Wednesday, December 23, 2015

The Customer Experience Implications of the FTC’s New Rules on Native Advertising

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Yesterday, the FTC issued new guidance on native advertising, sponsorship, and disclosure. In some respects, the new FTC guidance contains little new. It is just another reminder that the same tenets of ethical marketing are as true today as they were more than a century ago when the Postal Act required newspapers to differentiate advertising content from editorial content. But even if the rules remain unchanged, the rapidly evolving media and advertising landscape makes it vital that marketing leaders understand and act upon the new FTC guidance.

The rise of the empowered consumer, protected by ad-skipping DVRs and adblocking software, has raised the stakes for marketers and publishers. Likewise, the disintermediation of content delivery, with peer-to-peer sharing and Facebook's news feed algorithms and Instant Articles, is upending the control that content creators once had over the distribution of information (and advertising) to consumers.

Media companies, adjusting to the loss of viewers, subscribers, and attention, have turned to native advertising to bolster revenues. And marketers, eager to overcome consumers' avoidance of advertising, have eagerly adopted approaches such as native advertising and influencer marketer. There is, of course, nothing wrong with these strategies when carefully executed, but marketing leaders must recognize that creative and innovative practices carry additional customer experience risk that must be managed to minimize regulatory, trust or reputation risks.

Where the FTC stands is clear. While the FTC blog post has a mild headline, "FTC issues Enforcement Policy Statement and business guidance on native advertising," the title of the guidance itself is less circumspect, "Enforcement Policy Statement on Deceptively Formatted Advertisements." The agency makes its intent apparent from the first sentence of the blog post: "If what looks to be an article, video, or game is really an ad – but it’s not readily identifiable to consumers as such – the FTC has another word for it: deceptive."

If you are a marketing professional, I urge you to take the time to read the Policy Statment along with the accompanying "Native Advertising: A Guide for Businesses." To read the highlights and a summary of what the new guidance means for marketing leaders, please visit my blog post on Gartner's blog for Marketing Leaders.

Friday, December 18, 2015

CX Marriage Counseling for Consumers' and Marketers' Relationship Issues

Photo Credit: Jennifer Pahlka
via Creative Commons
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We have all been in a bad relationship before.  A suitor woos us with the moon and the stars, and soon we are in the swoon of passion. Commitments are made and a honeymoon period ensues, but too quickly promises are broken. We reach out to share our needs and frustration but are left feeling emotionally abandoned. And worse yet, when we threaten to break it off, suddenly the attentive suitor is back, effusive with apologies and promises of change. And thus, the cycle continues.

Of course, I’m speaking about the state of marketing today. Marketers woo new prospects with lucrative offers not available to their loyal customers. Through careful positioning and advertising, marketers promise us the world—our internet service will be shockingly fast; our banker will give us one-to-one attention to guard our financial interests; and hot men and women will gawk in slack-jawed wonder as we pass in our new car.  But once we make the purchase and are committed to the relationship, the marketer moves on, focusing on the next prospect.

Too often, we’re left with a product that doesn’t deliver as promised--our internet service chokes while we watch a streaming movie; our bank continually adds new fees; and our car not only doesn’t cause people to gape but suffers from safety or environmental flaws. We call customer care to get some of that “customer obsessiveness” we were promised, and they refer us to the terms and conditions—that is, if someone answers the phone due to the consistently “unexpectedly high call volume.” In short, we loved the marketing, but we don’t love the experience. As the brand's commitment to us drops, so does ours for the brand, but when we threaten to switch, the marketer quickly returns with new promotions and promises. “Wait, baby, I’ve changed; it’ll be different this time!”

Consumers and Marketers currently are in a bad relationship. Consumers don’t trust marketers, with only 4% of Americans believing the marketing industry behaves with integrity, which is lower than the rating Congress earns.

To read more, please visit my new Gartner blog

Sunday, November 15, 2015

#Jeb4Prez and the Risks of Promoting Fans in Social Media

It seemed like a golden "can't miss" opportunity for the Jeb Bush social media team, looking to aid the candidate running a distant fifth in recent polls. Vic Berger IV posted a Vine video about Bush, tagged Bush's official Twitter account and promised to get a giant "Jeb4Prez" neck tattoo if the video received a million views.

The Bush campaign was only too happy to assist, tweeting their support. As you'd expect, the milestone was reached and a giant neck tattoo ensued, helpfully posted to Twitter.

Soon after, however, Berger's father took to Twitter to criticize the Bush campaign for encouraging his son. Dad's tweets reported his son lost his job as a result of the stunt and suffers from "undiagnosed issues." The father told Bush he was "saddened that you and your staff encouraged him."

As the Bush social media team got quiet, the media picked up on the situation, publishing articles on MotherJones, HuffPo and many other news outlets.

The Bush campaign got what it wanted--a viral sensation--but not exactly in the manner they had hoped. It now turns out the whole thing was a prank from the start, and it demonstrates (once again) how easy it is for overly-zealous social media teams to stumble. The #Jeb4Prez tattoo story is a minor embarrassment and distraction rather than the Bush campaigns' hoped-for "Yes We Can" social media moment.

There are many things the Bush social media team might have done to avoid this situation. The lessons here for brands and other campaigns include:

  • Be Objective. The initial Vine video hardly portrayed Bush in a complimentary light, which should have been the first clue to an unbiased observer.
  • Be Skeptical Of Outrageous Offers: The second clue was the ridiculousness of a person getting a giant visible tattoo to support a 2016 campaign. Whether Bush wins or loses, this sort of conspicuous tattoo would have become even more dated and embarrassing than that Nickelback tatt your roommate thought was a great idea back in 2005.
  • Do Your Homework: In addition to approaching the situation with some skepticism, the Bush campaign also made the mistake of leaping before doing any research. With a bit of legwork, the social media team would have learned Berger works as an editor on videos with Tim Heidecker, a comedian who costars on an Adult Swim program. That fact would have raised immediate suspicion.
  • Reach Out Privately: While not necessary every time a brand or candidate social media team wishes to retweet an advocate, it never hurts to contact people privately before doing so. This not only ensures the person wants the attention, it also helps to evaluate the seriousness of the individual's intent. Rather than reach out privately to assess Berger and his claim, the Bush campaign was only too happy to facilitate the viral rise of Berger's video, and now it faces the consequences. Even Berger is perplexed, noting "I was surprised there wasn't more research done... It's a little frightening."
  • Stick To Your Strategy! The campaign's biggest mistake was not over-eagerness and lack of care; it was that this situation had no chance of giving the candidate what he needs, even had the offer been true. Unlike the "Yes We Can" video, which highlighted Obama's inspiring words, all this situation was going to do was promote how one person could make a life mistake in order to support Bush's nomination. For a campaign whose candidate is already a household name but whose appeal is lagging, the neck tattoo was an unnecessary diversion that prioritized social media scale above promotion of the candidate himself. The campaign urgently needs more people to know the candidate and his policies, and the neck tattoo stunt was never going to deliver on that, making this entire episode a strategic misfire from the start. 

