
  • Massive investment – presents a number of challenges that make it nearly impossible for western countries. It would require a long term view – unlikely without consensus driven politics with a high level of comity, huge access to credit – again unlikely with highly indebted economy and a slowly declining credit rating like the UK. Would take too long to satisfy angry voters
  • Massive disruption – the dice is thrown in the air as society tears itself apart and the strong gain control – think China’s Cultural Revolution. Wages and worker rights may drop to make them more cost competitive for low skilled manufacturing allowing for an employed but disgruntled workforce. Power is unlikely to shift too much, the corresponding upheaval in population numbers may provide some supply side pressure on wages when its all over. In all likelihood, it would just reduce pressure for change, increased willingness to work together on a longer term solution, but not provide much medium term economic benefit

Disruption

Here is a chart of numerous successful business, some of them are over a century old. AT&T and Verizon can trace their history back to 1877 and the Bell Telephone Company set up by Alexander Graham Bell’s father-in-law. General Electric goes back to work by Thomas Edison in 1880. These companies took from 117 – 137 years to become $200 billion businesses. Facebook took ten years requiring only 3% of the people AT&T needed.

It would be reasonable to assume that the future is going to create less jobs with given investments rather than more.

Company #Employees Year its market capitalisation became US$200 billion
Facebook 9,199 2014
Microsoft 27,000 1998
Apple 46,600 2010
Alphabet (Google) 46,600 2012
Amazon 165,000 2015
Verizon 176,800 2014
General Electric 239,000 1997
AT&T 302,000 2007

So large private enterprises will:

  • Employ less people which means less ancillary demand for services in the locale. Less restaurants, shops, artisanal coffee shops, micro breweries, nail bars, car valets, hotels and hair salons
  • Employ even less unskilled people – what unskilled labour is required will be employed on a flexible basis. Their roles will be competing on ‘total price’ with a global workforce and robotics

This hypothesis is supported by data from the MIT Technology review which showed that modern US manufacturing managed to increase productivity by 250% whilst reducing staff numbers by over 40%.

Win-Win to Winner Takes All

Technological progress and globalisation has resulted in a decline in the middle class in western countries. Pew Research claims that the US middle class declined from 61 per cent of the population in 1970 to 50 per cent by 2015.

Corresponding average ‘real wages’ for US ‘good producing’ workers peaked by the mid-1970s and have been broadly stagnant since. A pattern mirrored in other developed economies. Hong Kong saw a similar peak from 1967 riots through to the early 1990s until factories moved across the border.

Manufacturing productivity had grown steadily over that time. You can argue over the data points but the overall trend seems to hold true.

Owners of capital have enjoyed increased returns versus the providers of labour. Knowledge work, a key part of middle class roles could be easier to export than production lines. A classic example is the bank back office roles that have been exported to India.

Supply chain

At the moment UK manufacturing jobs operate as part of a complex supply chain that primarily addresses the European Union as a market. The supply chain is built around a number of factors:

  • The value of the product
  • The weight of the product
  • The volume of the product
  • The cost of shipping versus the cost of production
  • How well the product travels
  • Distribution of product demand
  • Proximity to suppliers
  • Proximity to talent

This is why companies may package a product in one country and manufacturer in others. Washing powder is a classic example of this. Chocolate travels well, so Cadbury could move production lines of internationally popular products to Poland. There is a greater incentive to move low skilled work out of areas that aren’t geographically central to a given supply chain.  European freedom of movement may have kept jobs in the UK by allowing low and semi-skilled workers to move rather than the factories. This would be of little consolation to UK workers, but would benefit UK tax coffers.

This complex formula is the reason why jobs move in and out of the UK.

Cutting the UK out of this supply chain with a hard Brexit ensures that suppliers have to make complex choices. BMW will probably be wondering what UK presence it needs to maintain in order to keep the Mini brand values. It may decide its easier to evolve the quirky Britishness out of the brand over time and just keep it quirky. The Audi TT hasn’t been harmed by actually being assembled in Hungary.

The majority of components in the supply chain for the Mini production line is based in Germany.

A post-Brexit UK could be in the position of importing more rather than less products once companies take into account the bigger picture of the supply chains and the EU single market.

Role of eco-systems

Richard Florida is a Canadian professor who has spent much of his time looking at urban studies from the perspective of prosperity. He is known for is work around the creative class and urban regeneration (or gentrification). His work is controversial. One key concept he has of relevance to working-class communities is one of ‘clusters’ where eco-systems exist.  When you apply it to traditional working class industries one can see how the jobs aren’t just going to come back. The UK has a series of traditional clusters that are in overall decline, this is best illustrated by the state of chemical, oil refinery and coal sectors which underpin a wide range of manufacturing industries.

Where new clusters spring up (Silicon Roundabout and the FinTech businesses within the Square Mile) they create employment that much of the UK population is ill-equipped to fulfil.

