Saturday, 31 December 2016

What I've learned in 2016

Well then: who predicted that sort of year? It's been a big one, no doubt, particularly for those of us to be working at the storm front between the Industrial and Digital Economies. Without giving away too much, the Digital Strategy business I run grew doubled in size for the third year running, driven both by our increasing understanding of how to generate growth in the Digital Economy, but also by increasing buyer awareness of what good looks like. More on both shortly.

For my own benefit as much as anything else, I thought I'd document some of my lessons learnt in 2016. As ever, these are somewhat off the cuff and very much my own opinion. Here goes:

The pace of change is both much faster and much slower than we expect. Science fiction technologies like self-driving cars made astonishing progress in 2016, both in terms of their capabilities and public awareness of them. Similar gains were seen in advanced prosthetics, space flight, solar panels. On the flip side 'known disruptions', like that in retail banking resolutely failed to emerge despite the launch of a variety of 'digital banks'. Consumers don't seem to be interested in the marginal gains offered by these new companies, focusing their attention instead on adding new things to their service mix... even if that's just another Netflix box set or yet another social media/ messaging, service.

On the supply side, although the internal workings of Industrial Economy businesses still aren't changing with any great speed, the new wave of Digital Economy companies are yet to have a serious impact on them. Part of this is because there's not really much direct competition between pure Digital and Industrial, and part of it is because the size of the latter obscures the fact that some parts of their portfolio are suffering exponential decline. It's also true that the perspiration of staff is propping up businesses that would otherwise be declining: I suspect real productivity is down in terms of hours/ $ recouped. Sadly I suspect no data exists to back this up.

Strategy functions need to become more activist in order to successfully position organisations for the long term and generate short term growth. 'Strategy' and 'planning' have become rather conflated in businesses in the last decade. Part of this was a response to the challenges of the downturn, in which cash had to be carefully stewarded, but it's also true that in the years before Lehmann making money seemed so easy that making a business case for an acquisition was about as challenging as strategy got within companies.

That's no longer the case as the level of uncertainty organisations face is the greatest we've experienced since the Second World War. Strategy is therefore radically more than planning - it needs to be creative in generating possibilities and rigorous in managing risk. Doing the latter is basically impossible without strategists being able to get into the market and test the assumptions around their strategic choices. For that reason I'm beginning to believe that corporate strategy, innovation and venturing need to be brought together in a Strategic Growth function. Innovation and the launch of new ventures need to be done to test strategic hypotheses, not on the creative whim of an "intrapreneur' or a brain wave from a sales leaders. The right place for them to be owned is in Strategy... so now we need to reinvigorate the profession. A tough ask.

Possibly because of the above, there remain real issues with the quality of Digital Strategy advice being doled out to businesses. I sometimes get involved with businesses trying to execute strategies developed by other providers. If I see another 'strategy' telling people to wade into Big Data or create a 'Digital Culture' by 'investing in exponentials' I may well give up. Oh, it seems like trips to Southern California remain very much on trend. If you get offered one of these, don't do it. It's a total waste of time and money. Also remember that organisations like Singularity University intend to make money from you: it's in their interest to baffle and scare you. A visit to the crunch does not make you anything more than a tourist.

We've changed tack dramatically over the last three years, getting far more involved in the realisation of strategy through building ventures and in continuously evolving strategy by engaging in much longer relationships with our clients. But we're the extreme minority. Most of our competitors have never built an actual business, even if they talk a good game about The Crunch... sorry, The Singularity. I've given up talking about new technology and the scale of the change. I shouldn't be paid to reframe TED Talks. I should be paid (handsomely :) ) to create real growth and real change.

The last big thing I've learnt is about the immediate impact of the Digital Economy on the general population. This is a lesson broadcast loud and clear to all of us liberals who've had to watch Brexit happen and Trump come to power. It's a cry for help from a huge majority of the population who are facing the reality of their skills being no longer economically valuable. Unlike the last time this happened, they have the vote and the willingness to exercise that vote. Sadly they're also being exploited by career politicians without the wit to understand the long term issues or the authenticity to try and understand... and in the case of President Elect Trump and Mr Boris Johnson, ruthless self-promoters with askew moral compasses.

