The Next Version of the Internet

This is an effort to organize and clarify my personal thoughts on the next stage of the web. This initial article is a high level overview; the next few articles will deal with specific areas like retail, entertainment, banking, education, etc. I believe we are moving in this direction fast and already have most of the technology needed to execute this new vision of the Internet. To be clear, I’m not remotely the first person to think this way, so you may have run across these concepts before. Would love any feedback on where you think things are going.

 

The Next Internet

I believe that the Oculus launch has effectively spawned what will become the next version of the Internet. And games like Second Life foreshadowed it. Currently we access the web through a flat monitor that conveys a 2D world on a small screen in front of our faces. We ignore everything around us and use what I believe to be primitive (non-native) actions to affect changes into that world (the keyboard, the mouse, and even the finger swipe, although it is closer to natural).

The next version of the web will be a 3D world that effectively replicates and hopefully improves upon reality. At a high level, I think we’ll login through goggles (like Oculus), using our irises and likely wear apparel loaded with sensors to give us a natural feeling of being in a new world. There is the possibility that cameras (like we current game with) could convey movement and action into the world, but (as I discuss below) they would miss out on critical details, so I don’t think they are the best solution. In this world you would be depicted as an Avatar of your choosing and would interact with the Avatars of other humans and bots. Oculus is starting with movies and games, but someone is probably now working on a live world that allows you to move, interact and transact with other humans, bots and businesses. Once this is launched, people have computers strong enough to login to it, and it functions well, I think the current 2D web will become a ghost town. Why? Being in a virtual reality world feels more real, more natural than our current web experience. It is paradoxically, more innately human than our current ways of going online. The transition is unlikely to go slow after it catches on.

This new version of the internet would solve lots of issues while creating as many new problems. At a high level, it would enable us to interact in a personal way with others, bringing us back to conversations instead of text and, if the system is sensitive enough, would allow body language and facial expressions to function much as they do in the real world. On the negative side, we have to figure out ways to differentiate reality from a 3D world that functions in most of the ways you need (both will be forms of reality). It has to be materially different in order for our minds to continue separating our physical lives from our online lives. In some ways, the new internet would replace reality, but in others it would be very dangerous to mix the two; e.g. you can theoretically be protected from or live through a fatal fall online, but you can’t IRL.

 

AOL surges back

AOL was the introduction to the web for many a Gen Xer. It was a safe, contained space that allowed you to explore controlled content and slowly figure out how to use and benefit from the internet. I believe that one company will create the next version of the internet. Facebook/Oculus seems like an obvious choice with an advantage, but it is not a foregone conclusion that they do it. This world will be more like AOL in that it will launch as an effective monopoly over the new internet.

This is not only likely, it’s necessary. Rules will need to be established that determine how we can act in this new space. Change is likely to be rapid and someone needs to have enough control to adjust the rules or rewrite them as needed. Avatars will be created and have to be depicted within the world. And trillions of interactions will have to be managed within this cloud space. I think the initial direction of this new world is likely to be heavily influenced by whomever creates it. If a gaming company creates it (which is an obvious possibility since they have lots of experience with MMORPG), it’s likely to allow combat and death of Avatar. If Facebook launches it, it’s likely to start focused on personal connections and relationships, maybe even with inAvatar chat rooms. But no matter the start, it will quickly move to encompass what humans enjoy and want to accomplish.

The initial rules should be somewhat related to the laws of physics (you can’t walk through walls), but with critical exceptions (ability to instantly move to another place).

 

Conceptual Ideas

Several ideas have floated around suggesting organizing concepts. Early concepts suggested the idea of rooms or buildings that you move between in a ‘telepathic’ way. In Snow Crash, Neal Stephenson imagined a long, long street. In Ready Player One, Ernest Cline imagines a planetary concept. The key is creating a theme that can expand rapidly, accept a multitude of cultures and goals, and quickly be understood by newbies. The long street concept has several flaws, the biggest being a lack of organization – at least as I’ve heard it depicted. The planetary concept is nice, because it has little theoretical limits and can allow for differing rules on different planets.

Conceptual frameworks to build around:

  • Street
  • Cities
  • Islands
  • Planets

A lot of these are executed the same way, but planets have a nice crisp border that helps to clearly define rules and experience. In addition, planets can be themed or planned around an organizing concept. This adds clarity and ease of use. For the creator, planets offer leasing opportunities to profit. A ‘shopping’ planet could be leased by retailers building stores.

