MxMIndia

Author: Ashoke Agarrwal

  • Transform or Bust – Advertising Agencies in 2030

    Transform or Bust – Advertising Agencies in 2030

    Source: https://ccnull.de. Published under Creative Commons Licence

    This image shows the year 2030 in gold numerals on a blue-toned, textured background

     

    Ashoke AgarrwalLately, I have been forecasting the future of the Indian economy as part of a consulting assignment.

    It was interesting to consider the future of my first love, the advertising agency business.

    Everyone in the advertising agency business knows that the future is not what it used to be.

    The rise of digital advertising, the increasing value of data, and the transformative role of adtech are reshaping the advertising landscape.

    New advertising behemoths have sprung up while long-established agency groups are losing importance.

    Today’s advertising business is vastly different from 10 years ago.

    Budgets have already shifted substantially towards digital. Within digital, programmatic prevails and automated processes increasingly replace human skills in advertising placement.

    Adtech is becoming an increasingly important part of the business. Deloitte estimates that the global ad software market reached USD 16 billion in 2018. Consumers are becoming more demanding and less patient about advertising. They want ads to offer a clear added value—highly relevant or entertaining. If not, they skip them.

    One constant of the modern world is not just change but rapid change.

    What will the advertising agency business look like in 2030?

    The advertising business has five major players:

    • Digital Platforms facilitate online interactions between brands and consumers. Google and Facebook are examples. They act as content aggregators with high reach and direct consumer access. Their technology competence and data ownership are the basis of solid analytics capabilities.
    • Media companies produce relevant content for consumers. They adapt to the digital world by transforming their offerings, distribution, and business models. Advertising alongside paid content is an important revenue source.
    • Agencies and agency networks nurture competencies ranging from creativity to media space transactions. New agencies with comprehensive tech skills have arisen in the digital advertising world.
    • Advertisers are the payers in the ad ecosystem. Increasingly, they are internalising advertising skills, especially in technology.
    • Consumers increasingly avoid advertising that does not meet their rising expectations regarding relevance and entertainment.

    A wide range of factors will impact the future of the advertising business. A seminal factor will be the depth and strength of regulations regarding data privacy and the use of data for ad targeting.

    This factor will determine the emerging scenario in the ad business and, thus, the role of ad agencies.

    One scenario is that Big Tech, by and large, wins its war against the regulators on data privacy. An important reason this would happen is that a new generation is much less sensitive to data privacy.

    In such a case, transactional marketing will become a norm. Advertising will use data to predictably target consumers with highly relevant ads on the right channel at the right time to effectuate a shopping transaction. Advertising content will be designed to be informative rather than appealing. The large digital platforms will become all-powerful in the advertising business. Advertisers will play by the rules of digital platforms as brands battle for attention and suffer from decreasing brand loyalty. Media companies will increasingly depend on paid content, and advertising agencies will disappear in their current form.

    In the second scenario, Big Tech is highly regulated, and marketing and advertising shifts to interactive, permission-driven targeting of individual consumers based on first-party data owned by brands. This will spark a creative renaissance with advertising campaigns tilting towards a form of content marketing. Advertising will evolve into personalised entertainment that uses emotional formats and creates strong relationships between consumers and brands. A new creative sector will emerge, and it will be a tug-of-war between media companies on who wins this new sector. The erstwhile agencies will offer their brand advocacy skills with their newly integrated content creativity skills, and media companies will compete with their established content creation mastery with newly acquired brand advocacy skills.

    Both scenarios may coexist, with some geographies and consumer segments becoming driven by transactional marketing and others by interactive content marketing.

    Either way, the advertising agency business is primed for a major upheaval in the next few years.

  • Marketing Luxury to Indian Millennials

    Marketing Luxury to Indian Millennials

    Ashoke AgarrwalIndia’s early millennials, those between the ages of 44 and 34, are roughly 220 million strong. Given this group’s educational profile, rising incomes in the tech and knowledge work sectors, the booming start-up sector, and the increasing prevalence of double-income households, the estimate is that at least 5% of the early millennial age cohort live in households with annual incomes above INR 6 million, which in purchasing power parity (PPP) terms–INR 25 to a USD–is equivalent to a USD 2,40,000 yearly income.