Some big revelations in the last 365 days and tantalising glimpses of what's to come in 2017. Much the same, no doubt. It's human nature to expect catastrophic change, as much as it's our nature not to see exponentials. But we're still amazing, empathetic beings and I reckon we've got lots of exciting adventures ahead of us. Happy New Year.

Wednesday, 16 November 2016

Trump, tech and the dangers of the early Digital Economy

My friend and colleague Paul Lee forwarded me the following article on the role the West Coast Tech industry played in the election of Donald Trump a week ago. The article is interesting and here:

It raised some interesting thoughts for me about parallels between the sense of hopelessness that may be behind those voting for any change and that of similar people during other economic transitions. All the following is my instinctive off-the-cuff response to the article. I apologise in advance for any lack of compassion and empathy, also for occasional drifting into future musing. Take it as read that I'm another out of touch member of the Liberal elite!

The article is interesting in that it highlights the challenges of our shifting economic system. The point it makes is incomplete in that it is not just tech employees that have benefited from this economy – it is the relatively large, educated middle class population who have been brought up to take ownership of their betterment rather than rely on the protection of the Late Industrial Economic system. The difference between now and the last economic revolution (to the Industrial Economy from the agrarian) is that we have universal enfranchisement and thus the people who have been left behind have a means – in their minds – to take control of their situation by voting for change.

The fundamental difference, however, is that in the early 19th Century a fear of eternal damnation and a sense of paternalism meant that the upper classes provided a degree of protection for their workers within the boundaries of their own self-interest. Perhaps they felt guilty for the price of progress – Blake’s dark satanic mills. As their interest waned the cause was taken up first by Fabian Liberals and then the Labour and Communist movements. The leaders of those movements were intellectuals or industrialists themselves and often deeply idiosyncratic. They were able to flourish because they had determination and principles that led them to flout the system in defence of the general population. They changed the system because they deeply believed that they had to give something back and were not heavily influenced by the media. In doing so they left us varying types of welfare state that provide protection against destitution – contrast the situation of poor Britons or Americans now versus those portrayed in Road to Wigan Pier or Grapes of Wrath.

Brexit and Trump are the results of the same distress and dismay against the final death of Industrial Capitalism. The systemic change to the Digital Economy is as hard to understand for people today as the sudden rise of factories and railroads was to the workers in the subsistence economy of the 1780’s. Instinctively we think that because we’ve lived through the introduction of electrification, digital computing, cellular phones, reliable and cheap air travel that we should be equipped for this change. But we’re not. If you look back at videos of miners and steel workers being made redundant in the 1980’s many of them talk about their physical ability and desire to work. That tragically demonstrates their lack of understanding of the economics of their situation – they were used to making something tangible and physical. Global supply chains made that redundant input into the western economic system. Of course many of them retrained to use another piece of their biological machinery – their brain – to adapt to more specialised manufacture in the car industry or at the very least could become call centre workers. I’m not saying that they gained the same respect and satisfaction out of those jobs as they did from being part of the community of men in the mines, but they at least had the dignity of earning a living wage.

As you know, that last piece of economically useful bio matter is becoming rapidly less valuable. Infinite computing and algorithmic power connected by ubiquitous wireless networking to cheap actuators and sensors renders the human brain of secondary importance to the running of the processes that make up the Industrial Economy. The pinnacle Industrial system that existed pre-Lehmann will relatively soon be just a use case of the Digital Economy, in the same way that farming is of the Industrial. The rules of what enables some people to thrive in the post-human (joke) era are totally undefined. But fundamentally a very large number of people have nothing economically useful to offer and thus are rendered to the indignity of scrapping for the shrinking number of pure service jobs in the economy or to long term unemployment. A further wave of migration to innovation hubs for those able and willing to move increases the hopelessness of the situation for the ‘silent majority’.

