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The Quest by Daniel Yergin

The Quest author Daniel Yergin became the defacto historian of the oil industry when he published his first history of the industry with The Prize. The Quest is a logical successor to The Prize, whilst not exactly being a sequel to the book. Which means that readers who are new to Mr Yergin’s work can pick up the book and read The Quest without having read his earlier work.

Whilst the body of the book is from the decline of the cold war onwards, Yergin delves into history where context is needed. The process of decolonialisation and mercantile policies probably isn’t sufficiently explored in this history. Especially as these drove the nationalisation of many oil extraction operations.

Secondly, Yergin dives into alternative energy sources including a balanced view on nuclear, wind and solar power. His insightful analysis of these alternatives makes compelling reading. I would recommend reading his critique in parallel

All of this detail comes at a cost; The Quest is a weighty book both in terms of its size and the amount of content that you have to go through. Daniel Yergin’s work is a wake-up call to the energy industry, policy makers and environmentalists alike – all of which have been guilty of not having a sensible attitude towards energy.

More book review related content here.

February 23, 2012
Perfect market on internet?
Online perfect market introduction

The train of thought on this blog post about online as a perfect market coalesced when I was re-reading Kevin Kelly’s New Rules for the New Economy for the first time in a decade. Kelly’s book built on the work done by fellow Wired contributor John Browning who pulled together The Encyclopedia of the New Economy which was published over a couple of issues of Wired magazine and as a compilation in a now out-of-print pamphlet that used to sold via the Wired web site.

What is the new economy?

Back in the 1990s when the internet started to move out research and academia into the commercial and consumer world lot’s of things were happening.

The cold war had finished, television viewers had seen CNN revolutionise coverage of the Gulf War conflict and the Iraqi army had been routed largely due to technology (and overwhelming firepower). Proto-reality show The Real World was fresh, with David ‘Puck’ Rainey becoming the first reality TV villain to capture the public’s imagination. The M in MTV still stood for music; but also stood for ‘much innovative programming’; Gap had some of the coolest ads on TV and the record industry was making money like music sales were going out of style.

Francis Fukuyama’s political philosophy tract The End of History (and the Last Man) seemed to catch the spirit of the time in terms of a utopian vision of the future, even if most of the people who name-dropped his work had never read it.

People realised that the internet would change things, just in the same way that mobile phones had started to change everyday life (punctuality suddenly became passé, when you could phone ahead give your excuses and have a much more fluid schedule). It was going to change lots of industries perhaps creating a ‘new economy’ of online businesses. From a cultural point-of-view the new economy and the information superhighway was something to hitch one’s utopian hopes to with echoes of Roosevelt’s New Deal some 60 years earlier.

The assumptions

The new economy was thought to bring about what economists would call a perfect market. Consumers would have information available at their finger tips and be able to compare the price of products throughout the world to get the best deal. There were even those who thought that consumers would have software agents to do this on their behalf and companies would have their power reduced by consumers. All of this change would be brought about by connected information and the rise of hobbyist communities who often knew more about a company’s products than the company themselves. This was seen to be a logical extension based on what people knew of the power of networks.

Consumer opportunities

Many of the early e-commerce businesses were arbitrage plays. Boxman had complex software from IBM that bought CDs from the cheapest distributors across Europe, shipped to its warehouse in Belgium and then shipped to consumers with some of arbitrage gained reflected in their discounted price. CD-WOW.com sold CDs from Hong Kong and other markets to UK consumers at prices that were up to 25 per cent cheaper than other suppliers. In the end, Boxman was brought down by poor software performance due to IBM learning about e-commerce as they went along and eventually CD-WOW had to pay £41 million pounds damages due to a prosecution brought by the BPI under the Copyright, Designs and Patents Act of 1988.

The ruling gave record companies a free hand to continue predation on UK consumers by supporting excessive prices on CDs compared to non-European markets. If it had been a bank instead of a record label, they would have been labeled loan sharks.

I worked on agencyside on the launch of a comparison shopping service called Dealtime UK (it re-branded to Shopping.com and is now part of eBay) which showed the price of CDs, consumer electronics shops and compared them across a swathe of retailers. Eventually search became a big part of the comparison shopping play with Google having its product search function and Yahoo! buying Kelkoo and tapping into that expertise to roll-out Yahoo! Shopping functionality across the international Yahoo! network.