    Indian millennials, like their global counterparts, exhibit a lower inclination towards saving than earlier generations. This trait and increasing affluence position the 11 million affluent Indian millennials as a growth market for luxury and bridge-to-luxury products and services.

    Millennials place experiential richness above material wealth. This shift has significant implications for the luxury market. While luxury brands have traditionally marketed themselves based on exclusivity and prestige, these factors hold less sway with millennials.

    Studies worldwide have revealed four factors enabling brands to market luxury and bridge-to-luxury products to millennials successfully.

    The first of these factors is that millennials value experience over possession.

    Further, millennials prefer customization and personalization.

    Millennials prefer brands with authenticity and brand purpose.

    And finally, they gravitate towards digitally integrated brands that engage them seamlessly from online to offline.

    Many global luxury brands have tailored their marketing to millennials in the rich world. Burberry’s is a digital innovator pioneering interactive campaigns integrated across their showrooms and online spaces. Gucci builds on the authenticity dimension by leveraging social issues and cultural narratives in its campaign and content marketing. Rolex delivers customization, offering personalized engravings on its watches. Louis Vuitton has added an experiential dimension to the brand with pop-up experiences and collaborations with artists.

    There is a massive gap between the nominal and PPP values of USD (the dollar is overvalued vis-av-vis the Indian rupee by nearly 3.5 times), which leads to global luxury brands losing out on the domestic Indian market.

    Further, the space for “luxury” as defined by millennials—products and services that offer rich, customized, and personalized experiences seamlessly across online and offline spaces—is expanding the remit of luxury offerings beyond the traditional areas of fashion and accessories, decor, cars, hotels and high-end liquor- to a whole host of categories.

    In today’s India, brands from financial services to bespoke travel to fitness can aspire to tap into the market defined by affluent millennials with luxury and bridge-to-luxury offerings.

    The fact that global biggies find it challenging to match price expectations in India is an opportunity for Indian brands to leverage domestic demand to, in time, build global markets.

    Across all potential categories, the most essential way to build a luxury or bridge-to-luxury brand is to create a relationship with the client. In other words, as I wrote in my MxM India column dated March 17th 2022, titled ‘Like Saas is BaaS the Future’, creating a new brand paradigm with the Brand-as-a-Service (BaaS) model. In the case of marketing luxury products to millennials, a BaaS model will be crucial to the success because BaaS will deliver on three of the four factors listed above directly:

    • It delivers a subscription-like experiential relationship with the brand – think of a subscription service to a luxury car brand where one can change models as frequently as one wants
    • BaaS implies a continuing relationship that makes delivering customization and personalisation easier.
    • And integrating communication and interaction across online and offline channels

    The fourth factor of authenticity and brand purpose will determine the more successful BaaS brand in the luxury market.

    In conclusion, Indian marketers should see a luxury product and service market emerging among affluent Indian millennials as an excellent opportunity to build businesses and brands that can eventually go global.

  • Do brands have a mid-life crisis?

    Do brands have a mid-life crisis?

    Ashoke AgarrwalNike is 60 years old, and is it showing signs of middle age?

    The brand still signs the world’s most high-profile athletes and has a legacy of proprietary technology.

    The mojo was displayed at the Paris Olympics with a three-day ‘Nike on Air’ gala.

    It debuted new shoes for runners, basketball, and soccer and optimized performance apparel for skateboarding and breakdancing. It also showcased Project A.I.R., a platform that leverages generative AI to design and print personalised prototypes for athletes in minutes.

    It was as if the brand was pushing to remind everyone of its mojo. Forty years ago, at its pomp, the brand had debuted Air, a tiny, pressurised airbag in the shoe’s sole that gives athletes an energy return as their foot hits the ground. A legendary functionalisation of the brand’s ‘Just Do It’ promise with a literal swoosh of compressed Air. Today, the legend lives on moviedom with a movie called “Air” starring no less than Matt Damon and Ben Affleck, but does the brand’s mojo?

