The so called professional service food chain is well documented
It looks like this
Global brand hires global agency who hires 3rd party boutique who hires 3rd party boutique who hires 3rd Party…
Think: Creative dilution to the power of n
Each phase of the industry supply chains adds its mark up
The client pays a premium and the creative crop farm worker at the bottom of the feed chain earns peanuts
>80% of the budget is wasted on ‘management fees’ and markups. Meanwhile the creative work becomes dulled when passed through many hands
The promise of the Creative Digital Marketplaces (e.g. Fiverr, Upwork, Freelance, Freelancer, Clutch, Dribbble, etc) is to streamline this process by displacing the middleman(s) with an online community of clients and creatives
The promise is nothing new. Like the majority of networked (Gig/Sharing/Social/eComm/Crypto) economy startups... It’s basically an arbitrage on trust
Let me explain what that means
Marketplaces are complex adaptive systems
The void between the Client and the Creative doing the work is filled with a number of trust gateways
These gateway nodes act as trusted filters to ensure the integrity of the system
They also function as toll booths. Thereby ensure trust has a price.
The primary trust gateway (Think: Filter) for the client is the global agency
The client hires the agency not as an exercise in creative effectiveness or efficiency but as a risk management exercise. The engagement is an exercise in trust
The buyer is thinking: Nobody gets shot hiring…
The agency is thinking: The client is willing to pay more because they trust us
This negotiation to reach a price:trust equilibrium cascades down through the industry food chain
This is how marketplaces work… regardless of the product or service
Brands like Apple, Accenture and Tesla are basically aggregators of untrusted products, people and services manifest as trusted products and services
Which is to say real world marketplaces… or, what we call supply chain networks, are complicated and messy
The promise of the digital marketplace is to strip away the complexity and put buyers in direct contact with creators
By replacing the inefficiency of navigating the marketplace with a self regulating digital exchange
In essence building a global search database that any data consultants worth their salt would promote as a single version of the truth
The strength of the model is obviously the win:win efficiency narrative. Clients get better work at a better price. Creatives get paid more for their efforts
The weakness of the model is these digital marketplaces are fragile
Basically they can be gamed.
i.e. Trust becomes arbitrary when the rules of truth can be arbitraged
And this gameification inevitably means the platform trends over time towards a Zipf or Pareto Distribution
This manifests in an 80/20 distribution.
ie. 20% of the market takes 80% of the profit share
and of that 20%… 20% of the market takes 80% of the profit share... 20%...
Cascading down to a few very wealthy outliers dominating the premium returns and the overwhelming majority toiling in the dust
So what is the lesson here?
It is this: Digital marketplaces have been around for decades. They mirror the real world they are displacing. If you choose to work in this space you have three distinct choices. You can profit from building the platform by charging tolls. You can toil on the platform bidding for work. Or, you can game the platform
Each approach requires a different mindset and financial/time/creative energy investment. While each one offers very different financial returns to those engaged with the platform
Thanks to the wonders of digital simulacra its never been easier to build or game a digital marketplace. The key is having deep pockets to establish the social proof. One need only look at Bitcoin and the multitude of crypto currencies to see the challenge is establishing and reinforcing the truth narrative/metric that drives adoption by the ‘tribe of champions’ and ultimately the mainstream breakout from niche play to mass market adoption
Obviously the barriers to entry of creatives to participate in the game are negligible. The key challenge they face is the Law of Pareto Distributions.
Deconstructing the promise of a win:win quickly reveals it all depends how you measuring winning.
Participation in the platform opens up the opportunity for any creative to participate in a global opportunity. It also opens them up to global competition…. and all the dynamics of price:performance of competing with the very best and the very cheapest talent in the world
The economics of the Pareto Distribution shifts the middle towards competing at the head of a very long tail.
The rapidly evolving nature of digital simulacra also means life on the long tail is increasing under pressure from automated creative agents that feed off the product generated by the members of the marketplace
Which in turns points to the 3rd option when doing business in the marketplace. Gameification.