And so you get Trump. He and the Brexit politicians not the same as the rich, paternal and socially motivated benefactors and intellectuals who gave us the Welfare State. They are purely self-interested and not god fearing. They practically lack the resources and freedom to just do it and damn the torpedoes. For the boosting of their narcissistic supply, they have successfully persuaded the now enfranchised mass of disadvantaged people to vote for change. The lack of substance behind the nature of, or execution roadmap for that change is irrelevant to the voters because they don’t understand their own condition or the end state in the first place.

Misusing the Johari Window, most of the population are in the unknown-unknown zone, but are used to being in the known-known: they perceive the underlying cause of their condition and believe that the state sees it the same way. The trouble – and I encounter this all the time in management teams – is that if you believe that you understand the nature of the current state and the nature of the environment then you will employ a strategy that is wildly unsuitable for the actual situation. In this case that strategy was to vote for ‘change’, assuming that the promoter of that change understood the root cause of their situation. But of course they don’t. Besides being cynical self-promoters, Trump and the Brexiteers are arrogant enough to believe that they are in the known-unknown zone and thus have advantages that others do not… Notice how fast the politicians scarpered once the true magnitude of Brexit became slightly clear.

My personal concern in all of this is that we have a rapidly developing social situation in which a majority of the population are becoming completely unemployable in any capacity. There is literally nothing we can do about this future. It can’t be reasoned with. It doesn’t feel pity or remorse or fear. That is a deeply troubling issue for our society and in my view requires a fundamental reassessment about the purpose, scale and scope of our welfare system. Because of the need to respond to a partisan and real time media, politicians will only advocate for a faster horse, which can practically never be delivered as the system is being assailed by increased demand from too many sides for central resource allocation to work effectively. As in business, the first step to surviving and thriving in the Digital Economy is to accept that one is in an unknown-unknown state, suspend one’s ego and to set out to understand how to achieve outcomes by conceiving, testing and scaling things from the ground up. Top-down decree no longer works. We simply don’t have a homogenous, hierarchical system anymore.

We are also challenged by the disconnect between enterprise and society. Whenever a new business model emerges that radically disrupts an industry, the incoming idea faces an uphill struggle through a legislative and regulatory apparatus that is designed to protect the vulnerable but doesn’t take into account the total system consequences of their actions. In the case of big scary tech’ the response to state action/ inaction is flat out refusal to pay taxes because they believe (sometimes rightly) that they deliver far more efficient ways of improving people’s life outcomes than the state. They would also say that their purpose is far clearer and their ability to achieve it more long-termist than any government.

The quality of debate, however is fixed on surface details of the situation: immigrants, the media, banana straightness. In my view we need to think hard as a society about how we’re going to equip people to understand their environment and how to protect our society in the long term. In my view we should be aiming for a utopian situation of universal avoidance of poverty, total gender equality, focus on – and personalisation of – short and long term life outcomes instead of talking about ‘better’ things and ‘change’. But I’m an optimist.

For what it’s worth, my view is that the system we need is probably a welfare state that is outcome rather than process or domain-focused and consists of an ecosystem of micro-services. There’s also a strong case, in my view, for a path towards universal basic income to be considered. I’m no expert.

As it happens I wasn’t at all surprised that Trump won. I also don’t really care because it doesn’t materially change my worldview or the nature of the issue we collectively face as a society and an economy. As with Brexit, we have to knuckle down and create change on the micro level. Personally that means creating a great, exciting place to work in my team and helping my clients grow their businesses in a more radical, socially sustainable way. I don’t see how pontificating about macro change and posting mournfully on Facebook will help so I’m not doing it. And yes, I see the irony in that statement given that I’ve written a short essay of musings in response to a one-line link!

Thursday, 29 September 2016

Takeaways from Health 2.0

As I mentioned in a previous post, I presented at this year's Health 2.0. I also stayed for a number of sessions on digital and innovation. As a relative newcomer to this industry it was enlightening to hear the common themes coming through in presentations from the big pharma companies, so I thought I'd share my main takeaways.