    Or, like a lifetime achievement award, is the movie a tribute to a has-been cultural phenomenon?

    The brave show at the Paris Olympics did not hide Nike’s struggles with low sales numbers and its longest losing streak since 1980. The company’s move from wholesalers to direct-to-consumer wasn’t as successful as hoped.

    The reasons for Nike’s bad period are myriad, and it will probably cause them to go on for another 60 years.

    The point I want to make is that many storied brands—Nike, Coco Cola, Levis, VW, Marks & Spenser, Bajaj, Titan—the list is long—are undergoing a crisis. And the commonality between them is that they are all “middle-aged” or “old.”

    The most straightforward explanation for the crisis is that times change, consumers change, technologies change, and challenges come with change.

    However, shouldn’t then the uber-successful leader brands should be the first to meet such challenges? They have the resources, expertise and experience.

    But nine out of 10 ‘middle-aged’ leader brands flounder with a new generation of consumers.

    Could the explanation lie in the realms of psychology – the mid-life crisis that affects most successful men in Western cultures as they slide into middle age?

    While a mid-life crisis is, at its core, a disruption in self-confidence and self-image, its manifestation is a rejection of this disruption and an over-assertion of the past.

    Is Nike’s Paris Olympics show an assertion of this sort?

    The wise counsellors suggest that the proper response to a mid-life crisis is to evaluate the self, identify your core values, discard peripheral notions that no longer fit the circumstances, and orient your core values to the new paradigm.

    Is Nike confronting a new generation for whom fitness is a holistic concept that deals with social attitudes, diet, and exercise? To them, is seeking the extra edge of proprietary technology in their daily exercise regime an aspect that robs it of a value they cherish -authenticity? So, while they admire Nike and the premier athletes whom it helps perform better, the admiration does not translate to them wanting the brand for themselves. They are happy with brands like On Running and Lululemon.

    So, how does Nike be relevant to the new generation? For starters, it should be admitted that the mother brand is now a niche brand for performance athletes and the small part of the market that are aspiring athletes or have a self-image of being athletes. There is money to be made in that niche to support their other plans. It should then get down to using its inventiveness and brand-creation skills to launch a new brand that hooks onto the concept that fitness is a 360-degree concept with authenticity at its core. It could then build a whole range of products and services, including digital platforms and AI application layers to enable an individual to ‘Be the Fittest Yourself’.

    The above is just an illustration. An innovative set-up like Nike would have scores of better ideas provided it got out of its middle-aged funk and stopped doubling down on the past.

    The point is that a brand in a mid-life crisis needs to recognize the crisis, reevaluate and use the opportunity to reinvent.

    There are so many well-resourced brands in mid-life crisis worldwide that I expect all the big consultancies to make a beeline for this rather lucrative pie.

    But then, aren’t the McKinsey’s of this world also in mid-life crisis?

    It may take a bold, young start-up consultancy to convince old, foggy brands to see their mid-life crisis as an opportunity to reinvent.

  • On-Device Edge AI – The B2C AI Business Waiting to Happen

    On-Device Edge AI – The B2C AI Business Waiting to Happen

    Image generated with prompts to Meta on WhatsApp

     

    Ashoke AgarrwalAs the ChatGPT excitement fades away, the capital markets are beginning to wonder whether the LLM gold rush is a bust.

    Over the past two years, Big Tech – Google, Meta and Facebook – have sunk hundreds of billions of dollars each in training LLM models and continue to burn hundreds of millions more in inference computing every week as hundreds of thousands of users freeload (or pay pennies) to flood the model with queries that are mostly borne out of curiosity or laziness with not real economic, quality or productivity value add. Further, hundreds of angels and VCs have pumped billions into thousands of AI-driven or AI-adjacent start-ups.

    Although trillions of dollars have been invested in the LLM ecosystem, the business and economic case has yet to emerge.

    In the B2B segment, corporations are busy building machine learning (ML) models that sit atop their proprietary datasets and whatever other data they can access. The ML models (the line between ML and AI) are, in essence, semantic until the day AGI emerges. Predictive pattern building based on complex, structured data and signals will be at the heart of these models. These models will access available LLMs but at the periphery to absorb unstructured data and speed up documentation.