Side note: conceptually, planets can be personalized. This would require significant more computing power, but changing the planet based on the person would improve usability. It would, however, make for oddities in a world where other people are seeing something different than you. Perhaps some planets would be personalized and you only come in contact with those who are seeing a very similar planet to you. I think this could happen, but this personalization is more likely to happen inside of a room or building, rather than over an entire planet.

 

Technology

The technology to achieve this is, for the most part, available. We’re just reaching the point where this is doable. First, cloud computing is a necessity for this: it requires heavy use of computing power to render millions of Avatars in a world setting. There are three pieces to this: large computing power in the cloud, huge pipes to stream down to a localized computer, and very fast local computers with a ton of memory to support rendering of this world. Building the technology to render is complicated, but delivering it real time to end users (high speed architecture) is at least as hard.

Second, a tool like Oculus is required. It’s the new interface between you and the web. And the completeness of a three dimensional world is what makes this more familiar and believable to our minds. We accept it as a version of reality, rather than a fake interface.

Real time translation is somewhat available, although not as accurate as we would like. Initially we’re likely to see cultures and languages pool together online, but eventually I think the concept of differing languages will wash away. You’ll hear everyone in your native tongue. Culture is harder and probably requires a piece all its own. In short: as the world homogenizes in many ways, people will hold on to key aspects of their cultural heritage as a way to define them (online and off). But even this is likely to muddle when people choose to incorporate other cultural tokens that they associate with. Online, it’s hard to tell the affected from the real.

The piece that’s not quite available yet is sensor technology that measures our movements. Think haptic gloves and apparel that can tell when you hold up your arm. As I said earlier, I don’t think cameras (like current gaming consoles use) are ever going to be as accurate as apparel for rendering this world. Fitted clothing can detect tiny movements in muscles while also measuring heartrate, sweat, etc that help the virtual world really understand your present state. Facial expressions, however, are likely to be measured by camera over apparel. And I think these cameras will be built into the glasses in the future for just such a reason. Allowing our Avatars to express emotion makes the world more real and becomes necessary for such an all-encompassing solution. Probably not in the first version, to be clear, and I think there should be a debate about the value of letting people hide emotions versus react. Although, I think the ultimate control goes to the user; who will have lots of customizations available whether we all agree or not.

 

Conclusion

For now, I think this is an initial start. It’s more interesting to delve into how this changes the internet and our physical worlds. And I’ll get into that in my next post. I’ll try to incorporate links below to the other articles, so that they all tie together.

2015 Christmas: Another Year of Heavy Discounts

Consider this a prognostication on the future. Translated: my best guess with a bit of intelligence thrown in for good luck.

I’m taking what is actually happening in the economy and going to the logical conclusion for this holiday season (to be more politically correct). Here’s a few key data points to start the discussion:

All in all, I think we’re shaping up for a tough Christmas season. The combination of high unemployment and low wage growth typically results in lower consumer spending. Add in high inventories at companies and I think you’ll see a brutal season of markdowns and less-than-ideal margins on the retail side of things. This will add to the downward pressure on spending (people are saving the extra money, not splurging at this point) and creates a downward cycle.

How are you planning your 2015 holiday sales? Heavy on discounts? Big sales gains expected? I’m curious where business are planning because they have the best intelligence on what is happening now. But my economic look into the future seems to indicate heavy discounts and less spending.

Reuters has an interesting article on retail sales projections here.

The Death of Banner Ads – and the Implications

Right around the corner we have iOS9 (just ask Siri for a hint). And with it we get Apple’s adblocking technology. At first blush, big deal, right? But after looking under the covers, I think it’s going to be a very big deal.

First, a little reality for you: banner ads are not effective advertising. Agencies keep selling them and ad buyers keep buying, but the real data is monstrously bad. And there’s a reason for that: (a) most banner ads aren’t visible by humans; (b) visible banner ads are ignored by 82% of the people that might see them; and (c) Most banner clicks are accidental (especially on mobile). All of which leads to horribly bad recall, low interaction and a lack of value in banner ads for marketers and consumers. Including the accidental clicks, the click-through rates tend to be less than 1 per 1,000 viewers. That’s insanely bad marketing spend.

