Hype Cycle for Emerging Technologies in Digital Marketing

Businesses today have been extensively integrated with digitization, promising convergence of people and businesses, while disrupting existing business models. A new age of digital marketing has arrived where extensive campaigns are pushing new products through platforms such as websites, e-mails, apps and social networks. With over seven billion people and businesses, and a millions of technologies bringing a new world together, digital marketing plays a major role in empowering businesses with the much-needed edge to thrive with the competition.

Digital Business Development Path

 Rapid change is fueling digital marketing. Within the last decade we have seen technology giants driving businesses such as Facebook and Twitter. Mobile marketing and advertising marketers have begun focusing on consistent and contextual without being interruptive.  Change is the one thing that is constant, with changes being made faster than ever before. However, impact due to the change is highly dependent on it’s temporal context. For example, wearable technology like Google glass has gained a lot of news coverage when in fact, Steve Mann had already developed a similar device, ‘EyeTap digital Eye Glass’ in 1999. This is a prime example showcasing the importance of analyzing the visibility of a product with time for organizations to capitalize its technological and business resources to make the best marketing sense.

Hype Cycle

 The Hype Cycle is a branded graphical tool developed and used by IT research and advisory firm Gartner for representing the maturity, adoption and social application of specific technologies (See Figure 1). The hype cycle map how technologies move through different phases of hype and indicate whether certain technologies and products are good for the company in short term and long term. Marketers need to understand how and when to derive value from a product and also when to dispose of it when new things come along.

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Fig 1: Five Phases of the Hype Cycle (source: Gartner)

What’s new in 2014?

Marketing Talent Communities: Marketplaces have come up that support organizations and marketers to find and hire qualified freelance talent on-demand. A lot of time is saved in the process of recruitment of a variety of qualified writers, designers, strategists, data-analysts etc. Bloomberg Institute is one such example which financial employers approach to hire talented college students through a normalized screening test called the Bloomberg Aptitude Test.

Marketing Technology Integrators: The scope of digital marketing has expanded broadly. Digital marketers can’t claim to address the digital marketing needs solely through offering new Web Content and Experience Management or Portal platforms. As a marketer, the time and attention required to solving technological solutions takes time away from their focus on target customer. Thus, marketing organizations are hiring services and products that design and implement software and increasingly integration-oriented implementation data solutions.

Transactional Ads: This is an example trying to connect marketing with productivity and conversion. Online ad units that are activated by gestures, present a secure transaction or coupon. This reduces the time consumption of the viewer by enabling a person to request information or to buy the advertised product without leaving the webpage on which the ad appears. If old companies can figure out a way to associate more with transactions, they can boost their chance of surviving in the online market. [3]

Quantified self: It is a movement to incorporate technology into data acquisition aspects of a person’s daily life in terms of inputs, states and performance. Applications or services on mobiles and wearable technology that provide self-tracking analytics contribute to self-knowledge through self-tracking with technology. Biometrics have been identified that people never knew existed making data collection cheaper and more convenient than ever before. Recently, companies like Google and Zomato have begun to use location data of a user’s phone to recommend suggestions to buy things based on the proximity to various shopping outlets.

Social co-browsing: Collaboratively sharing of the web space with one or more parties from a social network, regardless of the physical locations of the partners. In real-time, multi-user experience isn’t just slapped on top of an application, it’s directly built into the core experience. Companies would have to redesign their user experience to support social co-browsing so as to provide a natural extension of for users to communicate and interact to enrich their real-time, collaborative experience. [4]

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Future Implications

Most of the technologies at the peak of their hype cycles today, will plateau in terms of productivity within the next two years. The window to gain competitive advantage in this fast-paced environment is limited. Thus companies must adapt themselves for speed, agility and rapid customer response.

Content marketing can be very resource intensive. Organization should use marketing talent communities and agencies as an escape valve for demand as a way to scale elastically as demand comes online.  The in-source and outsourced roles must be carefully mixed together in order to optimize productivity. Organizations should appoint strong leadership to ensure the success of their elaborate content marketing strategy.