The strategic direction of the industry can seemingly be summed up in the phrase "beyond the pill", which is a composite of two big ideas:

  1. Digital-only treatments that address the root cause of health problems, which are often bio-psycho-social. Lifestyle, not disease is killing people, so it may be possible to create highly addictive, game-like experiences that change lifestyles and therefore beat the statistics.
  2. Treatment ecosystems that reflect the fact that people's problems are often blends of ailments that cannot be effectively treated by a single drug provider or physician. Doing this for real suggests some kind of aggregator that blends patient data on symptoms and ability to pay with combinations of treatments... kind of like a terrifying Skyscanner for treatment
This world suggests a range of potential business models:
  • Faster, radically cheaper drug development pipelines with (basic) digital underneath them, rather than the reams of paperwork and endless loops that underpin today's processes. This would be necessary because monopolies would be removed by (2) - the ecosystem would reveal other options than a wonder-drug and thus potentially remove customers who would otherwise have used the treatment unnecessarily
  • Selling outcomes, which could be as sophisticated (terrifying) as paying per year of extra life or for quality of life. This is the ultimate destination of a pivot to patient-centricity, which the industry appears obsessed with. I personally think that no one on the stage really understood the difference between a product business that thinks about customer needs and an actual patient-centric business, which is the route into treatment for patients that love them... I call that a 'doctor', but probably wrong...
  • Selling enabling data and tools into the ecosystem to cater for new requirements within the packages of care that are being assembled. This portfolio strategy is certainly interesting. I felt that pharma people lobbed 'monetising data' into the conversation because it was trendy, rather than really understanding how to do it... but a few of the startups (Tonic Health and HGE, take a bow) demonstrated how! That must be why the former are the sink of value in the industry
Operating model was also discussed in reasonable detail; generally accompanied by sighs and hand-wringing. I do understand why it's hard for pharma to do digital (cadence!) but I also think that a research-led industry that depends on accurate, objective data is well-equipped to adapt to an experimentation-based business model. If they aren't then no one is!

The main thrust on operating model was whether to make innovation a business unit (all of the big guys had done this) and how to supplement it with incubators and venture capital investments. My view is that the latter is over-blown in pharma. These are organisations that have always acquired new ideas. Doing the same in digital is just an extension of med-tech, rather than the use of carnivorous acquisition to change the make-up of the core business. No one could point to a successful acquisition, either... Just sayin'...

Anyhow, enough negativity. I enjoyed the conference. Not something I can often say about these things, perhaps because I've heard the same thing at tech' conferences for 10 years. Or something.

Monday, 26 September 2016

Lean Startup in Pharma

I was lucky enough to be asked to present at the Health 2.0 conference in Santa Clara this week on the topic of digital innovation in the pharma industry. This might surprise some of you (given that three years ago I'd hardly every worked outside tech and media), but we've actually been doing some cool projects in the industry. 

I thought you might be interested in the topic since pharma is yet another industry impacted by the Digital Economy, but one with some idiosyncrasies created by the hellishly long and expensive product development process and the role of regulators. If they're going to change from pills to outcomes some fairly major things will have to change and I like to think we're helping a little.

As ever, I talked a little about the reasons why digital innovation fails:
  • Failure to validate demand
  • Failure to iterate
  • Failure to track and measure (particularly since the root cause of positive outcomes is hard to figure out)
  • Failure to structure effectively
The particular challenges of doing this in the pharma industry are in red below. Resolutions learned from our project shown in grey.

Lengthy product cycles caused by the typical decade-long drug development process are a barrier because consumer-centric digital experiences are far faster twitch. The practical reality is that digital experiences are features of an overall product system but are distinctly different to drugs themselves. You can't lump them together and expect either to succeed. It's the classic need to introduce a second cadence into the organisation to cope with digital innovation.

