The digital era and the digital economy are driven by industrial disruptions such as Amazon — e-commerce, Facebook — social interaction, Netflix — entertainment, Uber — transportation and many such ventures. The key aspects of a digital economy are scale and speed. Scale conveys these digital ventures capture a user base of millions (if not billions). Speed conveys their ability to grow and adapt to the market at a rapid scale. I was wondering how they are able to sustain such scales and speed, pioneering disruptions in the industry. The answer needs one to look at their history in some detail — it is a combination of trust, value, and ease of use. Amazon and Facebook had to develop trust with the consumer, Netflix and Uber provided ease of use. The common ingredient they all provide is some aspect of value to their consumers. If you don’t use their particular service, they probably don’t provide much value to you. This is a problem which all these companies are trying to answer through rigorous experimentation aimed at adding value.
The business models evolved from one-time buys like cars and homes to subscription-based leasing and streaming, which further evolved into on-demand based ride shares and rentals. This does not mean that people don’t buy cars anymore but are given the choice of using a ride-share. The value is that you do not have to find parking, pay for insurance, fuel, and maintenance. Netflix’s subscription-based service is effective because the cost of on-demand video is still high — buying a video on Amazon, apple tv or google play is high. A single episode of the popular show friends is not available on Amazon, $1.99 on apple and google for Standard definition and $2.99 for high definition. Netflix provides high definition content of all episodes for $10.99 a month with access to many other movies and shows. The graphic below illustrates the difference in the entertainment market.
The value created to the consumer is the ability to watch these “on-demand” for a monthly fee. The on-demand is in quotes here because it is subject to availability. For example, Netflix recently renewed the friends content contract for $100 million a year. They can pay this with the subscription fees from a month of 10 million users, they have over 50 million as of 2018 (source:https://www.recode.net/2018/1/22/16920150/netflix-q4-2017-earnings-subscribers ). Their contract value with the content owners was not limited to a particular number of views. Technically, this could have zero views but higher the viewership, more valuable the deal would be. Netflix renewed the deal for friends but let go of other shows in the past - for example, How I met your mother (source:https://www.polygon.com/2017/9/15/16315748/30-rock-netflix-himym-leaving-october-2017 ). Friends had value to Netflix but how I met your mother did not.
It becomes apparent they are estimating the value creation of each acquisition. The method of estimating the value could be through viewership and search history on Netflix, but other avenues such as IMDB activity, Reddit posts and google trends can be leveraged. I would term this “estimating the pulse” or “gauging the interest” of the consumer through data logs and interactions. Amazon, Facebook, Uber, Google and most, if not all digital companies use many metrics for gauging the attention of their user base. Attention can be measured by the interactions, search query, click through rate, focused dwell time, recorded interactions with customer service. These measures are attempting to understand the consumer and find the best way to capture their intention. Thus, understanding what a user’s attention is focused on, their pain points and optimization of the product to capture attention.
This aspect of capturing attention is evident in the advertising-driven economy of the digital elites. The services of Google, Facebook, Twitter, Amazon, and Youtube are free because they can serve advertisements for generating revenue. The massive digital troves of user’s search, view and interactions (likes/comment/review/save/favorite) for a particular video (youtube), product (amazon), query (google) or social interaction (facebook) provide an expression to the content. The searches and behavior on a site are logged and consumed to understand the product in relation to a user. Generally, this relationship is profiled and used to target similar users for generating ad revenue. Community detection and network analysis research (soure:https://arxiv.org/pdf/1608.00163.pdf) inform the similarity between users. The advertisements are based on user query/interaction and the space for advertisement is auctioned almost in real time. The purpose of such advertising is to capture the attention of the user. However, what does one do by capturing the attention of the user?
An illustration of this can be seen in this news snippet by PBS. The show starts with the statement
The most valuable thing in today’s postindustrial world is the human beings attention and how to get it.
Attention is a basic concept in human cognition. It is one of the pillars for guiding perception and information processing to instantiate memory and recollection. A pursuit of marketing and business is to capture attention and influence your decision. Thus, attention is a valuable concept in business and economics as much as psychology.
The aisle space in a supermarket is an interesting study - retailer charge manufacturers differing amounts to display item, keep an item, showcase them at entry, exit, and aisle corners (source:https://qz.com/807723/inside-the-secret-backroom-deals-big-brands-make-to-vie-for-control-over-grocery-stores/). Food manufacturers are moving from advertising to trade promotions allowing the retailer such as walmart, kroger, safeway,… to make a share of the sale. The storefronts in the digital era are browsers and apps on cell phones. The mannequins of these storefronts change very quickly, based on the query and other cookies stored, to grab your attention and influence your decision. The idea of capturing the consumers’ attention at the time of purchase by providing discounts, highlighting a new flavor, showing limited availability stacks an incentive structure.
A similar incentive structure is used by the digital companies - (positioning) advertisements on search engine results page (SERP), (manipulating) amazon product categorization, placement, and facebook news feed are all experimented and optimized to capture a user’s attention. Search Engine Optimization (SEO) is a big hit and plays a huge role in today’s market, but requires time and investment to age the links and build a reputation (source:https://www.entrepreneur.com/article/303427). Naturally, SEO has evolved into demand estimation and the digital “real estate” is auctioned based on various pricing schemes as described in the video from facebook. All pricing is driven by supply and demand, therefore digital is no different.
Take caution when engineering Incentives
The success of such paid adverts requires carefully sampling the population and targeting right advertisements (through evaluation) to measure the attention attracted. Companies advertising through such avenues, ideally, want to leverage the profiled data and influence a decision when making purchases (or searching for information with an intent to purchase). There are also claims of engineering the US elections and Brexit by Cambridge Analytica (source:https://www.theguardian.com/uk-news/2018/mar/19/cambridge-analytica-execs-boast-dirty-tricks-honey-traps-elections). The premise is to capture the user’s attention and influence their decision either immediately or down the line. Influencing down the line is the premise of pre-suasion by priming an individuals attention to gather a favorable decision. There is much research on attentional priming in the past, but there are also many changes to attentional demands and availability in the past decade (source:https://www.cdc.gov/ncbddd/adhd/data.html).
The human attention landscape is a valuable commodity and understanding it is essential to avoid harm and gain success in attentional engineering.