The lessons are pretty evident, not just for presidential campaigns but for marketers, as well. It is an easy trap to get so focused on your own needs that you see only the opportunities but not the risks in promoting fans (or those who only appear to be fans). Of course, as the reach of brands on social media declines, this sort of one-to-one engagement becomes ever more powerful, but with great power comes great responsibility.

We have seen too many brand hoaxes and mistakes to think that jumping on bandwagons and retweeting fans is a good idea without a healthy dose of caution. A previously unknown social media profile making an offer that is too good to be true will often be too good to be true. Brands' and candidates' social teams should not ignore these opportunities, but neither can they act without caution and due diligence.

The Bush campaign will not be derailed by this silly little incident, but it would be a mistake to dismiss it entirely. The Bush team needs the conversation to be about the merits of the candidate and not the missteps of his social media team. By focusing on the real needs of its candidate, elevating Bush's ideas, allowing fans to share why they support the candidate and demonstrating reasonable caution, the Bush campaign could have avoided this PR blunder. That's an important lesson for any brand and candidate hoping to gain an advantage via social media.

Wednesday, September 9, 2015

Josh Bernoff, It's Time For Marketers To Take Responsibility

photo credit: IMG_5134 via photopin (license)
Two weeks ago I wrote a blog post that quickly became the most popular I have ever published, "Burn It Down, Start From Scratch And Build a Social Media Strategy That Works." One of the reasons it was so popular is that my friend and former Forrester peer, Josh Bernoff, replied to my post from his terrific Without Bullshit blog, "Augie Ray, can we admit now that social media marketing is dead?"

The dialog between Josh, Forrester analyst Nate Elliott, me and dozens of commenters was vigorous and fascinating, so much so that Josh has now published a worthwhile follow-up, "To be precise, Social Media Marketing is just mostly dead." But where Josh took me to task for not delivering the Last Rites on social media marketing, I believe his latest blog post pulls its punches with respect to blame for declining organic reach and poor social media marketing results. Josh's article ends with:
And if you’re looking around for someone to blame, blame Facebook. It sucked up all the social energy among consumers, then squashed marketing effectiveness. Thanks for crashing the party, Zuck. We thought you might be Miracle Max, but you left us mostly dead all the same.
For too long, marketers have pointed fingers at Facebook. "Facebook lied to us." "They pulled off one of the most lucrative grifts of all time." "Facebook is Machiavellian." As Josh might say on his blog, I find these arguments bullshit.

Brands have lost organic reach not because Facebook took it away but because consumers did. No one blames the television networks for the declining reach of TV advertising lost to ad-skipping DVRs. No one blames Google for the rapid growth of ad-blocking that is reducing online advertising's reach. So why do we let marketers shift the blame from themselves and onto Facebook for the inevitable decline of brand content in users' news feeds?

Yes, Facebook is in a position to profit from brands' struggles on the social network, but the essential factor for brands' poor unpaid reach is not Facebook taking away things people want to see. Facebook implemented and improved its algorithm to make sure that the content presented to users is the content they most want, and that means the things posted by friends and family rather than our bank or toothpaste. Brand content on Facebook simply did not measure up--it could not compete with the content posted by the people about which we most care.

Think of it another way: What would happen tomorrow if Facebook took away content from our closest friends and charged us to see it? The uproar would kill Facebook overnight, of course. So, where is the uproar from consumers for all that missing brand content? Do you hear any consumers clamoring for more brand posts?

Assigning blame where it belongs is not merely a matter of right and wrong--it is vital for marketers to understand the problem so as not to repeat it. If we all blame Facebook for the demise of brands' organic reach, then marketers may be encouraged to give the same strategies another shot on other social networks. Why not Tumblr? Or Periscope? Or Twitter? Or Blab?

But if we instead place blame where it belongs--on the misguided belief that an army of consumers is hungry for brand content--it forces marketing leaders to reconsider strategies. Why would consumers welcome and pay attention to my brand's content on Periscope when they have abandoned it on Facebook and Twitter? Should content marketing really be the most significant slice of my marketing budget given consumers have rejected our marketing communications on television, online and on social networks?

Blaming Facebook may be a salve for marketers' wounded egos, but it is not the least-bullshit, most-truthful message. Nor is it the most helpful in terms of resetting expectations for content and social media marketing in the future.

As I noted in a blog post last year, "Stop Social Media Marketing," there are certain brands and verticals that can make organic social media work, but most cannot. Why not? As I noted to Josh, we each interact with hundreds of brands every week, but with how many do we wish to have a content relationship? How much time will each of us really make to consume and engage with content posted by the long list of brands in our lives?

The first step toward getting marketing right in the social era is to take responsibility for convincing ourselves that consumers who block our calls, skip our commercials and obstruct our banner ads will suddenly embrace brand content in social channels. The last few years were not a grift by Facebook but a healthy reminder to marketers that consumers have never been more informed, distrustful or empowered. If marketers wish to win the millennial consumer, it will require a lot more effort than clever content and free posts.

Want someone to blame? Face facts, not Facebook.

Friday, August 21, 2015

Burn It Down, Start From Scratch And Build a Social Media Strategy That Works

photo credit: on strike via photopin (license)
There are times you simply need to destroy what exists in order to replace it with something better. Such is the case for social media. The past seven years have been so full of mistaken beliefs, poor assumptions and outright misinformation that the time has come to reassess completely what social media is, how it works, how consumers use it and what it means for brands.

The fact is that much of the social media dogma we take as gospel has been wrong from the start. As a result, brands are wasting good money to chase irrelevant or even damaging social media outcomes, and the required improvements are not minor adjustments. In many cases, the wrong departments have hired the wrong people to do the wrong things evaluated with the wrong measures.

Together we will burn social media to the ground and rebuild it from scratch. We will do this with data. Data will provide the spark and accelerant that destroys today's social media strategies, and data will also be the bricks and mortar to build a credible and accurate understanding of consumers' social behaviors and the legitimate opportunities available to business.

Destroying Social Media Marketing Myths With Data

Every social media marketer and pundit knows case studies that tease the promise of organic content success. They share and reference the same ones time and again, building false hope that marketers' next social campaign will be Oreo Dunk, #LikeAGirl or Real Beauty. But tear yourself away from the rare and apocryphal stories of success and focus instead on broad, unbiased data, and a different picture emerges.