The nature of MVP is important to consider as well. When we started off our journey with Snakebite 911 we were presented with a 10 page list of features that should be in the MVP. It's credit to our client that they were willing to radically reduce that down to the bare minimum required to prove the concept. Many don't work that way - they produce 'beta' products with way too many features, which are counterproductive as they muddy the purity of the experiments needed in lean startup.

Decision making is another fundamental issue. Too many boards to collaboratively ruin progress is just not needed in proving digital. Cutting through that with structure is vital: we established working practices to devolve decision making down to a couple of empowered Managers.

Regulation and legislation mean that pharmas are forced to maintain significant distance from patients and therefore can't do typically validated learning. That's a great excuse, but practically there are stakeholders that are more important from a commercial standpoint. Physicians and first responders in our case actually had a huge impact on the outcomes that people got from their treatment. Engaging with them is very much easier (being careful not to advocate products, which is easy if you're a third party and don't understand it!).

Heavy penalties for mistakes are part and parcel of medicine. I understand the need to prevent process-based errors, but there's a difference between that and having a bad product idea. Pharmacos are paranoid in any case and the businesses are generally run by regulation and compliance as much as sales and marketing. We got round this in two ways:
  1. By only doing the absolute minimum in the digital experiences to get a result, rather than complex feature overload that would be hard to clear
  2. By engaging very early with the regulatory teams, listening to them as equals and making them part of the core team. Therefore there were no surprises!
So, early days for me in pharma, but some interesting lessons that have applicability to other industries (e.g. banking) that are also heavily regulated.

Sunday, 25 September 2016

Framework for the structure of digital teams

A short post from me to share a simple framework I developed last week to explain the options an organisation has in implementing a digital team. It uses two axes:
  • Degree of coupling to the traditional organisation, which refers to how well integrated the digital team is into the hierarchy; and
  • Way of working, which defines the culture of the team, from traditional to digital native
I found it quite useful to determine the leadership team's level of ambition. Hope it's useful!

Tuesday, 17 May 2016

The (asset) bank of the future... and the Matrix's gun rack

I’ve been thinking about the future of money, as you do. I’ve been doing this because I’ve been a bit disappointed by ‘challenger’ banks that have emerged in the UK recently. Why? Because they’re just banks… with a twist! Like they’re just a mobile app. Exciting stuff… but still a version of the storage and transfer of money machines that have existed for more or less two centuries.

My thought experiment (ongoing) is about what we’d build if we didn’t have banks but did have our world of perfect information and connectivity. Here’s some semi-structured thoughts about it:

Fundamentally (in any economy) I want to earn and use assets that enable me to reach my implicit and explicit life objectives. Many of those objectives are about daily survival at a level of luxury to which I’m accustomed. Some are longer term and more complex. At the root are assets.

Assets are a lot more liquid than they used to be because information about their value is more pervasive, as is information about their value and market places that match supply and demand.

Historically the only liquid assets that a person had were in the form of money, which can be transferred between people without conversion if you’re all in the same base currency

Bitcoin and analogous currencies based on the blockchain mean that different currencies can also be transferred without a (significant) cost of conversion. This is also true for other assets, the ownership of which could hypothetically be held in a blockchain

I can also share assets or use them on demand in a way that was impossible up until about five years ago. I can do this because trustworthiness is also an asset, albeit difficult to convert.

To make my relatively more and less liquid assets usable I need to know how much they’re worth if I lease them, exchange them or sell them at any one time. I need a kind of dashboard, which may well use a currency as a measure of relative value… but I don’t necessarily need to hold all of my assets in a liquid form, or even most of them.

This isn’t that crazy for anyone who owns (or more likely part-owns) a house. Most of our assets are relatively illiquid although I could use Airbnb to rent my house and rent another off the same platform for less, thus potentially making me cash-positive in very short order

Without the dashboard – a kind of Marketplace for assets – it’s really difficult for me to behave in this way because I lack information. And, of course, many assets in the Industrial Economy come with legislated ownership rights and limits on their transferability. Houses, cars, traditional financial instruments and so on.