Big Data

The demise of the dot com era saw changes in media consumption that went hand-in-hand with the roughly 30 per cent decline in online advertising spend bottoming out in 2002. Consumers started to find their way around the web in a different manner. Instead of having there homepage of their browser as a personalised melange of news, weather and horoscopes served up by a portal website like Yahoo!, Excite or MSN; there was instead a search box from Google, Baidu, Naver or Yandex depending where you lived in the world.

As search engines tried to provide better results, they realised that context was important and that a record of what searches people did may make some sense of it. This data is immensely powerful. An example of how powerful it is was show by the AOL Search debacle. In August 2006, an AOL Research project put three month’s worth of search data for 650,000 users online. The data had been anonymised, but that didn’t stop the New York Times tracking down Thelma Arnold based on her search data. At the time I worked at Yahoo! we were gathering as much data each day from consumers as would be held in the US Library of Congress two times over.

It wasn’t only search engines that had this inferred data inside it, other businesses like Amazon had been gathering information about consumer’s preferences towards different products. Netflix like AOL released anonymised consumer data into the public as part of a programme to crowd-source a better recommendation algorithm. Privacy concerns were raised following work done by the University of Texas and Netflix pulled the data set following an agreement with the FTC.

Web 2.0 impact on the perfect market

The web as a platform or web 2.0 came about out the ashes of the dot.com crash. The idea was that the web, had become a web of data that could be used through APIs to build new services and become more useful through mashing the data up. The key concepts that pioneers focused on was making the data usable and ensuring attribution of the data sets – (I’d recommend having a look at Tom Coates’ Native to a Web of Data presentation as a primer.)

One of the key things about this was that a number of the pioneers in this area like Flickr’s founder Stewart Butterfield said that APIs gave consumers power over their data, they could back up their images or take it elsewhere. Their content was exportable and market forces kept all the players honest and competitive.

However it could also be easily matched with existing data sets and much greater inferences derived from it.

Secondly, over time the moral imperative changed in these businesses. Facebook developed its site as being a digital equivalent of the Hotel California where you data can enter, but never leave. So as a marketer you have never had so much consumer information between the big data, inferred data and the ability of blending in further data to refine the knowledge further moves the needle from consumer to marketer in terms of economic power.

How could this be used to nullify a perfect market?
- Targeted advertising – based on understanding of the consumer behaviour, consumer spending power, life-state information. If you want to know the power of this information, look at how US supermarket Target wants to get hold of consumers as they are ready to start a family.
- Targeted offers – save your best offers for people who are most likely to act on them
- Dynamic cross-selling and up-selling opportunities – one of the biggest problems that we as marketers faced when I worked at MBNA a number of years ago was the irate consumers who would reach out when they had been offered a superior deal by us via mail. This need never happen again, instead inventory could be used to target them with additional services from a trusted brand
- Differentiated pricing – this is where things get interesting. For luxury brands you could deliberately use differentiated pricing as a barrier to the kind of consumers you don’t want. For insurance companies you could use a much wider set of data to make inferences about likely risks for everything from health to their likely driving-style
The trust issue

As the Edelman Trust Barometer has shown for the past decade or so trust is extremely important in consumer – organisation interactions and ongoing relationships and impacts on the perception of a perfect market. Or as Kelly puts it:

With the decreased importance of productivity, relationships and their allies become the main economic event.

He lists attributes of trust that shows how difficult it is to foster, and how fragile it can be to maintain:

Trust is a peculiar quality. It can’t be bought. It can’t be downloaded. It can’t be instant

So where does trust leave the information imbalance between consumers and the organisation that they interact with? It’s a big challenge, Kelly points out that for trust to work consumers have to know who has the knowledge and a full understanding of that they know. The problem is that organisations aren’t ready to have that adult conversation and full disclosure, particularly about what they can infer from the data that they have access to. The benefit that the consumer gets in relational activity is much less than what the organisation derives from that data. This would be especially true for someone like Facebook:

Netbase looked at how consumers relate to brands, it indicates that many people feel that they have to be on Facebook rather than they want to be indicating that the consumer benefit is low, so the corresponding trust they are prepared to put into the social network regarding their privacy is low.