    In the academic and professional world of science and technology research, deep-learning-based ML/AI is an increasing reality. For example, AlphaGo is at the core of research into discovering and synthesising new proteins that will drive the cutting edge of genetics and drug discovery.

    By contrast, the economic case for AI in the B2C arena still needs to be clarified.

    The trillions being spent on creating LLM models and inference testing them by offering them free (or nearly free) to millions of consumers can be likened to the early days of optical-fibre-based bandwidth building, much before the emergence of the deluge of mobile Internet, video-sharing, and streaming. In the final years of the nineties and the early oughts, many wrote off the vast investments in the optical fibre network as white elephants.

    History proved otherwise.

    Device-based Edge AI will create an economically viable future for AI in the B2C arena. This future will be predicated on the investments being made today in LLMs, which have an exponentially increasing number of parameters, increasingly customised hardware and software, and a wide variety of specialist AI agents sitting atop increasingly capable LLMs. Breakthroughs in design will decrease the cost of specialist LLM cloud farms and their environmental impact through greater energy efficiency and better green energy solutions.

    The contours of the device-based Edge AI that will drive the emergence of a viable B2C market for AIs are beginning to emerge.

    Samsung and Google have launched smartphones that are touted to incorporate device-based AI. A slew of laptop brands are also touting AI credentials. However, by the use cases these brands tout, they are marketing gimmicks that harm instead of heralding the B2C AI era.

    Apple’s Intelligence could be the actual start of the device-based Edge AI (EAI) B2C era.

    The launch event of the iPhone 16 mentioned the phone’s AI capability but did not present any use cases. In all the usual slickness of the launch, what went almost unnoticed is that while the hardware and probably the operational software were on the phone, Apple Intelligence would be ready for the consumer to use only a few months down the lines. The reasons could be Apple’s philosophy of not putting out anything half-baked and even regulatory approval.

    Reading between the lines, Apple Intelligence (AI) is the first AI engine focused on deciphering the individual, unlike the written/spoken word, visuals, and video at large that the LLMs are focused on.

    Smartphones are rich repositories of an individual’s lifestyle, interests, attitudes, and behaviour–a finer-grained repository permanently etched. Further variables like smartwatches and fitness rings will continue to add vital data to this repository. With the individual’s permission, the on-device AI can capture more information from conversations, laptops, office computers, and the increasingly innovative IoT devices at home.

    A smartphone-based Edge AI can then be the counterpart of the LLM – the Deep Personal Model (DPM) that is continuously trained to predict and anticipate. An individual needs to interact with her and the world to meet them. For example, if an individual is preparing for an educational test, the DPM could decipher her areas of weakness, alert her to them and provide specific inputs to overcome them. It could create a section of the DPM, her avatar as her professional – an architect, a journalist, a management consultant. This professional avatar could handle her professional communications and routine tasks.

    Another use case is for the DPM to detect signs in her vitals and situational stress and correspond with her doctor’s professional DPM avatar to get remedial recommendations.

    The DPM could take over the essential consumer functions of anticipating and ordering products within set limits and in interactions with market-facing AIs that allow her to access all relevant market knowledge.

    Of course, the consumer will be in complete control of the DPM regarding what personal data it can access and what functions it can perform for the consumer. She would also have the option to turn off and turn on the DPM. She decides based on her perception of access and utility trade-offs.

    The DPM will be charged as a service, much like Apple, at various subscription levels. A few years into the emergence of device-based DPMs, the device could come free with a subscription to a DPM, making the DPM market the largest B2C category in the world.

    The crucial aspect of a DPM’s success is the assurance of privacy and control for the individual. That’s why the DPM must reside on the device, not the cloud. Equally important will be trust in the brand offering the DPM. Apple with its brand positioning on privacy and its track record on that aspect has a leadership advantage in that area

     

    PS: I first wrote about a concept called “Concierge Intelligence” in my first MxMIndia column published on Jan 6th 2022; thirty-two short months later, the idea of what I now call DPM seems to be around the corner.