Ultimately the winners of the race to establish the ultimate digital marketplace will be the automated CreativeTech startups that emerge over the next decade to service these marketplaces with JIT (Just in time) cost effective digital creative simulacra.
The AI powered creative marketplace
The only thing open to question is who will win the race… The creative tools incumbent (Adobe acquires the future), the digital disruptor (Think: Canva + Fiverr merges into the future), the distribution platform moves down the value chain (Think: Facebook acquires the future) or somebody (Think: a new entrant from the world of Deep Fakes) reinvents the future
What about the incumbents... those global trust gateways... the global ad agencies or consultancies?... TBH, just like the newspapers and electronic media, they probably lack the imagination and the talent to either acquire and integrate or build and manage the future
But, having said that... watch this space because there is money, big money, to be made in the ongoing transition to a global 24/7 digital creative marketplace
The future of trust is up for sale... and, just as with Facebook and Google, a new type of TRUST network will emerge... and radically change our ideas about how we create, exchange and measure trust in the marketplace
The term growth hacker was coined in 2010 (See Andrew Chen’s Growth Hacker is the new VP Marketing)
At the heart of this idea is the mantra “Experiment, Experiment, Experiment”
To engage in the endless A/B Test cycle
... and yes, a whole new $150+ billion martech industry has emerged over the past decade to automate this exciting new field of performance marketing
Now the Growth Hacker narrative emerged around the same time Hal Varian declared to the newspaper industry its best chance of survival was to 'experiment, experiment, experiment'
You could say growth hacking emerged from the zeitgeist. The winds of change
When the idea first landed as the 'next big thing' in marketing I wrote a post on ‘What Google can teach the newspapers about innovation’
In that post I explained that Hal Varian’s call to the Newspapers to 'Experiment, Experiment, Experiment' was essentially an exercise in branding because it didn't reflect the reality of Google’s innovation engine
A casual look at the data revealed the secret to Google’s success was less about 'Experiment, Experiment, Experiment' and more about 'Acquire, Acquire, Acquire'
Roll forward a decade and it should come as no surprise that the Digital Agency of the Decade acquired the future rather than building it
Accenture formed its Interactive Business Group in 2009.
Since that announcement Accenture's appetite for acquiring creative agencies has become legendary
The Monkeys, Droga5, Bow & Arrow, Karmarama, Fjord are just the tip of the iceberg
So when in 2020 Ad Age announced that Accenture Interactive was the largest Digital Agency in the world for the 5th consecutive year it came as no surprise to industry insiders
At the heart of Accenture’s success was an arbitrage play. A numbers game
You see the market multiples on Ad Agencies trend below 1x Revenues. Accenture trades between 3-4x.
Every time Accenture acquires a new agency it makes >3x on the deal before you even account for future revenue growth
What makes the arbitrage even more interesting is the average revenue per employee generated by an Ad Agency is around $250k.
Meanwhile the ARPE for Accenture is around $75K
The reason for this being the ongoing disruption of its core SI business by Offshore Outsourcing providers
And this raises the question: How does a professional services business that is 3x less efficient generate a market multiple 3x that of the competition it is hovering up?
Did it embrace growth hacking? Did it launch a thousand failed experiments?
The simple answer is no
Accenture has achieved this through… yes, you guessed it… by leveraging its Brand and exploited the gap between market perception and market reality to exploit the arbitrage opportunity.
So while the rest of the industry debated the relative merits of creative awards, mobile apps, search, SEO, social, stories, conversations, influencers and growth hacking Accenture simply gamed the business of Creative Professional Services by reimagining it as an exercise in creative accounting
.. and that's why Accenture's stock performance since mid-2009 looks more like Google's than Publicis, Omnicom or WPP PLC
and yet, when measured by the idea of Digital Maturity being about leveraging Smart People + Smart Technology to improve operational efficiency, Accenture - just like the rest of the advertising conglomerates - looks anything but... especially when we compare its relative performance with the digital advertising market leaders
and yes, the clever ones among you will understand the ARPE/APPE metrics are just another dimension to the global arbitrage business model
But I think there's something to think about moving forward…
about how branding shapes our perception of what is means to be a market winner or loser
especially when trying to reimagine the agency of the future...
