TMW #090 | The innovation game
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Here’s the week in Martech:
- The innovation game: Are we heading into a third wave of Martech innovation?
- eCommerce regression: In a post-pandemic world, is eCommerce growing?
- Google delays cookie deprecation: No one is ready for what comes next, especially Google.
- Everything else: The Instagram pivot, examining hustle culture, Re-commerce, what is happening to Adtech stocks? Abandoning the MVP, Web5, and recreating Kmart in VR.
The innovation game
This essay is the optimistic big sister of last week’s piece asking the question: Has Martech run out of novel ideas? In that essay, my thesis was that most of what we call Martech today are really just companies that are iterating on the edges of those who pioneered before them. In this essay, I’m going to challenge my own thesis here with more of an optimistic viewpoint asking the question – Will there be a third wave of innovation in Martech? And if so, what kinds of games are we wanting to play in it?
Being optimistic about Martech
Optimism is a strange thing. It gives us hope for a better future, but it can also obfuscate the hard realities of any economy. Marketing technology has a certain kind of future-leaning optimism to it. It’s partially because marketers are often more positive about the future than other departments. Not many accountants, software engineers, or logistics supply chain folks tend to want or need inspiration, but there’s an entire events industry that’s focused on the aspirations of the marketer.
Is being optimistic a generally good thing when looking at the future prospects of an industry? Packy McCormick from the Not Boring newsletter says Optimism is one of the things that the technology industry needs most. Right now an increasingly hostile and cynical culture devalues progress and robs people of hope. Packy's perspective on technology optimism here is helpful:
It’s not blind optimism, but it’s not pessimism. It’s the very optimistic belief that things will inevitably go wrong, but that each new challenge is an opportunity for further progress.
But it was also this kind of optimism that emboldened Shopify CEO Tobi Lütke to hire more than 3,000 staff at the beginning of COVID-19 in the hopes that the change to eCommerce was going to be somewhat permanent. This week he let go of 10% of employees because, for the most part, eCommerce spending has declined back to pre-pandemic levels. Lütke apologized to staff and investors by citing that he was “too optimistic.” Nat Friedman, the former CEO of Github once said “Pessimists sound smart. Optimists make money.” Turns out that optimism can also get people fired.
While McCormick says that a lack of optimism is hurting the industry, so is a lack of critical thought. Critical, reasoned thinking is the fuel that drives progress. And our ability to do it well is the optimism that helps us see a better future for technology.
What we don’t want is blind optimism. It’s this that usually takes pride of place in thinking about the future of an industry. After all – you don’t want to miss the rocket ship if it’s about to take off, and don’t you dare argue about what seat we give you. Am I optimistic about the Martech industry? Yes, I am. But we’re going through a few things right now, which both catalyze new ideas and are also destroying what it has taken forty years to build. Welcome to the third wave.
The third wave
New companies founded in the marketing technology industry have been on a continuing decline. But we also saw this same (albeit shorter) cycle of startups founded in the last 90s. In the first wave, the dot-com boom swiftly took many of these early companies away, but what came after it was nothing short of a great Martech explosion. Data provided Anita Brearton and her team at Martech management firm CabinetM helps to contextualize where Martech is today. The number of startups launched between the 20 years after the 90’s dot.com boom grew by 548%. If you were building a startup from 2008 – 2015 you were living in the golden age of marketing innovation. It’s our version of Woodstock.
The central question to our outlook on the industry is this – are we heading into another 20-year wave of startup growth and innovation? And will it be bigger than what came before it? It’s impossible to tell what the future will be because it doesn’t exist. And anyone standing on a stage making predictions about the future of marketing technology are just overpaid clairvoyants.
The answers about the third wave are in the second. What happened from 2000 – 2020 was the advent of smartphones, mobile networks, cloud computing, and social media companies figuring out how to scale attention to do targeted advertising. Over this time Salesforce told us that the CRM should live in the cloud and Amazon said that online shopping is better. The companies that we lionize today all came of age after the dot.com bust and in the grand scheme of things, are not that old. When it comes to what the internet can do for brands, we’re still very very early. Not all the ideas have been explored yet.
