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Digital Outlook
THE ENGAUGE 2011

Digital Outlook
THE ENGAUGE 2011

2011 Engauge. All rights reserved.

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Create
creativity in the era of co-creation | 06 shaping the conversation | 09 storytelling | 11 start-up: figment | 14 courting the crowd: best practices | 16 the power of play | 18 the content play | 20

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Innovate
mobile | 26 location-based marketing | 32 loyalty and action | 40 start-up: placepunch | 48 gaming | 52 interactive tv | 62 start-up: getglue | 70 augmented reality | 76

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Relate
a nation of narcissists | 82 social coding | 86 metrics and analytics | 92 best practices | 100 start-up: crimson hexagon | 102 consumer trust | 104 start-up: blue cava | 114

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conclusion | 118 foundations of digital success | 120 photography credits | 123

Foreword
The merger of creativity and technology is no longer an inspiring idea, but the new imperative. As social media becomes the dominant channel of consumer engagement, brands now connect personally with people. And consumers reach out to companies. Daily. Theres a new relationship to navigate. As marketing strategies rapidly mature along with technology, so will the two-way conversations between brands and people. Todays consumers determine when and where they connect with brands, and they expect brands to be available at all times, present in all places and accessible through every channel. At the same time, theyre also sharing incredible details about their lives, tastes and desires. With Fortunately, effective strategies and creative digital tools for driving growth are now available to every marketer. Youright nowcan help lead your companys marketing efforts as a source of encouragement and empowerment. Thats the essential message of our 2011 Digital Outlook. Transformation isnt a passive proposition. It requires a focus on doing. The actions of strategic digital marketing are clear: Create. Innovate. Relate. this cultural shift in social norms comes improved metrics and social intelligence analytics, providing compelling evidence of what many of us have known intuitively: digital marketing can be a powerful driver of brand perception, consumer motivation and, ultimately, the bottom line for companies.

READ RICKS BLOG: RICKMILENTHAL.COM

CREATE: Develop transformational ideas that connect brands and people. INNOVATE: Move beyond the ordinary and do whats never been done before. RELATE: Create real meaning in the lives of consumers and growth for your brand. Will you join us?

Rick Milenthal, CEO

Develop transformational ideas that connect brands and people.

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Create

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CreativityCo-Creation in the Era of

The mandate is a seemingly impossible one: Reconcile the many disparate voicesshouts from fans and friends, cranks and creatives into something unified and intelligible, something of real value to brand perception and equity. Its a directive born of the singular brand lesson of social media: Marketing is made by all, not by one. Brand messages, now co-scripted by the masses, cant be controlled like before. So what are the odds that theyre competitively positioned and strategically relevant? Or even coherent? Indulge the comparison. The collaborative writing game exquisite corpse was played by Surrealist Parisian poets of the 1920s. It required each player to successively contribute a random word and create a sentence. The game earned its memorable name from one of the first mystifying lines: The exquisite corpse will drink the new wine. If that sounds like some of the comments on your brands Facebook page... The question today is: how do you keep your brand from becoming an exquisite corpse? Brand narratives are increasingly complex and composed of many voices. Smart brands accept this new reality. Creatives cant just sit down at their desks and dictate. More than ever before, brands must plug directly into the collective conversation and imagination to discover what grabs and goes viral, what sways and makes us swoon, what will sit on shelves and what will sell. This is not a time to despair, though. This is not some doomsday denouement brand marketers should fear. Rather, this populist movement toward co-creation, coconversation and even co-invention reflects an incredible resource of creativity and energy for brands. Embraced strategically, the bottom-up contributions of the masses are ushering in a new era of creativity.

How to Build a Coherent Brand Narrative

70%

Fully 70% of executives surveyed said their companies reaped value from online communities, but only a select few are achieving the maximum benefit.

Embraced strategically, the bottom-up contributions of the masses are ushering in a new era of creativity. The Fan-based Business Model

Local Motors is a global network of over 5,000 designers intent on building their own cars. Threadless is a crowdsourcing apparel merchandiser whose online community chooses which user-generated T-shirt designs are included in its fast-evolving fashion line. The business model of this new world is open source, fan-based and bolstered by grassroots support that can spread across the web like wildfire. Yet the potential for meaningful cocreation is hardly limited to DIY disrupters and up-and-coming start-ups. Leading customer-centric companies from Starbucks to Chick-fil-A have proven that business valuebetter service, better products, better marketingcan be collaboratively created with direct cooperation from and conversation with consumers. They have succeeded in creating, fostering and continually improving online communities that deepen engagement and then pipe external insights to executives, designers and decision-makers.

10K

On a typical day, the biggest brands each spark 10,000 or more comments on social networks like Twitter, Facebook and YouTube.

Shaping the Conversation

Focusing Broad Insights to Create Brand Equity
Marketing messages dont write themselves, not even with a broad array of social inputs. Innovative products dont simply materialize out of the online either. And new services dont automatically launch just because somebody posted a terrific suggestion on your website. Heed the black holes: Among the numerous online suggestion systems rolled out in recent years, many imploded the moment the marketing department realized it lacked the resources to reviewmuch less the desire to respond toa daily deluge of comments from consumers. One solution was pioneered by Netflix: Ask a narrow question about a specific problem, then create a contest with cash incentives that solicits the top solution. A highly qualified field of contributors competed for the million-dollar Netflix prize, awarded to the team that most improved the algorithm used to recommend movies to customers based on their viewing preferences. Though costly, the online challenge significantly strengthened Netflixs competitive edge. Its an elegant model, a simple and powerful prism. Take a wide spectrum of public inputs (consumers and active users), refine the focus (solicit ideas on a specific issue) and then sort suggestions with an efficient (algorithmic or vote-ranked) filter to ultimately identify the ideas with the highest concentrated value.

6%

Companies committed less than 6% of marketing spend to social media in 2010, even though American consumers now spend about as much time on the Internet as they do watching TV.

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Learning from Missteps at Starbucks

Over 60,000 suggestions for new products have been submitted to the My Starbucks Idea site since 2008, but many are based on individual tastes and preferences. (A recent example: Offer a skinny pumpkin spice latte!) Accordingly, the site is awash with ideas that are strategically irrelevant for the company. So in its 2010 betacup challenge, Starbucks changed its tactics. Borrowing from the Netflix model, they focused their fans on a problem that had proven internally vexinghow to reduce environmental waste from paper cups, a high-priority goal for Starbucks corporate responsibility. The $20,000 contest drew 430 submissions, 5,000 ratings and 13,000 comments. The awardwinner, Karma Cup, recommended giving a free cup of coffee to every tenth customer who carries their own reusable mug. In this case, the positive PR from an estimated 10 million media impressions may actually be worth more than the award-winning idea, but both are valid components of added value.

Finding the Right Connection Within Online Communities

Virtual labs, beta testing, custom modding, brand ambassadorschoosing the right cocreation approach and platform depends on the problem you need to solve. New product development? Charles Schwab learned early on to listen to online communities and, in the process, discovered that underserved Gen-X investors needed a new series of high-yield checking accounts. What about customer experience? Comcast and AT&T trawl for insights far beyond the corporate firewall, deploying social media teams for customer care that monitor chatter on social networks like Twitter, Facebook and YouTube and proactively contact (and try to help) the haters and complainers. The takeaway: Communities dont run on autopilot. Even though fully 70% of executives surveyed by McKinsey said their companies reaped value from online communities, only a select few are achieving the maximum benefit. Social media marketing isnt some automatic, hands-free, self-propelled phenomenon. Its a discipline. It requires resources and commitment. Indeed, fewer than half (42%) of financial services firms that maintain a presence on Twitter and Facebook reply to users posts and comments, according to Forrester Research. Yet nearly two-thirds of all financial services firms maintain a presence on such sites. So why do the rest of them bother? Why do companies invite consumers if theyre not going to show up themselves? To succeed, marketers must choose the right channels, ask the right questions, learn to listen perceptively and provide frequent feedback. This keeps brand constituents active, satisfied and engaged. None of this is necessarily easynot the first time or the second or the thirdand, given the rapid rate of technological change, even the top-performing social campaigns must continually evolve.

42%

Only 42% of financial services firms that maintain a presence on Twitter and Facebook reply to users posts and comments.

Storytelling
Brands cant keep pitching the same kinds of top-down narratives. Stories, and the way we tell them, have changed dramatically. No, thankfully, its not Surrealist poetry. Its more like a classic Greek play with a chorus of followers on Facebook and Twitter providing commentary and feedback on the main protagonistthe brand. The challenge facing marketing departments and agencies is deciding whether itll be a tragedy or a comedy. Though American consumers now spend about as much time on the Internet as they do watching TVand, when online, they spend twice as much time on social networking sites than any other activity companies committed less than 6% of marketing spend to social media in 2010. Bottom line, in todays ad campaigns, and in todays culture, the brand is no longer the only hero. The audience has become the cast and chorustheyve climbed on

Radically Revising the Brand Narrative

stage, theyve got lines of their own and they demand to be heard. They have, in fact, the final word. Its a shift in power that instead of diminishing the impact of creative advertising makes it all the more relevant and critical to brand and marketing success. Online communities and co-creation can produce a broad array of benefits deeper understanding of customer needs, desires and demographics; better messaging and brand engagement; new ideas for services and innovative products; novel fixes to persistent problems; and fresh content that is culturally relevant and continually evolving. Done right, co-creation can benefit both consumers and producers.

POINT OF VIEW

Welcome to the democratization of creativity. What do I mean? Well, lets go backstarting a few centuries to a few years ago. Creativity was, by its nature, elitist, owned by few and awed by many. In order to create, you needed tools, a location and resources, not merely talent. The prohibitive costs and time commitments relegated creativity to those with the capacity to pursue itthe funded painters and poets, the industry-backed musicians and filmmakers. It was no different in business. Ad agencies possessed all the time, tools and talent to create. Consumers sat back passively and watched or listened. Because agencies, bankrolled by marketers, could afford to create the message, we had control. We owned the influence; we commanded the mediums. We held all the creative cards. Then technology came along and reshuffled the deck completely. In the hands of the many, the voice of creativity changed. Its tone became collaborative. It eschewed production polish for the

What is the role of creativity for brands today?

vibrancy of reality. It chose dialogue over monologue. The opinion of a teenager from Antioch, Wisconsin became as valuable as the postulates of a tenured Harvard professor. Anything was possible, and the unexpected became the expectation. Emotion hijacked logic. It was no longer necessary for logic paths to move rigidly from awareness to persuasion. No, it was marketing anarchy where the targeted audience usurped brand positioning right from the hands of unsuspecting marketers. Now, what consumers sayin blogs and microblogs, on social networks, in email chains, on socialized sites and video sharing platformsis the voice of your brand. And it can change in a nanosecond without rhyme or reason. Like it or not, this is the new world of creative influence. Some brands will resist, some will reluctantly accede. But those brands

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Mike Bednar
that not only embrace but also join their new creators will triumph. Heres the secret to why: Brand positioning, by its very nature, is emotional. Its foundations are, and have always been, built on constantly shifting sands. Perception is reality. And consumers have always held the ultimate control theyve either believed or they havent. Theyve created images of brands in their own minds. Now they simply have the ability to create the outwardfacing image. Consumers accept the creative messages of other consumers more readily than from marketers. So give them the tools to create, unleash experiences and invite them in. Let them influence your brands direction, not the other way around. Trust them to know as much about themselves as your precious research does. Allow them to disagree, to argueat least theyre talking. Create two-way content; share everything you havewithout hesitation. Their creativity is limitless and infinitely effective. When its built around your brand, it becomes the most powerful marketing tool any brand could possess.

chief creative officer

READ MIKES BLOG: ENGAUGECREATIVITY.COM

Start-up to Watch

The Social Network Teens for Literary

Can Figment redefine the book market?
Within five days of going live in December, Figment.com drew 10,000 registered users. The social network for the literary teen allows for sharing, reading and reviewing of original works across all genres, from fiction to memoir. Founded by two veterans of The New Yorker, Figment is an attempt to translate for American audiences the Japanese pop-culture phenomenon of the cell phone novela breakout category of romance and fantasy fiction written by young women on their mobiles and initially appearing on media-sharing sites. More than a million titles have been published, some even catapulted to the top ranks of Japanese literary bestsellers. The first literary genre to emerge from the cellular age, is how Figment co-founder Dana Goodyear dubbed the movement. Before launching the site, Ms. Goodyear and Jacob Lewis, the sites co-founder, spent several months visiting schools, libraries and literary organizations across the country to speak with teenagers, recruiting them to participate in a beta version.

A conversation with CEO and Co-founder Jacob Lewis. www.figment.com

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Q: A:

You attracted 10,000 members in the first five days. Whats the appeal? Its an inviting space as a reader, not just as a writer. There are books on the shelf that you might want to reada story by your friend or a novel that just came out from a major publisher. Putting those in the same place is important, because kids today dont draw a line between their own creativity and the stuff they find in a bookstore. Do teens have fundamentally different expectations about reading and writing? When I was 17, I wrote a letter to Philip Roth. He didnt write back. Not surprising, really. Back then there was no expectation that a well-known author would respond to readers. Thats not true now. Theres been a fundamental shift. When kids today interact with the authors they love, they expect a response. They demand a response. Reading isnt a passive experience for them; its a social one. People want to participate. Theyre writing things, reading things, sharing things. We think that experience could redefine the marketplace for books. Whats the response from publishers? As bookstores die and content goes digital, publishers are trying to find new ways to market themselves. Publishers are very wary about eBooks. But theres a deeper and more fundamental problem with publishing, about the way content is created

and shared. Its not being done with the full participation of readers and authors together. We think publishers will be able to discover heuristic information about how people are reading, which could help them make decisions about what to publish in the future. These really are the future readers and theyre a group that publishers have never had access to. Publishing has a very bad hit rate. They lose out on 70% of their books. I think we could have an impact on their performance.

Q: A:

Q: What about advertising? A: Right now, we offer an integrated marketing platform for

publishers to market individual titles to users of the site. There are no banner ads, but we can facilitate ads within the pages of the book excerptsinterstitial disruptive ads that appear on the pages. So far, we have deals with eight to ten publishers. Were also very interested in looking into brand marketing. We believe that brands that truly want to understand the millennial generation will come because of the activity level on the site. month closed beta stage?

Q: What did you learn from talking to teenagers during the sixA:
We were holding our breath for six monthsspending time and money to watch and learn from these kids. But we would have failed without it. A lot of the things we built, initially, were not very useful. Wed built a lot of clichd social networking toolsletting visitors friend somebody, creating a wall for comments. You learn very quickly youre never going to replace Facebook.

Q: A:

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Courting the Crowd

68M

Best Practices for Brand Communities and Co-Creation

bloggers regularly review and recommend products and services. Who are your lead users, innovators and market mavens?

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Brands are constantly discovering new ways to tap into the creative power of the crowd, but consider these best practices:

STACK THE INVITE LIST. Leading companies conduct up-front research to identify key influencers in their category, to preselect a group of core participants who are likely to get engaged early and remain active over the long term. Among the 68 million bloggers who regularly review and recommend products and services, who are your lead users, innovators and market mavens? And how many of them happen to already be loyal customers? PREPARE A TECHNOGRAPHIC PROFILE. To build the broadest possible community, brands should strive to understand the online behaviors, motivations and usage patterns of their customer base. What are their common characteristics? What sets them apart from other consumers? Its not just about knowing how they spend their time, its also critical to understand what catches their interest and stimulates participationcoupons, discounts and cash rewards; games and contests; social recognition; or insider opportunities to beta test new products?

SOLICIT FOR A SPECIFIC STRATEGIC INTEREST. Shape the conversation. Let consumers know where their ideas are needed most. SEEK BUSINESS VALUE BEYOND THE BUZZ. Letting consumers vote on the best ideas can help automate the review process and reduce costs. But consumers are not always privy to your business objectivesother analytics are needed to evaluate business potential. One approach is to identify users whove made valuable contributions in the past and track their future input, even when it fails to win over the crowd. READ AND REACT. People want to be reassured that their opinions are being heard and valued. Regular feedback is essential for maintaining consumer attention and activity in a corporate-sponsored online environment. Find ways to encourage them to share their stories, and then loop those messages back to the brand.

DONT CONFUSE MARKETING GIMMICKS with consumer engagement. Brand communities are not the place for a one-way conversation. Nobody wants a social site that sanitizes all negative comments. Youve got to go way beyond slogans and marketing collateral. Even some of the most marketing-astute brands have made these mistakes in the past only to experience a consumer backlash. EXIT YOUR COMFORT ZONE. Online, social and mobile platforms often lend themselves well to experimentation. These technologies can, and should, be trialed in an iterative process, constantly field testing and refining brand strategies, instilling confidence and creating value. Tactics can be custom-tailored to accommodate almost any level of technical sophistication, but youve got to step up and get started. STAY COMMITTED. Successful social initiatives arent one-offs. The real benefits come from long-term engagement and continuous improvement.

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The Power of Play

The life of the average American is increasingly spent online. Weve come to depend on the constant stream of information as if it were umbilical, an oxygenated and brain-sustaining lifeline. Our workdays (and more nights and weekends than wed care to admit) are punctuated by constant eyeballed bursts of information, posts, updates and tweets, a neverending digital pulse that, like a pacemaker, keeps us rolling and our hearts and minds in rhythm. Yet theres no digital substitute for the real world. We havent lost any passion for restaurants and bars, hair salons, football games, cinema and shopping malls. Were not in retreat from reality. But more and more, were augmenting these real-life experiences with mobile and online connectivity. And the nexus of our online and offline worldsthe proliferating points of overlap and integrationthats where the interesting stuff is happening. In 2011, we predict an accelerated integration of online marketing with real-world activities like promotional events, demographic research and in-store shopping. Interactive marketers will increasingly look beyond the web to find new ways for brands to resonate with consumer culture. In the process, well rediscover the value of playboth online and offexploring, imagining, creating and renewing our world. When it comes to the power of play, some brands are already plugged in. Converse, for example, is no longer just an athletic shoe company; the brand has been reinvented as a curator of cool. In July, members of rock n roll bands Vampire Weekend and Best Coast produced a Converse-sponsored, web-released hit single, All Summer, which quadrupled Converses web traffic and resulted in an estimated $6.5 million in brand mentions and unpaid media. Now the company is developing a recording studio named Rubber Tracks in Brooklyn, NY, where emerging artists will get free studio sessions and a chance to have their music distributed on Converse social media channels. Clearly, the company has re-embraced its legacy as the ber-cool cobbler to generations of rockers from Keith Richards to the Ramones to Kurt Cobain, leveraging a playful and powerful cultural connection with consumers. Other brands seek to offer consumers a taste of adventureon the web and all across the world. Engauge client Chick-fil-A has built a robust owned-media channel using social mediaand a fan base of more than 3.5 million. With this

Connecting in a Converged World

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Engauge helped Van Gogh Vodka develop its Unbottled campaign, sponsoring ladies nights at clubs and encouraging fans to pose for pictures. Photos of women cheerfully embracing the brand went viral after being uploaded to Facebook.

channel, Chick-fil-A drives trial for new products and gives raving fans a way to engage with the brand in a fun way. The brand is strategically merging the online and offline worlds in this campaign, with fans dressing up like cows to earn free food in their restaurant locations and thousands posting photos of the fun within social media channels. Canadian Club Whisky, Starwood Hotels and Red Bull have all organized scavenger hunts that provide clues on platforms like Twitter and Facebook Places, mixing online sleuthing with real-world prizes, destinations and celebrities. With its Code Spotter Sweepstakes, Engauge client Nationwide Insurance drove fans to engage with NASCAR in a playful way instead of simply as passive observers. And play they did, entering 1.8 million codes that were plastered everywhere fans might look, even on the dashboards of racecars that show up on the in-car live camera feeds on race day. Ethnographic insights are critical for any culturepropelled social marketing campaign. Engauge client Van Gogh Vodka reached beyond the web to engage adult consumers in their natural habitattheir homes and favorite bars. Researchers interviewed Van Gogh fans over cocktails in their own kitchens and learned that women, in particular, were being under-served in a premium vodka category that traditionally catered to men.

