To summarise the narrative so far:
- While brands can buy growth with adtech spending, that comes at the cost of profitability
- Good growth and profits needs repeat business and referrals from existing customers
- The challenges marketers face in dealing with existing customers are attention recession and data poverty
- A shift in focus from adtech to martech means a shift from acquisition and discounts to solving for attention and data
The path to exponential forever profitable growth comes down to something as basic as solving the problems of attention and data. In a world of digital and direct relationships, these are the two things that matter most. If a brand’s customers are not listening and if a brand does not have adequate data, it becomes hard to build a hotline to customers. Without the hotline, it becomes difficult to bring customers back to the properties for transactions.
In the pre-digital world, what mattered was branding. Great copy and ads created the customer connect and brought them to physical world stores. While branding still matters, it takes time and is expensive to build. Only a few succeed. For all others, the opportunity for B2C/D2C businesses comes from the push messages to get their communication out to their customers. This has been forgotten by marketers eager to show growth at all costs.
The problems of attention and data can be solved. For this, the mindset of marketers needs to evolve. The world of customer engagement must begin with the push channels. Today, there is very little attention paid to these channels. The channel with the best RoI – email – sees a spend of $8 billion annually. This is just 2% of what is being spent on adtech platforms globally.
I believe that email can and must become a marketer’s new best friend. Email is not what it once was – 1-way broadcast and semi-spam. Email is now ready in its new avatar: Email 2.0. This email can be interactive, informative, gamified, fun and exciting. It is email like customers and marketers have not seen or imagined. Email 2.0 is a way to convert the delete mindset into delight. It can become a powerful channel for getting customers to volunteer data about themselves. For this, Email 2.0 needs to be combined with Loyalty 2.0. Tokens for attention and data with a new spam-free inbox which delivers surprises and rewards can bring brands and customers closer in a win-win relationship.
With attention and data, marketers can then deliver omnichannel personalisation on their properties and differentiated 360-degree experiences for their Best customers (Martech 2.0) and slash acquisition costs via referrals and targeted new customer acquisition (Adtech 2.0).
This is the new world of marketing, reinvented for a digital world. The basics do not change. Marketing is about bringing customers back for more and ensuring they get their friends. What is different is the ‘how’ to get started – a new-look email format (what I call “microns”) and atomic rewards in the form of tokens for attention and data to nudge behaviour. These are the ideas that hold the key to building the pipe (hotline) with existing customers, and therein lies the secret of profit-centric marketing.
7 Essential Ingredients of a Metaverse: by a16z. Decentralisation, Property rights, Self-sovereign identity, Composability, Openness/open source, Community ownership, Social immersion. “Openness and decentralization are the pillars upon which the whole edifice rests. Property rights rely on decentralization — they must endure despite the influence of powerful adversaries. Community ownership prevents unilateral control of the system. The approach also bolsters open standards, which are helpful for decentralizing and composability, a closely related property downstream of interoperability.”
Atanu Dey on markets: “When trades are not allowed, both parties lose. Add up tens of millions of disallowed trades — which invariably governments d0 — and slowly but certainly the people become impoverished. This is true. The wealth that we enjoy could not have been possible without markets. How do? Because we have the possibility of exchanging what we produce, we are able to specialize in what we are good at producing. That allows division of labor, which in turn allows division of knowledge.”
Read: In the Blood by Jack Carr
Marketers are pouring money into adtech for new customer acquisition. They are taking unsustainable shortcuts in pursuit of growth. CAC is rising rapidly and sucking away even more of the marketing budget. Marketers therefore face a doom loop of spending: rising CAC demands more adtech spending, which reduces funds available for existing customers, which impacts the relationship and experience, which in turn causes churn, which pushes marketers further down the adtech path. The solution lies not in trying to optimise adtech spending but to start with existing customers and focus on how to build a better relationship with them.
In this quest, marketers need to solve two problems: attention recession and data poverty. Existing customers can be brought back to the brand’s properties (website and app) via two mechanisms: great branding or push messages. Branding takes time and money to build, and is also an outcome of the experience delivered. On a daily basis, it is the push messages (sent on email, SMS, WhatsApp or as app notifications) that have to do the magic. The problem here is that customers are not paying attention to the promotional messages sent by marketers: open rates in email and SMS are very low and push notifications are blocked by many app users. In other words, customers are not listening to what brands are saying.