If Google was the digital innovation story of the 2000's with their 'Experiment, Experiment. Experiment' narrative and 'Acquire, Acquire, Acquire' best practice model who or what was the digital innovation story of the 2010's?
What was their branding narrative? and, after stripping away the narrative, how did their best practice model really worked?
In a decade of tech bubbles - e.g. Mobile Apps, Clouds, 3-D Printers, Crypto, EV, BNPL… - just who or what was the break through innovation narrative?
A decade ago - at the height of the mobile apps wave - I explored the Apple, Nokia, Yahoo, Google, Facebook, LinkedIn, Twitter, Amazon, Salesforce, Blackberry, Samsung, Blockchain disruptive innovation narratives at length (See here)
Today I’ll focus on one: Blockchain
Why? Because is it speaks to the heart of the disruptive digital narrative and the past, present and future of brand building
Which is to say it is speaks directly to the arbitrage of trust and the monetisation of the digital economy
When I deconstructed Andreessen’s Blockchain monologue (published by the New York Times in early 2014) I described it as a ‘game of thrones played out in a house of cards’
I also suggested forecasting the value of Bitcoin was simply a matter of applying a contagion model to the social proof (i.e. the anonymity narrative encouraging organised and disorganised crime to be the early adopters/‘tribe of champions’)
In the end I summed it by saying: “Bitcoin may, or may not, be the currency of tomorrow but it is a clear measure of our ideas about progress today”
The nature of the exercise was very simple: It explored the question: What happens when the word Bitcoin becomes the word TRUST and the words Internet and Network become Community. The user, now a member. Distributed now simply shared. Programmers are Psychologists and products and solutions become behaviours and habits. When technology becomes meaning. The ledger our relationship.
Seven years on it’s perhaps time to revisit these underlying questions about the arbitrage of trust and the ongoing challenge of building the global repository for storing the single version of the truth.
Arguably we are entering the fourth wave of the networked economy.
We’ve had the Yahoo/Google Database of (Trusted) Links, the Amazon/eBay Database of (Trusted) Products and the Facebook/LinkedIn Database of (Trusted) Friends & Contacts
Today we are talking about the Database of (Trusted) Transactions… the Blockchain
and yes, the challenge of selling the Blockchain is no different to selling social media.
How do you turn the mundane? The updating and querying of a database into something exciting like sharing and connecting with friends?
How do you excite the programming community to build apps and solutions on your platform?
You begin by creating a new language. e.g. DeFi. Decentralized Finance
You talk disruption. You talk about disrupting old, traditional stale Banking with new and exciting and innovative decentralised finance
You talk Smart Contracts… simply because it repositions everything that has come before as Dumb Contracts (Plus it had worked before with mobile phones)
You reimagine arbitrage as Yield Farming and Liquidity Mining
You talk of snapping this next generation of APIs as Money Lego
You talk of trading contracts across decentralised exchanges
You reinvent the IPO as the ICO
and you repackage some old ideas that failed before (Think DRM=NFT)
You use language to reinvent the old as something bright shiny and new
More importantly you leverage language - dare I say stories? but more accurately triggers - to shift market behaviour in your favour
If we turn the clock back to 2010 when I deconstructed the innovation narratives of Apple, Google, Facebook, et al. we discovered - once you stripped away the rhetoric, the grand narrative - the market leaders were building their brands by gaming behaviour to arbitraging free
e.g. When we examined the DNA of Apple’s Innovation Engine we discovered “Today Apple has...