Common view of digital-savvy customers should be kept in focus to ensure tight coordination of marketing activities in sync with the changing customer needs and reactions. Emerging architectures of digital marketing hubs should be carefully reviewed periodically to best utilize resources for most productive outcome.

With increase in social-marketing hype, the social marketing objects should be tied to the corporate vision of the companies. Analysis of how each social marketing activity will support that goal and provide a high return of investment. Gain from adapting to emergent technologies can lead to savings on media from improved efficiency or lift in sales from improved effectiveness of a company’s budget.

B2B management investments should be made into multi-channel, taking advantage of accessible areas in data mining, segmentation and behavioral analytics. Useful analytic results should be incorporated to the marketing strategy to further boost performance.

Criticism about Hype Cycle

Several disadvantages of Hype Cycle have been brought to light. Firstly, it is very difficult to objectively estimate the current location of a technology in its hype cycle. Secondly, terms such as ‘disillusionment’ and ‘enlightenment’ are misleading for people as they give a wrong idea about how exactly and to what extent a technology can be used for an organization. Also, there is no mention of how a technology transitions between phases and what all factors influence the shift. Lastly, several technologies are heavily correlated in terms of advancement through the different phases. The hype cycle does explain the cause-effect relationships between technologies and their impact on acceleration of technology progress and generation of excessive hype for a product.

References:

http://www.gartner.com/newsroom/id/2819918

http://www.theregister.co.uk/2013/03/02/steve_mann_on_google_glass/

http://techcrunch.com/2010/03/07/the-rise-of-transactional-advertising/

https://goinstant.com/blog/collaborative-customer-interfaces-and-social-cobrowsing

Exploring the meteoric rise of Alipay

The birth and rise of Alipay

Launched in 2004, Alipay is Alibaba’s third- party online payment platform in China. Alipay is to Alibaba just as PayPal is to ebay i.e. a payment portal, which processes the online payments not only for Alibaba but also for other e-tailers. While Paypal has mostly focussed on the Western market, Alipay prime focus is its birth country – China. This is justified considering its fast-growing third-party online payment market. However, unlike ebay or Amazon, Alipay enjoys favourable market penetration in China.

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300M+ registered users

 12.5B transactions

 3x: value of transactions compared to Paypal and Square

With over 300 million registered users trading with over 460,000 Chinese businesses to drive 12.5BN transactions, Alipay has the largest (about 50%) market share in China both in terms of number of users and volume of transactions online. Not only in the domestic market, Alipay has tied up with 300 worldwide merchants to trade in 12 foreign currencies. The domestic and international volumes drive over $520BN transaction revenues and are greater than the volume of transactions at ebay and Amazon put together.

Drivers of growth

The journey to becoming China’s leading and world’s 3rd online payment provider has been a steady one. The meteoric growth of Alipay rests on (3) key factors-

  1. Alibaba Advantage: Alibaba’s performance has been the growth engine for Alipay.

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At the right place at the right time.

The e-commerce market in China has boomed over the past decade. Its revenue growth (2009-2012) has topped 70% compounded annually. Driven by social media and advent of mobile/smartphones, the market is expected to continue to rise and outperform the US e-commerce market for another half a decade. Alibaba has capitalised on the growing China market through Taobao and Tmall.

The following charts show Alibaba’s market share in 2013 in various segments –

Pic 42. Differentiated offerings

 Unlike its competitors, Alipay provides two key services that satiate both the buyer and the seller. These two value additions have significantly differentiated Alipay from its competitors and  helped in building trust, thereby strengthening the network effect.

Consumer Protection. In light of the volume of consumer complaints in the e-tailing business, Alipay ensures buyer protection through its escrow service. It collects payment from the buyer but releases it to the seller only if the buyer confirms her satisaction with the delivered product.

*78% respondents were concerned about the authenticity of items sold online.