Companies like Facebook and Path are treating privacy as an inconvenient hang-up of consumers that they must run an end game around rather than engendering trust. The less engagement these businesses have with their audience the lower the quality of the information and the consequent lower utility that they have for marketers. There is no perfect market in online advertising.

In the same way that consumers have a reduced trust in the media following incidents at organisations like News International; there is likely to be an inciting incident at some point between consumers and the online advertising eco-system that is likely to bring trust to a head. The perfect market knowledge advantage then becomes mute.

The internet becoming a too perfect market kills the golden goose being bad for consumers and bad for advertisers. The challenge is that the eco-system is a victim of its own success from 2002 to the end of 2011 the US online advertising market grew over four times to roughly 8 billion dollars a quarter. If someone steps back from the plate to take a more considered approach, someone else will rush in.

A prime example of this is the use of facial recognition software which even Google’s chairman Eric Schmidt agrees is a step too far, Facebook has already implemented it and Google has rolled it out as an opt-in feature on Google+. The problem with the opt-in is that Google doesn’t spell out to the consumer the full ramifications of the technology – yet it was obviously concerned at the highest level in order for Schmidt to go on record about it at a conference.

Looking at all this; it is counter-intuitive, but the market for consumer privacy should actually be with the brands that they are trying to engage them. How powerful would it be if a brand said: we can do all these things skulking around behind your back, pulling the strings but we aren’t going to and we don’t want to. We want to be a brand that you can address on your own terms.

The clock is ticking for the brand that will make that leap and the advertising eco-system that won’t. It was the Cluetrain Manifesto accused PR people of being afraid of their publics; were now in a situation where the online advertising eco-system is afraid of being completely honest with its audiences and afraid of their advertisers.

As Chuck D said:

The easiest and the hardest word to say is NO

More related content here.

More information

Here’s What Really Scares Eric Schmidt – Allthings D
Google+ Introduces Automatic Face Recognition To Photo Tagging (But It’s Completely Opt-In) – TechCrunch
Facial Recognition Technology: Facebook photo matching is just the start – PC World
Netflix Cancels Contest After Concerns Are Raised About Privacy – New York Times
CD Settlement forces prices up – BBC News
Tom Coates famous ‘Native to a web of data’ presentation that he gave at Future of Web Apps back in 2006 and Simon Willison’s write up of the presentation
How Companies Learn Your Secrets – NYTimes.com – How Target zeros in on consumers right around the birth of a child, when parents are exhausted and overwhelmed and their shopping patterns and brand loyalties are up for grabs
Where’s the Market for Online Privacy? | The Precursor Blog by Scott Cleland
February 21, 2012
I like: Sony MDR-A10 headphones

Looked back to the Sony Discman and Sony MDR-A10 headphones when looking to solve personal music in the gym. I have been using my iPod down the gym and found my present headphones inadequate for my needs. I was looking for a set of headphones that were gym friendly, that didn’t completely seal me off from my surroundings, but at the same time stayed in my ears.

I looked at a number of designs and read reviews that put me off every alternative that I found. Eventually I remembered the old headphones that came with my Sony Discman in the early 1990s, the Sony MDR-A10. These were an iconic design in their own way. The headphones were lightweight and the degree of articulation that was in the headband to make it foldable and fit different head sizes made them ideal.

The speakers pointed backward in the ear canal to give a more realistic sound by bouncing it around the ear like you hear normal sounds. The fact that it wasn’t fully closed made it ideal for me to be aware of what was happening around me in the gym.

The real surprise I got was when I found out how much these headphones now go for on eBay: £30. It seems I wasn’t the only one that wanted these design features and the headphones still work well partly because they were made to a more exacting standard in a Sony factory in Japan.

So what do they sound like? Well the MDR-A10 with it’s ‘turbo’ circuitry was designed to work with Sony’s premium Discman range of the early 1990s which have a superior performance in terms of audio output compared to Apple’s iPod. You can only get so much out of headphone drivers this small, but the headphones are good enough to show the limitations in the iPods sound. More about Sony here. More on Sony’s premium Discman range here.