However, banner ads do work in certain instances, mainly around retargeting. If a user visits your ecommerce site then goes to the WSJ or a blog, it’s worth targeting them. Because they are familiar with your brand, they tend to have more awareness of the ad and click through rates are higher. So the modern marketer can use banner ads for other things than burning through all that pre-IPO, pre-revenue cash. And on the other side, they provide content producers with a critical stream of revenue that helps keep content free. Would your favorite blogger work as hard without some ad revenue to make him feel like it’s worthwhile? (Obviously I’m the exception, I don’t make a freakin’ thing on this blog).

Saying all of that, iOS9 only impacts mobile usage, so this doesn’t mean instantly banner ads go to zero. And it needs to be utilized by end users, which will take time. However, marketers need to get ready for ramifications of this change, which I think will be huge a year from now. Here are some conclusions I’ve drawn about what it means to block mobile banner ads:

  • Eventually it means the death of the banner ad as we know it. Mobile is rapidly gaining share on virtually all sites. If you aren’t at 50% of visits now, you’re probably close. This could quickly wipe out half of ad impressions available outside of bots (e.g. non-human viewers) and make 0.06% click through rates look impressive. In the short term, it probably means increased cost per view with lower inventory.
  • It drives up the value of content to marketers. Instead of placing banner ads, we’ll look to place inline content on blogs and heavily trafficked media sites. The banner ad budget might transition more into something like a PR/media campaign aimed at getting space on targeted blogs. And this likely means paid placement along with a content creation budget.
  • Ironically, this isn’t likely to have much impact on sales for ecommerce players. In order to make banner ads look like they are driving sales, you had to do analytical gymnastics with the numbers. All it impacts is those questionable awareness or engagement numbers that implied you were hitting 70% of the target market. Hell, it might make you more profitable.
  • It’s also likely to move banner ad budgets more toward social media. Facebook and Twitter are apps that can find a way to fit and pseudo-target your population. They will become the de facto place to drive online awareness through a mobile device. There are very few ad-friendly other places you’ll be able to find folks on mobile.
  • For content producers, it may lead to app creation and even charging for content. You’ll have to be very good to get folks to pay, but I could see building out an app that can circumvent the ad blocking technology. I’m still thinking through this angle.
  • And, of course, it supports Apple’s new News app, which isn’t likely to have issues with blocked ads. These ads are not nearly as targeted and only for large marketers (read: rich marketers). It isn’t a cheap place to show up, which helps with the brand value of the marketing, but makes those that calculate cost per click very uncomfortable.

Online advertising is moving more and more toward creating branded experiences for your most loyal fans. Immersive sites that entertain as much as they educate will continue to drive visits, awareness and affection toward your brand, which hopefully results in sales. But I think we need to start thinking about a post-banner ad world and how we drive traffic through content.

Banner ads have long been the most pathetic form of online advertising. Bad creative around jumping monkeys or deceptively concealed ads don’t help anyone. Consumers hate the retargeted ads that follow them around the internet. So I’m not sure we lose a lot in throwing out banner ads (except for the publishers, of course). But I think we do need to rethink how to recreate our marketing campaigns without the ad spend toward banners. Search can’t soak up more dollars (everyone is maxed out there). It has to be good creative and good content that can be repurposed across key websites.

Do you agree? Also see Doc Searl’s take on adtech here, which I appreciated.

Should I sell on Amazon?

This week I’m speaking at the iMedia Commerce Summit on Advanced Amazon Strategies. I’m running through key ideas that could help push up your Amazon sales. However, I’m skipping the bigger question (I’m assuming most retailers have decided): Should I sell on Amazon?

 

This question typically isn’t easy. And the answer can be very different based on the company and the brand. But there are some questions that I believe all companies can ask to help determine whether you should be there or not.

 

1) Are you selling branded goods? Amazon is a demand fulfillment business. People don’t shop on Amazon, they buy. So to drive any type of reasonable sales, you have to be selling something that people search for on Amazon. Typically this means branded goods. If you’re reselling popular products, there’s a way to sell them on Amazon. If you have proprietary items that need to be sold, there’s no point; you won’t get enough volume to make it worthwhile.