The following flow diagram illustrates the model –

Pic 5

No Fee Is The Key. Alipay is the preferred payment platform for a host of domestic and international sellers. This is primarily due to its competitive and simple fee structure. It does not charge any fee on Taobao and charges a nominal fee of 0.5% – 1.5% to Chinese sellers on Tmall. PayPal, on the other hand, charges anywhere between 2.9% to 3.9% in addition to $0.3 per transaction and cross-border transaction fees.

 3. Banking on Financial & Investment Services

 Alipay added another feather to its cap in 2013 by introducing Yu’E Bao, its financial & investment services arm for retail customers. With a promise to pay returns greater than what Chinese banks pay, Alipay tied up Tian Hong Asset Management to launch the Yu’E Bao service.

This was a unique service as it was only once that Paypal attempted it in the US before shutting it down in 2011. Also, this service was direct competition to the traditional banks. While traditional banks provide about 3.3% returns on a savings account, Alipay’s returns are more than twice as much (about 7%). Simple maths has given a boost to the investment sentiment amongst the retail customers. This is evident in the sharp rise in the number of users of this service, which rose from 2.52MM in June 2013 to more than 100MM users in June 2014. The assets under management grew 5 times in the past year from $7Bn to $40Bn. The steep rise has been bolstered by a profit of $0.5Bn profit to its customers. Thus, there is clear monetary incentive for customers to leverage Alipay’s savings accounts.

Alipay has coupled high returns with convenience of usage. Customers can transfer amounts as low as 16 cents, and can withdraw money anytime without being penalized. Integration of messaging and alert services through mobile phones has been the icing on the cake. But are high returns and convenience enough to sustain internet finance, and by some extrapolation Alipay’s USPs?

 The Road Ahead

 In light of a majority share in the growing Chinese e-commerce market, Alipay is surely on the right track for a couple of reasons. Firstly, Alibaba’s brand name and trust will have a huge network effect in looping in more customers and sellers. Secondly, its unique escrow model and zero-domestic fee right from the beginning has given Alipay the first mover’s advantage in terms of protecting buyers and unlocking economies of scale to sellers. This effect is compounded by lack of differentiation and value added services from the competitors. Finally, launching forward looking internet financial services has added value to brand. Thus, with major threat in the foreseeable future, Alipay is set to become a one-stop shop for banking, wire servicing and investing, all done through mobile device. So much for amenities on the go!

Technology in India- Better Days Ahead?

The budget released by the Modi government this year had some clear-cut agendas, and was categorically termed as pro-business by most experts. But what does being pro-business mean, and what is it going to do for the population of India? Pro-business essentially implies that doing business in India has been made much simpler now. The policies guiding this would eventually be of benefit to the masses due to the creation of employment by new businesses. A related issue that the budget focused on is strengthening the MSME base of India. Several policies pertaining to increase in capital investment ceiling and easier exit options in case of bankruptcy have been introduced. It is evident that one of the government’s major goals is to boost entrepreneurship in the country.

 TECH TALK

The technology industry is arguably the fastest growing sector in India currently. Past trends show a consistent rise in its revenues.

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Estimates forecast a growth of anywhere from 8% to 9% in the sector this year. In spite of great potential however India has failed to catch up with the rest of the nations in the IT sector. The categorical reason for this has been the lack of provision of relevant policies and basic facilities by our government. However, now that the government has recognized the problem at hand and is taking certain measures to resolve the issues, we should ideally be able to attain our capacity as a country. A major influence of these policies will be on the smaller businesses, as is intended by the policymakers. As MSMEs contribute nearly 8% to our nation’s GDP, encouraging their growth is a logical step to take. This can only happen when these businesses have germane and competitive technology, which they often cannot afford. Therefore, it is in the interest of both the entrepreneurs and the government that suitable action is taken to make technology cheaper and more accessible. This has hence become a part of our Prime Minister’s vision, to convert our nation to ‘Digital India’.

