Unblocked

by Alison McCauley

  Throwing the proverbial baby out with the bathwater

  Many of the early teams are technology-driven. In these early days, that’s essential. But I’ve talked to many that understood only part of the pain they were solving for potential customers, or didn’t have a full understanding of the business hurdles that they would need to overcome to bring their vision to life. These teams will fail. But studying their model, and understanding their points of failure (and what they did get right), is an incredible opportunity to give more clarity and confidence to your own journey in the space. And perhaps you may come across a player that, in “my chocolate and your peanut butter” style, has what you lack in a way that fits perfectly with what you, as a partner or investor, can provide.

  Not considering how quickly an established player could move

  An established brand with a large customer base could develop their own token off an existing protocol that has been optimized for their space, or even leverage a token that has already established traction elsewhere. If effectively leveraged, either approach can enable them to move very quickly. Their brand could lend legitimacy to the use of a token for compensation, build consumer comfort with the idea of cryptoassets, and spark an uptick in adoption. If you are the right brand, consider these strategies yourself, and if you are not, think through the potential impact of others making this move, and how you might be able to leverage a development like this to your advantage.

  The inherent portability of tokens

  Tokens—like any form of money—are perceived as valuable when they can be used for the exchange of desired goods and services. The success of newly developed tokens hinges on many factors, but a key driver is the ecosystem of places they can be used to purchase or trade for things of value. The foundations that govern these tokens are motivated to develop a rich ecosystem for them. In simple terms, the more decentralized a token—the more places it can be spent—the more vibrant its economy and useful it is. This means that successful tokens are also portable. They can be earned in one place and spent in another, and the team that developed them doesn’t always have control on how that all goes down, nor do you.

  This portability, and the potential conversion of all tokens into traditional currency, will intersect with our psychology in a way we can only guess. We have never seen this phenomenon in the wild, at least at mass adoption scale. Harvard Business School professor Thales S. Teixeira points out that content gated by even small, seemingly insignificant payments will give a consumer pause. Even if the value of their time is much higher, says Thales, consumers will take the extra time to find content elsewhere for free instead of paying a few cents for it.112

  If tokens are perceived as a kind of useful monopoly money that lives and breathes outside of their normal economy, consumers may spend them freely. As they realize they can be converted to cold, hard cash it may impact behavior, at least until they develop new habits. Watch carefully—there is still a lot to learn about how we will behave in this new world.

  Considerations

  Understand what customers’ contribution means to your business

  Get a head start on understanding the true business value of what customers are giving you freely today. We are in the infancy of the complex practice of assigning a value to both data and content, and the nuances behind it (such as how the influence of the contributor can impact value). People value different kinds of contribution in different ways, and there will be important demographic differences that need to be understood. Exploring these questions early will give you more clarity to determine where compensation supports your business model and where it doesn’t. While much value will be difficult to quantify, you can map relative value to drive focus on what kind of contribution is the most valuable to your business.

  Practice by studying an area that is more tangibly quantified. For example, if you have an online community, you can examine how to attribute value to the answers that community members give to each other’s questions. For example, quantify the cost savings of not having to answer the question with internal staff, and the value of capturing question-response that may have never even been presented through formal channels. Account also for the networked value of the answers—the value of making the answer available to the community forever. Assessments will not be exact, but they will offer directional insight.

  Take a baseline of your customers’ current mindset

  Take the opportunity in this early stage to establish a baseline understanding of how customers perceive the value of what they are giving to you today. Where do they assign value, and where are they disillusioned with you or others in your space? This will help you not only find gaps between what your customers feel they are giving and what they are getting, but also be more attuned to changes in this baseline as the space evolves. Also work to understand and track your customers’ perceptions of cryptoassets over time, as they evolve.

  Find your early adopters and collaborate with them

  Identify segments of your customer base that are early adopters of cryptoassets and most likely to be early adopters of competitive alternatives, and bring them into the fold. Research them. Ideate on how to work with them. Collaborate with them to identify insights for how you could leverage the shift before it becomes mainstream.

  Find ways to experiment—and learn—early

  Grow your knowledge of how different segments within your customer base respond to compensation by experimenting with various approaches, whether blockchain-driven or not. Consider:

  Generating ideas to pilot or trial compensation models that aren’t driven by cryptoassets or blockchains (and thus can be executed more immediately) for certain segments of your customer base. You’ll learn how they respond and how you need to structure internally to be able to accommodate a compensation model, even before your customer base is comfortable with cryptoassets. Social media players Kik and YouNow, for example, experimented in this way with virtual currency trials on their platforms as a precursor to designing tokens.

  Run a campaign with a complementary partner once they start to gain traction for their token. This could be a campaign that targets your customers who are already using their application or platform, or that encourages their customers to interface with yours.