"Organic social media stopped working." Those words are from the latest Forrester report, "It's Time to Separate the 'Social' From the 'Media.'" This is the same Forrester that in the 1990s counseled IT leaders to pay attention to "Social Computing" and whose 2008 book, Groundswell, introduced many business executives to the ways social media was changing consumers and the marketplace. Today, Forrester is again ahead of the curve, making the case that brand organic opportunities have disappeared and social media marketing has become entirely a paid game. As a result, the research firm recommends that marketing leaders assign their social budgets not to the social team but the media team because, as Forrester notes, "Social ads aren’t social; they’re just ads."

The report states a simple fact that too many content marketers ignore in 2015: "If you can’t get a message to your audience, you can’t very well market to them" Facebook reach for top brands' posts was just 2% of their fans in 2014, and that number will only decrease further this year.

Evidence of social media's remarkably poor reach is all around, and many social media marketers are simply ignoring it (or hoping their bosses do). For all of its brand strength, Coca-Cola's Facebook page this past weekend had a People Talking About This figure--which includes every page like, post like, comment, check-in, share and mention the brand earned in seven days--of just 37,700 people. The world's largest consumer brand (which sells 1.8 billion drinks a day) on the world's largest social network (with 1.5 billion monthly active users) engages fewer people in a week than can fit in one MLB stadium--and not even Dodger Stadium but Kansas City's modest Kauffman Stadium.

Source: Custora Pulse 
Not only is reach falling but social has never succeeded in delivering reliable marketing scale, no matter how many case studies suggest otherwise. Social does not deliver purchasers (accounting for 1% of e-commerce sales, compared to 16% for email and 17% for CPC). Social delivers poor conversions (with a conversion rate of 1.17% compared to 2.04% for search and 2.18% for email). Social fails to deliver trust (with B2B buyers rating social media posts among the least important for establishing credibility and just 15% of consumers trusting social posts by companies or brands.) Nor is Social media a major factor in search engine rankings (placing dead last among the nine major factors affecting SEO according to MoZ's 2015 Search Engine Ranking Factors report.)

Rather than hit the brakes, social media marketers are trying to keep their shaky strategies together with wishes and duct tape. For example, marketers are desperately trying to overcome declining organic reach by posting more frequently, but that is not a long-term solution (nor much of a short-term one, either). Another tactic is to chase consumers from one social network to the next for brief windows of organic opportunity. Instagram is the latest social network hyped for delivering higher engagement, but the social platform is busy adding and growing its advertising programs, which means organic reach will rapidly decline on Instagram as it has elsewhere.

Social media marketing has become a house of cards, teetering with lies stacked high since the dawn of the social media era. Entire corporate social media strategies are crafted on baseless assumptions that presume brands can reach prospects and customers in social networks, consumers want and trust brand content, all engagement matters, likes are marketing KPIs and fans and followers are advocates. The best thing social media professionals can do now is to burn down that tower of cards and start from scratch by studying the data, creating new and realistic proof points and producing more effective social media strategies.

Building Social Media Strategies With Data

Starting from square one, please allow me to introduce you to social media and the opportunities available to your company, one fact at a time:

FACT: People take social media seriously, and so should business. 
The numbers are impressive--1.5 billion people use Facebook, 316 million use Twitter, 300 million Instagram and 200 million are on Snapchat. And social media behavior is still growing, with the average usage time rising from 1.66 hours per day in 2013 to 1.72 hours last year. Despite some spurious headlines suggesting Facebook's demise, that social network continues to dominate, with 59% of users accessing the social network two or more times a day (which is two-thirds more than Snapchat or Twitter and 1000% more than Pinterest). What these data points tell us is that social media is important to consumers, and brands should find ways to meet consumers' needs and expectations in the channel. While numbers like these typically tempt marketers into believing social media is a fertile content marketing opportunity, this is not the case because...

Source:  PageFair
FACT: Consumers work hard to block and ignore brand messaging.
Use of adblocking software is on the rise in 2015, having gone up by 41% since last year. Of people who view time-shifted TV, 37% do so because it permits them to skip ads, and 56% skip every commercial when viewing from a DVR. Of those who have seen online pre-roll ads, 94% have skipped them. And 57% of consumers are actively taking steps to avoid brands that bombard them with irrelevant communications, with 69% having unfollowed brands on social channels, closed accounts and cancelled subscriptions. The reason people do this is that...

FACT: Consumers do not trust brand content.
In the latest Edelman Trust Barometer Study, the majority of countries now sit below 50% with regard to trust in business, and this past year trust in business dropped in 16 out of 27 countries. In the US, consumers do not trust text messages, social media posts or ads from brands. Millennials are an especially tough crowd, with only 1 in 100 saying that a compelling advertisement would make them trust a brand more and they place sales and advertising at the bottom of their trust rankings. So, if organic reach is continually declining toward zero and consumers do not welcome or trust brand messaging, should brands abandon their social profiles? Of course not, because...

FACT: Consumers count on brands to be present in social media, particularly on Facebook.
Consumers indicate they expect brands to be available in an average of 3.5 social media channels, and around 80% of consumers expect brands to be present on Facebook. But if we have established consumers do not want or trust brand messaging in social media (or pretty much any other channel), why do consumers want brands on social networks? It isn't for brands to fill their news feeds with a stream of promotional messaging but...

FACT: Consumers expect brands to engage on consumers' terms.
62% of Millennials say that if a brand engages with them on social networks, they are more likely to become a loyal customer. It is not as if brands have no opportunity to listen and engage with consumers one-to-one, considering nearly 50% of people have used social media to praise or complain about a brand in the past month. On the B2B side, 75% of B2B buyers want brands to furnish content of "substance," that helps them to research business ideas, but 93% of brands focus their content on "marketing" their own products and services. Of course, while too many marketers believe broadcasting messages is a way to engage consumers, people do not consider marketing content to be "engagement." Instead, they want brands to treat them individually, listen and respond. For example...

FACT: Consumers want fast, responsive customer care in social media. 
63% expect companies to offer customer service on social media, and one in three social media users prefer to reach out to a brand on social media for customer service. 75% of consumers using social media for customer service expect to hear back in an hour or less; half want a response in real time. But despite the demand for customer care in social media, brands fail to meet expectations; one study found that 33% of consumers who reach out to brands for customer service get no response, while another recent study found four out of five inquiries go unanswered on social media. The stakes are high for brands to get this right. Econsultancy asked consumers how brands performed to resolve recent issues, and of those who said the brand was very ineffective, 46% are still customers (compared to 71% for very effective brands) and 13% shop at the same level (compared to 46% for very effective brands).

FACT: Consumers want to collaborate with brands to develop better products.
42% of Millennials say they are interested in helping companies develop future products and services, and studies have shown, not surprisingly, that customers are more likely to buy products they helped to create. The secret isn't merely to offer a database into which people can dump their product ideas; once again, people want true bilateral engagement with brands. A recent study of ten co-creation projects found that the largest percentage of participants (28 percent) was driven by curiosity and a desire to learn, and another 26% had an interest in building skills.