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TheAction Plan for Challenger Brands Content Play>

Brands can realize bigger gains by producing and owning their own video content, rather than bogging down somebody elses show with pre-roll or interstitial ads. Online video can be a force-multiplier for promotional events, particularly those that create an authentic, immersive experience with a niche, but influential, target audience. For brands with a small budget competing against category leaders with outsized media buying power, its a chance to finally compete. The Livestreaming Revolution Fans and filmmakers at the Los Angeles Film Festival in Junewith two more nail-biting days to wait for the premiere of Twilight Saga: Eclipsewere treated to a free concert by up-and-coming L.A. band Honey Honey and singer-songwriter Chris Pierce. Cameras were rolling as the crowd filled the club, a venue dubbed the live.create lounge, where premiere sponsor ZonePerfect Nutrition Bars showcased nearly 30 other musicians over the course of the festival. The intimate club only accommodated around 100 patrons, but the audience for the event grew exponentially online, thanks to a livestream video broadcast. Livestreamingonline coverage of live events in real time or rebroadcast ondemandremains a small portion of total online video content. But this segment has escalated at a particularly rapid clip. Consider: Americans viewed 650% more online live video in 2010 than the previous year, according to comScore. Mind you, this figure only includes videos from five publishers: Justin.tv, USTREAM, Livestream, LiveVideo and Stickam. YouTube recently trialed a new livestreaming video service, broadcasting talk shows and how-to videos in real time from programmers Howcast, Rocketboom, Next New Networks and Young Hollywood. Ad buys and sponsorship opportunities are expected to follow. Facebook, taking a different strategy, now provides a fly-on-the-wall feed into the companys Palo Alto headquarters via its new Facebook Live channel. In addition to corporate presentations and press events,

40%

Videos now account for almost 40% of all consumer Internet traffic.

650%

Americans viewed 650% more live online video in 2010 than the previous year.

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the Facebook service is peppered with celebrity appearances, like a cameo by actress America Ferrera, who stopped by the launch party to pitch her latest indie flick, The Dry Land. Seismic Shift in Spending Brands have been pumping up budgets for online video advertising. Total spending for online video ads will jump by over 40% in 2011, according to eMarketer, after skyrocketing nearly 50% in 2010. These numbers are a direct response to changes in consumer media consumption. Web video continues to gain greater importance for brands as consumers crave more and more content: American viewers are spending significantly more time watching videos on YouTube (up 68% in 2010) and Hulu (up 75% in 2010), according to comScore. Nearly 180 million Americans regularly watch online videos, an activity in which they spend, on average, 14.3 hours per month. Videos now account for almost 40% of all consumer Internet traffic, according to Cisco, and will reach nearly 60% by 2014.

Much More Than Repurposed TV Spots: Best Video Ads Slyly Play Off Cultural Connections of Brand and Base There are many other creative ways to commit to video. Many of the best online videos play off a unique cultural component of the brand and its customer base without overtly sermonizing about the company or its goods and services. With its web-based sitcom Back on Topps, for example, the baseball card company Topps found ways to consistently be funny while inherently emphasizing the social connections of the brand. Rather than an advertisement, its an immersion, inviting the viewer to live within the brand. The fictional fauxdocumentary seriessimilar in style and feel to The Officehas been viewed over 1.5 million times on YouTube. Similarly, a five-minute YouTube spot for Orbit Gum scored over a quarter million views since its debut in June 2010. The piece was developed by DumbDumb, a sponsor-driven advertising and production company founded by actors Jason Bateman and Will Arnett, both of Arrested Development, who infuse the longformat video with their own brand of humor. Rather than thinking of the Internet as a smaller, cheaper, lower-profile platform for repurposed TV ads, which often fail to reflect the style, feel and immediacy of the digital format, breakout brands have learned its often more effective to provide original content for consumers. Consumers clearly want high-quality online video content, but brands dont always need to produce a viral sensation or develop an online version of Friends to use video effectively. Creative interactive campaigns can satisfy the demand and keep engaged consumers coming back for more.

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Move beyond the ordinary to do whats never been done before.

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Innovate

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Innovation in Action
Dizzied by the breathtaking pace of digital innovation, marketers risk being swept up in the crush of the trend-chasing crowd, running scattershot without a clear strategy, entering a flash-mob marathon without a finish line. Though brands increasingly recognize the value of establishing digital relationships with audiences, the fundamental choice of finding the right interactive platform is more difficult and complicated than ever. The channels are multiplying. Online, social and mobile ad alternatives continue to proliferate. Every day we face a fresh deluge of tech updates and trend alerts. Marketers need to be more than merely familiar with these new technologies; they need to be strategic. They must see beyond the hype to accurately evaluate their options, then deploy the best new digital tools for their brand. The pressureand potential payoffis immense. Groundbreaking marketing campaigns are generally only a few months ahead of their fast-following competitors. Even category leaders rarely have time to rest. Gap, for example, lent major credibility to online coupon company Groupon with its first national promo deal in August. But within three months, the apparel company had changed course and rolled out a new offer with Groupons newest and biggest rival, Facebook Deals. From livecast video to virtual goods, interactive TV to location-based services, social gaming to next-generation mobile ads, marketers face an incredibly diverse mix of new opportunities. Much of the overall acceleration in online and mobile marketing can be attributed to emerging companies such as Facebook, Zynga and Twitter. Yet large incumbents, such as Apple, Google and Microsoft, have also proven capable of pushing the pace with innovations, moving faster than their smaller competitors. The competitive field of technology firms is guaranteed to reconfigure again within the next five years and marketers will need to remain nimble, attentive and ready to reallocate resources accordingly.

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Jeff Hilimire chief digital officer

FOLLOW JEFF ON HIS BLOG AT JEFFHILIMIRE.COM OR ON TWITTER @JEFFHILIMIRE

Marketing mastery of digital technology goes far beyond knowing whats hot today, whats launching tomorrow and how it all works. The best interactive campaigns are more than just a buzz-driven choice of a new media channel. They reflect a deep understanding of the target audience and its technographic profile combined with potent creative concepts that affirm and amplify the cultural connections between brand and consumer. Those campaigns represent innovation in action.

Engauges Digital Innovation Group

The Digital Innovation Group, also known as DIG, researches, tests and experiments with emerging technology with the goal of connecting brands and people. Launched in late 2009, clients now include Coca-Cola, Chick-fil-A, Reeses, Cisco, IHG, NGK Spark Plugs, Nationwide Insurance and Food Lion.

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Innovate

Consumers Hands Hold the World in Their

Is this finally the year of mobile? As a profession, weve been askingand dodgingthis question for an absurdly long time. Its a shopworn refrain thats become a joke: Mobile is the future of marketingand always will be. Not anymore. Mobile is now. Brands spent 80% more on mobile ads in 2010 than in 2009. The launch of Apples iAd mobile advertising network and Googles acquisition of AdMob have given mainstream credibility to mobile ads, making them a legitimate choice for mainstream marketers. In the year ahead, brands will spend over $1 billion on mobile marketing in the U.S. for the first time. Globally, too, the growth curve shows a significant arc. Google, in fact, has reported a $1 billion run-rate for its worldwide mobile ad revenues since late 2010. Marketers are responding, in part, to the rapid adoption of smartphones by consumers. Forecasts from Morgan Stanley suggest that global smartphone sales will outpace personal computers in 2012, just five years after the introduction of the first iPhone. But given the history of hype in this subject, its important to keep these numbers in context. The most wildly optimistic forecasts suggest that mobile ads will become a $10 billion market in the U.S. in 2011, but most industry analysts put the numbers much lower. Middle-ground estimates from eMarketer indicate that mobile marketing (display, search and message-based ads) in the U.S. will grow from $1.1 billion in 2011 to $2.4 billion in 2014. One or two billion hardly qualifies as a major breakthrough when compared to the $120 billion spent on advertising in the U.S. across all media, much less the $450 billion in global ad spend. Thats not a drop in the bucket, its a nanoparticle in the Pacific. Marketers, of course, recognize that budgets are rarely the best barometer for valuable innovations and future-shaping trends. Indeed, in mobile marketing, there are very good reasons why the level of excitement exceeds current expenditures.

Can Innovative Brands Deliver the Right Message at the Right Time?

Mobile

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$1B

In the year ahead, brands will spend over $1 billion on mobile marketing in the U.S. for the first time.

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Within two years, global sales of smartphones will outpace PCs.

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What Makes the iAd Special?

Since the iPhone and iPad dont support Flash, Apple has been hard-pressed to find a workaround that can deliver the interactive content that marketers crave. Enter the iAd. Apples new HTML5 advertising platform enables brands to build better mobile adswith interactive content, video and gamesand serve them seamlessly to consumers within apps. Nike, Toy Story 3 and Target have produced entertaining iAds that function, essentially, as apps within apps. But the greatest significance of iAd is its new monetization model for the App Store. The iAd platform effectively encourages developers to make their apps freely available for download, rather than charging up-front fees from consumers. That means developers will increasingly (and, perhaps, more profitably) derive revenues from ad sales. To boost ad sales, theyll need to grow their audience as big as possible, beginning with free distribution of content. Brands and consumers both stand to benefit from the new arrangement, but the biggest winner will be Apple. For hosting and selling the ads, Apple takes a 40% cut of developers ad revenue. Thats a big bite.

Apple opened the door to freemium content when it began allowing in-app purchases in late 2009, enabling developers to distribute a free trial version of apps with additional features that could be unlocked when users requested and paid for them. The model proved successful: one-third of the top-grossing apps (34 out of 100) were available as free downloads as of November 2010. The iAd platform is freemium with a twistconsumers now pay to unlock the content by watching ads within the app. In a related development, Apple also claimed a leadership position with the iPhone 4, with its high-resolution retina display that can convey a premium visual experience. Competing device manufacturers quickly pumped up their pixel counts, too. This is particularly important for luxury brands, which have been reluctant to design or deliver mobile brand messages that were anything less than beautiful. Finally, they have a mobile showcase suitable for the crown jewels.

discovered that the demographic profiles and usage patterns of mobile-empowered shoppers can be extremely attractive. Retail is a top-ten activity for American mobile users, but in terms of popularity, it lags behind social networking, news, sports information, banking, weather, movies and maps. Last year, 7 million Americans per month visited retail sites via mobile browsers, and 2.7 million used mobile shopping apps, according to comScore. The U.S. is behind the global curve in this category: 57% of shoppers in Asian-Pacific countries, like Japan and Korea, compared to 14% in the U.S. regularly make purchases after receiving a promotional text message, according to e-Dialog. But dont be too quick to dismiss those meek American numberswere catching up fast. Shopping app adoption in the U.S. rose over 90% in 2010, and there was a 50% jump in browser-based mobile retail. Many shoppers now use mobile as a price-comparison tool, but their usage will become increasingly transactional with gradual uptake of location-based marketing and direct-to-mobile offers. People tend to be highly targeted in their mobile activities. Marketers should respect the constraints on their time, attention and

The Mobile Retail Revolution

As the technology of handheld devices grows more sophisticated along with their potential as marketing platforms, many brands have

30

2.7M Americans used mobile shopping apps last year.

screen size and make every effort to serve user-relevant content. The best mobile campaigns begin with a firm grasp of the cultural and technological demographics of the customer base. Engauge client Ruths Chris Steak House, for example, understood that a big portion of its clientele were executives who wanted a way to book lunch meetings and after-hours dinners with ease and absolute assurance. The restaurant chain responded with a custom-tailored app that facilitates mobilemade reservations. Businesspeople booking tables with their iPhones and BlackBerrys receive automatic confirmation and the assurance that they wont be left waiting for a table when taking an important client (or the CEO) out to lunch. Catering to a much different demographic in the restaurant business, Chick-fil-A developed a series of comic books that proved popular with kids. The quick-serve chain is expanding the concept by publishing the series as an iPad app featuring cow superheroes named Cold Cuts, The Swatter

and The Gristle Missile, who snort and stomp and promote a steady diet of chicken sandwiches. At-home entertainment for iPadequipped preteens, the comics have proven to be smart, funny and engaging. Yet many companies still seem frozen in place when it comes to mobile marketing. They cant figure out how to approach the space. Whats preventing them from overcoming their inertia? Why arent they already moving ahead with mobile? Partially, its because marketers are stuck in a traditional mindset that prevents quick-anddirty field testing of new technology. The barriers have a number of different names like demographics, reach, projections, plans, etc. Major mindshifts in marketing rarely happen overnight, of course, particularly when the profession is faced with a new, transformative medium. But with mobile, in particular, the excuses have been egregious. After waiting years for mobile to become legitimatized, some companies are now

stalling at the starting line while they debate about what mobile actually means. Though SMS still dominates mobile messaging6 trillion text messages were sent in 2010, according to the International Telecommunications Unionmobile marketing is no longer limited to text, search and display. What passes for mobile today may actually be an amalgam of multiple platformsonline, social, video, music, gaming, payments, retail transactions, location-based services and augmented reality. Social networking, in fact, is now the fastest-growing mobile activity, according to comScore. Accordingly, a big part of the problem for marketers is figuring out which foot to put forward first. Those decisions depend on a careful calibration of brand, base and message, but, generally, the best strategies emerge from continual testing and fine-tuning, because when it comes to mobile, whats needed now is a little less conversation and a little more action.

Going Mobile and a Fast Start Getting a Firm Grasp

Marketers should be actively experimenting with new apps and technologies to determine their potential value and how best to use them. Heres our perspective on how companies can start embracing mobile: ITS OK TO FAIL, JUST FAIL FAST. In the start-up world, the only way you get better is to try, fail, learn and retry. The key with being good at failure is failing fast. Dont stall at every setback. Instead, be ready to adjust as you go. FIGHT ANALYSIS PARALYSIS. We are all for making sure you have a plan in place, and having research to support that plan is great. But if that plan is being used as a crutch to avoid getting started in mobile, then you need to find a way to move through it. Which brings us to the third point. REMEMBER HENRY FORD. Mr. Ford is often quoted as saying, If I had asked my customers what they wanted, they would have asked for a faster horse. Visionaries like Steve Jobs often use this quote to emphasize why they do things that are contrary to what research might indicate is the right path. Sometimes your customers dont know what they want until you give it to them. GET IT IN YOUR CUSTOMERS HANDS. Today, successful start-ups work hard to get their product in front of customers as soon as possible. This allows them to get immediate feedback and fine-tune until theyve developed a product that people will use. With mobile, testing campaigns or apps in specific marketsand rolling out functionality as you gois a great way to get invaluable and timely input from customers. And, lastly, ask yourself: DO YOU REALLY WANT TO BE AN IMMOBILE BRAND? Do you want to be a brand that is severely limited in where and how you interact with customers? If youre continuing to find reasons why your company isnt ready to start testing mobile, youll just keep standing still. Nobody wants to be an immobile brand.

31

U.S. Mobile Ad Spending 2009-2014

millions and % change

09 10 11 12 13 14

$416 30% $743 79% $1,102 48% $1,501 36% $2,036 36% $2,549 25%
Source: eMarketer

32

Getting a Fix

On Location-Based Mobile Marketing

Last year was the ignition phase for locationbased mobile marketing with the launch of Facebook Places and the upward trajectory of other check-in services like Foursquare, Gowalla, SCVNGR, Loopt and Twitter Places. Will we see a liftoff in 2011? Foursquare and Google-funded SCVNGR have been rising dramatically, adding new users at an exponential pace. Meanwhile, Facebook, which recently debuted Places after being rebuffed in its bid to buy Foursquare, clearly intends to win the geolocation space race. Facebook Places attracted several million users within its first few months and gained

80%

Currently, location-based social networks are primarily a hit with young, geeky guys: nearly 80% of users are male, and the vast majority are between the ages of 19-35.

33

the support of major brands like Gap and The North Face for its test run of Facebook Deals. However, fewer than 5% of Americans were using these location-based mobile services as of August 2010, and only 1% do so on a daily basis. Geolocation services will require brand support before moving beyond early adopters to reach the mainstream. Forwardthinking innovators are already in action. The trend-aware followers are getting in line. And the laggards are, as always, in danger of being left behind. Backed by creative campaigns, appropriate privacy policies and added functionality, location-based mobile marketing could easily gain enough momentum to go stratospheric within the next two years. At the moment, location-based social networks are primarily a hit with young, geeky guys: nearly 80% of users are male, and the vast majority between the ages of 19-35 (70%) with college degrees (70%), according to Forrester Research. This is the same crowd that was using Twitter three years ago. Draw your own conclusions.

Whos Got the Holy Grail of Location-Based Engagement?