 

2) Is Amazon buying your items directly from the manufacturers? If so, I would skip Amazon. They will own the buy box as long as they have inventory. You can only when when Amazon is out of stock and they are pretty good at not running out. Definitely don’t send inventory to FBA if Amazon is buying direct. It will just sit there.

 

3) How much does gross margin percent matter to your company? Amazon is about volume. If you’re selling product that gets search volume, you will have competition on Amazon. And you’ll have to price manage. So you’ll lose gross margin percentage in exchange for gross margin dollars. If the percentage matters, it will cause problems.

 

Selling to Amazon is not brand-building. Amazon customers are not your customers; they are connected to Amazon and have little future value to you. Typically they rarely realize who they are buying from. The only reason to sell on Amazon is to increase profit dollars.

 

Selling to Costco was always considered a brand-negative move, but with large volume potential. I feel like Amazon is the same. It’s purely a move for sales that long-term is likely to push your prices down. But if Amazon is already carrying your product, it’s worth trying to capture some of the profits. Just be careful with private label goods.

 

The Rise of the Artist

We live in fantastic times. And things are changing at a fantastically fast clip. We’re able to build, pivot, scale and fail in business much faster than prior generations. And there’s no indication that this increasing rate of change will slow.

Viewing the world as an ecommerce retailer, I see a few trends that have the ability to completely change our world and how we live. The first is the trend towards design and art. This trend has been a long time coming, but is now impacting everything from inexpensive, fashion-forward apparel (something almost impossible ten years ago) to our home thermostat. Consumers now expect almost everything to look as good as it functions, no matter the price. Apple perfectly captured this trend and likely exacerbated it by raising the bar.

Combine that trend with the rise of 3D printing. We’re in the very early stages of this, but the move towards it is accelerating. You can now buy a home 3D printer at Office Depot.  And even it has an attractive, modern design. 3D printing opens the door to a massive change in consumer shopping habits. And I believe it will signify the rise of the artist or creative creator.

Currently we rely on manufacturers to design and create product. A designer gets hired (and paid) by a manufacturer to create a great design, which the manufacturer then produces and sells to retailers. We trust retailers to curate an assortment and stock the merchandise for when we have a need. We used to expect a retailer to have one type of our desired products available, now we expect a full selection at a discounted price.

When 3D printing becomes commonplace, we will no longer need the retailer. And a designer will no longer need the manufacturer. With the rise of the internet, a designer can offer his designs directly to end users.  These end users can purchase and create the items as they need them. This completely disintermediates the entire process. Great designers essentially become retailers and consumers become manufacturers.

I think there are other interesting questions in here as well: Designers (theoretically) have less overhead than manufacturers and retailers, driving down the cost of items. Over time, with unlimited designs available at lower prices, abundance removes any value we currently associate with an item. Unlimited customization means unlimited creativity and the ability to change designs or styles frequently. So the value of something like a couch is reduced to the cost of printing out another one.

Initially this only impacts simple products; current 3D printers can’t do anything as complicated as your iPhone. And home 3D printers are unlikely to do big objects (sofa or chair) in the early days. So this will start with cups, coasters, etc and work its way up towards increasing complexity.

This will bring additional drastic change to our world, particularly change for those bringing products to market. And I think it gives additional power to designers and creatives, who don’t have to rely on old paradigms. Perhaps retailers become more like marketplaces that curate the best of various designs. But that doesn’t sound like business model with good margins.

Data is Changing Us

One thing that isn’t discussed enough is data. Data is changing a lot about what we expect and what we are willing to accept. The internet, in particular, is generating massive amounts of data on a continuous basis; take a look at this live infographic  estimating how much information is being generated right now. It’s amazing (note: I have no idea whether there is much statistical reliability to these numbers, but I think the direction is correct).

The one thing not discussed is that data is enabling better design, better products, and better performance of those products. As data has been used to augment, our expectations of new offerings have gone up. Companies like Amazon use data in very effective ways to raise the bar across industries. Mary Meeker suggested in her analysis  that very little of the data created on a daily basis is currently being mined to improve our products. I think that’s the big opportunity of the next 10 years. How can data dramatically improve your products (or your marketing) if you were able to deeply use and understand it? And where do you have an advantage because of data?

It’s a way to rebuild the competitive advantage that was dwindled away in recent years.