September 17, 2015
There is a fundamental division at the heart of the digital economy. Digital tools make it possible for any company to build a direct relationship with its customers. At the same time, new digital intermediaries can use the same digital tools to create unprecedented intermediary roles. Torn between two lovers, anyone?
We’re in the age of the customer, a period during which end consumers have more access to the basic economic resources that help them make more rational and empowered decisions. The theory of perfect competition dictates that market economies flourish best on a foundation of perfect information that enables perfectly rational actors. The digital technologies we all carry in our pockets — not to mention, have surrounding us in our cars, our homes, and even strapped to our bodies — have initiated a chain reaction, unleashing an unprecedented level of information, which has enabled us — if we choose to accept our mission — to behave like much more rational actors than ever before. (Caveat lector, I didn’t say “perfectly rational” for a reason. See our research on how humans make choices to understand more.)
The more those technologies spread, the more buyers and sellers enter the system, the more innovation there is — at lower cost, thanks to the economics of digital disruption – and the spiral feeds itself.
These fortuitous economics apply to both brands and their intermediaries. In a recent report for Forrester I wrote about the rise of the newest wave of digital intermediaries, these powerful entities have exploited the disruptive technologies of mobile, big data, cloud, and, soon, predictive analytics, to rapidly amass unprecedented power. Uber, Airbnb, and other poster-child startups have achieved powerful intermediary roles. As I said on the mainstage at Dreamforce 2015 this week, six-year-old WhatsApp has 900 million monthly users and is using that intermediary power to enable businesses to connect with each other and with their customers.
However, this rise is happening in the exact moment when brands are finally taking courage to build their own direct relationships with customers. Mattel was featured in the Salesforce Marketing Cloud Keynote this week at Dreamforce 2015. This is a toymaker, pulling its Hot Wheels, Barbie, and Fisher Price customers into digital relationships — apps and content experiences — that connect customers more fully to the brand, especially those who buy from Mattel’s own digital channels.
This leads to the tension: Which of the many companies that could claim a relationship with the toy buyer or the toy user has the most natural path to inviting the customer to engage in that digital relationship? Is it the manufacturer Mattel, or is it a retailer like Amazon? Or is it some other digital intermediary that will offer mixed-reality game play experiences in the home using Mattel’s toys? This could be Microsoft, it could be Samsung, or a company that doesn’t exist yet. The rise of digital intermediaries has only just begun.
My colleague Sucharita Mulpuru and I recently wrote a piece that tees up this question perfectly. We took up the question of the Amazon Dash Button, which is something we quite seriously named the “best bad idea of 2015.” When it was introduced on the eve of April Fool’s Day, 2015, some thought it was a joke. But it’s no laughing matter. More than 500 products from 29 brands can now be ordered at the touch of a button in the moment a customer realizes a refill is needed. Brands like Clorox have a dilemma: Here they have a branded button sitting in a customer’s pantry. But the data flows back to Amazon, not to Clorox (though, we assume that there is some aggregate data sharing on the back end). Clorox doesn’t know if James has a Dash Button and how often he pushes it. That’s an untenable situation for Clorox in the long run.
That’s the division at the core of the digital economy. It will be a race to see who can get the deepest digital relationship the fastest and then what they can use that relationship to accomplish. We’ll be covering this race into 2016 and beyond because the implications of this division will have lasting effects on how a company approaches its business technology (BT) agenda. Would a fast-moving consumer goods company invest in a real-time big data solution? Absolutely. Will a home goods manufacturer need to build sensors into products to better understand and serve the buyers of small appliances and even furniture? Guaranteed.
Welcome, CMO, to the principal split that will shape the rest of your career!
James McQuivey, Ph.D., is a vice president and principal analyst at Forrester. He is also the author of the book Digital Disruption. He does not yet have an Amazon Dash Button for Clorox wipes but is considering it!