DIGITAL INDIA

The Finance Minister recently revealed that nearly INR 200 crores has been allocated for technology development and broadband penetration for supporting MSMEs. The primary aim of this move might have been promotion of small businesses, but the benefit to the technology industry can’t be ignored. In addition, an allocation of INR 500 crores for Internet connectivity in villages and small towns has also been made. Once again, the benefit to the technological sector might be secondary, but it is undeniably there. The development of smart villages, greater connectivity, and better technology for MSMEs are all road stops towards the march to ‘Digital India’. While the journey promises to be one of digital evolution, there are also economic and social benefits involved. IT industries account for nearly 30% of the country’s GDP and 25% of the employed population. As it boosts and grows, employment levels are set to see higher figures also.

 THE FUTURE OF TECH

The evolution of technology is a necessary one for the growth of the economy of a country. It is interweaved with social benefits, growth of MSMEs and of well-established businesses also. While the budget does suggest major allocations for development of technology, both directly and indirectly, it remains to be seen how effective these measures would be. An indirect benefit to the industry comes from measures taken to boost the Manufacturing and Banking sectors. Due to these accounting for nearly 40% of the market for IT services, companies can expect more business in the coming years.

 One of the trends in the software industry has been its consistent and definitive orientation towards services rather than product development and research. So far, digital innovation has been a monopoly of the western world by and large. However, with the advent of better policies and greater financial support from the government, this may change soon. Initiatives like a district level incubator network and funding for startups will ensure greater innovation and hence software product research and development is one area where greater penetration can be expected. Influx of outsourced projects from global firms should also see an upward shift as the IT industry grows. Apart from this, companies should also focus on providing low cost software solutions to budding businesses as part of the services sector since the demand for these is on the rise. As part of the new plan, the government will also be reaching out to the industry for leveraging technology for better governance.

 Until now, both MSMEs and big businesses have suffered from a lack of Internet connectivity in India in the past and the growth of the industry as a whole seemed to be stagnating in the last few years, with India being ranked at 121 among 157 countries in terms of Internet penetration this year. This was in contrast to 114 in the previous year. The Modi government however has identified the problem and created the required policies. All that remains now is proper execution.

When the going gets tough: E-Tailing in India

For many of us, the internet and e-commerce is now an indispensable part of our lives. Till around 2010, however, the Indian e-commerce story was limited to tickets, classifieds and ringtones – and physical retail had been slow to take off. These days, the ticketing and travel segment still accounts for around 80% of the total e-commerce in India, but online physical retail, also known as e-tailing, is finally catching up.

Division of the E-Commerce industry

evolution of e-commerce in India

Click to view: Evolution of E-Commerce in India (comScore report on India Internet)

2011 was the year when e-commerce witnessed a slew of investments by VC & PE firms, which were rushing to get an e-commerce company in their portfolio. E-commerce companies on the other hand were reporting double-digit on a month-on-month revenue growth. With excess funding available, companies invested heavily in back-end infrastructure such as warehousing, in-house logistics team and marketing to acquire customers.

Exhibit-A (VC Circle)

Exhibit-A (VC Circle)

However, the e-tailing in India is still facing several open questions:

  • Is the quality of internet connectivity good enough?
  • Is the supply-chain and logistics reliable enough in India?
  • Comfort of Indian consumers with e-tailing and using online payment as mode of payments?
  • Most importantly, how to achieve profitability?

Eco-system for e-tailing in India

The digital consumer ecosystem comprises several external and internal components.

E-Commerce-EcosystemAccess: How big is the potential market?

There are an estimated 150 million internet users in India, roughly 12.5% of India’s population. That is significantly lower than the world-average of 30%.

This aspect of the ecosystem, however, is improving rapidly in the past few years. The advent of 3G and 4G data networks and increasing proliferation of smartphones have accelerated the internet penetration. The expected number of Internet users by 2015 is 376 million – almost 2.5 times the current number. More importantly, the number of users transacting online will grow from the current 15 million users to 40 million users by 2015.

Assuming an average transaction of INR 500 per person/per year, we can estimate the potential market size of e-tailing in India as USD 4 billion by 2015, roughly four times the current market size.