FACT: Consumers want brands to stand for something, not simply push products and generate profit.
People want more from brands. Consumers do not see a conflict between businesses being profitable and being good for the world--81% agree that a company can take actions that both increase profits and improve the economic and social conditions in the community where it operates. Edelman's 2015 Trust Barometer study also found that half of respondents attribute increased trust in business to the fact that a business enabled them to be a more productive member of society. Edelman found the biggest gap between business importance and business performance on 16 trust attributes was not products and services or even purpose--it was integrity and engagement. The Nielsen Global Survey on Corporate Social Responsibility found much the same, with 55% of global online consumers across 60 countries saying they are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact. Millennials have even higher expectations--three-quarters say that it is either fairly or very important that a company gives back to society instead of just making a profit.

FACT: Brands win when they get people talking to each other, not about the brand's content but about the actual Customer Experience. 
In the US, 70% of consumers trust brand and product recommendations from friends and family, which is almost 400% greater than the trust they have in brand posts in social mediaMillennials do not trust traditional media and advertising, so they look for the opinions of their friends (37%) and parents (36%) before making purchases. However, marketers continue to struggle with Word of Mouth (WOM)--64% of marketing executives indicated that they believe WOM is the most effective form of marketing but only 6% claim to have mastered it.

Doing Social Media Right

Most companies are doing social wrong and have done it wrong from the beginning. The key to success is to stop most of what today passes for social media strategy and rebuild social plans from the ground up:

  • First, create and measure a new definition of WOM. An individual who recommends your brand based on their actual customer experience is gold; a customer who clicks the "heart" button on a pretty photo posted by your brand isn't even tin (and a like that is bought is a stain on the soul of your brand). Now is the time to recognize that not all consumer interactions are equal and to succeed, brands must generate the WOM that matters--not the activities that are easy to manipulate and tabulate but the ones that are difficult and meaningful. Discard the fake WOM strategies created with brand-to-consumer content broadcasted in social channels and focus on the real WOM forged peer-to-peer with customer stories, recommendations and advocacy. Fake WOM gets people to click "like" on something the brand posted; real WOM gets people to tell others why they should trust, try and buy your product or service.
  • Toss out your social media scorecard immediately. The first step to refocus social activities on what matters is to change what is measured. Stop rewarding employees or agencies for generating engagement that fails to deliver business benefit and start measuring what matters--changes in customer loyalty or consideration, positive and authentic Word of Mouth, inbound traffic that converts, quality lead acquisition and customer satisfaction.
  • Reconsider what department should lead your social media efforts. Once you have reconsidered the metrics that matter, the next question is who within the organization is best equipped and staffed to deliver on those metrics. If organic social media is not proving an effective marketing channel, should your marketing team be responsible for content creation and managing social media calendars? If one-to-one engagement and responsiveness are the new goals, which department is best staffed to provide what the brand needs and consumers expect in social media? These are vital questions, because whichever department funds and manages social media will expect the outcomes and use the metrics about which they most care. A recent report from Econsultancy makes the case: Among Financial Service firms, just 38% see social media as a channel for retention; the majority sees it geared for acquisition and cross-sell. That means most of these firms are using social media to chase marketing strategies to drive sales (an approach we now know will fail) while the minority have social media strategies designed to improve customer satisfaction, reputation, loyalty and retention--goals generally not associated with Marketing but with Public Relations and Customer Care departments.
  • Objectively assess the return your brand generates with content marketing in social channels, and stop what is not working. If you are not today validating positive return on marketing content posted to social channels, you certainly will not do so in the future as organic reach crumbles to nothing. Marketers continue to act as if content marketing is destined to work and they have simply failed yet to find the right content marketing strategy. Data tells us otherwise; customers and prospects inundated with marketing messages, distrustful of brand content and protected behind social paywalls and adblocking software are not interested in or available to your content marketing output. Content is essential and has a place in Marketing strategies, but now is the time to rebalance the investment the brand is making to match the return it receives and can expect.
  • Stop talking at consumers and telling them what you want them to hear. Start listening to customers and responding with what they want and need. Your brand's intent is more evident than your content, and actions speak louder than words. If the best thing your company can think to do with this wonderful one-to-one relationship channel is to talk about itself, you have no right to be disappointed when consumers perceive and punish your company for its self-interest. Brands that win in the social era will not be better at storytelling but in using social media to hear, help, educate, encourage, empower, connect and respond to their customers and prospects as individuals.
  • Get social customer care right. There is no excuse for failing to staff a customer care team properly, secure the right social media management platform, listen for customer needs in every appropriate social channel, manage inbound messages, answer every question, address every complaint and help every prospect or customer in a timely manner. Self-service and peer-to-peer support are valuable tools, but they are no substitute for getting responsive one-to-one customer care right in a growing (and very public) channel of preference for many of your customers.
  • Get people talking to each other. Your brand is disappearing from consumers' news feeds (if it has not already), but friends will always see content from the people they know, care and trust. Stop trying to spark engagement using funny, clever, hip, edgy or inspirational content, and stop acting as if authentic peer-to-peer engagement can be bought by paying influencers to tweet about your brand. Find ways to get people talking to each other about their real experiences with your company and its offerings. Engage your happy customers and help them to share their experiences; intercept customers at moments of truth to encourage sharing; build P2P ratings and assistance into every mobile and web experience; connect people to each other in meaningful ways; and more than anything, provide the sorts of product and service experiences people will want to talk about and their friends will find worthy of attention and consideration.

Here is a place to start as you rebuild your company's social media strategies: If your brand never posted another piece of marketing content to Facebook, Twitter or Instagram, how would you demonstrate your firm's values in social channels? If the ability to post promotional messages were taken away, what social media strategies would your company execute to create awareness, attention, consideration, trial and loyalty? If you could no longer rely on your brand journalists, paid influencers, social designers and marketing agencies to create content for social channels, what one-to-one, peer-to-peer, responsive, collaborative, integrated, authentic and meaningful strategies would your brand execute? (Why isn't it doing those things effectively today?)

The question is no longer if the tired, failed strategies of the past seven years will miraculously yield success; it is if your social media leaders are willing to admit the mistakes of the past, throw out what is not working and chart a new course. The data to build practical and potent social media strategies is not hard to find, but it easy to ignore.

The true secret sauce of social media has never been and will never be to get people to share your brand's latest viral video or inspirational quote on Instagram. The future belongs to brands that follow the lead of companies like Uber, Nest, Square, Apple, JetBlue, Costco, Trader Joe's and USAA--brands that get people talking to each other about their differentiated products, customer experience, values, innovation or community commitment rather than about their clever social media posts.