  Consider an even deeper collaboration through investment or formal partnership with an early player whose target audience intersects with yours, and use their platform, application, and token to gain deeper learnings on how your audience responds.

  Examples

  The blockchain space provides a rich set of case studies in this dimension. Time will tell if they will work out in the long run, but right now, here are a few projects chosen to whet your appetite for what’s to come.

  Steemit: Compensation for Contribution

  Steemit at first looks like a crypto-centric Reddit. But dig under the covers, and it reveals a thoughtfully developed infrastructure for applications and platforms to compensate contributors for content deemed valuable by a community. Compensation comes in the form of token STEEM, which is also listed on several exchanges and readily tradable. Steemit.com is a first use case, but the protocol and token have also been used for other applications as well, including a YouTube-like site, DTube.

  CEO Ned Scott sees a “tokenized internet” as a solution to problems endemic to media today. “Print is dying; ad integration is inefficient, distracting, and generally unwanted by consumers,” he said. “It’s led to a widespread battle to monetize content. And we’ve made this monetization easy.”113

  The team gives the analogy of a game system where users compete for attention and rewards by bringing content and adding value to the platform. Governance has been designed to encourage long-term investment in the platform, and the company emphasizes that Steemit is not a “get rich quick” scheme. Most of the authors that are earning high rewards have spent a lot of time in the network building followings, making connections with others, and developing a reputation for b
ringing high-quality content.

  Steemit is launching what they call “smart media tokens,” or SMTs, that could allow any social network to reward contributors with tokens for the value they create on a network. The tokens can be private labeled and integrated with a website. Ned envisions SMTs as “an inexpensive, user-friendly, secure way for mainstream businesses to leverage blockchain and cryptocurrency technology without being blockchain experts.”114

  Brave: Get Paid to Browse

  Brendan Eich is the creator of JavaScript and cofounded Mozilla. Now, he is the CEO of blockchain-based Brave, a company on a mission to “fix the web” by attacking each layer of inefficiency in the browser ecosystem. This new model was designed to deliver more to all the players in this ecosystem—except the middlemen that today take more than half the revenue. They’ve been eliminated. Both advertisers and publishers get more value, and consumers get compensation for their contribution—whether that contribution is data or attention.

  But users also get an immediate benefit in the form of a browser that is safer and faster. Today’s browsers take much longer than they could, as ads and trackers slow down the loading of sites. CNN takes an average of 84 seconds. CBS News takes 45 seconds. On blockchain-based Brave, CNN and CBS take 12 and 16 seconds, respectively, by blocking these ads and trackers (which can number in the dozens, and can introduce risk of malware, known as malvertising). Then, users can decide if they will let ads back in—for compensation in the form of BAT tokens. Publishers get a better deal by going direct, and users get a share of the ad revenue in exchange for their attention. Users are also promised fewer, more relevant ads through machine learning algorithms that match ads to user interests.

  Brave uses zero knowledge proof, which means that ads can be verified as delivered without identifying the actual user. In other words, users can remain anonymous to the advertisers, publishers, and any other member of the ecosystem but still earn compensation for their actions.

  “We have a horrendous problem with ad clutter,” Brendan explains. “It’s not just annoying, it’s not just slow. It’s kind of creepy how it tracks you around the web and promotes things to you. You would hope you’d have some protection for your browser—they should protect you, they are your agent. Unfortunately the top browsers, most of them anyway, have a conflict of interest. They are either directly or indirectly dependent on advertising.”

  Brendan continues, “Too many parties are taking a cut, so there is less and less for the publishers. You should get a cut—your attention costs something. Right now it is priced at zero and you get annoyances, and risk . . . Imagine a world where you have your own dossier—it’s your online life, it should be your data. If you own it, then you can give terms of service to the big network superpowers, the walled gardens, and the giant companies.”115

  Chapter 9. ALIGNED INCENTIVES

  “There is no influence like the influence of habit.”

  Gilbert Parker

  Summary

  Blockchains and tokens unleash a powerful new incentive structure that could evolve to craft near-perfect alignment between action and reward. They could become a key tool for capturing attention and shaping behavior. But they also give new power to the crowd, which will, in turn, influence the shape of business.

  Tokens are a flexible, high-fidelity incentive mechanism that could be used to shape and reward behavior. Companies will eventually learn how to use tokens to align interests, but it is a two-way equation: the community will also learn they can shape the business.

  Tokens have the potential to be leveraged creatively to drive engagement, and could solve some of the most challenging problems facing marketing executives. But tokens will be most interesting when used to motivate an entire community to contribute to advancing a product, a business, or a mission—or as a mechanism for aligning the interests of various parties within an ecosystem.