Check-in promotions have appealed to a wide range of consumer-oriented companies, including Whole Foods, Starbucks and McDonalds, but certain brands are particularly suited to location-based marketing. Disney Parks, for example, teamed up with Gowalla to create virtual stamps and special trips for participants at over 100 top theme park locations, including Epcot Center, Space Mountain and Pirates of the Caribbean. Presumably, theyre not trying to drive more visitors to these rides and destinationstheyre already popular. Rather, Gowalla provides visitors something to do while waiting in long lines, which creates additional experiential layers for guests. Its a brilliant application of the technology. Vail Resorts just launched EpicMix, a location-based app thats linked to the bar codes on lift passes that are scanned by resort personnel every time a skier heads up the mountain. The application provides maps, messaging, weather forecasts and snow reports. It also calculates stats and achievements, like run time and total vertical descent. Like those Disney guests waiting outside Epcot Center, Vail visitors spend much of their days in line, while queuing and riding ski lifts. With EpicMix, the resort discovered a way to turn the downtime of a lift-ascent into an opportunity for deeper brand engagement. Theres also an EpicMix kid site for skiers under age 13, with special privacy controls, which should appeal to parents intent on keeping their children under supervision. By monitoring real-time updates, parents can keep constant track of their childrens whereabouts, even if their 12-year-old speed demon leaves them stranded at the top of a black diamond. In 2011, expect more brands to pursue partnerships with location-based service providers. The sheer volume of start-ups in this category, however, inevitably adds a great deal of time and complexity for marketers trying to choose applications. Among the many competing services, each with a slightly different story and spin, who will ultimately win this market?

34

Whos Got the Grail? location-based platforms

35 Marketers seeking greatest reach and recognition will probably favor the largest contender, Facebook Places, but start-ups like SCVNGR and Checkpoints have introduced valuable innovations that can offset their smaller profiles.

Facebook Places

Scoop: Launched in August 2010 with functionality thats instantly familiar to usersfinding nearby friends and, if youre traveling together, tagging companions. Size: Facebook claims Places is more popular than any other location-based service. Significance: In combination with Facebook Deals, the check-in service attracts mobile shoppers with local incentives and delivers strong tie-ins to brand pages.

Foursquare

SCVNGR
Scoop: A game-based approach with check-in challenges and shared photo snaps, SCVNGR puts a welcome spin on the location craze. Its tightly integrated with Facebook Places. Size: 800,000. Significance: The game-based approach creates a deeper level of consumer engagement within location-based servicesway better than badges.

Scoop: Generally given the most credit for popularizing the concept of mobile check-ins, Foursquare was founded in 2009 and recently passed up a $100 million buyout offer from Yahoo!. Size: 5 million members. This represents a nearly 1,000% increase since March 2010. Significance: People are getting tired of gimmicky badges and mayors and will need more functional offerings before the site loses relevance. But dont call it a comeback. Foursquare remains quite healthy in terms of new members. The site added 1 million new users within two months after the launch of arch-rival Facebook Places, then registered the next million in under six weeks.

Yelp Check-In Offers

Gowalla

Scoop: The latest version of Gowallas locationsharing app allows users to check in to other location networks. Size: 1 million members. Significance: The cross-platform play was a smart move, removing the pressure of an all-or-nothing decision for marketers whove been struggling (or stalling) to pick the perfect location-based platform.

Scoop: The popular Yelp website added check-in service in January 2010 where consumers review and rate local businesses. But it wasnt until November that Yelp finally introduced Check-In Offers to allow brands to reward their loyal checked-in customers. Size: Not reported. Founded by members of the so-called PayPal mafia in 2004, Yelp is supported by ad revenue and has a strong following with 38 million users monthly, making it a natural fit for location-based services. Significance: Given Yelps status as a trusted source of consumer reviews, this emerging check-in channel will be worth watching in 2011. Unfortunately, Yelp may have copied the wrong pages from the Foursquare playbook when it added Yelp Badges and Yelp Royalty like Dukes, Duchesses, Kings and Barons into its check-in app.

36

Loopt

Scoop: Since 2006, Loopt has let users see where their friends are and what theyre doing, incorporating local content from Citysearch, Metromix, Bing and Zagat. Size: 4 million users on Sprint, AT&T, Verizon, iPhone, Android and BlackBerry devices. Significance: Loopt offers ad services for brands across a suite of products including Loopt, Loopt Star, Loopt Mix and Loopt Pulse for the iPad. Despite the impressive membership numbers, they lack the buzz of Foursquare and Facebook Places and face stiff competition from similar services like whrrl, buzzd and brightkite.

Twitter Places

Scoop: WeReward allows consumers to accrue, exchange and cash out points via PayPal, earning $10 for every 1,000 points. Its also the first location-based service to integrate check-ins, product sales and reward-app downloads with CRM functionality from Salesforce. Size: Not reported. Significance: While attempting to fine-tune its closed-loop CRM functionality, WeReward has been offering the service for free to large clients like Dominos Pizza. Theyve also rolled out a double opt-in feature that allows advertisers to continue communication with consumers after the initial deal is done.

WeReward

MyTown

Scoop: Highlighting tweets at any given location, Twitter finally launched the service in June 2010 after several months of rumors. Size: Not reported. Significance: Stay tuned. Currently, brands arent allowed to claim their own Twitter Places, but a company spokesman told Mashable: Were experimenting with a variety of features. Allowing businesses to claim a Place is a natural thing to consider for the future.

Scoop: A mash-up of Monopoly and Second Life, this addictive GPS-enabled app is built around the idea of buying and owning your favorite real-world hangouts. Consumers check in to unlock rewards, accruing points that can be used to buy virtual real estate based on actual locations, and then charge other players rent for future visits to that venue. Released by Booyah in 2009, its become the most popular location-based social game. Size: 3.3 million players. Significance: Several pioneering brands have set up shop in MyTown. Volvo presented branded virtual goods to players checking into locations like garages or auto dealerships. H&M showcased its Blues collection of denim garments on MyTown, reportedly drawing interest from around 700,000 players.

37 37

Checkpoints

Scoop: This iPhone app launched in September 2010 and gives rewards for scanning bar codes of participating products. Checkpoints advertisers, in turn, can deliver coupons, recipes, games or other digital content to the consumers iPhone once the item is scanned. Size: 100,000 downloads of the iPhone app occurred within the first month. Significance: Checkpoints deserves credit for recognizing how packaged-goods brands can benefit from location-based services. For brand partners such as Tyson, Belkin and Seventh Generation, the real value of product check-ins will be measured by what happens in the checkout lane.

4%

of online adults in the U.S. use geolocation services like Gowalla and Foursquare.

POINT OF VIEW

Social is no longer an optional add-on; its the new default. Facebook reached an epic milestone in November, accounting for a quarter of all webpage views in the U.S., according to Hitwise. For some brands, social presences are now the primary platform for brand expression and interaction. In 2011, their owned-media channels will be augmented by traditional homepages, rather than the other way around. However, those tech-savvy brands are the exceptions; the bulk of marketing has not kept pace with the advance of innovation. Brands should also recognize that successful owned-media channels on Facebook, Twitter or YouTube can be launched with minimal technological sophistication and very little up-front investment. Its not completely freesomebody has to pay the salaries of dedicated staff

Whats the most important tech platform today in digital marketing?

and community managersbut success in social is rarely attributable to how much money you throw around. Rather, social campaigns live or die as a result of creativity, commitment and mindset. Creativity, in particular, matters more than ever. Unlike traditional media like TV, brands cant rent an audience for thirty seconds by buying an spot in a popular program. In social media, brands have to build and retain their own audience. Marketers bemoan the proliferation of platforms because of the increase in required resources. They continue to view these platforms as tactics, rather than an invaluable extension and expression of consumers themselves. Brands should take solace in the fact that these technological changes have reinvigorated engagement.

39

Raghu Kakarala
Social and mobile have increasingly become essential life tools for mainstream users. Over 20% of U.S. consumers visit social networking sites and blogs on their mobile phones, according to comScore, and its expected that half of all U.S. consumers will have a smartphone by the end of 2011. If consumers are allocating their time and money, whats holding back brands? Todays early adopter is often an average consumer, rather than the neighborhood techno whiz. Thats why its not too early to begin testing emerging technologies like connected TV, where brands can come alive through addressable commercials, or social TV, with mobile apps that enable audience participation. These technologies may be logical next moves for brands that have already mastered their owned-media channel.

svp, creative technologist

FOLLOW RAGHU ON TWITTER @INTERPOLATE

02
40|40|

40 SECTION

Innovate

This year, Groupon, a digital coupon company that taps the buying power of the crowd, may become the fastest-growing, billion-dollar business in history.

>60%

of consumers now search for deals digitally before shopping.

Loyalty and Action

41

Digital Deals Retail Experience Change the

The new technology of thrift comes with a very retro twistweve devolved into a society of hunters and gatherers. Shoppers are scouring online reviews, checking price-comparison sites on their smartphones and signing up for digital deals before hitting the stores. Long gone are the gilded days of carefree consumption. This year, a digital coupon company may become the fastest-growing, billion-dollar business in history. The success of Groupon offers a lesson for brands: The convergence of shopping and digital marketing offers opportunities for innovative brands to surge forward, leaping over the economic slump if they can deliver campaigns that add some zing to the zeitgeist while coordinating tactics across emerging technology platforms. More and more, online and mobile offerings are being used to supplement traditional shopper channels like in-store displays and circulars. Todays brands are using new technology and data-driven insights to create increasingly customized reward programs. The digital menu includes search, social media, online coupons, daily deals, thematic content, relationship marketing and apps. A recent report from Booz Allen for the Grocery Manufacturers of America found that over 60% of consumers now search for deals digitally before shopping. Not coincidentally, over 80% of packaged goods executives in the survey said their companies would be boosting shopper marketing budgets over the next three years. The majority indicated that shopperoriented spending would increase at least 5% annually. The primary push has been economic. Nielsen reports that one in four North Americans have no discretionary income. But this shift is also being driven by a broad range of new online and mobile options. For marketers, the challenge is in selecting the most effective mix of platforms, messaging and incentives. Theres no one-shot solution. Brands need to review all their options, honing reward programs and shopper-oriented strategies to drive consumer action. The goal is frictionless engagement, a state of brand nirvana we define as the removal of barriers that inhibit consumer decision making.

Futurecast: from A Fictional Scene

the Year Ahead
After traveling to Zurich on business over Valentines Day, Cissy Halstead wanted to do something special for her fianc, Trevor, when she returned home that weekend. While waiting for her return flight, she found a seat in the airport lounge and checked her iPhone. Shed received a tweet from a friend and fellow foodie. Cant wait to use my @MediciRestaurant Groupon tonight! The tiramisu is amazing! Cissy clicked the link, filled out the form with her credit card information and ended up saving 50% off a romantic dinner for two. That night, Trevor was surprisedand impressed. He relented, with a smile, when she reached for the check. Reading her email over coffee the next morning, Cissy found a new Groupon offering a half-price pedicure at a nail salon that recently opened downtown. The promotion required a minimum of 25 paying participants by a one oclock deadline, otherwise, the deal would disappear. She quickly posted a notepart appeal, part larkon Facebook: Spa day? Whos up for a pedi? By noon, shed received 11 responses: two yesses, one maybe and eight wish-wecoulds. She went ahead and registered and so did three of her friends, pushing the number of participants past the necessary 25 people. By two p.m., all four friends were seated side-byside at the busy salon, enjoying their impromptu mini-makeovers.

43

1%

Only 1% of coupons for consumer packaged goods are distributed online, but those coupons account for nearly 5% of all CPG coupons redeemed by consumers and 20% of their total value.

The New Cool: Direct Action Digital Coupons Drive

By matching deal-seeking shoppers with local promotions, Groupon, Facebook Deals, LivingSocial, Tippr and other sites have collectively pulled off a major coup in marketingmaking coupons cool. Daily coupon sites tap the purchasing power of the consumer collective by encouraging shoppers to share offers with their friends on Twitter, Facebook and Yelp, leveraging social networksand a sense of deadlineinduced urgencyto make sure that deals pass the tipping point. Daily deals have proven ideal for businesses offering services that todays penny-pinchers might have trouble justifying without a deep discountan hour-long massage at the day spa, a holiday travel package or an afternoon at the driving range. The initial frontrunner, Groupon, went mainstream with an $11 million nationwide promotion for Gap in August and subsequently spurned a $6 billion takeover deal by Google. Facebook introduced Facebook Deals with a breakout debut in November and quickly attracted many major brands, including Gap (three months after its much-touted deal with Groupon), McDonalds, Starbucks and Chipotle. It links to location-based Facebook Places and offers mobile functionality that allows smartphone users to browse deals onthe-fly from nearby restaurants, stores and other venues. Consult the map-based app, pick a deal and check in. Facebook, in total, has over 20 times more members than Groupon and can provide more detailed consumer demographics for brand clients. So its not surprising that some industry analysts immediately hailed Facebook Deals as the Groupon Killer.

Game Over for Groupon?

Not so fast. In many ways, the mobility and instant gratification of Facebook Deals represents a significant improvement over the Groupon model of daily deal emails. Yet consumers make an estimated 80% of purchases, on average, within ten miles of their homes. Groupon may survive (and thrive) if it can capture the local markets. The benefits are quite clear for marketersnot only attracting new customers, but convincing those customers to participate and spend money within a specific timeframe. Groupon claims its consumer customers spend 60% above the value of the coupon, on average, and 95% of its business customers say theyd use the service again. Even so, the promotions may not be immediate moneymakers for participating vendors. In fact, companies like Groupon generally split the resulting revenue with their clientsrevenue that already reflects a steep discount of around 50%so incremental sales can be negligible.

45

Retailers Look Past Competitors

For brands, online coupons have emerged as a compelling tool for engaging early adopters and spreading the word in extended social networks. Walmart introduced its own group-shopping app, Crowdsaver, on its Facebook page in October. The first dealan 18% discount on a $500 plasma TVpassed the minimum threshold of 5,000 likes within 24 hours. Similar location-based services are offered by companies like ScoutMob and Placecast, which target shoppers when theyre inside or near a participating store. In some categories, these new technologies claim redemption rates of over 60%, compared to 2% for traditional clip-and-save coupons. Prior to the launch of Facebook Deals, the second-biggest daily deal site was LivingSocial, which now serves nearly 100 local markets and has raised $50 million in venture capital. LivingSocial has upped the ante (and the social networking payoff) by allowing customers to receive their offer for free if they convince three friends to participate. ConAgra took a similar approach to incentivizing participation by offering a coupon on its Facebook page that progressively increased in value as more people liked it. Newcomers include Tippr, DealBug, GroupSwoop, Homerun and Zozi. Theyve all tweaked the Groupon model in hopes of differentiating themselves in a crowded field. DealBug, for example, donates a percentage of proceeds to charity. Other sites tailor their pitches for foodies, fashionistas, social gamers or outdoor adventurers. For brands with sufficient scale and scope, like Walmart, launching their own Facebook app makes perfect sense. Several developers, including Palo Alto-based Wildfire, have designed apps that allow marketers to design their own Facebook-based deals. But some brands may be better off pursuing partnerships with better-known providers like Groupon and LivingSocial, which can help spread the word. Boulder-based business Giant Nerd, for example, used the Wildfire tool but couldnt find five people willing to buy a $1,000 bike for $450, according to Ad Age.

To Create Their Own Offerings

The W Hotel in Scottsdale recently launched its own group deal in an app on its Facebook page, offering rooms at nearly 50% off its $295 rack rate if at least ten people signed up. But how many people looking for hotel reservations are going to already be fans of the hotel in the city where theyre headed? Evidently, there were several locals in Scottsdale who didnt want to sleep at home that weekend, because 28 people signed up, according to Ad Age. But, in general, certain types of brands may be better served through deal-linking services with search capabilities and similar functions.

POINT OF VIEW

Every day, shopper expectations get higher and higher, and the brand that is present in every channel on every device is the one that is going to have the best chance to make a real connection with them. Not long ago I stumbled across an Altimeter report, The Rise of Social Commerce, that talked about the enlightened state of frictionless commerce in which social and retail are integrated for a completely redesigned shopping experience thats truly consumercentric. Even for non-retail brands, there are benefits to adopting an e-commerce mindset when it comes to convergence. But why stop there? The future of marketing is frictionless engagement. I call it brand nirvana and define it as the removal of barriers that inhibit consumer decision making.

What can brands learn from retailers embrace of convergence?

Consumers shop in stores while using their phones to check competitive pricing, read product reviews and ask their network of friends for their thoughts and experiences. The more considered the purchase, the more highly social it becomes as anxiety to make a good decision drives consumers to reach out for real-world input. Accepting and enabling these behaviors is the first step. Best Buy gets a nod for early adoption by putting Internet-connected terminals inside stores to allow consumers to do that very thing. We now see the integration of Facebook Connect with brands own site-registration processes. In addition to making the log-in process simpler, Facebook Connect provides a detailed picture of customers. The data goes far beyond demographics. We know what books they read, events they attend, brands they care about and who their friends are. Amazon is leading the way by making the site your experience,

47

Shannon Delaney
reminding you to buy gifts for friends birthdays and suggesting books and music you should buy based on your likes. Sometimes people are so excited about a great score or the pure joy of something they recently purchased, they want to share it with the world in real time. And yet, recently, a client asked, Shouldnt we wait to launch our social presence and spend six weeks doing focus groups to ask people what they really want from our social offering? My answer: Why wait? Every day is another day that you arent present in a place that they expect you to be and even more important is you have a social focus group right there. To truly influence consumer behavior, you need to recognize that digital retail and social are not isolated channels. Seamlessly integrated and highly personalized experiences will lead to frictionless engagement. Thats not only nirvana for brands; its also heavenly for consumers.

director of behavioral brand planning

Start-up to Watch

Breaking Down Location-Based Service Silos

Cant decide between Foursquare and Facebook Places?
PlacePunch enables brands to think bigger with a broader perspective and better analyticswhen building their own locationbased loyalty programs. Launched in September, PlacePunch provides online tools for managing and integrating location-based marketing programs across multiple platforms and venues. The suite brings together Foursquare, Facebook Places and similar services under a unified dashboard, freeing marketers from the constraints of exclusively focusing on one channel at a time. PlacePunch also coordinates personalized brand messaging via Twitter, email and online couponing.

A conversation with CEO and Co-founder Adam Steinberg. www.placepunch.com

(Disclosure note: Jeff Hilimire, chief digital officer at Engauge, invested in PlacePunch through a start-up incubator.)

Q: A:

What inspired the idea for PlacePunch? What was missing in the marketplace? Check-ins are driving bottom-line revenue for businesses. But marketers dont want to be constantly keeping track of how many people are on Foursquare versus Facebook versus Gowalla. PlacePunch makes it easier for marketers to think strategically and integrate across all those services.

49

Q: A:

How does it work? We enable our clients to create branded location-based loyalty programs where customers can earn rewards and points for check-ins. Marketers can use any service they want; well handle the tracking, the signups, the messaging, the redemptions and deliver the rewards. We help them manage their programs and measure the results. How difficult is it to integrate and manage multiple locationbased platforms without using tools like PlacePunch? A customer might check-in once at a restaurant running a Foursquare promo, for example, and receive a free appetizer. But thats just a starting point. We help brands run multiple segmented campaigns. We can integrate analytics, messaging and rewards across platforms and let brands know where their customers are coming fromfor example,10% on Gowalla, 60% on Foursquare and so forth. If youre a brand, theres a great deal you can learn about your customers through check-ins. Not only whether they visit your stores, but what else they like to do. You can build preference sets, better visions of your ideal customers. You can use messaging to interact with them at the right time and at the right place.