February 20, 2012
Intellectual property and the EU
Intellectual property legislation has been in the news for the past few weeks as years of lobbying by industry bodies like the RIAA, MPAA and the IFPI have hit a consumer road block. In the UK, the Digital Economy Act which was largely due to the work of the lobbying team at the BPI squeezed in as a dying gasp of Gordon Brown’s Labour administration. This legislation has been in rallied around by the Conservative faction of the current government whilst ignoring consumer rights and many of the digital businesses that it thinks will help to lead the country out of recession.

At a European level, consumers were rallied to the issue of intellectual property by the widespread publicity given to the US SOPA and Protect IP bills that were going through the US parliamentary process. This acted as an entreé for the main course ACTA; which many countries signed up to by surreptitious process to run an end game around likely technology sector counter-lobbying. What this did instead was bring about a militant consumer and political reaction to the agreement which is likely to scupper it.

This has tapped into an anti-American sentiment where intellectual property looks like trade protectionism rather than legitimate concerns; and an anti-media industry sentiment driven by a number of elements:
- A lack of trust in content and the media in general
- The inability of businesses to adapt to consumers changing needs for consuming content and the long tail
- A long-held feeling that consumers are getting gouged in terms of how much they pay for content
- A perception that these companies are dishonest in their dealings with their artists – Kenny Rogers is currently suing EMI, Cheap Trick and the Allman Brothers have filed against Sony Music, Rick James and Chuck D have taken action against Universal, and Sister Sledge are taking action against Warner Music. This is further exasperated by labels enthusiasm for streaming isn’t matched by artists
- Frustration and regional restrictions on content and predatory pricing – which becomes more transparent when you look at different Amazon sites and media news websites around the world
The media industry has increasingly tried to have a free ride by passing on costs and responsibility for enforcement to the online property owners like Google and other companies. A less talked about recent development was that the European Court of Justice found against Belgian music royalties collection society SABAM in a case it took against Netlog. It found that courts forcing social networks to monitor for illegal file sharing would strike the wrong balance between the rights of consumers, service providers and content owners.

Looking around the brute force lobbying tactics of the media industry aren’t working; they need to come up with a better, more attractive idea to consumers. One of the key problems in achieving this is they need to have the technology sector on board to make that happen so fence building is required. Media companies also need to get their house in order in terms of being seen to be fair with consumers and artists which requires extensive business re-engineering and a ‘mucking out’ of established management practices – these changes will then take a while to be communicated and believed by consumers.

Finally, the countries that have acted as key drivers around intellectual property rights need to look carefully at how they can achieve reputational damage reduction in Europe.

There is a lot of work to be done before a fair and adult approach can be taken to resolving intellectual property rights in the digital age.

Archived from the blog that I used to write for PR Week. More media related content can be found here.
February 17, 2012
Samsung brand challenge
One of the things that I had been thinking about for a while was the way the smartphone handset market; the Android eco-system had the value hollowed out of the business for the manufacturers including the Samsung brand. In some ways this process seemed to mirror what happened in the PC market through the 1990s and into the 2000s.

Home computing

But let’s go back to where it all began. Back at the end of the 1960s and into the early 1970s, home computing meant having a ‘dumb terminal’ connected to a mainframe or mini-computer at a large corporation or university via a telephone line. Due to the price of local calls in the US versus Europe; it was natural that should develop first in any meaningful way. Even then it was used by a very small number of early adopters. At this time Samsung was better known in Korea for fertiliser and started a partnership with Sanyo to learn about electronics.

However there was a latent demand for personal computing, you had a few geeky counterculture types who had an old mini-computer in a building and provided terminals and accounts to members of the public and community groups free of charge. Outside San Francisco however this latent demand wasn’t being met. The Homebrew Computer Club that held most of their meetings in an auditorium attached to the Stanford Linear Accelerator had a different idea.

In essence they looked to reinvent personal computing by using simpler less powerful hardware. This unleashed a wealth of innovation from the first spreadsheet to at-home stock-trading and eventually World of Warcraft.