Demographics: Life beyond Metros

The geographic distribution of Internet users has been skewed towards tier I cities. However, the number of users in tier-I&II cities has been increasing significantly. This augers well for most of the e-commerce companies as around 30-40% of current revenues are coming from tier I/II cities.

However, the average basket size (order value per transaction) for tier I/II cities is still around 70% of that of metros. Moreover, logistics and reverse logistics cost are substantially higher for these cities. Thus, profits are still going to come from the top eight metros.

Advertising: Burning a hole in the pocket

This is one the most important internal components for any e-commerce firm, because of its impact on the bottom-line. Marketing costs include digital marketing on Google and Facebook as well banner-ads on other popular websites (YouTube, CNN-IBN etc.)

While companies continue to spend aggressively on online marketing (Google, Facebook and re-targeting banner ads), the conversion rates (% of users who transact after clicking the ad) are in the range 0%-1%. In order to turn profitable, e-commerce firms have to find a way to improve the conversion possibly through alternative ways of free advertising (Google search, bulk-mail, blogs etc.).  Improving the conversion rates is the focus at the moment, and many new start-ups (such as Tooki Taaki) are addressing this concern to help the cash-strapped e-commerce firms.

Exhibit-B

Exhibit-B (The Nilson Report, RBI Bulletin – Retail electronic payment systems)


Payments: The dominance of Cash-on-Delivery

For Indians, the concept of credit-card is still alien. As a result, around 70% of the transactions happen on Cash-on-delivery (COD) basis.

The logistics partner charge an extra INR 40-50 per shipment for handling cash, which is sufficient to wipe-off the entire operating margins. To counter this, firms are increasingly charging an additional INR 50 for COD transactions or giving incentives to customers for using online payment gateway (extra points, free coupons etc.). COD, however, overcomes a major challenge of e-commerce regarding lack of trust and touch and feel and hence will continue to account for a majority of transactions in near future.

Last Mile Delivery: Own v/s Third-party logistics

Globally, top players have almost always outsourced forward logistics, while controlling the back-end supply chain and inventory management. But this model has 2 major challenges in India:

  1. Poor customer-service (delays in shipments, damaged products, handling of reverse logistics)
  2. Lack of good courier partners and increased costs due to monopoly of a few (e.g. Bluedart, First Flight etc.)
forget digital marketing

forget digital marketing

To counter this, several players such as Flipkart, Jabong etc. are building their own end-to-end supply chains. This not only solves above problems to a large extent, but also ensures customer experience while generating enough visibility for the brand on roads.

Thus, few players will follow a two-pronged strategy: developing their own delivery channel for the metros and relying on outsourced parties for tier 2 and 3 cities where they are sub-scale. A majority will still rely on third-party logistics, while they focus on the core-business of merchandising and back-end operational efficiency.

The Way forward

The E-commerce industry is going through a difficult time. The sector will see consolidation over the next few years as companies struggle to make profits and investors work towards reducing their cash-burn. A few big horizontal players (across all product categories) will remain as they can achieve higher basket size and ‘economies of scale’ quickly. Niche vertical players for fashion and lifestyle categories (such as apparel & jewelry products) can still survive as they command higher profit margins.

This sector is not for the faint-hearted. One should also understand that it took Amazon 10 years and billion USD in investments before it turned profitable. India has far more glaring problems such as lack of internet penetration, card-usage and logistics. Hence, one needs to be patient with the Indian e-commerce story. At the same time, firms need to keep an eye on their bottom line if they wish to survive this tough period. The last man standing will reap the benefits.

Rakshit Agarwal is a PGP1 student at IIM Ahmedabad, and a member of the Consult Club. Prior to joining IIM-A, he worked with ITC Limited in the operations team, and managed the P&L of a category in an early stage start-up. He is passionate about tech-entrepreneurship, and holds a Bachelors and a Masters in Electrical Engineering (VLSI) from IIT Madras.