A:

Several others, like Loopt, have also integrated with Facebook. Theyre saying, basically, Facebook has hundreds of millions of users. Let me just tap into that user base. Theyre focusing on providing added-value services beyond the check-in. Gowalla, for example, has great city guides. Theyve got a great application. But theyre ceding ownership of their customers to Foursquare and Facebook, and thats a dangerous play on the consumer side. Are check-ins a more reliable indicator of ROI than other commonly used social and digital measures such as the quantity of brand followers, likes and friends? It depends on the nature of the business. For retailers or restaurants, bringing in additional consumers is often directly related to bringing in additional dollars. For a CPG brand, on the other hand, location-based check-ins may not be as valuable, but itll be interesting to watch what happens with product check-ins. We dont really know yet what their value will be. Whats ahead in 2011? When will location-based services go mainstream? I think were approaching a major tipping point. By the end of 2011, half of all U.S. consumers will own a smartphone. iPhones can now be purchased for $50. I read recently that 30 million people have used Facebook Places. Foursquare is adding 150,000 new members per week. Things will continue to progress very quickly [in location-based marketing] in 2011.

Q: A:

Q: A:

Q: A:

Q:

The latest version of Gowallas location-sharing app allows users to check-in to other location networks. Will the others soon follow suit?

The Coupon User

Wealthy, Well-Educated and Influential

twice as likely to use online coupons than adults with household incomes under $35,000 (39% vs. 21%), according to the poll. Groupon provides a very clear picture of its customers: they tend to be women (77%), young (68% aged 18-34), collegeeducated (80%), employed full-time (75%), single (49%) and with money to spend (29% with $100,000+ household income).

Coupon usage demographics are probably 61% of adults with household incomes not what youd expect. Contrary to stereotype, over $100,000 redeemed a coupon within wealthy and well-educated Americans account the last six months, according to a recent for a significant portion of coupon clippers. Harris Interactive survey. These trends are even more pronounced when it comes to online coupons. Moreover, online coupon users tend to be more discriminating and more open to new experiences and products. They see themselves as influential. And theyre really into shopping. Adults with college degrees are reportedly twice as likely to have recently used coupons. People in upper-income brackets with $100,000+ household incomes were nearly

The Online Coupon Offers:

Facebook Deals
Linked to location-based Facebook Places, it offers four types of deals for consumers: individual, friend, loyalty and charity.

Deal Bug

Donates a percentage of every deal to a charity of the customers choice.

Living Social

Provides free daily deals for users who convince three friends to participate.

Groupon

Requires a minimum number of paying customers before deals reach the tipping point and become active.

RedPlum

Redplum.com provides consumers with local and national offerings across a multi-media platform on brands they want most.

51

The Stats on Coupons

The uptick in coupon clipping began, not surprisingly, amid the market crash in 2008. That year marked the first increase in total coupon usage in nearly 20 years. During our present state of slow economic recovery, marked by high unemployment and middle-class wage stagnation, financial considerations continue to motivate many consumers to search longer and harder for the best values. Changing patterns

Confluence of Economic and Tech Trends

in consumer spending have increasingly converged with new technologies and more tactical marketing. Consumers saved an estimated $2 billion with coupons during the first half of 2010, according to the coupon company Inmar. The annual total for 2009 was $3.5 billion, up from $2.7 billion in 2008. 81% of U.S. consumers find it fun to see how much they can save, according to the 2010 American Pantry Study from Deloitte. The Internet accounts for less than 5% of total coupon redemption and 1% of distribution, but the online segment has gained significant ground against traditional clip-and-save.

Tippr
Sends out three local deals a day, which progressively increase in value as more people participate. Tippr acquired several patents related to online group-buying from Paul Allen, co-founder of Mercata, a similar service that went bankrupt in 2001 after blowing through $90 million.

Zozi

Caters to an active crowd with deals on travel and outdoor adventures.

Coupons.com

Homerun

Pushes online coupons through affiliate marketers that publish the offers on their own sites and receive a small payout for every coupon printed.

Oriented toward social gamers, provides credits and points that users can put toward deals or cash-back offers.

Scoutmob

Offers free deals when people check in with their mobile phones at participating businesses.

52SECTION 52
52|

02

Innovate

Full Tilt: Foward-Leaning Brands Marketing for

In the massively multiplayer environment of digital marketing, first-time players enter an exciting new world thats constantly evolving. They often spend the opening rounds just figuring out what buttons to push. Take a cue from video games. The winners are the ones who rapidly adapt and refine their tactics, theyre the ones who refuse to be intimidated. Among the many emerging brand platforms, gaming and games marketing have perhaps the greatest capacity to daunt the uninitiated. Why is this? If 93% of tween girls aged eight to ten in America are playing online games, according to M2 Research, what prevents marketers from plugging in? ignored, but we see a growing segment that merits serious and sustained attention. Video games are now bigger and more lucrative than the recorded music industry. At least 65% of American households play computer or video games, according to the Entertainment Software Association. Contrary to common stereotypes, the gameplaying population includes significantly more women over the age of 18 (33%) than boys under the age of 18 (20%). Gaming has become a legitimate mass media that brands cant afford to overlook. Capitalizing on these trends, major brands have sponsored ads and product placement in big-name games. Gatorade, for example, sponsored a series of ads in sports games like NHL 10 and NBA Street Homecourt from Electronic Arts. The campaign essentially mimicked what Gatorade does for ordinary

93%

of tween girls in America play online games.

Gaming

Today, only a small fraction of most brand and agency budgets is allocated to games marketing. That may seem like a tiny sliver easily

53

65%

At least 65% of American households play computer or video games.

54 54Online

game revenues are expected to rise at an 18% compound annual growth rate to 2013.

televised sporting eventsplastering its logo across signs, water bottles, score updates and on-screen callouts. A recent study by Nielsen found that spending on Gatorade products increased by 24% in households that owned at least one of those games. The global game software market grew more than 50% from 2006 to 2009, according to Strategy Analytics, reaching record-setting revenues of $46.5 billion. In November, Microsoft managed to sell 1 million Kinect motion-sensing peripheral systems for its Xbox 360 console within the first ten days of its launch, proving, once again, that gamer enthusiasm runs extraordinarily high. In the years ahead, gamers will increasingly migrate into online, social and mobile. These platforms will capture millions of new players who are non-gamers today. Online game revenues are expected to rise at an 18% compound annual growth rate to 2013, at which point theyll account for nearly 40% of total video game revenues, according to industry forecasts.

Online and mobile games are particularly attractive to casual gamers, people who might not otherwise invest in sophisticated at-home console systems like Sony PlayStation 3 or Nintendo Wii. By capturing a broadening spectrum of consumers, online games have become increasingly viable and valuable as a marketing medium.

mass downloads of popular games, minting overnight successes. An impressive 20% of the U.S. population aged 6+ have recently played a social network game, according to an August 2010 report from The NPD Group. Today, over 60% of social network users also play social games, according to the most recent National Gamers Survey from Newzoo. Smart marketers have found creative ways to tap into this trend. Southern Comfort has launched a Beat the Bartender game on Facebook that challenges adult fans to make a SoCo lime cocktail faster than their virtual bartender. CBS Consumer Products partnered with Ubisoft to develop CSI: Crime City, where characters from the hit TV series enter a world strikingly similar to Zyngas Mafia Wars, minus the annoying menus. Purina teamed up with Playdom to create Pet Resort, playable on Facebook.

Social Gaming: Betting Big in 2011

The social game Farmville, supported by Zyngas five-year strategic partnership with Facebook, proliferated across social profiles in 2010 like bioengineered weeds, consuming free time, productivity and attention spans. The game that encourages you to farm with your friends now claims 80 million players. In the year ahead, well see a big push of new social titles from game developers and publishers who recognize that positive word of mouth on social sites can drive

55

>70%

Currently, 70% to 80% of all app store downloads are games and roughly 60% to 70% of those games are free.

56

20%

of the U.S. population aged 6+ have recently played a social network game.

64 million Americans play mobile 57 games at least monthly.

But havent we been here before with Second Life? Indeed, around five years ago, many marketers enthusiastically set up shop in the virtual metaverse of Second Life from Linden Lab, only to quickly lose interest as consumers (and their freaky-looking avatars) failed to show up. Yet marketers who are reluctant to take a similar gamble on social gaming should keep in mind several important distinctions. Second Life is more of an experiential environment than a game. And it never really transcended its niche status. After five years and 20 million registered users, fewer than 1 million are regularly active. Moreover, Second Life is a relatively complex and sophisticated endeavor. Newer social games that have become huge hits are, by comparison, much less of a strain on the cerebral cortex. Its also telling that the social gaming sector has recently seen major investments from technology, media and entertainment giants. Last year, Google quietly invested upwards of $100 million in Zynga amid rumors that Google Games is coming

soon as a strategic counterpunch to the social dominance of Facebook. Social game developer Playdom was acquired by Disney, and Intels venture arm, Intel Capital, took an ownership stake in OpenFeint, a tech platform that allows game developers to add mobile and social features to their apps, like live chat. These deals signal a shared belief that social gaming is a cultural phenomenon with long-term prospects.

Though ad-supported mobile games have a marginal presence in North America, countries like Japan and Korea have proven more receptive to advergaming, and those business models may eventually signal the way forward for the U.S. market. Indeed, the overwhelming public embrace of, and heightened expectation for, free mobile apps will force game developers to reconsider their options and eventually widen their revenue sources. Forecasts from eMarketer indicate that ad funding will account for only 12% of mobile gaming revenues in the U.S. by 2014. Thats $180 million of marketing dollars. Not much, really. And not surprising, given how reluctant marketers have been to embrace mobile advertising in general. But for the right brand with the right strategy, getting a jump on mobile games may be a smart move in 2011.

Mobile Gaming: The Go-Slow Zone

Mobile gaming has surged amid concurrent waves of smartphone uptake and the rising popularity of apps. Currently, 70 to 80% of all app store downloads are games, according to Gartner, and roughly 60 to 70% of those games are free. Overall, 64 million Americans play mobile games at least monthly, according to eMarketer, and that number is anticipated to exceed 90 million by 2014.

58

Geolocation Gaming: Finally Moving Past Foursquare

A hybrid of mobile and social gaming, geolocation games have transcended the boundaries and emerged as an important category of their own. Though Foursquare and its badge-wearing mayors have hogged most of the hype in geogaming, the spotlight will shift in the year ahead to other location-based social games like MyTown, a virtual version of Monopoly that attracted over 3 million users within 12 months of its launch. MyTown appeals to consumers because its a real game, not a gimmick. And by expanding their check-in functionality to include products and bar code scans rather than just locations, the game developer Booyah proved it was thinking strategically on behalf of marketers too. In recent months, Booyah has reportedly inked deals with H&M, HP, Microsoft, Pantene, Oil of Olay, Disney and MTV. Foursquare, which helped popularize the concept of check-ins, will enter 2011 with over 5 million users and is adding 25,000 new users daily and logging 2 million check-ins a day. The company has focused almost exclusively on growing their user base in hopes of crushing Gowalla and gaining enough scale to thwart (or at least withstand) incursions into its home turf by Facebook Places and Twitter Places. The folks at Foursquare have belatedly begun to pursue ways to make money from merchants and will move more aggressively to recruit more brand partners in 2011. Whats missing, though, are incentives to keep people playingthe thrill of real entertainment. Badges get boring. Mayorships are pointless. Really good games require much more than just showing up. The next generation of geogames will employ better game mechanics and provide compelling content that use check-ins to enhance playability, dimensionality and participation. In the process, theyll become increasingly attractive to marketers. Coca-Cola, for example, recently got the ball rolling in the right direction with a nationwide game campaign aimed at teens called Coke Secret Formula, which mixes consumer rewards with location-based service from SCVNGR. Debuting on Black Friday, the busiest shopping day of the year, Coke created challenges at Simon Malls across the country consisting of check-ins and photos, rewarding participants with $10,000 in total gift card rewards. Coke gave the campaign an extra boost with online and print ads, as well as playful in-store signage that read: This Mall has Secrets. Unlock Them. Play SCVNGR. Get Rewarded. Part of the brands initiative involved familiarizing uninitiated consumers to SCVNGR. Though the locationbased service lags Foursquare and Facebook Places with around 1 million members, its given a welcome spin to the location craze by using a game-based approach to give added meaningand a lot more funto the act of checking in.

More than 90 million Americans will 59 play mobile games by 2014.

Retooling Brands with Game Mechanics

20092014

U.S. Mobile Ad Spending

millions and % change

$1,102 48%

$1,501 36%

$2,036 36%

$2,549 25%

The most important long-term takeaway from the gaming industry may, ultimately, be a greater understanding of game mechanicswhat motivates people to play, to spend money and commit tremendous amounts of time for very arbitrary rewards. The Coke Secret Formula campaign, for example, features a number of critical factors beyond the cash-back gift cardsastute understanding of social dynamics, points and progress tracking, deadline-induced urgency and intimations of exclusivity. Tom Chatfield, author of Fun Inc., contends that gaming can provide a set of very useful optics for examining consumers and our contemporary culture at large. Addressing the TEDGlobal 2010 conference, Chatfield

noted that the rewards of playing games appeal to two distinct drives within ourselves: the wanting and the liking. Participating in games activates our ambition and sense of craving. But on the other side of the brain, games also satisfy our need for delight. Brand experiments with online, social and location-based gamesor partnerships with game developersmay help marketers gauge what kind of incentives keep people engaged, as well as their optimal rate and intensity. Chatfield refers to the reward schedule and the concept has clear implications for brands seeking ways to keep their customers coming back.

09

$416 30%

10 11 12 13 14

$743 79%

Source: eMarketer

60

Getting a on Virtual Goods Grip

When American gamer Jon Jacobs bought the Asteroid Space Resort for $100,000 in 2005, he paid real money for an imaginary building in an online role-playing game, Planet Calypso, the oldest planet of the Entropia Universe. Hed reportedly remortgaged his house to buy the makebelieve asteroid. Clearly this was an act of insanity. Right? Planet Calypso is available as a free download, but its 900,000 registered users are encouraged to deposit real-world dollars to fund their adventures. A share of the resulting revenue stream goes to the developerFirst Planet Company, a subsidiary of Swedish group MindArkbut players also buy in-game services and virtual goods from third-party entrepreneurs like Jacobs. Soon after acquiring the virtual resort, Jacobs rechristened it Club Neverdie and turned it into a premier in-game destination that included a nightclub, stadium and shopping mall where players spent real cash. His personal income from the game exceeded $200,000 per year, according to Forbes. In November 2010, Jacobs resold his Planet Calypso virtual properties for $635,000. Thats a return of over 500% in five years. Baffling, but true. Nearly 30% of Internet users in North America have purchased virtual goods in a social networking game, according to a May 2010 study in eMarketer. Branded virtual goodsoffering innovative tie-ins for a range of brands from Green Giant to Snoop Doggare expected to generate revenues of $41 million in 2011, which is three times the size of the market in 2010. Overall, the entire virtual goods market could easily exceed $2 billion in 2011, according to published estimates. These kinds of anecdotes and figures tend to flummox those whove assumed that virtual goods are, and would remain, a niche market. A few years ago, frankly, you couldnt even call it a market. It was a blip. A curiosity. But consider this: When General Mills promoted its Cascadian Farm Organic Blueberries on Farmville, players planted over 300 million of the virtual berries at a cost of 20 coins each, creating a bumper crop of innovative marketing. Green Giant

61 61

The virtual goods market could easily exceed $2 billion in 2011.

Improved mechanisms for converting real cash into virtual currency are building more momentum. Facebook Credits is now the exclusive payment method for a number of popular social games, and PayPal is a preferred provider for Facebook Credits. As these systems mature, micropayments will become increasingly feasible alternatives for marketers to offer in lieu of traditional coupons or discounts. Already, developers like Ifeelgoods of Menlo Park, California, have started helping brands build app-based bridges from virtual currency to real commerce.

Source: eMarketer

2010

$16

2011

$41 156%

2012

$115 88%

2013

$150 71%

2014

$226 51%

2015

$318 41%

turned this strategy on its head, putting Farmville coupon stickers on select produce in 4,000 stores nationwide, redeemable for in-game Farm Cash.

Branded Virtual Goods Revenue Worldwide

20102015

millions and % change

62SECTION
62|

02

Innovate

One-third of all U.S. households will have Internet-connected TVs by 2015.

Interactive TV

63

The Two-Way Tube

Reportedly dissing Google TV because its footprint was too small, News Corp.-owned Fox closed ranks with the other broadcast networksABC, NBC and CBSin blocking access to its programs from the new webenabled platform. The implication was that the newcomer wasnt popular enough to earn their respect and cooperation. But instead of simply ignoring Google TV, the broadcast bullies tried to kick the new kid out of their schoolyard. But connected TV isnt a sandbox. Its Madison Square Garden. Its the big ring where the heavyweights are contending for $180 billion in ad revenue. Its the title match between digital and traditional media. And smart marketers have booked ringside seats for 2011. True, earlier versions of interactive TV lost the fight before it really began. This is a category haunted by the wreckage of has-beens and wannabes with a decade-long history of hype and misplaced hopes. Remember WebTV and AOL TV? Nope, neither do we. Those products

Battle Royale

were neither compelling nor memorable, but a lot has changed in the last ten years. Dont expect Google TV to fade into obscurity. Despite the past failures and the fierce resistance from broadcast networks, Forrester Research recently predicted a third of all U.S. households would have Internetconnected TVs by 2015. The anticipated uptake can be attributed, in part, to a retailer cabal: Best Buy announced it would only sell connected TVs in 2011, and Walmart indicated it will follow suit in 2012. In a related move, Walmart also expanded into digital content distribution, acquiring streaming high-def video company Vudu, and inking an interactive deal with Disney for Toy Story 3. Meanwhile, manufacturers like Toshiba, Samsung and Sony are ramping up production and rolling out new models of interactive TVs. Across the technology and retail spectrums, leading companies are pursuing parallel agendas that will drive adoption of connected TVs and reconfigure that ungainly box in your living room.