Grab the fire extinguisher, build a social media bonfire and start from scratch. Do this now, and 2016 can finally be the year your brand meaningfully succeeds in social media.

Tuesday, June 30, 2015

What's Your Opinion: Can We Beat LinkedIn Spam with Direct Feedback?

photo credit: IMG_2287 via photopin (license)
Are you as tired of LinkedIn spam as I am?

Some of you only connect with people you already know, and that is a recommended and smart strategy. I have traditionally adhered to a different strategy of following people I believe I would like to know. So, when someone reaches out to me on LinkedIn to connect, I may agree, even if I have not worked with or do not know the person.

Yesterday, I connected with someone who is the founder of a social firm. I did not know him, but we seemed to share professional interests, so it seemed an appropriate connection for LinkedIn.

Within hours, I received the following message:
Hi Augie, thanks for connecting with me. I hope you are doing well.

I help people grow their businesses by marketing through digital and social media at It looks as if you do as well. If there's ever anything I can do to help you, please let me know.Thanks again and have a great week! 
Now, I'll admit, by way of spam, it's pretty mild, but as we all know, spam is in the eye of the beholder, and my beholding eye was annoyed by this spammy intrusion in my LinkedIn inbox.
In the past, I simply disconnected from folks who do this sort of thing, but I have decided to be more direct with people before I sever connections. I think it is important for people to get feedback and know when others perceive they have crossed the line.  So, here was my response, and I would appreciate your feedback if this is an appropriate way to communicate with someone or if I am just being, well, a jerk: 
I am going to disconnect from you, but I wanted you to know why. I followed you because, being a social professional, I thought you would share interesting content. I figured we might develop a relationship and, at some point in the future, we might have cause to get know each other, help one another and maybe even work together.

The first day we were connected, you took the opportunity to spam me. To be sure, your spam was gently worded, but it's still spam. You took the opportunity to immediately talk about yourself and your company.

This strategy strikes me as an oddly unsocial approach for a social professional. Perhaps it works, but I am so tired of getting spam on LinkedIn that I now immediately disconnect when a new connection tries to turn me into a "lead" instead of a "peer."

Best of luck, but I wanted you to be aware your strategy of immediately spamming people with a message about your company had the opposite of the desire outcome with me.
Is this fair? Helpful? Arrogant?  And if we all did this, might it make a dent the spam we receive? What is your opinion?

Monday, June 8, 2015

The Wonderful Wizard of Instagram: Marketing Opportunity Or More Of The Same?

A few years ago, blogs and industry pubs were full of hopeful predictions of how Facebook and Twitter would usher in a new age of cost-free or low-cost marketing. Brands would "authentically" earn attention, and friends would see each other's likes and retweets, creating viral success for brands.

Fast forward to today, and marketers are struggling to figure out the value of their Facebook pages as engagement drops, and some are opting out of Facebook altogether, Meanwhile, the interaction rate with brand tweets stands at 0.07%, which is less than the current click rates for banner ads.

So, what have we learned from the brand marketing experiences on Facebook and Twitter?

Have marketers realized that in social channels controlled by consumers, brand messaging is so much less welcome than content from friends and family that it is impossible for most companies to earn attention, acquire new customers or generate marketing ROI?

Have we realized that, just like on the Web (where Adblocker is the most popular Chrome download) and on TV (where almost half of millennials now timeshift to improve convenience and skip ads), consumers in social media will ignore or actively reject most brand messaging?

Or maybe we have concluded that while it is possible to get consumers to click a "like" button in exchange for a discount, this cannot create a new brand relationship if over 90% of consumers do not agree it is fair for companies to collect information about them without their knowledge in exchange for a discount.

Is that what we have learned?

It does not seem so. The lesson marketers seem to have gleaned from the past few years is that something is wrong with Facebook and Twitter--they are boring and black-and-white--so let's instead shift our attention to the Technicolor world of Instagram! In the last couple of months, my email box and feeds have been full of hype for Instagram, and the justifications are exactly the same as they were for Facebook and Twitter back in 2010.

For example, "Why Your Business Needs an Instagram Account in 2015" contains no business justification whatsoever. The reason your business "needs" Instagram, the author argues, is because "Instagram is exploding," you can "get creative" and "show people what you do behind the scenes, not just what you're selling." Does any of this sound familiar to you? Remember in 2010 when Facebook was "exploding," brands could use it to "get creative" and the key to success was to "be human"?

In "A Three Step Guide to Winning at Instagram," the author never once suggests how to convert pretty pictures and likes into business wins (particularly on a social network that does not permit links within posts). Instead, it offers the same tired advice brands got about pictures on Facebook and Twitter: Image quality is everything; Consistency is key; Photography is aspirational. If those tips did not work in Facebook and Twitter, what would lead us to believe it will be any different on Instagram?

One analyst firm promoted its Instagram 2015 report by noting the social network offers "100 percent organic reach," unlike Facebook, "which inserted a paywall between brands and their communities." First, Instagram handles followers in the same way as Twitter, offering no filter or algorithm for the people following the brand, so there is no reason to think brands will not suffer the same fate on Instagram as on Twitter. Second, as we have learned on Twitter, there is no such thing as "100 percent organic reach"--the vast majority of posts on Twitter and Instagram are not seen by followers because they are ephemeral, disappearing rapidly in feeds that are not monitored 24/7. And lastly, what do we expect will happen as brand presence grows on Instagram, consumers become increasingly tired of brand content and Instagram improves and expands its pay offerings? Put simply, Instagram 2017 will look a lot like Twitter 2015--decreasing organic engagement, increasing costs for paid media and disappointed brands.

Will some brands succeed on Instagram? Sure, just as some have succeeded in Facebook or Twitter, but this has been the exception and not the rule, as there is little evidence brands are delivering marketing success on a widespread basis. Despite billions of dollars spent on content strategies, social media management platforms and engagement-building campaigns, the percentage of online sales attributable to social media in 2015 stands at a mere 1%, one point less than it was last year and more than 90% less than acquisition from email, CPC or affiliate sources.

Some will argue, as they did on last night's Beancast, that this sort of click-attribution is a poor measure of social value, and I would agree--if brands were earning significant levels of engagement. But in a world where Facebook Organic Zero is approaching and Twitter engagement is less than banner ads', what reason do we have to believe there are broad and unmeasured benefits in a channel where so few people see and engage with brands? (Case in point: As I type this, the past week's posts for McDonald's, which has 57 million fans on Facebook, each have earned fewer than 500 likes and 35 shares--one of the largest brands on Facebook is engaging 25% fewer people with each post than walk into a single of the company's 35,000 restaurant locations in an average day.)