Developers building free software applications (Other people's time, effort and ideas)
Venture capitalists providing investment funds (Other people's money)
Media outlets providing lots of free promotion and/or content (Other People's Time, Brand and Customers)
Customers who are product champions (Other People's Time and Brand)
Market Brand Leaders building mobile apps (other people's time, effort, ideas, money, customers and brand)”
The same principle applied to Facebook’s You as a platform model
We also discovered that the primary channel for igniting this radical change in behaviour wasn’t paid digital advertising but VC funded PR circulated via mainstream media
and so we discovered through collating two decades of data that there was evidence that measurable, quantifiable success was built through the art of story telling, of owning a piece of mind and not by playing the frenetic game of 24/7 traffic/conversion rate arbitrage
All the evidence pointed to a simple market proof
Today Blockchain/Crypto ticks all the boxes
Today Blockchain/Crypto has...
Miners consuming large quantities of electricity to create bitcoin and other crypto tokens for free (Other people's time, money, resources, effort and ideas)
Developers building distributed applications & exchanges for free (other people's time, effort, ideas, money, customers and brand)
Venture capitalists providing investment funds (Other people's money)
Media outlets providing lots of free promotion and/or content (Other People's Time, Brand and Customers)
Investors who are product champions (Other People's Time, Money and Brand)
It’s changed the story… and now it is changing the game
and here is what I find confusing, because it is a measure of how far the advertising industry has fallen… how is it that Silicon Valley has once again out performed Madison Ave at its own game?
The answer is of course… they changed the story… and now everybody is busy playing their game
Which is to say the Agency of the Future has been with us for decades...
In Part 1 I suggested the only thing open to question is who will win the race… The creative tools incumbent (Adobe acquires the future), the digital disruptor (Think: Canva + Fiverr merges into the future), the distribution platform moves down the value chain (Think: Facebook acquires the future) or somebody (Think: a new entrant from the world of Deep Fakes) reinvents the future
So let's close off this ring cycle with a quick look back at the progress of each of the players
We'll begin the discussion by analysing the Digital Maturity Metrics
A quick glance at the Average Revenue Per Employee reveals the emergent digital marketplaces for eyeballs and creatives are much more efficient at generating revenue than the incumbent Professional Services model
But profiting from aggregating creative talent people, as opposed to eyeballs, is much more problematic. We see (with the exception of Freelance.com) these emergent platforms are no more profitable (in most cases less so) than the 'time and materials' service models they are disrupting - something that is fairly common across the vendors of 'X As A Service" business models
If we look at how these advantages and disadvantages translate into stock market performance we discover that, since Accenture launched its interactive business line, the Creative Tools incumbent (Adobe) has been the outstanding performer of the past decade. While the talent marketplace (Freelance.com) has struggled to compete
...then there is the engine room of the growth hacking industry: The MarTech Platforms
However, what is of interest is the impact of the disruptive new "trusted marketplace" models that have emerged since mid-2009
Specifically Shopify, The Trade Desk and Fiverr
Each in its own way is redefining what the emerging market for creative digital services looks like
Each in its own way is building a new type of TRUST network
Each in its own way is building the next generation of global trust gateways
Which is to say the agency of the future - those arbiters of trust - looks nothing like the agency of the past...
Moreover the market already understands this and has priced it into the future
Why? Because, for anyone who is in the business of investing, it's pretty obvious, at least in creative circles, the future of trust is already here...
One more observation missing from the original text...
A quick glance at the US advertising industry stats indicates a healthy 4.6% CAGR over the past decade
While digital has delivered just shy of 44% CAGR
The industry appears to be in good shape to grow into the digital future
But these headline number hide the deeper insight
In 2020 Venture Capital funded advertising spend estimates equate to 26% of the US advertising market
... and about 44% of the digital advertising market
That represents a +50% CAGR since 2010
This is a fundamental shift in advertising buyer behaviour that few, if any of the industry leaders are aware of, never mind positioned to take advantage of moving foward