Open Eyes and Active Hands Brand Experimentation Required

Interactive TV builds on the promise of digital marketingengagement, measurement and targetingand brings it to a bigger screen. Addressable ads could be a serious boon to brands with clear segmentation strategies and a willingness to experiment. The interactive content, of course, needs to be sufficiently compelling to lure viewers away from their show. On the other hand, mass brands accustomed to connecting in a predictable manner with the largest possible audience may initially experience confusion as the traditional TV format fragments into a dizzying menu of programming choices and heterogeneous micro-communities. Brands currently shell out three times as much for TV ads than they spend on online marketing, even though the media consumption of todays consumers is evenly split between the two mediums. Interactive TV ad spending is barely a blip in todays market. Google TV, in fact, had no ads at launch time, but more marketing dollars will be allocated as the technology evolves. The integration of television and digital ads onto a single platform will very likely be a catalyst that integrates, and rationalizes, the respective marketing budgets. Meanwhile, Walt Disney Co., Mattel Inc. and the U.S. Navy have been experimenting with interactive channels on cable, according to The Wall Street Journal. Cablevision created interactive channels for the brands that can be navigated by a standard TV remote, providing videos, coupons and callback requests for customer service. Casual games, pre-roll spots and pop-up banners are now in the mix as well. Though the pricing for TV ads has been traditionally pegged to an estimated audience size, the new wave of interactive ads often utilizes a performance-based model similar to online pay-per-click. This pricing model should effectively lower barriers to entry by marketers looking to take the new technology for a test run. In a related trend, online video ad-serving platforms like adap.tv continue to gain traction, and consumers are growing more accustomed to viewing video ads online, further blurring the experiential boundaries between digital and TV. By late 2010, online video content was being viewed by 178 million Americans monthly, according to comScore. On average, those viewers consumed 14.3 hours of online video per month. Most households with interactive televisions, however, have not been taking advantage of the heightened connectivity. Back in August, Forrester Research reported some daunting numbers: 61% of consumers hadnt even heard of connected TVs. 27% said they couldnt imagine why theyd want a TV that connects to the Internet. 26% of people who owned connected TV said they dont often take advantage of the Internet connectivity. 20% of owners were very happy with their connected TVs, but only 12% would recommend them to friends. We can sympathize with the disappointed

65

first-generation users. Surfing specialty promo channels on cable with your old-school TV remote really does not sound like a ton of fun. But major developments have occurred since the Forrester surveythe September second-generation release of Apple TV, the October debut of Google TV and the November launch of Microsoft Kinect. Kinect, the flagship peripheral suite for Xbox 360, is technically an add-on for a gaming console. But the hands-free, motion-sensing, facerecognition technology has serious potential to fundamentally change how we view television. Microsoft sold over 2.5 million Kinect units in the first month. Around the same time, word leaked that Microsoft had been talking to TV programming providers about launching a paid-subscription TV channel via the Xbox 360 console, which could create a new supercompetitor in connected TV. As these technologies grow along with consumer expectations, were going to see some compelling new developments in interactive television. The tube is about to be reborn.

178M

By late 2010, online video content was being viewed by 178 million Americans monthly.

60%

Nearly 60% of TV viewers use the Internet while watching TV at least once a month.

The Promise of Apps:

Third-Party Apps Anticipated for Google TV, but Apple TV Slow on Uptake
The coolest thing about Google TV is we dont even know what the coolest thing about it will be, came the pitch for the new service, now available on Google TV Logitech set-top boxes, Sony Internet TVs and Blu-ray players from brickand-mortar stores like Best Buy. All due respect to the geniuses in Mountain View, but doesnt everybody already know what the coolest thing about Google TV and its competitors will be? Apps. Apps have the potential to truly revolutionize television, the same way they changed everything in mobilesetting higher consumer expectations, changing behaviors and media consumption patterns, accelerating uptake of new technology and creating unprecedented sales growth.

67

Nearly 60% of TV viewers use the Internet while watching TV at least once a month, according to Nielsen. This implies that our culture, in many ways, has already moved ahead of the technology. Were using the Internet and TV together. Why not do so on the same device? And, while were at it, why not use the touchpads on our smartphones to change the channel and search for content? Google TV ships pre-loaded with apps for Netflix, CNBC, Twitter, Pandora, Napster and NBA Game Time. Other Google TV media partners, such as HBO, NBA and Turner Broadcasting, have developed dedicated online platforms for interactive TV programming. The opening of a Google TV app marketplace is anticipated for 2011. Admittedly, first-generation Google TV lacks a certain artistry and ease of use with its interface. The search function does not always quickly or accurately return the right TV program when searching for a show, and the keyboard controllers are clunky. People expecting an elegant TV equivalent of an iPhone, or even an Android, have been disappointed. The design and functionality should progressively improve in future releases, but there seems to be a big opening here for competitors, say, a well-timed follow-up act from Apple TV.

Apple, surprisingly, has proven slow to embrace the full possibilities of its Apple TV set-top box, which seemingly remains a side project for the company, described as a hobby by Steve Jobs, after four years on the market. Apple TV2, unveiled in 2010, allows users to watch iTunes content on their televisions, rent shows for 99 from ABC and Fox and access Netflix, YouTube and Flickr, but it does not yet function as a wide-open platform for third-party app developers. Were encouraged by the rumors, however, that the next-gen release of Apple TV may offer app supportthe sooner, the better. In the meantime, hackers are already touting their own custom apps for jailbroken Apple TVs. Clearly, not everybodys on board. Though he gushed that television was entering a second golden age, Jeff Bewkes, CEO of Time Warner, nevertheless warned media execs at a London conference in September that lower-cost digital competitors like Apple and Amazon could erode the longstanding value of television programming. According to Hollywood Reporter, Bewkes railed against the Apple pricing model in particular. How can you justify renting your first-run

TV shows individually for 99 cents an episode and thereby jeopardize the sale of the same shows to branded networks that pay hundreds of millions of dollars? Bewkes said. Television industry incumbents should be expected to be wary about these disruptive innovations. For audiences, though, its all upside. Consumers will be able to customtailor their viewing choices and activities, updating their Facebook profile, for example, then changing channels to watch Greys Anatomy while tweets from their friends stream in a news crawl at the bottom of the screen. Given how much we now use web-based apps on the 3.5-inch screens on our smartphones, why should we accept that the 36-inch screen on the wall would remain technologically inert and app-free? The connected TV is a portal into new possibilities, placed at the most important social locations in the home. The most thrilling aspects of interactive TV extend far beyond finding new ways to watch television programs. TV apps have the potential to integrate TV, web, search, video, social and shopping. Theyre going to rip the lid off the old paradigm.

56%

Of the one-third of Americans who own a DVR, 56% fast-forward through commercials.

69

Socializing the TV Set

Social TV companies are promoting mobile applications that add social functionality to TV watching. Theyre targeting the 200 million people who already use mobile for social communication like tweeting and Facebook status updates. The future of social TV will be apps that bring social alongside the set-top box and display controls of interactive TV, but for now, these sites primarily cater to audiences of traditional TV. Social TV sites like Miso, Tunerfish, Philo and Starling give a hint of the possibilities. These sites appeal to superfans and are generally at their best when facilitating communication between friends viewing the same program at the same time. By placing a premium on live experiences, connected viewing may offer clues on how advertisers can finally overcome the audience attrition from DVR. Of the one-third of Americans who own a DVR, according to Nielsen, 56% fast-forward through commercials. Aiming squarely at the mainstream, TVGuide. com launched new check-in features in October with simple buttons on its website that read Ill watch for particular shows. The feature is integrated with Facebook, allowing users to divulge their guilty pleasures or try to impress each other by pretending to watch only high-brow PBS documentaries. Within the first month, the site was receiving 10,000 check-ins per day. Still, some people insist TV audiences prefer to be passive. They dont want to lean forward or, for that matter, strain their forebrain. Instead, they simply want to sit back, relax and be entertained. But until quite recently, audiences have never been given an authentic opportunity to truly interact through their televisions. Its always been a one-way medium. The theories of audience passivity are accepted only because they remain untested. That doesnt mean theyre true.

Turning On and Tuning In

Television is indisputably a social medium. Its the focal point of the family room in modern households. And for decades, workers have gathered around the water cooler to discuss their favorite shows. To help quantify the buzzing sociality of TV, consider these Twitter stats compiled by Fast Company: There were 2.3 million tweets during the East and West Coast broadcasts of the 2010 MTV Video Music Awards. Glee, the most popular primetime series on Twitter, was mentioned in 285,800 tweets on the day its Britney Spears episode aired. In the immediate lead-up to the series finale of Lost, and the letdown that followed afterward, there were over 400,000 Lost-related tweets over a 24-hour period.

70

Start-up to Watch

Social Check-ins for Couch Potatoes

Whats the stickiest mix of rewards?
Described as the single most useful social networking tool by Wired, GetGlue.com allows fans to check-in to TV shows, movies, music and books. You can even check-in to a bottle of beer. In other words: location-based marketing for couch potatoes. The 700,000 members of GetGlue.com earn rewards, post reviews and find out whats generating buzzand whats jumped the sharkin their social networks. GetGlue. com also generates suggestions for what to watch, and provides links to likeminded taste neighbors who share your preferences. The company has attracted a number of media partners, including FOX, Hachette, HBO, Penguin and Sony Pictures.

A conversation with CEO Alex Iskold. www.getglue.com

Q: A:

Its been said that GetGlue.com is like Foursquare or Gowalla for entertainment, but with one major differentiatora really nice feedback loop. What does that mean? How does it work? GetGlue.com includes not only the ability to check in, but also lets people build a taste profile and receive recommendations for new entertainment that they may enjoy.

71 71

Think of GetGlue as an amplifier or a router of entertainment through the existing social plumbing. When a person checks in or earns a sticker, that message goes to Facebook and Twitter and reaches their friends and followers. Last night was the Dexter finale, and within two minutes, there were literally 1,000 check-ins on GetGlue, reaching nearly a million people on Facebook and Twitter in one shot. Thats a powerful mechanism.

Androids and iPads. The so-called second screen lends itself very well to providing customizable experiences for people to interact with the content theyre consuming.

A: Q: A:

Set-top boxes will eventually be collaborating with secondscreen devices to authenticate check-ins. Over the next year well be seeing more integration. Are media companies and brands looking beyond the check-in for deeper engagement in social TV? Last weekend, a VP of Bravo TV flat-out stated in an article in Mashable that the network has seen a 10% lift in ratings from social media. Thats huge. And all of the major brands weve partnered with are delighted with the numbers theyre seeing. For advertisers, the equation thats about to be executed is incredibly interesting. Everybody who checks into an episode gets a sticker; that sticker has a discount attached to it, and those rewards can be tracked and measured. You can find out how many people actually went and transacted.

Q: A:

Which is more importantgame mechanics or good recommendations? Thats a great question. If the user input consists of a check-in or a like then the question becomes: how many delights and rewards can we provide in exchange for that single action? Seeing your friends and what theyre doing is a form of reward. Receiving recommendations, and official stickers from brands, and the discount attached to those stickerstheres a spectrum of rewards that we provide. Theres not a single thing that appeals to everybody. Recommendations can be a tricky thing. People dont want to be overwhelmed with suggestions. Where, when and how will social TVwith its exploding array of mobile appsmeet interactive TV? Do platforms like GetGlue.com belong on Google TV? Why cant we just wire social into TV sets? Lets say were watching a TV show together and theres a button that brings up friends. Well, is it my friends or your friends? Are we going to be signing in and out? It feels incredibly awkward. Which is why the social TV space exists as apps on iPhones,

Q: A: Q:

Q: A:

Youre facing competition from Apple Ping, Miso, Philo and a range of new start-ups. Whats coming next for contextual networks in 2011? If there is no competition, then there is no market. Our biggest play will be to have our partners embed our check-in technologyand our reward and redemption engineto become ubiquitous across every major entertainment channel. But to cross the chasm, well have to execute flawlessly.

72

Why the TV Networks Are Nervous

Clay Christensen, the Harvard Business School professor who wrote the classic book on disruptive innovation, has observed that up-and-coming attackers can prevail against industry incumbents with two central strategieslow-end disruption and new-market disruption. Interactive TV has elements of both, which is why the TV networks are nervous. In the low-end scenario, large incumbents basically fall asleep at the switch, blithely ignoring new entrants in the bottom segment of their core markets where returns, quality and demand are relatively minimal. Whats the problem with mocking a competitor for having a teeny-weeny footprint? If the low-end offering improves and innovates at a fast-enough rate, it will gradually claim customers in the middle tiers of performance and profitability, carving out the incumbents market from the bottom up. Netflix is a prime example of a low-end disrupter. The company succeeded by taking an innovative approach in the declining segment of tight-margin video rentals. Netflix launched its subscription service in 1999, posted its first profit in 2003 and mailed its two-billionth DVD in 2009. By 2010, the number one incumbent, Blockbuster, had declared bankruptcy and number two, Hollywood Video, was being liquidated. Recently, Netflix introduced a cheaper, pure-streaming video service for consumers who dont want to receive any DVDs in the mail. In the process, theyre moving upstream into the profitable headwaters of video on-demand, traditionally controlled by cable networks. But instead of charging inflated cable-industry prices, theyre offering unlimited streaming videos to consumers for only $7.99 per month. New-market disruption involves the introduction of an innovative product or service into a new segment or emerging market that is not traditionally served by

Disruptive Innovation
incumbents. The new offering isnt competing against better-known alternatives in the same category because the category itself is brand new. The only competition is non-consumption. In other words, the new technology is either adopted or it dies. Interactive TV is a new-market disruption, particularly when one considers the full search functionality and web-browsing capability of Google TV. For all the talk about cordcutting, this technology isnt a viable replacement for cable or network. Its a new category. The zillion-dollar question facing Google TV isnt whether people will ditch their current TV service, its whether they really want to web access via their TV. If not, chalk one up for nonconsumption. But if people want full interactivity from the biggest screen in their house, and we certainly believe they will, then interactive TV will gradually gain ground against the broadcast networks, particularly if they balk now.

73 73

Google TV could be the kind of parasitic technology that benignly feeds off traditional TV for a few years, then gradually grows big enough to swallow its host. Related hardware and services from Apple, Netflix and Roku are poised to join that feeding frenzy. The major networks seem to think they can inoculate themselves by blocking access, but as soon as Fox and colleagues quarantined their sites from Google TV, online tips for workarounds and unblocks were instantly circulated online by white-hat hackers. Limiting access isnt the solution. If anything, networks will only hurt their cause by disenfranchising consumers with annoying barricades to online content thats freely viewable from any laptop. And if they really think its a good idea to get into a shoving match with game-changers like Google, they should consult their media colleagues in the magazine, newspaper, publishing and music industries. Immediately.

$120B

Brands are spending $120 billion more annually on TV ads than Internet ads, even though consumers evenly split their time between tube and web.

POINT OF VIEW

Interactive TV represents a hybrid medium where on-demand content and Web applications meet the biggest screen in your homethe television. Consumers with Interactive TV sets use built-in applications (widgets) to access content such as YouTube videos, Flickr photos and Pandora music, along with social media from Facebook and Twitter. Television set manufacturers have been eager to roll out interactive TV (e.g., iTV or connected TV) with the hope that it would spark consumer demand like high definition did in years past. However, current barometer readings indicate that these smart displays are poised for lukewarm interest at best among mainstream consumers. Research from Forrester has confirmed that approximately 40% of users who own interactive TVs either failed to connect their TV to the Internet or connected their display yet failed to use this feature. While the mainstream consumer may be out for now, early technology

What can brands expect from interactive TV in 2011?

adopters are already vested. They are astute consumers with the highest expectations, highest technology-specific investment and highest potential for engagement in the near term. Theyll be experimenting with the applications to figure out, essentially, what the new technology can really deliver. If their expectations and interests are fulfilled, these initial experiences will help shape mainstream consumer behavior of the future. Brands have an opportunity in 2011 to dip their toe into this medium and begin to experiment on a limited budget by turning to a set-top box, such as the Logitech Revue with Google TV. This device represents an alternative component within the typical home entertainment center, and in many cases, consumers who want interactive TV will opt for such a device rather than replacing their TV display. This is particularly true for the most tech-sophisticated crowd, who may be in no hurry to ditch their traditional, expensive, 42-inch, high-definition displays.

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Tomer Tishgarten
The Logitech Revue is powered by the popular Android mobile operating systems. Developers that have built mobile applications will be able to technically repurpose them once the Google TV software development kit is available. When Google rolls out the Android Marketplace in early 2011, marketers and developers will finally be able to deploy their custom applications and fully experiment with this technology. Additionally, Apple is expected to follow suit by expanding support for third-party iOS apps on their Apple TV device. By jumping into this category in 2011, with apps and related media like interactive social and video content, brands have serious potential for high-visibility impact in this much-watched space. Marketers can bring a creative touch to the technology, delivering eyepopping content that unleashes the exciting possibilities of the new medium. Technology consumers, manufacturers and the media are all waiting for the true innovators to step forward.

vice president of technology

FOLLOW TOMER ON TWITTER @TOMERIFIC OR ON HIS BLOG ALLTHATIKNOW.COM

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Innovate

Looking ahead to 2011, well see some exciting developments in AR marketing as the technology moves from the desktop to smartphones.

Augmented Reality

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The Digital Enhancement Spaces of Public

Augmented reality, enhancing our natural view of the world with overlays of digital information, sounds like a scenario from a sci-fi film where the ultracool anti-hero wears neural chip implants and hi-def eyeglasses while speeding through the cybersprawl. But you dont need to wait for the straightto-DVD release. Although it might sound like a fantasy from the far-off future, the era of augmented reality has already, in fact, begun. And its finding resonance, as well as some interesting applications, with marketers hunting the next new trend. Youve seen first-generation augmented reality (AR) in televised football games that yellow first-down line isnt actually on the field, glowing in the grass, its a digital overlay to enhance the live viewing experience. Similar applications have been popping up on the web. Two years ago, for example, Google introduced interactive links with ad-functionality for retail stores, restaurants, museums and other venues within its panoramic street-view maps, highlighting local businesses and labeling intersections as you virtually cruise the photo-documented downtowns of online cities. More recently, Microsoft unveiled eyepopping new AR features for Bing that turn online maps into truly interactive 3D worlds featuring live video feeds, indoor views taken with a backpack camera and overlays of georegistered images from Flickr. Users can dramatically swoop from street view to aerial, flying like a disembodied avatar over a Sim City-like landscape. Looking ahead to 2011, well see some exciting developments in AR marketing as the technology moves from the desktop to smartphones with applications such as Tagwhat and Layar. Tagwhat allows users to create and share location-based messages by tagging physical buildings like a GPS-enabled graffiti artist. Layar is an augmented reality browser that allows iPhone and Android users to stream multiple layers of localized digital information onto their touchscreens while their phones are in camera mode. Quiznos teamed up with Layar last year to develop an app that helps consumers find their nearest sandwich shop while adding whimsical touches to the local landscape, including 3D animations inside Yankee Stadium. These developments lead us to consider some provocative questions about the monetization of public space. What if Quiznos superimposed its AR ads over nearby Subway shops? What if the Yankees plastered virtual billboards across the left-field wall at Fenway Park in Boston? Building virtual perimeters, known as geofences, has been suggested as one possible solution, which, incidentally, could also be used to automate check-ins for location-based apps. Although, who will decide the size and orientation of your digital fences footprint? What kind of surveyor do you hire? And whats the penalty for trespassing across virtual borders? Anticipating that these kinds of questions will eventually land litigious competitors into real-world courts, Pillsbury Law Firm recently established a specialized virtual worlds practice to provide legal counsel on AR issues. So far, few precedents have been established.