There is a second problem: lack of a unified customer view to personalise the customer experience. While martech platforms help brands collect a lot of customer data, the first-generation point solutions do not provide an integrated view since data gets siloed and integration costs can be very high. For example, one of India’s leading banks does not recognise me as the same person who has a bank account and a credit card with them even as the mobile number is the same for both accounts!
Taken together, attention and data are the two fundamental challenges that marketers need to solve. So far, they have taken the easy way out: discounts to get customers to pay attention (which means treating every existing customer as a new customer each time) or just retargeting them via the adtech platforms. Both are expensive propositions and hurt profits. But for marketers goaled on growth, profits are not their concern. But for a CEO or CFO, this short-sightedness has serious implications on the bottom line.
This is why I believe profit-centric marketing must become a founder/CEO/Board agenda. Unless the top leadership understands what’s hurting their business, they will not escape the spending trap. And without ending adwaste, there is no path to profitability, even though they may be able to demonstrate short-term growth. To make sustainable profitable growth a reality needs a rethink on all aspects of marketing: next-gen ideas for email, loyalty, martech and adtech.
Tyler Cowen on the best question to ask a job applicant: “What are the open tabs in your browser right now?”. Tyler adds: “The question measures what a person does with his or her spare time as well as work time. If you leave a browser tab open, it probably has some importance to you and you expect to return to the page. It is one metric of what you are interested in and what your work flow looks like.”
Saneel Sreeni and Leo Zhang: “Commodities are basic raw materials that serve as the basis for the production of everyday goods and services. The history of commodities is a reflection of civilization itself. Humans waged wars against each other to seek control over the most important resources; from rice, to metals, to spices, to oil. As more aspects of the global economy and daily activities migrate to the cryptoeconomy, what will become the most sought-after commodity of the new era? Blockspace. All economic activities on public blockchains settle on blockspace. Consensus producers, such as miners and staking validators, supply blockspace, while every transaction demands blockspace. When on-chain activities increase, network fees increase, and when the value of the block subsidy and fees increase, more people are motivated to compete to append the next block to the blockchain. Since blockspace is a commodity, it can be used as a basis for financial instruments — either to hedge against production or enhance returns. Such financialization ultimately leads to a comprehensive capital market, akin to the way all important commodities have evolved throughout history.”
The Ownership Economy 2022: “Creators don’t own their content, developers can’t control their code, and consumers can’t influence the policies or decisions of the platforms they use. This scenario, which once went unquestioned, looks increasingly archaic. This is starting to change via the ownership economy—often referred to as web3—with products and services that turn users into owners. What started with Bitcoin and Ethereum—both of which reward participants who secure the network with their native tokens—is becoming prevalent across all categories of software, from developer infrastructure and new financial markets in DeFi to consumer products, marketplaces and social.”
The past few years have seen consumer companies spend big on growth at all costs. Traditional and new-age companies have been splurging on new customer acquisition on the adtech platforms (primarily Google, Meta, Amazon). Some of the spending was justified as the pandemic accelerated the adoption of digital. Also, the printing of money by central banks made capital almost free and investors seeking growth found fast-growing B2C/D2C companies as a good hedge against low interest rates.
This ‘growth at all costs’ has led to a digital arms race where the only winners have been the adtech companies. Rising CAC (customer acquisition cost) has meant brands have had to invest increasingly higher money for new customers. This is unsustainable, and there are signs that the tide may be shifting back to more sustainable and profitable growth. As Fred Reichheld, the creator of the Net Promoter Score, said in a webinar recently: The only way to grow is to ensure customers come back for more and bring their friends.
For a business, more than top line growth, what matters is the growth in gross margin and profits (EBIDTA). Top line growth can be achieved by giving discounts to existing customers for transactions and spending big on new customers. This is not good growth. What a business needs is to grow the gross margin and then profits; between these two numbers is the cost of running a business – primarily, employee costs and marketing. Of these, marketing is the one which can vary dramatically depending on the choices made.
Thus, for a business to be profitable, there are two key requirements: grow top line in a healthy manner by increasing revenue from existing customers without discounting aggressively, and then keep marketing costs under control by calibrating the spend on new customer acquisition. This is at the heart of what can be termed as “profit-centric marketing.” For every business, profits are a must because otherwise there is a need for continuous capital inflows to fund the losses.
Profit-centric marketing actions can be further sharpened to the following:
- Drive growth from Best customers. These 20% customers account for 60% revenues and more than 100% of profits since the cost of servicing and acquiring other customers dents profits.