During the 2000s Martech explosion suddenly every single company needed to have a “digital strategy” to address the rapidly changing needs of the consumer. Small businesses had access to micro-targeted and efficient advertising through companies like Facebook and Google and subscription-based software became readily available in the browser. The tools came closer than ever to marketers and aspirations for the future of what these technologies will unlock were at an all-time high.
If we look to the past there were three categories that drove the majority of startup activity from 2000 to 2020: Adtech, productivity apps, and events technologies. All three of these categories became the center of startup gravity as brands started to scale up their advertising efforts and dump billions into auction-based and hyper-targeted ads, because they well… worked.
Productivity apps became more central to the experience of the marketer because organizing talent, budgets and tasks became far more complex in an internet economy. Virtual events and software to organize them opened greater opportunities to drive leads, educate and convert them without expensive travel or working between borders. This is a trend that only grew during COVID-19.
I suspect that over time many of these companies died, but particularly for productivity apps, the growth was significant, with more than a 900% increase in number from the 1990s to the 2020s. Similarly, Advertising solutions increased in this period by more than 800%. Jeff Hammerbacher once said - "The best minds of my generation are thinking about how to make people click ads.” This is only partially true. The center of startup gravity in the early 2010s was in advertising technology, that is correct, but it was also in getting people to move tickets across Kanban boards.
If the past twenty years were anything it was a catalyst of creative execution with new hardware and software capabilities. It was an optimistic time of exploration and experimentation. Now, though Martech is heading into a new domain of increasing pressures. That’s not a bad thing. Pressure creates diamonds. I’m going to suggest three avenues for innovation that have been unexplored and are facing increasing activity or external pressure.
Everything might be private
Privacy is a growing way of thinking about the web. For too long the companies that harvest and commercialize personal data have gotten too big, too complex, and have more than a decade’s worth of your information to play with. The public is becoming more aware of the tradeoffs when they log in to Instagram or watch videos on TikTok. Government pressure is ramping up across the world, with the most recent examples being US petitions against Apple and Google to remove TikTok from the Apple store, citing national security and data privacy concerns, and France declaring Google Analytics illegal until they can set up a French datacenter to store web traffic statistics. It has taken us a decade for online tracking to rise to the level of becoming a threat to nation-states.
That’s why big tech’s reaction to privacy is important to Martech. Apple has recently launched solutions like Privacy Relay, App Tracking Transparency and has deprecated third-party cookies in Safari for a reason – when the internet is mediated through Apple’s window, the company doesn’t want to be on the side of privacy violation.
Google is also heading in this direction with its commitment to deprecating third-party cookies and replacing it with solutions like the privacy sandbox. Google has the most to lose from a more private web and yet cannot see a way out from a future that has less tracking, more privacy, and more respect for the end user.
That’s why the next cookie solution has the potential to shape how online tracking is done. If it’s UID 2.0 or ID5 or the galaxy of other solutions that are coming into the market, all of them offer a privacy layer that’s considerably more restrictive compared to anything that came before it.
One example of a startup that’s doing something novel is Plausible, a privacy-focused and cookie-free web analytics software that is trying to “de-Google” the world’s websites. There’s no fundamental shift in thinking about how to display or use web metrics, nor is it a faster way to get to insights. The company scaled to $1 million ARR completely bootstrapped because they saw that the private web will need new ways to do tracking.
This is a significant change from the “track absolutely everything” attitude of the past twenty years and the startup ecosystem that is building analytics and privacy-positive products is still small. On the flip slide, data observability, governance, and security may all be boring technology categories, but they are becoming multi-billion dollar industries that are increasingly seen as a way to address to online privacy.
Stack Moxie, a data observability startup is also scaling for similar reasons. Being able to ensure that data shared between apps is traceable and not filled with errors is a growing need in an environment that is increasingly prioritizing data safety. Another company, Island is the fastest ever company to reach a $1 billion valuation by building a private and secure web browser for businesses. Our appetite for privacy technology is growing.