As I have argued in the past, there is undoubtedly value in social for a select few brands in the right verticals or that have built the right customer relationships through actions, products and services, but too many brands are struggling to make themselves appealing and engaging on social networks when they have failed to do so in the real world. Distrusted brands with weak customer relationships that try to be interesting on Instagram will be like Oz frantically pulling levers to create distracting visual effects while demanding, "Pay no attention to that man behind the curtain!"
Pay no attention to that brand, er,
I mean man behind the curtain!

The signs are not difficult to read, and the future is not hard to see. We are a decade or more into the social era, and we know how it works. Instagram is sufficiently similar to Facebook and Twitter that expecting a different outcome is, as the saying goes, the definition of insanity.

Social media is a powerful platform for consumers. It can also be powerful for brands that unleash Word of Mouth and earn true advocacy with their products and services. But we now have too many years of social media experience to think that attractive pictures on Instagram will deliver marketing results outside of select niches. Heck, even some in the fashion industry, which recently honored Instagram's founder with an award, are beginning to question the impact of Instagram (and if hot models and stylish clothes snapped by the world's most experienced photographers may not deliver business results for style brands, what do you think your social team will accomplish?)

You want your brand to succeed in Instagram? Put down the camera and give your customers experiences they will want to capture and share. Or you can try to make your brand fascinating and creative in Instagram, but just remember--even the great and powerful Oz was smart enough to know he would eventually be discovered and keep an escape balloon at the ready.

Sunday, April 26, 2015

Google Glass Is Alive And About To Deliver A Digital Disruption Tidal Wave

photo credit: Friday is #GoogleGlass time
@kptotalhealth w @skram @wareflo

via photopin (license)
If you thought Google Glass was dead, you were wrong. Massimo Vian, CEO of Italian eyewear maker Luxottica, told shareholders it is working on a new version of the wearable.

If you thought Google had given up on Google Glass, you were not paying attention. While Google shut its Explorer program, it moved the development of Google Glass under Tony Fadell, head of Google’s Nest connected home division, “to make it ready for users.”

If you thought the poor reception for version 1.0 of Google Glass meant that internet-connected eyewear would never catch on, you are forgetting history. The tech era is littered with version 1.0 failures that were followed by enormous successes. The Apple MessagePad, a digital personal assistant launched on Apple's Newton platform, crashed and burned in 1998; nine years later, Apple released the first generation of the iPhone to great acclaim. Another example is the Tablet PC, which Microsoft launched in 2002 to meager adoption; eight years later the iPad would create a tablet revolution, and today the Surface is delivering its third straight quarter of profits for Microsoft.

I remain convinced Google (or Apple or someone else) will eventually develop digital eyewear that will enjoy strong adoption. Right now, many people react with some level of revulsion and suspicion to Google Glass (which is why the term "glasshole" has entered our lexicon); however, I remember the reaction I got in 1987 when I showed off the graphics on my new Atari 1040 PC. Or 1995 when I tried to convince friends the Internet was going to change the world (while waiting for a page of text to load through my Prodigy dialup connection). Or 2003 when I pulled out my Palm Treo to access Wikipedia in order to end an argument with friends over which artist released a song.

As an individual with a long history of early adoption or fast following, I can attest to the strong visceral negative reaction many have to evolutions in technology, and the initial backlash to Google Glass was no different. But if the past three decades teaches us anything, it is that humans find a way to overcome their doubts and rapidly embrace new technologies once they can see and understand the benefits.

Who knows what connected eyewear experiences will knock down that wall of aversion that Google Glass still faces. Maybe you will be missing friends' conversations while trying to get a game update on your phone when the person next to you, who was an active part of the conversation, suddenly announces, "Hey, the Packers just won." Or maybe you will embarrass yourself at a crowded industry event by not remembering names, only to have the Google Glass-wearing woman next to you greet everyone on a first name basis. Or perhaps you will miss an emergency text from your children's school because your phone is off for an important meeting while the guy across the conference table gets vital updates without breaking eye contact.

Just as people who once mocked PCs as expensive toys soon found a way to budget $1500 for a 486 PC or the folks who relentless ribbed their Crackberry friends stood in line for an iPhone, the people who today say they would not be caught dead wearing Google Glass will crack. It will happen as the hardware improves, as software evolves, as benefits become evident and as more people make the switch. It will not happen next year, but it will happen--and when it does, retail and product brands face a reckoning.

One of the interesting effects of the march of technology from TVs to PCs to Internet to mobile to wearables is that each turn of the tech screw brings greater personalization and customization to our world. We used to watch the same three networks at exactly the same time; then we had greater access to the information we prefer via Internet-connected PCs; and today we use apps like Flipboard and Netflix to see just the news and entertainment we want to see.

We moved from three networks to 1 billion websites and over 1 million apps, but today there remains one "channel" where we all see the same thing--the real world. Our interpretation may be different, but a walk down the aisle of Target looks the same to you as to me. Not only is the physical shopping experience the same for everyone, it also has changed little over time--while the brands, packaging and shopper marketing strategies have changed over the decades, the essential experience of shopping in the real world remains largely the same as decades ago.

All of that changes once we adopt digital eyewear. Suddenly, the real world can be as unique and differentiated as our digital worlds. Google Glass or other high-tech eyewear will turn the sameness of the store aisle into a rich and informative view of the things that matter to you.

Do you care about brands that employ union labor? Do you prefer to spend your money with companies that furnish living wages? How about brands that avoid testing on animals? Companies that have made positive changes toward sustainability? Would you rather avoid ones that shift profits overseas to avoid paying the US taxes? Think of how helpful it would be if an app visually highlighted the top-rated products on the shelf. Or maybe you just want the lowest price net of coupons available online. (Who has the time to check ten competitive products for coupons on RetailMeNot? Your Google Glass does!)

If you think Amazon is a daunting competitor today, imagine what it could do in the future with digital eyewear. Amazon Eye (a not-yet-trademarked name I just invented) can instantaneously price every product you look at in the store aisle. Should you prefer the price you see on Amazon, simply say "Add to prime," and Amazon will have the product waiting for you by the time you get home, delivered via Amazon Now or Amazon Prime Air drone delivery. Connected eyewear will bring a new wave of showrooming, forcing bricks-and-mortar stores to find new and better ways to compete.

Let's not forget collaborative economy models in the era of connected eyewear. What happens when you look at a new lawnmower or four-person camping tent and your Google Glass points out you can rent them from a neighbor or friend for $6 a day rather than spend $199 to own the item? How will the availability of items to borrow or rent, made evident in real-time via Google Glass, alter the consideration and purchase of durable goods?

Overnight, what brands print on their packaging and even what they say in their advertising will become less relevant. In the same way consumers have splintered their media consumption in the living room, so too will store aisles face the same splintering, thanks to Internet-connected eyewear that knows and reflects the unique preferences of each wearer.