But it’s interesting. Lots of digital assets have value and are not regulated. Simple things like iTunes vouchers or Starbucks credit, to more complex things like an unrealised investment in Kickstarter. Unregulated, but potentially transferable assets, particularly in a blockchain-enabled economy.

All of this makes me wonder whether the ‘bank of the future’ is just an asset register into which I diligently enter all of my assets (maybe by snapping them on my smartphone and using an algorithmic application to ID them, or hooking up to government systems). Better still the register can give me instant valuations on things, which I can make liquid using all manner of services and peer-to-peer exchanges.

And even better still, maybe I can navigate all my things in VR – think the Matrix gun rack scene but with fast fashion and books about obscure historical events. Aces.

Chances of this happening? Tiny. People are really used to money and to nice little numbers in accounts. But actually, the first step is a complementary service that indexes and values your life’s assets. And that is definitely feasible right now. It could even be monetised by sending leads to eBay and similar services, as well as to advertisers. 

Once a major player emerges in that business then maybe the banks are fair game in a world of zero interest rates and relatively free spending.

And there’s VR to be excited about of course.

Wednesday, 13 April 2016

Digital challenges and responses for telecoms carriers

It's been a while since I've posted. Work is the reason for this: there is lots of it! My assumption as to why this is is that many more organisations are feeling the impact of the broad spectrum disruption that's coming down the line from increasingly established Digital Economy businesses. Great for me, troubling for my clients... 

The disruption is characterised by:
  1. Unequal competition between relatively local, focused, traditional organisations and global, digital-first conglomerates
  2. A rapid move to consumer-centricity from product-centricity as the predominant business model
  3. Uncertainty about how to achieve rapid change from a standing start or even where to begin with a programme of strategic change
I'm coming to believe that mobile telecoms carriers are likely to be the next to suffer reimagination of their industry. Open infrastructure projects, network virtualisation and over-the-top services, combined with zealous regulators suggest that is now conceivable that someone could 'SpaceX' the mobile industry. By this I mean that the cost of infrastructure and spectrum has fallen to a point where a low-billion range investment could create a national network, supported by an operation that would be radically leaner and more delightful than the existing operations of carriers, which have evolved over decades and carrier all of the legacy of that build.

We've put some thought to how carriers can defend themselves in the short term and create a platform for longer term success, based on overcoming three challenges.

Consumers now (sometimes unknowingly) expect more personalisation in their lifecycle with businesses. Mobile operators therefore need to adapt to people’s behaviour on mobile, across their customers’ lifecycle with them, rather than forcing their customers to correspond to their traditional portfolio of services and channels (e.g. through calls or in-store visits).

Increasing personalisation may entail decoupling those people and technologies that touch the customer from the back-office and network technology. This alone represents a transformational challenge.

The other challenge is how to create an environment to innovate and fail faster in order to change their business models and how consumers view them. An industry example of this is AT&T’s Emerging Devices Organization (EDO). Characterized as a ‘start up within the larger organization’, the EDO was formed to quickly identify and create new business models within the broader mobile ecosystem. 

By enabling this kind of culture of innovation, operators will be able to more effectively launch and assess new ventures as well as humanize their brand, which bodes well in this era of personalization.

Importantly, operators must embrace something they know to be true already: they must recognise and optimise their participation in the digital ecosystem. This means understanding that people are increasingly in control of their experiences on mobile and are making choices from an array of providers. Some will want simplicity; others will want to optimize for their particular preferences. To that end, it would be overly simplistic for operators to regard the emergence of OTT services as just a threat. People clearly enjoy using these services and have begun to gradually evolve their behaviors to emphasize their use. Leading operators have already taken steps to benefit from the role of OTTs by using the engaging channels they offer to deepen their relationship with consumers in all parts of the sales and service cycle.

I've written a short report on the above topic, in which I've been lucky enough to get access to behind the scenes data from Facebook and Rogers Communications on how consumers engage with carriers in the above modes. Clearly this is a large topic and the report is the tip of a very deep iceberg... but it's a start and we have more ideas coming!