Ditch the Desktop with AR Show the Way Early Experiments

Ecomagination, the green technology unit of GE, was the first to really get the mainstream buzzing about AR with its web-based Smart Grid Augmented Reality, built with open-source FLARToolKit, which merged live video with Flash and 3D animation. At-home users printed a sheet of paper, known as a marker, held it up in front of their webcam and when they looked on screen, they saw an animated 3D hologram landscape with GE wind turbines rotating between their hands. Geeky, but quite engaging. Other brands subsequently took the technology in different directions. Wise Foods pursued the social networking possibilities of AR with a web-based contest for Cheez Doodles that awarded prizes for the most popular user-generated music videos featuring animated Cheez Dudes. A&E Television Network took a game-based approach in an AR promo for its show with street magician Criss Angel, which presented 3D mazes and puzzles for fans to solve with their webcams. Papa Johns used pre-printed pizza boxes as markers for a virtual drive tie-in to its multi-channel Road Trip campaign. Esquire magazine produced an AR issue in which Robert Downey Jr. jumped off the cover onto your computer screen. Though mobile and location-based apps have a promising future, particularly for fashion, entertainment, education and food, the buzz has already cooled for many desktop-based AR marketing applications. The print-and-wave markers proved to be too much workwith too little rewardfor most consumers. Desk-based AR experiences rarely offer a tangible value beyond the fleeting thrill of a slick new gimmick. Thats why as AR converges with mobile well see category leaders keep a concerted focus on utility. U.K.-based grocer Tesco, for example, developed an app that transforms iPhone owners into instant wine buffs. Shoppers simply use their phones to photograph a bottle of wine and submit it electronically, then they receive details on taste, vintage, varietal and food pairings. Technically, youre right, thats not AR, but it intimates the extraordinary possibilities of whats to come. If the Tesco wine app incorporated live-video AR functionality, it could potentially cut out the time-consuming middle steps (shooting and submitting photos) and create an automatic point-and-tell information service. And for marketers, that kind of functionality would open the door to a whole new dimensionan augmented world of everywhere engagement.

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Create real meaning in the lives of consumers and growth for your brand.

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Facebook usage accurately predicts our level of narcissism and self-esteem.

Narcissism:

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In a NationWhere Do Brands Belong? of Narcissists

Preening, performing, touching-up our profile photos and eagerly finding out what other people are saying about uspsychologists have confirmed that Facebook usage accurately predicts our level of narcissism and self-esteem. Social media isnt a prism; its not distorting offline reality. Rather, its more like talking through a two-way mirror. Partially reflective, partially transparent, it reveals our true inner selves and how we hope to be perceived while showing us where we stand in relation to everybody else. For brands to be an important part of that picture, marketers need to understand the evolving relationship between social media and self-absorbed consumers. They also need to realize that the rules for brand behavior are different. Though this may be a nation of narcissists, brands that talk incessantly about themselves will end up in an isolated corner of cyberspace. Thats the golden rule, and, yes, its a bit of a double standard, but it makes perfect sense when you consider the sociological and psychological factors in play. Narcissists are more likely to spend more than an hour a day on Facebook, brag about themselves in status updates and strike poses in self-promotional profile photos, according to research by Canadian academic Soraya Mehdizadeh recently published in Cyberpsychology, Behavior and Social Networking. Online activities like photo-sharing and wall postings in the Facebook accounts of college students at Torontos York University were analyzed against psychological assessments of self-importance. Narcissists, not surprisingly, showed a pervasive pattern of grandiosity, posting self-inflating boasts (Im so glamorous I bleed glitter!) and links like My Celebrity Look-Alikes. That doesnt mean that everybody who spends several hours a day on Facebook is a textbook narcissist craving admiration, lacking empathy, pursuing superficial relationships and short-term gratification. In fact, the research suggests that people with low self-esteem are also more likely to congregate there for long periods of time, perhaps because the online network gives them more control over how they present themselves. And, of course, anybody whos familiar with teenagers can tell you that basically everybody in Gen Ynarcissist or notis hanging out on Facebook all the time, from beautiful girls with big egos to the shyest of pimply guys.

POINT OF VIEW

In order for a brand to become social and do so in a meaningful and relevant way, brands must get beyond thinking and defining themselves solely as a set of product benefits. Why? Because product benefits are a short and uninteresting topic for social conversations and they certainly dont add any badge value or meaning to the brand that makes them like-worthy to our narcissistic and in-control consumer. Today, in a world of over-choice, where product benefits and features are quickly and easily copied by competitors and where buzz terms like social, dialogue and interaction have replaced the safety of simply sending out ads into the market, the whole notion of positioning a brand upon its unique space within a category has become as antiquated as defining a cell phone by its ability to make a phone call.

How can brands stay relevant to consumers today?

Branding today requires a new approachan approach that doesnt start with a proclamation about what we are or how we want consumers to feel about us, but with an understanding of consumer culture and the cultural meaning that surrounds the consumption of our brand. Branding is no longer done from the inside out; it works from the outside in. Letting the values, beliefs and attitudes of consumers shape and define our brand so that our positioning doesnt just create category relevancy, but cultural relevancy. This is a big and necessary shift in the way we approach branding. Letting consumers define your brand makes for more relevant connections and increases the meaning of your brand in the lives of consumers. It takes us beyond the package and product to a positioning that allows brands to become alive and infinitely more

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David Grzelak
interesting in the day-to-day lives of consumers. The minute we, as marketers, put ourselves in the context of a category, we immediately limit the usefulness and meaning that our brand can have in the marketplace. We reduce ourselves to features and attributes, but thinking of our brand through the lens of consumer culture opens up an endless source of inspiration and imagination. So while we may see narcissism in the behaviors of consumers in social media, we, as brands, must let go of ours. Nothing good comes out of a conversation between two narcissists, and it may just be time for brands to replace our narcissism with a little bit of humility and finally recognize that consumers do, in fact, define and own brands.

executive director, brand planning

READ DAVIDS BLOG AT DAVIDGRZELAK.COM

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Social Coding of Sophisticated Teens

Did you know its now considered conceited in many teen social circles to use an image of yourself alone as your Facebook profile photo? Even though young digital natives have earned a reputation as the entitlement generation, there are apparently some social limits to their unabashed self-regard. While the practice of putting up photos with friends originated as a safety mechanism, its now considered a social signal that you are sociable, explained Dr. Danah Boyd, senior researcher at Microsoft Research, at the International Conference of Data Protection and Privacy Commissioners. Theres compelling evidence that the up-andcoming cohort of young Americans has grown increasingly sophisticated in navigating the public-by-default scene of social networks. These developments bear close observations by marketers and advertising agencies. Though social media has expanded well beyond the youth demographic20% of Facebook users are aged 45 or olderthe front lines of cultural-technological change are predominately filled by the young. This is, ultimately, their world. The rest of us are just visiting. The Gen Y relationship to brands is part of the shifting online paradigm. When young people choose to like a brand on Facebook, theyre essentially putting on a badge that helps define them among their peers. Online brand fandom can be viewed as a performance, part of a carefully calibrated process to craft and project a personal identity that transcends public and private selves. Even when people really lock down their privacy settings on Facebook, one of the things they dont hide is what brands they like, explained Peter, one of our college-aged interns whom we regularly interrogate on Gen Y social protocols. I know it sounds

What Marketers Can Learn

20%

Only 20% of Facebook users are aged 45 or older.

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50

The average teen sends or receives 50 text messages daily while the average adult sends ten.

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The buying clout of Gen Y consumers could surpass all previous generations.

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superficial, but if I see a girl likes three or four brands, I pretty much know who she isor at least, I can tell if were going to click, if weve got a chance. If she likes J. Crew, right? Or, like, Old Navy? That says a lot. Conscious brand identification can be exercised online by older folks, too, but the critical difference is that teens appear more naturally attuned to the subtlest of social signals online. Having been raised in the digital slipstream, theyre highly sensitive to its shifting currents. Thats both good news and bad news for marketers. On one hand, positive and public brand associations can generate significant value for brands. But, on the other hand, as the industry moves inexorably toward more sophisticated behavioral marketing, there are signals that teens are adopting practices to remain unknowable and inscrutable. One of the ways that teenagers have adapted to the open social architecture of online networks is by increasingly coding their public messages in private languagesong lyrics, personal jokesthats decipherable only to those friends who are the intended recipients of the message. This social coding can effectively keep nosy parents, college admissions officers and

future employers in the dark. This doesnt mean theyre scrubbing every detail from their public personas. Dr. Boyd, addressing the international convention on privacy and data protection last October, explained: Teens turn to private messages or texting or other forms of communication for intimate interactions, but they dont care enough about certain information to put the effort into locking it down. But this isnt because they dont care about privacy. This is because they dont think that what theyre saying really matters all that much to anyone.

Dr. Boyd observes, these teens tend to protect their Twitter accounts, making them accessible only to a subset of friends. This also relieves them from too much traffic on Facebook. She quoted one teenager shed interviewed: Facebook is like shouting in a crowd, Twitter is like talking in a room. This seems counter-intuitive to the many marketing professionals who use Twitter to broadcast messages to the broadest possible audience, but then again thats why we pay close attention to teenagers. Theyre innovative. Given their numbers82 million Americans were born between 1980 and 2000and their reputation for strong opinions, the buying clout of Gen Y consumers could surpass all previous generations, which is why todays tweens, teens and twentysomethings are being studied, surveilled and analyzed by governments, corporations and computer algorithms. As they grow older and gradually become more aware of these prying eyes, their public presence and behavior on social networks will inevitably change. Brands will need to look beyond themselves, and even outside their category, to keep pace and maintain cultural relevance with this fastmoving crowd.

When it comes to preferred channels of private communication, American teenagers are text obsessed.
The average teen sends or receives 50 text messages daily, according to Pew Internet. Over 30% of teens send more than 100 texts, and 15% send more than 200. (The average adult sends ten.) Interestingly, Twitter is now emerging as a favored channel for private communication among the most popular and techsophisticated teens in high-income American communities. In contrast to Facebook,

POINT OF VIEW

If every person wants to be a brand and every brand wants to be a person, where does that leave marketing? What does it say about our culture that young girls want to become celebrity brands like Miley Cyrus, while companies and products are competing to be our friends? Brands were once the cornerstones of consumer culture, but with the rise of social media, consumers have increasingly subsumed brands. Theyre now the producers and the consumers. Brands are sidelined to serving content, which, sadly, makes marketers sound like caterers ferrying drinks to VIPs at a cocktail party, desperately hoping everybody likes the appetizers. Advertising, long acknowledged as both tastemaker and toastmaster in American culture, is now mostly a facilitator. Its the hired help. Lets

Is social media amplifying an aspect of human nature that mass media didnt activate?
face it, though, brands are lucky consumers let them in to the party in the first place. Rather than barring the door, theyve brought brands into their social scene. Theyve taken us inside their houses, theyve shared their thoughts, theyve expressed sincere interest. We may be living in a nation of narcissists, but consumers are actually encouraging brands to behave more like peoplein other words, more like them. People have always projectedwe put on our best face in public. But that kind of social projection used to happen in private encounters, smaller settings. It wasnt mediated. The message wasnt packaged and broadcast across global networks like Twitter and Facebook. People werent building their own personal brand. They werent marketing themselves.

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Patti Ziegler
Jacob Lewis, co-founder of teen literary social salon Figment.com, observed that in the past there was no expectation that famous authors would correspond with their readers. Thats not true now, says Lewis. Theres been a fundamental shift. When kids today interact with the authors they love, they expect a response. They demand a response. Reading isnt a passive experience for them; its a social one. People want to participate. Which means its a mistake to get too preoccupied with notions of narcissism, because theres also a brighter side to this paradigma vibrant culture that finds value in creating and contributing, not just consuming. Brands arent celebrities. Theyre not people and theyre not peers. But they can be very useful friends. And thats worth considering in this new creative context. Theres a party going onnow get back to work.

chief marketing officer

READ PATTIS BLOG AT PATTIZIEGLER.COM

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Metrics and Analytics

The Future of

Moving Beyond
the Black-and-White Binary of Social Metrics
is an acknowledgment that successful measurement begins with strategy. Marketers at companies with a social media strategy in place are twice as likely to report that their initiatives are producing quantifiable profits, according to survey data from R2Integrated released in April 2010. They were also more likely to have a dedicated staff for social media. Even for brands with a social media staff, the sheer quantity of online mentions often exceeds what can be eyeballed on a daily basis. Marketers are already using automated tools to quantify buzz. In 2011, the options will expand, with a host of new and valuable metrics emerging. Today there are two primary methods most companies use to evaluate their social media initiatives. The first is a simple assessment of activity: tracking the total number of friends, fans, likes, retweets, etc. The second involves a two-step evaluation of brand mentions and sentiment: counting all comments made about brand in blogs and social channels, then categorizing them as good or bad. In both cases, the Marketers searching for meaningful metrics in social media should consider the view from Wall Street, where innovative firms are data-mining online news sources including blogs and tweetsfor market insights and aggregate sentiment on public companies that can drive profitable stocktrading strategies. A third of quantitative trading firms are now using or exploring these unstructured data feedsup from 2 percent two years agoaccording to figures cited recently in The New York Times. So if some robo-trading hedge fund can generate hard profits from your brands social media presence, then why cant your marketing department work the same magic? Why cant they make heads or tails of the data? Today, only 15% of companies are actively measuring the profitability of their social media efforts, according to a recent study from SmartBrief. A lack of ROI-related metrics are frequently cited as a stumbling block for social marketing, and an impediment to serious budget commitments, but whats often missing from that conversation

methods and metrics are quite rudimentary. They can tell marketers how many people are talking about the brand, but they dont truly convey whats being saidor why. Brands need more than a simple binary assessment of good or bad when evaluating tonality. If consumer sentiment is trending negative, companies need to know the nature of the problems before they can improve the situation. Similarly, brands that score positive should find out what it is, exactly, that theyre doing right. Machinereading technologies that effectively sort and translate massive amounts of unstructured datareading comments, interpreting emoticons, analyzing intentwere once limited to the military and intelligence communities. More recently, however, companies such as Crimson Hexagon (see Q&A on page 102), Lexalytics and Clarabridge have developed commercial text-analytic tools that can dramatically enhance the ability of digital marketers to derive meaningand capture marketing ROIfrom the social web. Though the tools are improving, social media analysis will never be completely automated. People remain an essential component

of the measurement process. By some estimates, around 40% of posted comments fall into a neutral categoryneither fully good nor badwhere meaning cant be harvested automatically by most programs. Computers have trouble translating certain kinds of expressions like sarcasm and jokes. Tongue-in-cheek compliments, for example, can be inaccurately categorized as positive mentions. Data doesnt lie, but that doesnt mean data is always telling the truth, either. Subjective judgments require human analysis. Software might produce a word cloud or a ranked list of terms associated with sentiments (positive or negative) about your brand, but the subsequent decisionmaking and prioritization process requires a manager, not a machine. The marketing team at a grocery chain, for example, would immediately recognize that 100 wall posts about food poisoning are more important than 10,000 likes about a redesigned produce section. A computer cant be depended upon to make those kinds of calls. Even though people are critical to the measurement process, theyre also commonly a source of conflicts. People introduce a significant amount of bias into the equation.

Community managers who are tasked with tracking online buzz are likely to seek positive affirmationswhether intentionally or otherwisebecause if consumers are upbeat about the brand, that suggests that the community manager is doing a good job. Beyond bias, theres also an issue of misplaced effort. Marketing teams respond to what can be measured. This can become a serious liability when metrics are misaligned with business strategy. One of the chronic problems with using activity quantity (total number of likes, friends, retweets, etc.) as a proxy for performance is that many digital marketers have become desperate to generate activityany activity without regard to brand relevance. Pop culture references and topical questions can sometimes be useful to kick-start conversations, but lately, far too many brands on Facebook have been asking, How was your weekend? Thats like asking, Hello? Anybody there? There needs to be a balance between relevance and activity, brand equity and chat dynamics. Yet brands today rarely measure relevance. In 2011, brands must refine social strategies by utilizing more sophisticated technology tools for social metrics, while simultaneously building a deeper bench of social analysts

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35%

of marketers believed their social media initiatives were actually making money while the majority reported that social media was invaluable to their companys success.

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with an objective vantage who are separate from but integrated with the staff creating content and managing communities. Many companies will continue to rely on external partners for now, but these resources will increasingly be brought in-house by both brands and agencies as the technologies and methodologies mature. Creating social media campaigns with impact requires brand leaders to move beyond rudimentary metrics. Its time to change what we measure. Social media data isnt binary. Its not simply numbers, but raw and unstructured conversations spilling across the open-ended web. Moving beyond the blackand-white binary tonality of good-versusbad will clarify the data. In the future, social measurement will track directly to purchase behaviors, becoming more actionable and predictive. Well discover to what degree peoples comments actually correspond to buying activity. This shift in transparency into the path to purchase represents a significant advance in marketing research. It is a radical upheaval and requires a change in even the most basic of marketing practices. In the past, one of the

limitations of survey-based market research was that marketers only received answers to their specific set of questions. In social media, there are no such constraints. There are no questioners. People are just talking. The answers are simply there, unsolicited, open-ended. For the first time, marketers can parse whats really going on in the heads of their consumers, because the consumers themselves are essentially mindcasting their innermost thoughts and preferences. But to fully capture that information, theyll need to continually hone their methodologies and technological tools.

Yet only 15% of companies are actively measuring the ROI of their social media efforts, according to a recent study from SmartBrief. Many companies overlook the essential first steps of establishing what theyre trying to accomplish and how, precisely, future performance will be gauged. Others come up with key performance indicators (KPIs) that reflect no real value, then waste further resources by monitoring their activity. A lack of ROI-related metrics are frequently cited as a stumbling block for social media, as well as an impediment to serious budget commitments, but whats often missing from that conversation is an acknowledgment that successful measurement begins with strategy. Marketers at companies with a social media strategy in place are twice as likely to report that their initiatives are producing quantifiable profits, according to survey data from R2Integrated released in April 2010. They were also more likely to have a dedicated staff for social media.