Is your brand prepared to compete for attention and preference on price, labor practices, sustainability policies, corporate accounting practices and quality--simultaneously? Of course not; no brand can be all things to all people. The future of digital eyewear means brands must focus Customer Experience efforts even more on the needs of unique audiences, being careful to set the right mix of price, purpose, quality and corporate behaviors that appeal to sufficient numbers of consumers.

We talk a lot about digital disruption nowadays, and many companies have gained some comfort in their ability to innovate, adapt and evolve, but we should not forget that wearables, the Internet of Things and collaborative consumption will bring a new wave of disruption in the next fifteen years. The way consumers become aware of, consider and purchase brands will be as different in 2030 as today's customer purchase journeys are different from 2000. In fact, as the pace of change is always increasing, the evolutions will be even greater in the next fifteen years than the past fifteen.

Mock Google Glass 2.0 and those who wear them all you want, but someday soon wearables will bring to the physical world the same instant, proactive, personalized access to information and functionality that we have come to expect on our phones, tablets and PCs. The term Glasshole will soon seem as quaint and dated as the word Crackberry, and the people and brands who see the Google Glass half empty will be left behind to those that prepare for a world Glass-ful.

Monday, April 13, 2015

Killing Unicorns--Putting Sky-High Startup Valuations Into Perspective

photo credit: Unicorn Silly Bandz Unicorn Macros
July 09, 20102
via photopin (license)
We have all seen statements such as "Uber is worth four times more than Hertz, and it doesn't own a single car." While there is a kernel of truth to this statement--Uber's latest round valued the company at $40B while Hertz's current market capitalization is $10B--the difference between startup valuations (so-called "unicorns" with valuations of $1 billion or more) and publicly held companies' market capitalization is so profound that the two are hardly comparable. Understanding the distinction is vital if we want to cut through hype, understand risk and assess the market changes underway.

It Is Important To Put The Hype Into Proper Perspective

To be clear, I am a big fan of digital, mobile, Internet of Things (IoT), big data and collaborative economy opportunities, and I believe they will continue to grow and challenge traditional forms of business. That does not mean, however, that I believe every startup will win or that VC valuation decisions are a valid yardstick for comparing financial worth between VC-funded firms and public corporations.

While the hype around new these nascent businesses can benefit established firms by forcing them to take notice, it can also hurt by setting unrealistic expectations. Back in the dot-com era, established companies were spooked by all the e-commerce hype and leapt without considering the hard work and long road ahead.

In the late 90s, the buzz about Silicon Valley valuations and the focus on gaining new users rather than revenue models created an environment for silly decisions. Acting fast was more important than devising the right strategy; having a website was the goal rather than retooling the organization for a digital world; and patience was in short supply. When companies' new ecommerce programs did not instantly deliver profits, many companies diminished investment in digital efforts, only to reinvest years later to match growing consumer demands and competitive threats. Some firms even opted out of the ecommerce race altogether--Borders sealed its fate when the company got frustrated with dot-com losses and turned over its soon-to-be-vital online business to Amazon.

Valuation hype encourages short-term rather than strategic thinking. How can it not as headlines continue to trumpet Uber's rise from $60 million in 2011 to $300 million later in 2011 to $3.5 billion in 2013 to $17 billion early in 2014 to $41 billion before the end of 2014? That means from February 2011 to December 2014, Uber increased its valuation by almost $30 million per day. There's gold in them thar hills, and just like every other gold rush, there will be more losers than winners.

This is why a more sober view of IoT, big data, mobile and sharing economy opportunities would be beneficial. Established companies need to be less impressed with billion-dollar valuations and more concerned with consumers' changing habits around media consumption, mobile adoption, wearables and collaborative consumption. While Uber's, Slack's, Snapchat's and Sprinklr's $1 billion+ valuations make it seem the brass ring can be snagged on the next turn of the merry-go-round, the fact is that real, defensible, consistent success will require years of hard work for these companies--and yours.

Startup Valuations And Corporate Market Caps Are Fundamentally Different

Both startup valuations and publicly held companies' market capitalizations begin with a dollar sign. Beyond that, the two have little in common.

Market cap is set by millions of investors buying and selling shares in an open market based on information the company publishes adhering to stringent SEC rules that ensure a fair marketplace. You can find a company's market cap on any finance site (Apple's is $740 billion), or you may easily compute it yourself using public data (Apple's share price of $127.10 multiplied by its 5.82 billion shares outstanding).

Startup valuations are set by a much different process--secret backroom deals between a very small number of parties. The company and its VC partners do not make their negotiations, financial information or terms of the deal public. In fact, even the valuations themselves are not really part of public record but instead are announced (or not) by the parties involved.

The differences between the two are evident:
  • Value determination: Market caps are set by a vigorous marketplace that is as close to an economically "perfect market" as exists on the planet. On an average day, investors buy and sell 48.5 million shares of Apple stock, and this is the mechanism that determines the corporation's value (or market cap). Startup valuations are set behind closed doors based on the evaluations of a small number of deep-pocket venture capitalists, and unlike liquid shares of stock, once the funding round is complete, startup investors have limited and complicated ways in which to divest themselves of their investment.
  • Available information: You and I may come to a different decision as to the future opportunities for a publicly held corporation, but by law, we both must have access to the same information disseminated by the company. Thanks to SEC filings and annual reports, we can see the same detailed information about company performance, from revenue to profit/loss and even management's assessment of potential risks. For example, in Facebook's recent 10-K filing, it acknowledges, "We believe that some of our users, particularly our younger users, are aware of and actively engaging with other products and services similar to, or as a substitute for, Facebook." Compare that to what we know of Airbnb's and Uber's performance, growth, risks and management assessment (which is, essentially, nothing).
  • Performance history: Another obvious difference is that publicly held companies generally have well-established business models that demonstrate a track record. By comparison, the business models of startups are new, untested and evolving rapidly. We know Uber for its ride-sharing service, but the company is also testing new ideas like UberRush, a package delivery service, and UberFresh, a Seamless competitor for food delivery. Whether these two services catch on and produce profits is uncertain, but it is apparent Uber is still figuring out its business model.
  • Known versus unknown risks: Along with more performance history comes a strong sense of the known risks faced by publicly held companies. While established companies face new laws and lawsuits every day, leaders and shareholders understand the type of legal risks the company faces. In comparison, the risks inherent with startups like Uber and Airbnb are poorly understood and rapidly developing. From labor laws to legal liability to taxation to compliance with state and local regulation, the future profitability and growth of these startups is less certain due to the unknown risks.
  • Special deals: The final reason public corporations' market caps are profoundly different than startup valuations is that VC firms don't invest millions (or hundreds of millions) without negotiating special conditions to protect their interests. According to Bloomberg, startups offer incentives for big-number late-round investments, such as guarantees that the VCs will get their money back first if the company sells or will earn additional free shares if a subsequent round's valuation is less favorable. By contrast, an individual shareholder in a corporation cannot ask for special consideration outside of rare special circumstances, such as when one accumulates a significant portion of shares (Carl Icahn forced Ebay to consider splitting Paypal from the rest of the company) or bands together with other activist shareholders (such as when the Humane Society attempts to force a change in Kraft policies by engaging shareholders via SEC filing.) 