- Reduce “Adwaste”. Brands are wasting half of their marketing spends on reacquisition and wrong acquisition. (Globally, this is a $200 billion waste.) This means building direct and deep relationships with existing customers. It means ensuring customers come back for more and bring their friends.
Profit-centric marketing done right can deliver the right sustainable and organic growth for businesses. By leveraging the power of digital, this can be made exponential and forever, as Best customers spend more, stay longer and get their family and friends who become tomorrow’s Best customers.
Glen Weyl: “Because Web 3 lacks primitives to represent such social identity, it has become fundamentally dependent on the very centralized Web 2 structures it aims to transcend, replicating their limitations….In our paper, we illustrate how even small and incremental steps toward representing social identity with Web 3 primitives could solve these issues and bring the ecosystem far closer to regenerating markets and their underpinning human relationships in native Web 3 context. Even more promising, we highlight how native Web 3 social identity, with rich social composability, could yield great progress on broader, long-standing problems in Web 3 around wealth concentration and vulnerability of governance to financial attacks, while spurring a Cambrian explosion of innovative political, economic and social applications. We refer to these use cases and the richer pluralistic ecosystem they enable as “Decentralized Society” (DeSoc).”
Rosolino Candela: “The process of economic development is fundamentally one of institutional transition, particularly one of eliminating political and legal privileges that redirect entrepreneurship from unproductive to productive activities. However, such a transition implies a concentrated cost imposed upon the current beneficiaries of the existing system, the benefits of which are dispersed across the population. The counterintuitive policy implication for transitional political economy, which may be particularly frustrating for a pro-market policy reformer, is that attempts to change the rules of the game, and eliminate monopoly privileges through political discretion, will only incite rent seeking, generating greater dissipation of wealth than if the transfer had not been initiated. The key point here is that, since political discretion is the very source of monopoly privileges created by the state, political discretion cannot also be the source of its abolition. Political discretion used as an instrument to abolish legal privilege cannot occur without simultaneously creating another legal privilege, since political discretion, by its very nature, intends to benefit one party at the expense of another.”
Read: Sparring Partners by John Grisham; 3 short stories
My podcast with Joseph Abraham, founder and CEO, SaaS Industry. Among the topics covered: building a proficon, early-stage growth, building a company that’s built to last, creating an ecosystem and the greater good factor.
FT on the FTX founder: “[Sam] Bankman-Fried is in the camp that views the value of most tokens as a bet on the potential of blockchain to build a better financial system. He takes the example of a simple cross-border payment. Using blockchain, he says, that transfer is “gonna be cheaper, it’s gonna be faster, and it’s much more likely to succeed. And that, I think, is the most compelling piece of it to me.” Bitcoin, he thinks, is a special case. He likens it to gold as “an asset, a commodity, and a store of value”, but says it will never work for day-to-day payments. The system used to validate bitcoin transactions isn’t capable of operating at the scale required, and the environmental costs would be unacceptable. Using bitcoin for daily payments would be akin to paying for purchases with gold bars, he says. “Why don’t we go to a store and pay with physical gold bars? First of all, it would be ridiculous and absurd. It would be unbelievably expensive. And I’m sure it’d be bad for the climate.””
Barton Swaim: “One of the great ironies of American political life in the 2020s is that the people most exercised about the spread of false information are frequently peddlers of it. Their lack of self-understanding arises from the belief that the primary factor separating their side from the other side isn’t ideology, principle or moral vision but information—raw data requiring no interpretation and no argument over its importance. It is a hopelessly simpleminded worldview—no one apprehends reality without the aid of interpretive lenses. And it is a dangerous one…With the two-year pandemic response now all but over, what stands out most is the absence of any acknowledgment of error on the part of anyone who advocated these disastrous policies. There is a reason for that absence other than pride. In the technocratic, data-following worldview of our hypereducated decision makers, credentials and consensus are sure guides to truth, wisdom is nothing next to intelligence, and intelligence consists mainly in the ability to absorb facts. That mindset yielded a narrow array of prescriptions, which they dutifully embraced, careful to disdain alternative suggestions. They can hardly be expected to apologize for following the data.”
Atanu Dey: “Entrepreneurs create wealth; governments destroy wealth. Ultimately, it’s about division of labor and specialization. Entrepreneurs specialize in creating wealth; governments should specialize in the protection of life, liberty and property; we should devote a part of our time and money to the extent we can in helping others as part of our social responsibility. Entrepreneurs sow the seed corn, we reap most of the harvest. Denying them seed corn will surely mean starvation for us.”