Everything might be ads
Ironically, as the Adtech market continues to suffer from the depreciation of third-party tracking and an increased focus on data privacy, the past two years have seen an increase in major ad networks coming online. Amazon’s advertising revenue is becoming a bigger part of their business, generating $7.9 billion in Q1 2022, and so has Apple’s ad business, with analysts suggesting that Apple can drive more than $6 billion in revenue by 2025. Programmatic advertising has grown into a $50 billion dollar industry, more than 176% since 2017.
Growing ad businesses from unlikely companies like Amazon and Apple kind of work as their own innovation trigger for things like retail media networks. eCommerce retailers like Walmart, Tesco and Coles have all built ad networks because the technology to do so is more available than in the past. Another telling move is Netflix and Disney+ looking to build ad networks in a kind of full circle for traditional TV (once the biggest market in advertising). Now we can get on-demand TV with targeted Ads.
One of the triggers for the rise of differentiated ad networks across the web is the importance of using known, first-party data. If cross-website tracking becomes a thing of the past, then this creates opportunities for websites that offer enough scale and the right kinds of data points to meaningfully target users. eCommerce and media platforms of different shapes and sizes are the first responders with enough users to substantiate. Tapping into the economy that created Meta and Google is too attractive to resist.
In this way, if everything is running ads, there are opportunities for startups to build products across the entire supply chain of marketing. From content standardization and tracking solutions that work with a diversity of advertising platforms to aggregation and targeting companies that will simplify integration with each advertising partner. The time has come for advertising to become decentralized as more people share their time with a variety of apps. All of this isn’t innovation. But the companies that build solutions to support it might be.
Everything might be artificial
The last innovation trigger is the dual trends of “the great abstraction” and the “artificial customer” that represent a range of AI products in Martech. During the 2000’s boom, we had companies build autonomous communication tools like chatbots, but they didn’t take off because the technology was nowhere near the kinds of capabilities that were needed to pull off a seamless experience. Today, the last thing a customer wants to do is use an automated customer service bot.
But the tools are advancing. For the marketer, companies like Factors are automating data analysis, while Copy.ai and DALL E 2 slowly challenge the creative department with artificially generated and high-quality copy and artwork. Apps like Emerson AI is also bringing NLP to another level in customer service. The past twenty years have been focused on automating marketing communications. The next twenty will be augmenting marketing skills.
The artificial customer is the other side of the equation. Gartner predicts that the use of AI tools to automate the customer’s own experience is a trillion-dollar economy. There’s very little in terms of startups in this space currently, but with the rise of AI tools, customers will be looking to use products to enhance and simplify their own life.
Need to buy something? Have the AI browse your products for you and provide a recommendation across thousands of retailers. Not good at negotiating? Use an AI to haggle for your next B2B purchase. Google is already building AI shopping assistants and is in the early phases of deploying them across their search products. After all, if customers must deal with countless machines in the form of eCommerce websites, Google Search and marketplaces, why not get a machine to do it for them? Forget B2B or B2C. The future might be M2M, machine to machine.
In a way, social media is continuing this trend by deploying artificially generated content experiences over friends and family connections. Facebook’s Instagram redesign takes queues from TikTok’s success in building social feeds based on preference and taste over social connections using artificial intelligence. Scott Rosenberg calls this the “sunset of the social network” where the platforms we use today devolve into AI-enhanced entertainment apps.
There are opportunities to build the next killer app that refocuses internet consumption on social connections above all else as the tech giants run the gauntlet with their algorithms. If it's AI shopping assistants, artificial copywriters, or better ways to socialize, there’s plenty of room to build novel products as we edge closer to the advent horizon of intelligence.
Riding the third wave
Have I destroyed my own hypothesis that there are no good ideas in Martech? Probably, but with one caveat. Right now, we’re going through one of our lowest points in new companies founded in the history of Martech. But the three innovation triggers that are forming a more private web, with more ads and increased artificial experiences give us plenty of room to build interesting companies, new ideas, and wild experiments. Innovation is a game, and the rules are set and the third wave of Martech will be different from the previous two. It will be more reactive to what came before it, but that’s no reason why we can’t do cool things.