Bombs Versus Screen Passes--The Risk/Reward Continuum

The mechanisms, information, marketplace and bargaining power of parties is profoundly different for the funding rounds that determine startup valuations than for the stock market that determines corporations' market caps, but it all comes down to one thing: Risk.

Headlines about startup valuations promote just one concept--value--while ignoring the other equally important attribute that drives all investing and pricing decisions--risk. To simply compare the (supposed) value of two wildly different organizations (or any dissimilar assets) without also considering questions of risk makes the two dollar amounts seem equivalent, but they are far from it.

To draw an analogy from the world of football, the average screen pass earns a little over 5 yards per attempt while a "bomb" pass attempt delivers an average 12-yard gain. Given this data point, why do teams ever run or throw for short yardage when each deep pass averages a first down? The answer, of course, is risk--a long pass is a low percentage play, so even though the average completion delivers over 50 yards for the offense, fewer than one in four passes of 40 yards or more are completed. By comparison, the completion rate for screen passes is 79%.

Football coaches do not assess the relative value of one play over another based solely on average yardage. This is why teams tend to stick to higher percentage and safer short plays most of the time, turning to the more risky, lower-percentage plays when they trail late in the game.

In the same way, venture capital firms are in the business of making lower-percentage, high-risk investments with the hope that, across a wide portfolio of similar long-shot investments, a few will pay off handsomely, even though most will fail. In fact, just like deep passes in football, three out of four startups fail. Meanwhile, like a screen pass, an investment in a NYSE listed stock may not yield spectacular gains, but it is not likely to fail outright, either.

The Unicorn Population Explosion And What's Ahead

In times when money is cheap, a great deal of cash gets invested into innovative startups, elevating valuations and making headlines. Once money gets tighter, as it inevitably does, many of those startups suffer.

We saw this back in the dot-com era, when firms like Webvan were briefly valued at over $1 billion--what we today label a "unicorn"--before going under within a year. They were hardly made a splashy IPO in 1999 and liquidated just 268 days later, and eighteen months after eToys was valued at more than $8 billion, KB Toys bought its intellectual assets for just $3.4 million. Even the companies we know today as successes took an enormous hit when the dot-com bubble burst--Amazon lost more than 80% of its market cap from 1999 to 2001 and required six more years to return to its pre-crash value.

Today, cheap money is again flowing into startups. Business Insides notes that, "The use of the term 'unicorn' began with a blog from investor Aileen Lee of Cowboy Ventures in late 2013, when there were just 39 of the creatures and an average of four 'born' each year. The number created in 2014 rose to 38, according to CB Ventures."

Some say today's VC investments are different from those during the dot-com hysteria; that today's valuations are more justified and less risky. There may be some evidence they are correct. Collaborative startups such as Uber and Airbnb have business models (and probably even net income) in a way that many of the startups in 1999 did not. Still, other unicorns have a long way to go--Snapchat's last funding round valued the company at $15 billion (a 50% increase from nine months earlier) despite the fact the company was rumored to have virtually no revenue (much less profit) prior to launching its untested advertising program this year.

While established firms worry about competition from the startups, the startups themselves also have some unique competitive threats. Many folks who watch the collaborative economy space love to crow how the collaborative economy firms have established huge valuations despite owning virtually no assets. They are correct--Airbnb owns no rooms yet soon will rent more rooms than the world's largest hotel chains, and Uber owns no cars and is about to overtake taxis, limos and airport shuttles in the expense accounts of American business travelers--but this may be as much a problem as a benefit. Owning few assets allows for incredible leverage of cash, but it also means that barriers to entry and customer switching costs are incredibly low, as well.

Airbnb and Uber excel at providing a terrific customer experience, so neither is in imminent danger from competitors, but we should not forget that Myspace was once praised in the same way as today's collaborative startups. Insiders used to point out Myspace created and paid for no media, unlike the NY Times or NBC. Just like today's collaborative startups, Myspace enjoyed extreme leverage on its assets because consumers created content for each other at no cost to Myspace, and just like today's startups, Myspace owned nothing and had low barriers to entry, so it could not stem the loss of users once Facebook attracted critical mass.

It is hard to imagine the same thing happening to Airbnb or Uber, but then it was impossible to foresee that Myspace would crash when, in 2006, it surpassed Google as the most visited website in the United States. In fact, compared to the challenges of creating a profile and moving your entire social graph from Myspace to Facebook, the ease of installing a new app on your phone to order a car or reserve a room seems like child's play.

Social Media stocks vs. NASDAQ, YTD
So what is ahead for these startups? Silicon Valley analysts are voicing concern, and we have already seen some newer firms stumble. As recently as 2013, Fab was valued at nearly $1 billion, but in March, the remains of Fab were acquired for just $15 million. Meanwhile, I have been tracking the performance of a dozen US social media stocks that are post-IPO, and in 2014 they under-performed the market. Thus far in 2015, that trend has continued--NASDAQ is up 5.7% as of April 11 while a portfolio of social stocks (including Facebook, Twitter, Marketo, Jive, LinkedIn, Zynga, HomeAway and Groupon) is up just 0.5%.

Becoming A Unicorn Is Not A Reward--It's A Challenge

We would all be better off if we viewed billion-dollar valuations not as accomplishments but as challenges. Having a VC with an appetite for high risk assess your company at $1 billion is one thing, but it is quite another to reach a future state where that valuation is justified in a transparent and open market based on mature and recurring profitability.

Today, growth, opportunity, optimism and high risk propensity are driving startups' valuations, but in a few years--after the VCs claim their return and the firms go public--these companies' values will be determined more by stable business models as measured by revenue and net income. For Uber to justify its $40B valuation, it must someday deliver a stable or growing bottom line of between $1 billion and $2 billion.

If we all kept startup valuations in the right perspective, it would help us to appreciate the hard work ahead, both for firms like Uber and Airbnb, but also for our own companies. Ecommerce hype elevated startup values in the dot-com era and caused many companies to act out of panic, yet it has taken 15 long years for ecommerce to account for just 7% of total US retail sales.

Just as Kodak, Borders, Circuit City and others lost out by not acting quickly enough, your firm needs to establish its strategy in mobile, IoT, big data and collaborative economy business models sooner rather than later. But be careful not to buy into the hype so much that you think acting fast will deliver rapid bottom-line results. The future is here, but it will not drive your business results for many years.