The Road Ahead
Freedom was a treasure and it needed to be cherished. Indians had got their freedom and seen what it could do. But the spectre of collectivism and control was never far away. Keeping freedom intact was an ongoing project.
The freedom Indians gained had to be made irreversible. India needed new rules so no future government could undo what had been done in the past decade. No future government should be ever able to mess with the lives of people. India needs a constitution that was consistent with a nation of free people, not a constitution that continued the British colonial rule of subordinating Indians to the government. The 1950 constitution of India placed the government as the ruler and the people its subjects. This relationship had to be inverted.
As it stood, the constitution of India is never read by anybody. At over 170,000 words, it was too long to be read, and even if attempted, it was incomprehensible because it was written in legalese. India needed a constitution that was written in plain language that every literate person could read and understand, and was short enough to be comprehended by an average adult.
For this, he had drafted a Constitution for Free India. This is what he needed to present to the nation and get their support so it could create the Second Indian Republic. He had borrowed ideas from the best, especially the Founding Fathers of America. This modern Constitution itself was just a few pages of simple text that anyone could read and understand. It put the constraints on those in power, and ensured the people would never again be enslaved by one of their own. Only then would Indians be free to achieve their full potential. He would go out on the road again to persuade people and win their approval over the next few months.
Once the Constitution was approved, it would create a new governance architecture of India, with power finely balanced between the three branches of government. His job was then done. He would leave it to a new set of leaders to take the nation forward. August 15, 2025 would see a new leader and he would retire from active politics. He did not want to cast a shadow over the next government. The test of his work of the past decade was how well the nation handled the transition and the future.
And so it came to his life beyond. He would be turning 75 next year – and while he had some years of active life still left, he wanted to ensure the ideas of freedom and prosperity spread globally. More than a hundred nations still had their people suffering in poverty because of their governments and leaders. He was hoping to take the Indian success story and persuade some of them to change course and free their people. This would be his legacy: 1.5 billion free Indians and, hopefully, hundreds of millions more.
He was ready for the national telecast. “My fellow Indians…”
Chris Dixon: “Blockspace is space on a blockchain where you can run code and store data. Blockspace is different from traditional compute-space in that, until the advent of blockchains, software was always subordinate to hardware – and then, ultimately, to the owner of that hardware. If you write software for traditional computers, it’s the hardware owners who are in control. If Facebook writes some code and says any developer can come along and have access to a certain API, Facebook management can just change its mind and revoke access later. Because Facebook controls the hardware that the software runs on, it ultimately controls the software. Blockchains are different in the way they’re architected: the software is in charge of the hardware. If you write software for blockchains, you can write code that makes strong commitments; you can assure users and developers that the software will continue to run as designed. Specifically, blockchains use what’s called a consensus mechanism to make these commitments. The various hardware operators that run the network come together every so often and vote on the state of the blockchain virtual computer. There’s game theory around it that guarantees – that makes assurances under most conditions – that the software will continue to run as designed and that the integrity of the data will be maintained.”
FT: “In his new book, , “Liberalism and Its Discontents,” Francis Fukuyama argues that liberalism is threatened not by a rival ideology, but by “absolutized” versions of its own principles. On the right, the promoters of neoliberal economics have turned the ideal of individual autonomy and the free market into a religion, warping the economy and leading to dangerous systemic instability. And on the left, he argues, progressives have abandoned individual autonomy and free speech in favor of claims of group rights that threaten national cohesion. “The answer to these discontents,” he writes, “isn’t to abandon liberalism, but to moderate it.”…[The book is] a short, staunch defense of classical liberal values against what he sees as threats from both the identitarian left and — far more dangerously — the populist, nationalist right.” More from NYTimes: “Francis Fukuyama’s new book joins several from recent years in defining liberalism and arguing for its continued relevance.”
Rita McGrath: “As Carlota Perez has observed, bubbles and their aftermaths are a feature of how capitalism works, not a bug. Just as the railroad bubble and bust left both the US and the UK with important railroad infrastructure and the dot com bust left us with the basis for the digital businesses to follow, this bust will leave us with important infrastructure, too. The development of new kinds of software, the invention of big data solutions and many other developments are likely to be part of the foundation of the next chapter. If we are smart about what we do with it, it can well be the beginning of a new “golden age.””