  In fact, by their very nature, successful tokens don’t live in silos—they break the boundaries of brand and business. Businesses that want to leverage these tokens will find it demands a shift in how they think about success and will require new kinds of collaboration.

  The Setting

  The Steady Extinction of the Loyal Customer

  Winning the attention, engagement, and loyalty of today’s consumers is a continual and difficult battle for marketers. Consider shopping as a microcosm of new digitally driven consumer behavior. The internet, social, and mobile have made “shopping around” habitual. Looking through the lens of search data, Google reports that not only have mobile searches for “best” grown over 80% in the past two years, but there has also been higher growth among “low-consideration” products (apparel, beauty, personal care, dining, food and groceries, occasions and gifts, retailers and general merchandise) than “high-consideration” products (business and industrial, consumer electronics, finance, real estate, travel, vehicles).116 This indicates consumers are reconsidering brand choices more habitually and more frequently, even for smaller items of less consequence.

  The internet, social, and mobile have made “shopping around” habitual.

  Consultancy McKinsey found that not only was loyalty ephemeral, but consumers frequently switched brands once they decided to shop. In a recent report, a full 87% of consumers shopped around and just 13% (in the categories studied) were “loyalists.” And after shopping around, a full 58% ended up switching brands. When they dug deeper, the report continues, McKinsey discovered how vital it is to be included in the set of brands that first come to a consumer’s mind when he or she is triggered to make a purchase decision. Nearly 70% of the brands purchased by consumers who made a switch were part of these consumers’ initial consideration set when they started shopping.117

  These studies show the importance of being everywhere, all the time. But earning initial consideration goes well beyond simple brand name awareness. Shoppers need to have a clear understanding of benefits and value. That means robust and authentic content that elevates products, and brands must dominate not only media channels but social networks as well (especially for millennials, who heavily leverage social media for feedback on buying decisions).

  Being Heard Is Harder Than Ever

  At the same time, the marketer’s arsenal is losing potency. While there may be more options to reach a target audience than ever before, it has never been more difficult to earn the attention and engagement of consumers.

  Harvard Business School professor Thales S. Teixeira studies the “Economics of Attention.” Professor Teixeira defines attention as the allocation of mental resources, visual or cognitive, to visible or conceptual objects. Of course, before consumers can absorb advertising or other forms of brand messages, they first need to be paying attention. I recently spoke with Thales about his research.

  “The quality of consumer attention has been falling for decades,” Thales explained. “Consumers have lost interest in the information content of ads because they can access more and better information on-demand. So, the supply of attention has gone down, while at the same time the number of companies and brands advertising has increased. It’s a simple law of economics—when demand goes up in relation to supply, the price goes up.”

  He continues, “The net result for the CMO is that the cost of attention has been rising. In fact, even after accounting for inflation, it’s a seven- to nine-fold increase. That is the biggest increase companies are facing—bigger than wages, health care, and insurance.”118 Figure 9-1 illustrates this trend.119

  Studies have shown that consumers are exposed to thousands of brand messages a day and switch screens over 20 times an hour. Meanwhile, they are becoming incredibly adept at filtering out what they don’t want to see, and more savvy about completely blocking ads altogether. Millennials in particular have developed what seems almost like an evolutionary feature that imbues them with the power of selective filtering to curate their digital-world experience in real time.

  Figure 9-1. The rising price of atte
ntion. (Source: Thales S. Teixeira, www.economicsofattention.com.)

  New Tools Haven’t Always Driven ROI

  New engagement channels that seem promising at first often are hard to leverage effectively. For example, take a look at mobile apps. In 2013, the Chair of the General Management Program at Harvard Business School, Sunil Gupta, declared apps “the best way to win the hearts and minds of mobile consumers.”120 And many brands invested heavily in apps, often encouraged by agencies that saw an exciting new revenue stream in the work of creating these resource-intensive digital interfaces.

  Fast-forward a few years, and few brands have been able to crack the code to drive ongoing engagement through mobile apps. In fact, the majority of users (51%) download no apps over a month. Smartphone users spend half their time on a single, top-used app, and spend nearly the entirety of their app time in just 10.121 So, while apps are indeed an important part of consumers’ digital experience, it’s very difficult for a brand to earn the position as one of the few that they actually use.

  Over a hundred years ago, department store founder and marketing pioneer John Wanamaker declared, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” Back then, there were very few channels to reach consumers. Now, the marketing landscape is a stunningly complex and ever-changing kaleidoscope of options. Channels that didn’t exist a few years ago—native advertising, flavor-of-the-year social platforms, and in-app advertising—now contribute to the fragmentation of marketing team attention and budgets. Even with their tracking tools, analytics, and in-house data scientists, marketers are still guessing. They still can’t be sure what they do is actually driving the behaviors they want.