Setting a Strategy
Launching a successful brand presence on a social networking site sometimes feels like striking oil. Theres an initial geyser of activitya surge of new friends, fans and followerscausing great excitement after months of exploration and experimentation. But then the hard work begins. To truly capture the value of social media, you have to carefully extract and refine it. It requires patience, preparation and foresight. Otherwise, youll be left with a big messy reservoir of untapped resources, buried beneath the online substrata.

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So what to do if you are among the 85% of companies not actively measuring the ROI of social media campaigns? We suggest the following: Conduct a Social Audit Evaluate internal resources, past performance and future objectives, as well as the social presence and activity of competitors. This is the key to identifying priorities, benchmarking previous efforts and planning for the future. Establish Metrics and Stick to Them There is an evolving suite of metrics used to evaluate social media. A brand must customize this arsenal to reflect the organizations broader business goals and a formalized plan for social media analytics. Metrics Cant be Passive Performance targets should be set before launch and internal progress and external developments in the social space should be monitored continuously. Reporting should include weekly updates on timesensitive issues, as well as monthly and annual reports reflecting the full scope of metrics and social score, comparing month-to-month and year-to-date changes.

The Direction of Future Metrics

Given the rapid innovation of online technology and mobile platforms, new sources of data are showing up all the time. Marketers are just beginning to pay attention. Set-Top: Interactive TV is a burgeoning space that could drive the efficacy and extend the life of traditional TV advertising. Moving far beyond basic measurements of audience size, marketers will be able to map a more comprehensive viewer network, not just whos seated together in the family room, but everybody theyre connecting with outside the home. Simple counts of open eyes could be replaced with sophisticated metrics for active hands. Social Net: Gone are the days when marketers were forced to imagine their ideal consumer target as a composite of generalities. Today, companies have the capacity to build a comprehensive social graph of real customers that combine social insightsfrom sources such as Facebook and LinkedInwith offline data ranging from loyalty cards to income level and residential neighborhood. They can create dossiers that reflect deeply personal insights to guide brand strategies. This new power, however, comes with huge responsibilitiesand a lack of accepted industry standards. Reported missteps at Rapleaf and elsewhere, and signals that the federal government may intervene, suggest that the Wild West days of behavioral marketing may be short-lived. In the meantime, theres a treasure trove of emerging data. Influence: Companies like Klout are attempting to quantify the social influence of specific individuals, which raises a critical question for marketers: Who are the people I really want to target? Marketers may discover that targeting 300 key influencers can be more effective, in certain circumstances, than a mass-market pitch for 300 million. Moreover, companies that are concerned by the online morphing of their brand identity and the lack of control in social channels may be able to recruit opinion-makers within the community to drive the conversation. These new tools are constantly evolving and measurement options can be extremely confusing. Finding an experienced advisor capable of vetting partnerssorting the semantics guys from the natural searchersis often an important first step before choosing a solution.

POINT OF VIEW

As an industry, weve spent a lot of time asking ourselves: Whats the value of a Facebook friend? But thats always been the wrong question. And, ultimately, an impossible one to answer. The necessary and logical questions to ask instead are: What is there to learn in the social media space? And how can we use this knowledge to create more meaning in the lives of consumers and, therefore, value for a brand? As with any technological innovation, especially those accompanied by a radical shift in social and cultural norms, figuring out what it all means for marketing practice doesnt happen overnight. Yes, fans are a measurable outcome, but not necessarily the best metric. Fan counts are simply what is available. Marketers gravitate by habit to these measurements because they are similar to

What social media metrics matter today for brands?

readership figures or viewers of a TV show. And just like those metrics, it doesnt speak to impact or relevance. It indicates audience. And just like the mass market of the distant past, Facebooks aggregate audience is massive. It reached 70% of the U.S. Internet audience in 2010, up from 48% in 2009, according to a recent report by J.P. Morgan. And yet we remain essentially toddlers in the social media space when it comes to metrics. The only thing weve figured out is how to count things. We need to move from talking about X or Y brand being mentioned 10,000 times to what did these consumers actually say? Its essentially a move from quantitative to qualitative data analysis.

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Scott Hildebrand
We are at a very binary stage, asking whether something is good or bad. We must move on to intent. There is a richness in social conversations that brands need to tap. The future will be dashboards that will tell you how well your social media performed in terms of activity. We will get to the point where we will be able to gauge how well a social campaign performed in terms of brand perception. Once we understand how brands are perceived, we can start to alter those perceptions and drive category growth or a brand positioning against a competitor. And thats certainly not counting or a superficial indication simply of popularity or buzz. Thats where analytics must improvelinking an individual with their ability to drive actions that create value for a brand. Its an uphill climb, but we will eventually arrive at that level of granularity with our analytics.

chief consumer relationship officer

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Best Practices For Strategic Brands

Building brands in emerging social and digital platforms isnt just about leveraging new technology. Successful companies, even when only experimenting, begin with a business objective. Start here, but consider these other best practices:
U.S. Marketers Who Believe Their Companies Have Profited from Using Social Media

April 2010
YES 65% NO 35%

ALIGN WITH OFFLINE METRICS. Consider the consumer-oriented metrics your company uses outside of social media, particularly those that differentiate your brand from its competitors. Theres not always a one-to-one match, of course, but ultimately your digital presence should map as closely as possible to the brands core strategy and tactical positioning. COLOR, NOT BLACK AND WHITE. Companies often start with a binary, black-and-white assessment of sentiment tonality, counting up positive versus negative mentions on Twitter, Facebook, blogs and other social channels. Thats not a bad place to start, but more sophisticated analyses are now possible, such as wants/needs identification and measurement of purchase intent.

MEASURE PROGRESS, NOT PRESENCE. Success depends on much more than just showing up. Performance targets should be set before launch and reflect reasonable but aggressive goals. Progress should be tracked against internal benchmarks and competitor activity. Leading companies in other brand categories may also serve as a useful point of comparison. SHARE RESULTS INTERNALLY. Weekly updates on time-sensitive issues should supplement monthly and annual progress reports, comparing month-to-month and year-to-date changes. Marketers with a traditional mindset may harbor skepticism on the meaning behind certain measurements, but silence wont improve that situation. The science of social media metrics is still maturing, and an open, ongoing discussion can help brands move forward while refining their focus.

Source: eMarketer

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KEEP A FEW HUMANS IN THE LOOP. Automated web analytics are advancing rapidly and can now provide sophisticated real-time analysis of raw, unstructured, social data. Yet even the most intelligent software cant accurately crunch conversations, jokes and cultural references. The qualitative perspective of real people can be essential for capturing and comprehending the full richness of social data. CONSIDER NEW AND EMERGING METRICS. Sources of consumer-oriented data have proliferated as digital technology rapidly evolves. From social influence scores to interactive TV set-top data, innovative companies are finding productive ways to make the most of these new metrics.

BEHAVE RESPONSIBLY. Behavioral marketing represents a Pandoras Box of new metrics and data sources. Industry self-regulation has not been fast or aggressively enough to satisfy government regulators, partly due to the fact that there are many new actors that are not members of the mainstream and are therefore outside of the influence of the trade associations. With a multitude of social metrics companies now entering the market, brands are strongly advised to conduct due diligence on potential partners. AUDIT PAST PERFORMANCE. For many companies that have already established a social presence, theres no clear strategy and, accordingly, performance evaluations track only the softest and most generic metrics. A social audit will determine whether youre on the right trackand allow you to redefine what markers are used to measure your progress.

Main Obstacle to Implementing a Social Media Strategy According to U.S. Marketing Professionals

9%
Source: eMarketer

12% 35% 21% 23%

Cant develop a compelling business case Social not part of strategic roadmap Believes audience not active on social media Getting buy-in from senior management Not enough data to develop ROI

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Start-up to Watch

Sophisticated Tools Intelligence for Social

Can machines translate consumer sentiment?
With technology developed at Harvards Institute for Quantitative Social Science, Crimson Hexagon provides social media analysis and real-time reputation monitoring for agencies, brands and media outlets. Theyve developed sophisticated capabilities beyond first-generation buzz tools to isolate meaningful signals amid the background noise, helping marketers learn how consumers really feel about brands and competitors. Crimson Hexagon consistently seeks to find and refine robust ROI-based metrics for social campaigns. Founded in 2007, they recognized years ago that whats easiest to measure in social networks doesnt always correlate to what contributes most to brand equity or the bottom line. As CEO Scott Centurino points out, its essential to grab the most relevant numbers from the datastream, and let the rest flow past. The company name alludes to a 1941 short story by Jorge Luis Borges, The Library of Babel, in which the crimson hexagon is a hidden room with a magical book that serves as a translation key for all the books in an infinite library. The Cambridge-based companys algorithms perform a similar functioncompiling, crunching and clarifying sentiments that would otherwise remain indecipherable and lost in the digital babel of social media.

A conversation with CEO Scott Centurino. www.crimsonhexagon.com

(Disclosure note: Engauge partners with Crimson Hexagon to provide analytics services to its clients.)

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Q: A:

What metrics should brands be watching in social media? Brands should be focusing on the metrics that map to their existing consumer-focused metrics outside of social media. Not all consumer metrics will have a direct match, but with the right tool(s) it is possible to get to a wide and nuanced range of insights. For example, Crimson Hexagon has customers looking at measures of purchase intent, consumerdriven promotion activity and wants/needs identification. Of course, brands will often still start with mention volume and basic tonality of sentiment, but we caution our customers to make sure that they are analyzing only (and all of) the relevant volume for their analysis.

Q: A:

Is it possible to automate social media monitoringand, if not, why not? Purely automated social media monitoring is possible, but real analysis requires human-directed automation solutions to produce usable data and insight. No technology can proactively automate human judgment, and without that judgment in the mix, one should be extremely cautious about how one uses such purely automated solutions. However, a solution that does allow the human element in the analysis while still providing robust automation can deliver on the promise of Social Intelligence and be used to guide strategic decision making, both in the social channel and, more importantly, outside it. What does social media mean for the future of consumer research? Social media is already becoming an important data source for consumer research, based on the incredible advantage that comes from having raw data already available for analysis on a moments notice. This allows for faster, more efficient research that can be performed iteratively. The unsolicited nature of this data also makes it increasingly attractive to those looking to uncover real consumer insights. Forward-thinking brands and agencies already use Social Intelligence to produce accurate, more immediate results than traditional research. As the state of the art of social research advances, we fully expect to see increasingly creative combinations of social and traditional research drive consumer research to a whole new level.

Q: A:

What is the future of digital analytics in 2011? And beyond? In 2011, we see brands demanding a move beyond mentioncounting and simple sentiment to more sophisticated and contextually relevant analysis. We like to refer to this as the move to Social Intelligence. Conversational volume and tone are a good start, but getting to the why behind them is how real business value is achieved from analyzing social media. Beyond sentiment drivers, measuring motivation and intention creates the opportunity for the use of social media as a leading indicator of business performance. Social media analysis providers will also increasingly promote their growing geographic and demographic capabilities.

Q: A:

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03

Relate

Consumer Trust
What We Did and Didnt Learn in 2010
Gaining, and retaining, consumer trust will become a make-or-break proposition for digital marketing campaigns in the year ahead. The fundamental currency of social media is, and will likely always be, trust. Online friends, fans and followers lend valuable context and credibility. Brands with earned media channels bank on consumer confidence in the opinions of peers. Recent surveys on the subject, though, fail to instruct. There is no single gold standard, instead marketers find an erratic, speculative, freakonomic mess. Comparing apples to oranges, skewed survey-based reports with provocative hooks on privacy and trust have been bouncing around the blogosphere and Twitterverse. The data is often sliced and diced to fit a preconceived narrative. For marketers, the takeaways are often too conflicting, confusing and counterproductive. Take one widely cited stat from the Edelman Trust Barometer, parroted in Ad Age, eMarketer and elsewhere: Peoples trust in their friends and peers fell by nearly 50% between 2008 and 2010. According to this poll, more people trust radio news (27%) and newspapers (26%) than their own mothers. Apparently, only 25% of Americans considered people like them to be credible sources of information on a company. This doesnt square with common sense (We love you, mom). By contrast, a recent study by Harris Interactive found that conversations with friends, family or co-workers were considered useful and trustworthy by 93% of American Internet users. This certainly sounds more believable, but its hard to be sure whos got the story straight when theres such a huge disparitya gap of nearly 70 percentage

21%

Only 21% of online Americans believe comments posted on websites are generally trustworthy. Nevertheless, 46% consider usergenerated content to be a useful source of information.

Trust

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According to one poll, more people trust radio news and newspapers than their own mother.

points!between poll numbers on the same subject. The definitions of trust, transparency and privacy vary greatly between different people, leaving survey questions, answers and results widely open to interpretation. These terms may signify nothing, or anything at all, without situation-specific context. People often struggle to codify these kinds of abstract issues into explicit language. This is particularly true for certain demographic groups. Opinion polls of American teenagers, for example, have produced a range of seemingly contradictory and inconsistent views on trust and privacy. This doesnt actually mean that their social norms are radically changing. Rather, it suggests polls are asking the wrong questions, or perhaps theyre asking the right questions with the wrong words.

For brands, the best way to really learn about trust isnt by sending out surveys, its by starting authentic conversations with consumers in their natural habitats and making careful observations about how their beliefs actually inform their behaviors. Thats the key lesson from the Columbus Project, an Engauge ethnographic research initiative that has been tracking media and purchasing habits from the homes of 100 families in the American heartland since 2007. And its also why we launched an emerging media engagement lab, putting new technology tools into the hands of consumers, carefully watching what happensand then learning why. Our ongoing dialogue with consumers reveals that many are still adjusting to the one-to-many social architecture of online networks, where communication is public

by default and extra effort is required to keep messages private. Social media represents an abrupt and dramatic shift from traditional modes of communication for brands and consumers alike. Its changing the way we structure, prioritize and publicize our relationships. And as a culture, were undergoing a progressive reattunement on the critical issues of trust and privacy. Were still in the fuzzy frontend, a state of flux, an evolving situation that defies one-off surveys and easy answers. Marketers need to be sensitive on these issues, but they shouldnt be afraid to move forward.

Do Not Track:
Should we blame Facebook? The recent Do Not Track proposal from the Federal Trade Commission, which would limit commercial surveillance and data collection of consumer web browsing, follows a year of highprofile dust-ups over the privacy policies at Facebook. Of course, Facebook isnt the only online publisher to take flak on these issues, but the company has proven willingeager, evento keep flying into this contested territory, locking and loading in a year-long dog fight with the press, privacy advocates and the FTC. From a public relations perspective, there have been a few spectacular crashes. In its ambition to push boundaries on consumer privacy, has Facebook imperiled its success and, ultimately, the entire online advertising business? Last year, Facebook reversed course on controversial policy changes that automatically made certain profile information, including names and profile photos, open to the public. Then an investigation by The Wall Street Journal revealed that the top ten Facebook apps,

Did Facebook Force the FTCs Hand?

including Zyngas FarmVille, with nearly 60 million users, were leaking users Facebook IDs to outside companies. Several apps were also sharing information about users friends with third-party vendors. Though Facebook policies prohibit app developers from selling or sharing users personal data with ad agencies and data tracking firms, the company had clearly failed to enforce the rules. Facebook has also introduced learned targeting that enables companies to send ads to the friends of existing fans, or to other people identified as sharing common characteristics, bringing the company closer to crossing the creepy line. From a consumer perspective, Facebook privacy controls have been quite opaque. At one point, the site required upwards of 100 clicks to fully lock down settings. The controls have since been streamlined, but theres still no easy option that allows users to actually see what their profile looks like to the general public. And theres no setting that allows users to opt-out of having their information shared with advertisersnot surprisingly, since advertising is how Facebook makes money. Which brings us to an important point. In the past, consumers and policymakers were broadly united in their support for similar legislation such as the National Do Not Call Registry and the CAN-SPAM Act because these regulations provided obvious social benefits with, effectively, zero cost to the general public. Consumers didnt sacrifice anything by adding their name to the Do Not Call list. They continued to enjoy the same basic phone service, minus the telemarketers. And the telecom providers didnt suffer, either. The fallout was limited to a subset of the marketing industry, much of which had already been outsourced to India. But the impact of Do Not Track would be far greater, because the online economy is dependent on advertising. The services of Google, Facebook, YouTube, Yahoo!, Microsoft Live, Blogger and Blogspot are free to consumers because the content is

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underwritten with advertisements. If Congress pushes ahead with a highly restrictive Do Not Track registry, they risk severely damaging the competitiveness and profitability of some of the countrys most innovative companies. Thats a politically dangerous and all-around dubious move in a down economy. This brouhaha is brewing abroad, too. Facebook privacy concerns prompted the European Commissions proposal of a right to be forgotten law guaranteeing that online content from social networking sites could be permanently deleted. The notion is wonderfully Europeanseemingly prudent, but totally impractical. At this already-late juncture, its nave to believe the online traces of our semi-public personas in social media could be wiped completely clean. Were already caught in the web. If a keyword search can cause a divorce or public disgrace, as the Europeans complain, that information probably shouldnt have been posted in the first place.

03

If Facebook were a country, it would be the third largest in the world, lagging behind only China and India. Facebooks growing base of 550 million users will soon be double the population of the United States.

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Halfnimity:

Behavioral Marketing
Many of todays online advertising applications operate in the zone of halfnimity a middle ground between full identity and online anonymity. Terms like targeting and tracking tend to conjure more troubling notions, something comparable to a credit report or medical record. Thats not to suggest that more insidious tracking and trafficking of such information doesnt occur. Private investigators, for example, can now acquire certain profile information, such as your Facebook username, from various paid databases, and that data may be linked to other identifiers, like your Social Security number, creating a permanent history. Unlike criminal, civil, credit and driving records, use of this kind of information in a pre-employment check or background investigation is not currently limited by federal law.