Wednesday, 24 February 2016

MWC 2016: Towards distributed personal devices

Mobile World Congress is not typically a place where innovation is overt. The industry comes here to talk shop and make deals, not to imagine a radical future. In the handset market this means taking steps to assure a place in the shrinking ranges of the big buyers, who're generally trying to slim down the range they show customers to improve the customer experience. This means not stepping too far from what customers understand right now. No innovation & no disruption. But there are exceptions.

Sony, for example showed three products that disaggregate the handset to make it more useful. They showed off a tiny earpiece that enables voice and gesture control of the smartphone that it's Bluetooth tethered to. Although still slightly nerdy-looking, it potentially removes the need to constantly pull out a phone or tap a watch.

Even more radical was the companion camera device. This moves the camera phone to a lanyard or shirt clip. Again, a modicum of AI enables the camera to decide when to take a photo (life-blog style) or it can simply be removed and used to snap selfies to our heart's content. It's similar in concept to the Microsoft Sensecam concept that never saw the light of day.
Sony also showed a projector that turns any surface into a touch screen. This piece of the disaggregation puzzle allows entertainment and more complex use cases (booking a holiday, shopping) that are beyond voice control at the moment to be executed without removing the phone from our pockets.

Away from Sony, I met with Coin, a San Francisco startup who have created an HDK and SDK that enable secure NFC payment to be built into any device for a few dollars. Coin therefore vastly extends the number of devices that can provide touch payment so that rather than being restricted to a watch or a phone, many more pieces of kit (e.g. a wearable camera) can act as a payment card.

At the moment all of this technology (except Coin) is concept-only, but I think that it hints at a near future where AI, improved power management and available HDKs for common functions will lead to further evolution of the phone format. Perhaps by MWC 2020 the phone will no longer be the killer mobile tech and we'll all be talking about AI earpieces and personal area networking. We'll see.

Monday, 15 February 2016

How much does YouTube contribute to the UK creative economy?

YouTube and the multichannel network (MCN)/ vlogger ecosystem it supports represents the largest current emerging media type. By my estimate, YouTube streams 4.2Bn hours of content a month, much of which (probably) ends up substituting for time spent with traditional media. But all of the coverage of the platform focuses on whether YouTube itself is profitable for Google, rather than the impact of a global platform on local creativity.

Just as was my intent with the report we published on TV last year, which highlighted the impact of accelerating sports rights spending on the creative economy, I'm now looking at the effect of a global platform that exchanges local viewing, flowing directly to local creatives, for consumption of global channels, which goes into international pockets.

Numbers on YouTube are really very hard to obtain as the platform is not independently reported on by Alphabet, Google, or anyone else. Even estimates of its top line revenues vary wildly, being as low as $5Bn and as high as $9Bn for 2015. Starting with a Credit Suisse number that seems sensible, I've tried to show how money flows through to UK creators.

This is a simple analysis that assumes two types of creatives monetising the platform, both through MCNs. The larger group are music artists, via the Vevo and Warner Music networks. The smaller are the independent vloggers, disproportionately represented in the UK thanks to the presence of millionaire megastars PewDiePie and Zoella. This latter group is solely dependent on YouTube for sponsorship and other ancillary revenues from books and other content, for which I've made a directional estimate based on the going rate for a placement, versus the amount of revenue made from advertising.

My current thinking (as shown in the schematic) is that YouTube takes about $600Mn from UK advertisers and gives back about $180Mn, much of the latter coming from non-UK advertisers (it's a global platform). This actually compares very favourably to the contribution of ad-funded TV in the UK, which brings in about £2.7Bn and returns about £600Mn to the creative sector... but of course even despite the significant difference in creative ROI, the reality is that thousands of people make a living wage from the UK TV industry, versus a handful on YouTube, which supports only a few thousand creators globally.

Anyhow, this is far from a complete analysis and I'm going to continue to work it up, ahead of a report we're hoping to release in the late spring.