📈Chart of the week
eCommerce regression. eCommerce penetration enjoyed significant growth during the Covid-19 lockdowns. But it appears that this is changing. As a share of all US addressable retail eCommerce is going back to its previous pre-pandemic trend. But is it really? Revenue is much greater so far in 2022 than what the pre-pandemic trend suggests. Benedict Evans puts context into understanding what coming out of COVID-19 is doing to online shopping. Link
📰 Latest Developments
Google delays cookie deprecation again. In between Google not finding something scalable enough to replace third-party cookies, the existential risk removing cookies is to Google’s revenue and the failure of FloC (Federated Learning of Cohorts), described as “the opposite of privacy-preserving technology, there’s a lot of work still to do. The deprecation of cookies is now moving to 2024. Google has been overly optimistic about a significant change to business fundamentals that impacts billions in revenue. This also gives time to ad agencies and other tracking vendors to find something else that’s scalable, and when they do Google may no longer be relevant. Link
Gary Vee raises $50m from A16z. In the midst of a crypto market meltdown, somehow Gary Vee’s Veefriends NFT project raises a substantial amount of money for something that amounts to little more than hand-drawn cartoons of animals attached to a marketing celebrity brand. Veefriends has done $600 million in revenue combined so far. There are two explanations for this - either A16z are being reckless with how they are deploying capital, or there are enough useful idiots that will continue to prop up this project that make it a good bet. Maybe it’s a combination of both. Link
Instagram pivot + defunding of publishers. There’s a story buried in a major news about the backlash to Instagram’s pivot to “TinstaTok.” The Kardashians pushed back on changing the app format to algorithmic suggestions primarily based on video content. This, along with user feedback prompted the head of Instagram to explain the change in a hostage-style video, which ultimately resulted in a reversal. Meta also cut funding for news publishers in the US this week, in the wake of the company’s first revenue drop in a decade. Historically, the company has been propping up news organizations since the 2018 reprioritization of outlets in the newsfeed. This is an interesting about-face from a company that said four years ago that they were prioritizing “time well spent” with friends and family. It’s very hard to rationalize Zuckerburg’s statement with making Instagram an algorithmic engagement farm built for accounts people don’t follow or interact with. INSTAGRAM. PUBLISHERS.
Examining hustle culture. Two great reads on the dynamics of people gaming social media algorithms to sell you a “how to build an audience” course and get you to read pointless Twitter threads. It’s a growing phenomenon of a strange kind of circular economy of people making money by selling education on how to build an audience. ENGAGEMENT FARMING. HUSTLE ZOMBIES.
Tales from Thrift. A great breakdown of the Web3 movement and the political, social, and economic factors that make it seem very similar to the 1980s, $150 billion savings-and-loans market crash. There is nothing new under the sun. Link
Re-commerce. Now that people are returning to stores, what do we do with online shopping? Customers spent $222 billion online in the US alone last year. Does all of that flow back into retail stores, online, or a combination of both? Link
🔢 Data & Insights
Use cases for VR and AR. A question I often get is how much of VR and AR have practical use cases that sustain attention and creates longevity of use. Here are a few. Link
Salesforce – still the king of CRM. No surprises here, but over last year Salesforce grew its market share by 23.8%. In the CRM category, Salesforce is 5 times larger than the next largest competitors - SAP and Microsoft 😵 Link
What is happening to Adtech stocks? A reminder that three months ago, all major Ad markets were seeing record revenue growth. What happened? Link
Direct mail. Dedicating 40% of your marketing budget to direct mail is quite the strategy. But it looks like it’s working. Link
Abandoning the MVP. A great analysis into why building minimum viable anything is a bad idea and what to do instead. Link
Web2 + Web3 = Web5. Can we take the best ideas from both? Are there any good ideas to salvage at all? A serious piece on a path forward. Link
✨ Weird and Wonderful
Visiting a website for the first time. Link
Little miss cookie deprecation. A fun collection of nerdy Martech-specific memes. Link
Recreating Kmart in VR. A very strange subculture of people who recreate department stores so they can role-play being employees in VR games. The internet is diverse. Link
Make sense of marketing technology.
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