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The FTC may have a point in suggesting that the industry has failed to act fast enough in developing effective standards for selfregulation. Baby steps have been made by the Digital Advertising Alliance, formed by a collective of advertising industry groups, but their voluntary opt-out program for online behavioral advertising remains in beta stage. Meanwhile, marketing executives are left to fend for themselves. New behavioral marketing technologies, such as HTML5, the new version of Hypertext Markup Language with advanced user-tracking capacity, are proving irresistible for brands, despite the lack of public recognition about whats really happening. More than 80% of 2009 online ad campaigns involved cookies or some other tracking feature that could be construed as behavioral advertising, according to an informal survey of Interactive Advertising Bureau members. Yet in an August 2010 study by the Center

for Democracy and Technology, only 51% of participants recognized that serving ads tailored to their web-browsing history is something that happens a lot right now. Mistakes can be costly when operating without clear precedents or industry best practices. Several federal class action lawsuits, for example, were recently filed over the surreptitious use of Flash cookies by several major media companies, including NBC Universal and Fox Entertainment Group. For brand marketers, online tracking is an area where it pays to have a trusted advisorexperimenting in isolation can lead to potential blowback. In 2011, online behavioral marketing will be coming out of the shadows and into the spotlight. Brands must be fully prepared to field questions on the subject from both internal and external stakeholders. The

industry should be doing much more to educate consumers on the indirect benefits of online ads and the potential tradeoffs of opting out. Brands should be telling that story, too. Because its not just government intervention that could pull the plug on online ads, the free, open-source AdBlock Plus (yep, the name says it all) recently became the first browser-based add-on to be downloaded over 100 million times. Marketers should also realize that people dont think like machines. Many are somewhat baffled by the idea that algorithmsas opposed to nosy employeesare what actively link their Google searches and Facebook profiles to relevant advertisements. Consumer trust and consumer tracking are not mutually exclusive. But in the current environment, trust can quickly erode without a commitment to transparency.

POINT OF VIEW

As our public selves merge perceptibly with our private selves on social networks, our notions of what constitutes privacyarguably even the very definition of privacyis undergoing a radical revision. Mark Zuckerberg audaciously quipped in 2010 that privacy was no longer a social norm. For most of the 550 million users of Facebook, the idea of a private profile on Facebook apparently persists. But, in fact, there is no such thing. A recent study of online social networks started with this premise: Given the known attributes of some fraction of users in an online social network, can we infer the personal detailsgeographic location,

Can privacy survive in the social media ecosystem?

interests and schools attendedof the remaining users? The answer was perhaps predictable: Yes. It was the high degree of accuracy that was surprising. Even when given information on as little as 20% of users, the personal attributes of the remaining users could be broadly determined. Put more simply, we are friends with people like us. Our networks reflect commonalities easily inferred by even the most basic of algorithms. Just by joiningoften under the illusion of privacywe reveal ourselves. But few stop there. Instead, we share some of the the most intimate details of our liveschildren, marriage ties, school and work connections. We voluntarily make ourselves more vulnerablebut

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Mya Frazier

director of trends and insights

vulnerable to what, really? RapLeaf? The Peoples Republic of China? The threats remain largely abstract, opaque, seemingly academic. With every new status update, we may be entering a Faustian bargain, but we really cant see whose hand were shaking. As Facebook grows ever larger and more powerful, were increasingly caught in a zero-sum game between participation and privacy. The emerging cultural norms of transparency, openness and connectedness involve some inherent sacrifices. The question remains whether these tradeoffs will be worth it.
FOLLOW MYA ON TWITTER @MYAFRAZIER OR ON HER BLOG MYAFRAZIER.TUMBLR.COM

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Faces of the Future

A Fictional Scene from the Year Likely to Succeed? Ahead Class of 2011, Most
Im not some conspiracy theorist, says 17-year-old Brandon Hills, and Im not some crypto-paranoid nutcase. I just think that nobody should be allowed to make money off of me without my permission. Brandon, an honors student with a confident smile, is a senior at Cordova High School, where he serves as president of the schools social media club and co-captain of the varsity tennis team. Hes also a self-proclaimed member of the Post-Facebook Generation. Brandons addressing a sympathetic crowd, a small group of like-minded friends who meet every other Thursday to discuss the bits and bytes of social networking. So these big shots in Silicon Valley built these ginormous empires by selling our personal data and our private information, right? he says. Were talking about, like, billions of gigabytes stored on corporate servers. Facebook knows who your friends are. Google knows what youre thinking. Foursquare knows where youve been. And Twitter? Twitter knows youre basically an idiot. Brandon pauses, letting the laughter die down. Theyre all selling your private stufftheyre selling youto the highest bidder. Brandons friends have teasingly suggested that he founded the social media club simply to pimp his extracurriculars for college applications. But after gaining early admission to Stanford, he hasnt lost any passion on the issue of online privacy: Theres no opt-out. Theres no escape. Its like Tronwere stuck in their system forever! His friends cheer. The impromptu speech even gets an encouraging nod from Mr. Morris, the faculty advisor, jotting notes at the back of the room. Morris, the schools AP English teacher, describes himself as a total technological neophyte and was surprised by the invitation to advise the club. Not coincidentally, Brandon approached me after a class on Orwell, Morris notes. He was really quite persuasive. The clubs next project was supposed to be a Facebook application for the yearbook committee that would facilitate online nomination and voting for senior superlatives, such as Best Dressed, Biggest Flirt and Most Likely to Succeed. But today, Brandon proposes that they abandon Facebook entirely and instead, develop the new app for Diaspora*, an alternative platform that touts itself as the privacyaware, personally controlled, do-it-all, opensource social network. Brandons proposal to pick Diaspora* over Facebook passes unanimously. Brandons not paranoid, and hes not alone, says Mr. Morris, the faculty advisor. Perhaps those Silicon Valley big shots are the ones who should be looking over their shoulder?

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Pulling Down the Privacy Shutters at Diaspora*

What started as a summer project for four NYU students turned, seemingly overnight, into a coup to disrupt and decentralize the technologyand power structureof social media. The high-privacy social networking platform Diaspora* seemed a social media Cinderella story. The developers sought a modest $10,000 in seed money from viral fundraising site Kickstarter and ended up with 20 times as much. Unlike Facebook, their open-source platform allows individual users to control how their profiles are stored, encrypted, transmitted and, ultimately, kept free from prying eyes. Diaspora* earned a cult following among developers and online opinion makers before its alpha release in late 2010, but reviews of the actual roll out were tepid. Heres the rub: If you want to be found, you need to be findable. And if you want to be social online, you have to searchable. Because after you pull down the privacy shutters, where does that really leave you? Basically, sitting alone in the dark. Its definitely not Facebook, and its not much fun, either. Another new social start-up, Path, is attempting to build a truly trusted personal network by limiting users to 50 friends. Favoring quality over quantity is an intriguing response to the mass-friend model of Facebook, but it means at-capacity users will have to continually consider defriending somebodytheir cousin, their coworkerbefore they make a new connection. Thats awkward. Brands can arguably achieve better results by engaging tighter-knit networks, where bonds between friends are stronger, but the constraints of Paths modeldid we mention that users can only communicate with each other by posting photos?dont bode well for mass adoption. Despite the controversy over its privacy policies, Facebook remains tremendously popular and the vast majority its 550 million users appear to be satisfied with the terms and inherent tradeoffsof its service. Brands, of course, have become increasingly dependent on the social platform. Davide Grasso, chief marketing officer at Nike, told BusinessWeek that Facebook is the equivalent for us to what TV was for marketers back in the 1960s. Still, the controversy over privacy is far from settled, and Facebook CEO Mark Zuckerberg hasnt helped matters with his penchant for imperial-sounding pronouncements. We decided that these would be the social norms now and we just went for it, he told TechCrunch in 2010. His remarks were interpreted to suggest that privacy was no longer a social norm, and that he, essentially, had the power to make those calls. Impolitic, perhaps. But Zuckerbergs no fool. He wont sacrifice his kingdom for a horse. Hes not going to blow his multi-billion-dollar empire because hes prickly and inflexible on privacy policies. Rather, Facebook will inevitably follow the example of Google, which endured its own painful growing pains on privacyfacing Congressional hearings and many critical editorialsand respond by improving communications, education, accountability and outreach on these issues. Facebook, in other words, will mature. The FTC will pull back. And brands will find their way forward, building best practices and consumer confidence at the same time. Trust us on that.

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Start-up to Watch

Behavioral Registry Tracks

Devices, Not People
BlueCava captures the unique digital fingerprints of Internet-connected devices. The service can keep tabs on your iPhone, Xbox and Google TV, then triangulate among them to provide relevant and sequential messaging. Their goal is to identify nearly 1 billion devicesaround 10% of the world totalwithin the next year. A conversation with CMO Dean Harris. www.bluecava.com Online device-identification measures are difficult to detect and disable, even for the most tech-obsessed consumers. Because the sniffing occurs at both the browser and hardware

Does your iPhone have a bad reputation?

levels, theres no single browser-based security setting, like disabling cookies, that can easily circumvent surveillance across the expanding network of BlueCava-enabled sites and online ads. Yet the company allows device-owners to opt-out of being tracked from site to siteand claims its the first in the industry to do so. The roots of the technology can be traced to anti-piracy efforts in the music business. Today its being primarily used in two ways: improving ad-targeting and fighting online fraud.

Q: Why trackand targetmachines instead of people? A: Look at the amount of device proliferation. There are 10 billion devices versus 7
billion people. This can be a useful way for companies to look at things.

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Q:

Most Internet-connected devices have their own unique identitiesserial numbers, SIM cards and so forth. But how can a device have a reputation? Were providing what is, in effect, a universal identifier that helps brands target better. One of the former ways brands did this online was through the use of cookies. But cookies get stale, they crumble. They expire and can be deleted. Our fingerprint is persistent. If a device is used repeatedly to commit fraud, thats important. On the other hand, if a device makes a number of legitimate online purchases, then an e-commerce site might want to provide a premium service. BlueCava scrubs names, physical addresses and email addresses from the data. Doesnt that defeat the purpose? Is my iPhone really more important than me? We do take out the PIIthe personally identifiable information. Were not tying your iPhone to you. Whats important is how the device behaves. Businesses can then decide whether to do business with that device or not. The term in the data world is householding. Data companies sell household data, but its not always relevant, and its often quite static. We can help. We can talk about the interconnectivity of devices within the household and how those devices link to other devices.

A:

A:

In the world of online ads, billions and billions of impressions are being bought and sold. But advertisers and marketers are not always getting what they pay for. We can tell whether a machine is acting like a bot, or acting like a human. We have a client that spends several hundred thousand dollars per month on Google AdWords. Theyre paying around $25 per lead. Every day, their competitor clicks their ads 1,000 times, just to give them grief. We were able to show that, in fact, those clicks were coming from the same computer in their competitors headquarters. Our client could then go back to Google and prove they werent legitimate clicks, so they shouldnt be paying for them.

Q: A:

Q: A: Q: A:

Can concerned consumers take effective countermeasures to prevent their devices from being fingerprinted? They cant opt-out of having their device identified. But we do have an opt-out policy for tracking. Being tracked means having your device identified as you move from one site to another. Were proud of our privacy policy. Its honest and transparent. Whats the likely impact of Do Not Track? If you take the analogy of the Do Not Call list, marketers cant determine to call or not call a number unless they know the phone number. We think BlueCava can provide a similar service in the online world. You cant track, or not track, a device unless you know its identity. Theres been no universal way of doing that until now.

Q:

Whats the upshot for marketers and brands?

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04
SECTION

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Conclusion
We believe brands can enjoy uncommon success in 2011 by following the new digital imperative to create, innovate and relate. For marketers, the year ahead will present momentous opportunities to build brand equity through innovation and bold action. As the advance of digital technology continues to accelerate, brand leaders are moving forward with confidence. Best practices are being clarified and validated. Brands that develop a mature digital strategy aligned with business objectivesand select metrics and set performance goals accordinglywill realize significant gains. Which is why our digital outlook for leading brands in 2011 is, in a word, optimistic. Yet we keep coming back to a these irreconcilable numbers: Theres a $50 billion global opportunity gap between what brands are currently spending on digital advertising, versus what they would be spending if marketing budgets accurately, and rationally, reflected the media consumption habits of todays consumers. People now spend as much time online as watching TV, but brands spend three times as much on TV ads than online marketing. Traditional print publications like magazines and newspapers account for only 12% of consumer media consumption, but receive over 25% of total ad spend. Media budgetsand, by extension, the industry mindsetremain stuck in the past. Despite the limitless possibilities of digital, mobile and social marketingof reaching consumers at the right time and right place vast segments of the industry are resistant to change. Countless brands remain captive to staid corporate structuresmired in old models of rigid planning, massive TV spends and AOR relationships with agencies unwilling to evolve into a more experimental mode of creative development. They ignore the increasing desire of consumers to be a part of the process, missing huge opportunities for co-

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If you have built castles in the air, your work need not be lost; that is where they should be. Now put foundations under them.
Henry David Thoreau

created product development and user-generated content. Instead of becoming productive participants in the open dialogue of digital, where consumers are already redefining their brand truths,many companies persist with ineffectual one-way communications. Some argue that the hesitant, transitional approach was appropriate in 2010. Hammered by recession and a general funk in the zeitgeist, caution reigned. But the inexorable pace of the economic recovery has not stopped, or even slowed, the rapid migration of consumers into new digital, social and mobile platforms. Americans over the age of 65 increased their usage of social media by 100% last year. Half of all U.S. consumers are expected to own smartphones by the end of this yearthats a 66% boost over 2010, and a 178% increase since 2009. If consumers are willing to spend their limited time and hardearned money on these platforms, how can brands justify another year of doing little, or nothing, in digital? Particularly perplexing are the companies that have not yet launched an owned-media channel on

Facebook, Twitter or YouTube, where up-front investment is minimal and success largely depends on creativity, dedication and attitude. We live and work in an iterative time, when the newness of countless platforms and mediums handicap those with a timid approach. Amid the explosion of platforms, its not enough to simply understand technology trends; its equally critical to understand the cultural context and consumer behavior behind those trends. Digital is no longer an add-on; its the new default. More than any other time in the history of marketing, opportunity abounds for brands willing to be courageous and experiment while the competition pauses. Challengers and start-ups are bounding forward to become category leaders while companies that wait are caught flat-footed. Marketers who use these essential foundations as the basis of their digital strategies today will look back on 2011 with the satisfaction that comes from success.

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Building the Brand of the Future

The Three Foundations of Digital Success Build a Robust OwnedMedia Channel
Nothingnot a small budget or geographic constraintsrestricts the potential influence and reach of your brand on an owned-media channel. Its a content channel without a price. Media without a middleman. Technology has shortened the distance between your brand and your consumer to approximately zero. Brand presences on Facebook, Twitter or YouTube are the antithesis of the old mass modelexpansive, engaging and open instead of constrained, disruptive and closed. But an ownedmedia channel demands something analog content (formerly known as ads) doesnt: The ability to attract an audience all by yourself, without the collateral appeal of an entertaining programa TV show, a sports broadcast, a news story. This shift requires brands embrace creativity with passion and intensity, giving it the highest priority. There is no excuse for forgettable and derivative advertising anymore. Creativity matters more than ever.

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Build a Suite of Digital Metrics Tied to Business Objectives

The oft-quoted Wannamaker conundrumI know half of my advertising works, I just dont know which halfis no longer confounding digital marketers today. It is now possible to measure consumer behavior online at a level of granularity traditional advertising never offered. Yet this new range of metricsa veritable flood, reallycan also become a distraction. Its critical to link metrics to core business strategies. Brands must first develop a digital strategy with clear business objectives, and then select metrics and performance goals accordingly. Define the desired outcome: Is it changing a consumers perception of a brand? Moving a brands position to take advantage of a demographic or shift in consumer behavior? True measures of brand success do not change in the digital world. It may be easy to count likes and check-ins, but those are rarely meaningful metricsand they certainly arent strategic marketing.

Defined Brand Behaviors Within Social Channels

Digital marketing is about what your brand does, and what it delivers, not just what it says about itself. The behavior of a brand in social must reflect something thats real. So before you talk, youll need to listen to how your consumer defines you. Your fans on Facebook and followers on Twitter arent parroting a litany of product benefits. Theyre not concerned about your competitive position in a product category. Instead, theyre telling you about the significance of your brand in their lives. Your cultural relevance. Theyre telling you who you are todayand theyre telling the truth. These truths should define the brand behaviors within social and digital channels.

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Photography
Online content-sharing communities inspired the design of this book, in particular the photo-sharing site Flickr, where millions of photographers exhibit their work. Much of the imagery in this report is licensed under Creative Commons, a non-profit organization with a mission of broadening the range of creative works available for sharing and collaboration. To learn more, visit creativecommons.org. Featured photographer Thomas van de Weerd blends the use of traditional and new media. He has been an Internet professional for over ten years and loves to build online audiences. He lives in Utrecht, The Netherlands and likes to take photos of everyday things. View van de Weerds photostream at www.flickr.com/thms or his website www.thms.nl. 04: Mark Zastrow: http://flic.kr/p/6aJHT1 07: Randy Pertiet: http://flic.kr/p/8T3wDu 08: Thomas van de Weerd 16: Calvin Cropley: http://flic.kr/p/789FXk 22: Marcus Kwan: http://flic.kr/p/7QBsAh 28: Ed Yourdon: http://flic.kr/p/5FVE8U 32: Robert Scoble: http://flic.kr/p/7JLjsj 34: Thomas van de Weerd 37: Thomas van de Weerd 40: http://flic.kr/p/8ZoBu8 42: Thomassin Mickal: http://flic.kr/p/8mqipz 53: Thomas van de Weerd 56: Johan Larsson: http://flic.kr/p/8xPkPq 62: Thomas van de Weerd 66: Bruce Clay, Inc.: http://flic.kr/p/8LVR9X 73: Orijinal/Jaysin: http://flic.kr/p/82KsbQ 76: Randy Pertiet: http://flic.kr/p/8SmNui 79: Emily Walker: http://flic.kr/p/6i8gbh 80: Thomas van de Weerd 82: Kevin Simpson: http://flic.kr/p/EJdLh 87: Zawezome: http://flic.kr/p/6KpwXx 92: DArcy Norman: http://flic.kr/p/77EL9v 95: Thomas van de Weerd 107: Thomas van de Weerd 108: Thomas van de Weerd 116: Thomas van de Weerd 122: Thomas van de Weerd

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The Engauge 2011 Digital Outlook is dedicated to our Chairman and Founder Stan Rapp, whose vision and boundless energy continually recreates the future of our industry. About Engauge One of the nations largest independent agencies, Engauge leverages creativity and technology to develop transformational ideas that connect brands and people. Engauge guides a growing roster of clients on the path to realizing the power of digital channels by focusing on driving results and sustainable growth for brands. The agencys client roster includes Nationwide Insurance, DADS Pet Care, The Home Depot, Best Buy For Business, Chick-fil-A, Brown-Forman, Food Lion, Van Gogh Vodka, NGK Spark Plugs, Perkins, IHG, UPS, Logitech and more. Engauge, which has offices in Atlanta, Austin, Columbus, Orlando and Pittsburgh, is a portfolio company of Halyard Capital.

Acknowledgements Editor and Writer: Mya Frazier Art Director: Jane Langworthy Writer and Researcher: John Powers Design Intern: Thao Thai

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Patti Ziegler Chief Marketing Officer 614.573.1472 pziegler@engauge.com Engauge 375 North Front Street Suite 400 Columbus OH 43215 engauge.com