Let’s look in greater depth at traditional manufacturing industries.

Factories build on suppliers, who build on raw materials processors, who build on utilities and extractive industries. Take for example industrial revolution era Stoke-on-Trent which was close to high quality clay pits and coal that could be cheaply shipped in from mines in Lancashire or South Yorkshire.

Unfortunately for Stoke-on-Trent; clay is readily available around the world, opening up the possibility of production in areas with cheap labour. Automation raised the quality of production and fashion can quickly dictate whether an ‘area’ brand is in demand.

If we look at the industrial landscape of the United Kingdom, the manufacturing industry has been hollowed away during the 1980s and 1990s. The UK lost 18% of its manufacturing capacity in the space of 18 months during the conservative government of Margaret Thatcher.

There has been a corresponding (likely terminal) decline in the necessary facilities to support an industrial economy. Now let’s look in-depth at three essential types of facilities that underpin manufacturing:

  • Oil refineries
  • Coal mines
  • Chemical plants

This base of the UK industrial eco-system is running on ‘life support’ in critical areas.

I was fortunate to have a great science teacher at school, he once said to me that you could measure the size and health of an industrial economy by the amount of sulphuric and hydrochloric acid it manufactured and consumed. In order to manufacture hydrochloric acid you need a chlorine gas plant – neither chemical is something you want to transport over long distances. The side effects of a leak would be catastrophic.

The UK currently has one plant to make chlorine gas that is government subsidised because there isn’t a sufficiently large industrial base to support continued profitable production. What industrial capacity is in the UK is perilously close to being snuffed out.

What is left of the UK chemical industry has consolidated in the North East of England Process Industry Cluster (NEEPIC). Some of the products created are intermediary chemicals for use elsewhere in the European Union. Brexit is likely to have a disruptive effect on some of these manufacturers. The cluster is a key reason why Nissan decided to build a manufacturing plant in Sunderland. NEEPIC is dependent on oil refining capacity for key chemical building blocks (feedstock).

Oil refineries are considered by the public as providers of petrol (gasoline), diesel and jet fuel. The reality is that they provide feedstock (chemical building blocks) for most things in everyday life:

  • Foods
  • Medicines (or we can go back to leeches and blood letting)
  • Paints (containers, large manufactured goods, civil engineering)
  • Plastics (the modern world as we know it) – structural plastics, coatings, fibres including clothing textiles

As I write this is, it is easier to look around my desk and count the products that don’t have an oil-derived input – one item, the desk itself which is unpainted. Though I would put good money on it that the trees it was made from were felled with petrol chain saw and transported on a diesel powered lorry to the saw mill.

Yet the UK has lost a huge amount of oil refining capacity. From 1974 – 2012 refining capacity almost halved from 148 million tonnes to 77 million tonnes (Energy Institute). This decline happened despite start of UK North sea oil production in 1975.

Peak production on North Sea oil occurring in 1985 and 1999 (two peaks due to technological innovation). There were 22 active oil refineries in 1974, at the time of writing there are now seven.

Part of this was driven by changing energy consumption such as the decline of home heating oil and more fuel efficient cars. But a good deal would be due to reduced ability to compete against foreign petro-chemical feedstocks and reduced industrial capacity.

Oil refining capacity has moved to closer to where the industry is.

Belgium and the Netherlands have oil refining capacity beyond their internal needs because of their ease of access to continental European markets. Germany as Europe’s industrial powerhouse has the largest refining capacity in the European Union – which matches its industrial economy.

Much of the capacity to provide chemical feedstocks for industrial use has moved to the Far East; notably Singapore, Japan, Korea, Jamnagar in India and China. Overall industrial production has moved to East and Southeast Asia.

Coal production in the UK is roughly 10 percent of what it was in 1980. There are no deep coal mines active in the UK, only a handful of open cast mines. Coal is not only useful as a fuel but also a alternative supplier of feedstock for a diverse range of products including fertilisers, plastics and medicines. Even if coal comes back to prominence as oil reserves run out it would take a lot of effort to get UK production going again – perhaps too much effort.

Managed decline

The purpose of managed decline would be to concentrate efforts where they can make the most impact. London would draw in more people from the hinterlands. Cities like Liverpool would continue to decline in population. Low quality housing (think trailer parks or shanty towns) would cater for the internally displaced workers and there would be a likely increase in casual or gig economy roles.

So what would managed decline look like? We have a clue from government discussions after the 1981 Toxteth riots. Lord Geoffrey Howe wrote a letter which was considered too controversial at the time

“I fear that Merseyside is going to be much the hardest nut to crack,”

“We do not want to find ourselves concentrating all the limited cash that may have to be made available into Liverpool and having nothing left for possibly more promising areas such as the West Midlands or, even, the North East.

“It would be even more regrettable if some of the brighter ideas for renewing economic activity were to be sown only on relatively stony ground on the banks of the Mersey.”