Mobile devices are a similar point of reset in personal computing. Many of the tasks that we do from word processing to entertainment don’t necessarily need the amount of computing power that we have. Secondly even this Mac that I am writing the post on probably has lots of unnecessary code that isn’t really required by me. For people who don’t create a lot of content mobile devices from tablets to smartphones are ideal for their needs in many respects.

Beyond this moving forward through simplicity there is another aspect to the the rise of mobile devices that mirrors the PC world; like the Windows Intel eco-system before it – the Android ARM eco-system is becoming commoditised; defined by specification (processor, Android version and screen dimensions). This is what Nokia was afraid of when they decided not to go down the Android route; though the level of control that Microsoft has over Windows Phone hardware specification and and user experience could be argued make the lack of differentiation amongst Android competitors a mute point.

HTC looks as if they have been trying to do something about this, in terms of hardware: purchasing a majority stake in fashion audio brand Beats Electronics LLC and S3 Graphics. This was matched by a similar effort in software with their HTC Sense interface skin with some productivity and communications applications.

Technology marketers haven’t been doing themselves any favours with co-marketing budget type ads like these ones that I took a picture of last year for different Motorola phone models.

In reality, the HTC Sense interface isn’t the differentiator that one would have thought, they haven’t yet used the Beats audio brand in any meaningful way, nor has the S3 graphics come into the marketing mix. Sony Ericsson and Motorola have fared worse and Samsung has come out on top.

Why has Samsung been successful?

I think that this is down to a number of factors:
- Samsung like Nokia has built up an extensive effective global logistics and channel network
- An extension of this would be Samsung’s relationships with wireless carriers
- Samsung can sweat the supply chain largely because it owns the supply chain: it makes LCD screens, memory, ARM procesors for instance. Thus allowing it to compete on price/performance points that many of the other players couldn’t match
In this respect, Samsung’s operational efficiency and effectiveness is similar to Dell in it’s prime (the main difference is that Dell wasn’t a vertically-integrated component manufacturer). Samsung’s head marketer Younghee Lee wants to turn Samsung into an emotional brand rather than a rational one. Historically consumers have known Samsung as making reasonably good products; but many didn’t even realise that the company is Korean rather than Japanese.

The company has a modicum of product design smarts that has allowed it to make in-roads in the television and brown goods markets at the expense of Panasonic and Sony – but it still isn’t operating at the same level of design acclaim as Apple.

Ms Lee’s aspiration for people to feel something about the Samsung brand is at odds with the adverts that the company has been running in the US.

(The embedded video is on Tudou, so will need patience whilst it loads).
The adverts generally follow a pattern:
- Attacking iPhone customers as foolish zealots
- Demonstrate a Samsung | Android feature
- Finish on a rational message
It is the advertising equivalent of the Japanese phrase that ‘the nail that stands up must be hammered down‘. The problem for Samsung is that you don’t get a consumer to switch brands by berating or insulting them; those kind of motivators tend to only work as a line management technique in command-and-control companies (a la Apple).

Secondly, the rational reason doesn’t give a reason to switch from Motorola or HTC to Samsung with the disdain of iPhone customers as a common bond.

If Samsung wants to become a brand that consumers feel passion for, it won’t come through these attack adverts, but from the product design outwards in every part of the customer experience. In this respect Ms Lee’s hands are tied – as the product design and customer experience would need to be raised consistently across the Samsung product range; not just smartphones to make this happen effectively.

It takes years to get this right in an organisation of the scale of Samsung, whilst that is happening Samsung can consider how it can do more appropriate consumer marketing and advertising – I’d suggest by thinking about how to encourage and empower existing Samsung customers to become passionate advocates of the brand.

More information
2012: just where is digital going?
Things I’d like to see in 2012
The demise of Palm | HP portable devices post
The mobile and the PC market – an exploration in value
Samsung’s Marketing Chief Aims to Stir Passion for Korea’s Electronics – AllThingsD
EUROPA – Press Releases – Antitrust: Commission opens proceedings against Samsung
Feature Phones Now More Profitable Than Mid-tier Smartphones – Forbes
The mobile and the PC market – an exploration in value
The folly of technology co-marketing budgets
February 12, 2012