Thursday, 21 January 2016

A three layer model for media organisations

As you know, I spend an excessive amount of time trying to describe how Digital Economy businesses are different from Industrial Economy ones. A structure I've tried out recently is the one shown in the picture below, which is intended for a TV/ filmed entertainment company.

The idea is that the business can be abstracted into three layers:
  • A Presentation Layer, that enables their products/ service/ content to be accessed/ used/ consumed;
  • A Monetisation Layer that enables assets to be... well, monetised through the presentation layer; and
  • An Asset Layer that describes the explicit and implicit assets of the business

On the left side of the diagram are the traditional controlled and ordered layers of the Industrial Economy. On the right is the often unknown and anarchic world of the Digital. I think it's quite fun to play with, which you do by picking one square on the left and imagining how the squares on the right would change how your business operates and competes.

And of course the beauty of it is that you can add more squares as new technologies and trends emerge. Hope it's interesting. I'm going to continue to play with it, as ever!

Monday, 11 January 2016

CES: Attack of the drones (sorry!)

One of the advantages of shows like CES is that you can see everything (or near enough) in a category in one place. Drones had their own 'marketplace' at the show, and also appeared dotted around other areas. What struck me more than anything else was not the innovation in the category, but its ubiquity.

Drones only really began to spring up at trade shows five years ago. These were either heavyweight units the size of a small aircraft or tiny, plastic toys with no range and impossibly delicate controls. Step forward to 2016 and there are now dozens of credible manufacturers offering a wide range of styles of quad/ sexto/ octo-copters for professional and consumer use. Better still camera and computing technology means that these drones are far easier to use, able to position themselves automatically to capture that time you got great air. Intel's demonstration of RealSense as a collision avoidance device was impressive. Picture of how it sees the world below.

All of this is great for consumers (albeit rich ones) and professional film producers, who can now access the capabilities of a helicopter for vastly less money and effort. The issue now is how these venture and angel-backed businesses become genuinely commercially viable as they scale. Given the limited differentiation between manufacturers, from a lay-person's perspective it seems that significant and rapid consolidation is likely in this industry very soon.

Friday, 8 January 2016

CES: the return of the connected fridge

For completeness, I'm going to write a series of short posts on other themes I saw at CES this year. First up, the connected kitchen.

There's been gigantic hype around the connected home for years now, so it's little surprise that lots of tech turned up at CES. I do think that some breakthroughs are being made, mind you. On the stands of LG, Bosch, Whirlpool and Samsung I saw ranges of practical high-end kitchen appliances that offered interesting marginal gains versus their un-connected predecessors. Here's Bosch's summary of the use cases for the category:

For example, Bosch's washing machine and dryer combination enables you to programme the machine far more precisely to the load being washed through a slick, user-centric iPad application. I wouldn't change my washer to get this, but I could see how it would be a selling point if I were buying a new one. Interestingly Bosch, LG and Whirlpool all avoided the temptation to put touchscreens into the devices, keeping them clean and functional, while moving the clever controls to the smart device. Right now these are all expensive devices that are only accessible to wealthy consumers, but I imagine that the technology will trickle down as the BOM impact of adding wifi to an appliance is almost comically small.

Samsung, of course, have never been ones for sensible user design, preferring as ever to slap screens onto everything. Witness their latest smart fridge, which enables you to shop from two providers in the US really slowly, while also seeing what the weather is. Brilliant. It'll definitely be really useful and not at all obsolete and stupid-looking within 3 years. In my opinion, of course.

Oh, and to add to the entertainment, most of these devices had signs on them saying 'no close ups'. As if their competitors couldn't figure out how to put a big tablet into a fridge door?! Bizarre.

Despite my interest in the sudden practicality of some of these connected domestic appliances, I was still left a little cold by the technology on display. None of it represents any sort of disruption to the kitchen or food preparation space. I was hoping to see practical hydroponics or food recycling units or new appliances designed for the smaller and more hermetically-sealed urban homes across the world. But there was none of that. Iteration, not innovation seems like the order of the day.