“I cannot help feeling that the option of managed decline is one which we should not forget altogether. We must not expend all our limited resources in trying to make water flow uphill.”

Howe realised that even discussing the concept at the time would be explosive.

In practical terms, it would mean:

  • Re-centralising government departments
  • Not spending on infrastructure beyond critical maintenance
  • Rationalising government support infrastructure: police, hospitals, social services
  • Re-zoning areas from a planning perspective to encourage development only in future clusters
  • Allowing local government to go into bankruptcy protection and under go US-style emergency management
  • Once population decline hits a critical mass, turning off the last services, rather like the city of Detroit has done
  • Focus infrastructure investment on ‘clusters’
  • Connecting benefits to re-location

This process would then give time for western countries; in particular the UK, to re-invent themselves and think about their economic purpose in the world beyond consumption.

The Chinese government have already started on this process whilst their economy is still in a high state of growth – looking to move up the manufacturing value chain, moving into the professional and financial services sectors that the west currently occupy. On the flip side they have not flinched from closing down excess capacity in the steel industry and low value industries. This is causing economic hardship amongst unskilled workers in Guongzhou and the steel towns of Hubei province.

Former clothing factories are being bulldozed to make way for corporate campuses. Small electronics factories in Shenzhen are making way for a financial services centre including a stock exchange.

If one thinks about the Chinese experience and their migration to higher value work, where would the UK go next?

More information
The Current Moment | Poverty, Inequality and Productivity
Manufacturing Jobs Aren’t Coming Back | MIT Technology Review
The American Middle Class Is Losing Ground | Pew Research Center
Toxteth riots: Howe proposed ‘managed decline’ for city | BBC
Detroit’s Least Bad Option | The New Republic

China is making a product that Apple should have done

Trawling eBay gives access to a cottage industry of predominantly China-based suppliers. They take iPod Classics and remanufacture them. They get new cases and new batteries.

Real trick is in the new component put in the device. Out goes the Toshiba micro-hard drive of 120GB or 160GB and in goes a 256GB SSD. Apple had abandoned production of the iPod Classic because it couldn’t get the right parts any more. Technology had moved on and flash memory had replaced micro hard drive’s as storage technology of choice for portable consumer devices.
iPod ClassicSwapping out the hard drive for an SSD provides an iPod with a number of advantages:

  • Its a third lighter than Apple’s version of the iPod Classic. This changes dynamics in usage. It no longer has the same heft, you feel less conscious of it in a pocket or jacket
  • The battery lasts longer. I now get about 30 hours of listening from the iPod. By comparison I get 18 hours out of my smartphone. If I used the smartphone as a music player as well, that battery time would drop further. If I used a streaming service, that would sound worse, hammer the battery life and mobile phone bill even further
  • It holds more music. At 256GB up from 160GB in the last model of iPod Classic it makes the difference between being able to hold all of my music library with me or not. You don’t have Spotify when you have 15,000+ tracks to choose from
  • The same great iPod experience. iTunes still syncs with the device. It has a good quality DAC (digital-to-analogue convertor) chip. With the right headphones and a sufficiently high sample rate it is indistinguishable from CDs. Under normal circumstances it sounds better your typical smartphone – which is trying to do lots of job well
  • It is quieter than the original iPod Classic. There is no longer the noise of a hard drive spinning up and reading the music data from the disk
  • Vigorous movement is not a problem. Apple had done a good job with the original iPod Classic songs were cached in RAM to iron out temporary stoppages due to movement affecting the hard disk. An SSD had no moving parts so it isn’t an issue any more

What becomes apparent is that Apple wouldn’t have had to make that much effort to make the product itself, but for no known reason it didn’t want to.

I suspect that part of this is down to:

  • The law of big numbers. The iPod Classic revamped in this way would be a decent business for most companies, but just isn’t as big as Apple is used to
  • A modified iPod probably too simple a design solution. Apple likes to take a big step forward (even when it doesn’t) – there are no plaudits or design awards in an iPod Classic with a solid state drive

The reimagined iPod is a development in sharp contrast to Apple’s new product developments:

  • Loved products bought by key Apple advocates have not been updated or ignored: the Mac Pro and the Apple Display (which Apple has abandoned)
  • Moving out of entry level products. With the MacBook Pro and MacBook line-ups, the entry device is now a secondhand laptop rather than the 11″ MacBook Air or the non-Retina MacBook Pro
  • Big bets that aren’t resonating with the marketplace: the Apple Watch has been a best selling smart watch; but is in a category which lacks a compelling reason to purchase. The iPad is a passive content consumption device for most consumers. It has a replacement cycle that would be more familiar to television manufacturers than a computer company

 

Out of home ad inventory in the run up to Christmas

I started to notice advertisements on prominent out-of-home placements indicating that there was ad space available in the run up to Christmas.
UntitledI guess it must be a measure of how confident businesses are feeling post-Brexit. And it doesn’t begin in earnest until next year.