The Big Opportunity with Virtual Reality

Virtual reality (VR) is being touted as the next big thing and venture capital firms are falling over themselves to give money to companies experimenting with the technology. There is also growing interest in mixed reality (MR), which is an augmented version that lets you use the real world as the backdrop to navigate VR objects placed within it. The MR experience is considered more real and believable, compared to VR, as the latter happens in a world that is entirely make believe. Here is a great Wired article on VR and MR which spurred my thinking and brought about this blog.

Turns out that VR technology has been around since the 1990’s but it was cost-prohibitive to mass produce. With the proliferation of smartphones, which have brought down the cost of sensors and created super computers that fit in our pocket, VR is finally ready to come of age.

It would be fair to say that Oculus Rift marked the turning point that resulted in VR going mainstream. Oculus started in 2012 as a Kickstarter project to build a VR gaming headset and quickly became a household name. In 2014 they were bought by Facebook for $2 billion. Since that moment there has been something akin to frenzy among the top tech companies to get into VR. Microsoft recently started shipping its HoloLens to developers (Source: Verge article). Verizon’s AOL bought a 360-degree VR video company called RYOT (Source: Wall Street Journal article). HTC, Google, Sony, Samsung, Apple and a host of other companies have launched VR products or are in the process of developing them.

However, all these companies are currently thinking about VR only through a lens of gaming and commercial applications like movies, tourism and for various new ways to market their products and services. It is great for companies to invest in innovation to find better and more effective ways to sell us ‘stuff’ but I believe that focusing entirely on the commercial aspects would be missing a much greater opportunity.

Here is the line in the article that sparked my thinking:
“People remember VR experiences not as a memory of something they saw but as something that happened to them.”(Source: Wired article).

In my mind, the greatest flaw we have as human beings is the inability to see through someone else’s eyes and, therefore, to empathise with them in a truly meaningful way. It is almost as if we are conditioned to personally experience a situation before we can fully appreciate and understand it on a deeper level. This is why it is often hard for us to truly empathise with people and situations that we have never experienced.

For example, most people get involved or start donating to Alzheimer’s and cancer research only after they have lost someone close or witnessed the disease first hand. Similarly people born rich are unable to appreciate the daily hardships and obstacles faced by families that live paycheque to paycheque, and simply view them as lazy or less hardworking.

Most people cannot fathom the daily experience of people of colour and the toll racism takes on a person’s self-confidence and self-belief. It is also very hard for any of us to imagine the emotional scarring that occurs, often for life, on victims of abuse. When there are no overt physical manifestations and scars, people struggle to feel a depth of compassion that might lead to action or a change in behaviour.

Now, let’s go back to the statement from the article; “People remember VR experiences not as a memory of something they saw but as something that happened to them.”

Now, imagine if we could develop VR and MR tools that will allow Presidents to walk virtual battlefields, before making the decision to go to war. I guarantee that they would not make it as lightly as they do today. Imagine if convicted murderers could see the hell they leave behind for victim’s families. What if skeptical lawmakers could live through the eyes of refugees fleeing war-torn countries? And college freshmen were able to witness the damage they do with a drunken but forced hook-up (not the actual act of rape but the aftermath). Imagine if Donald Trump could spend a day as a Muslim woman.

Think of it as an education tool to help us make better life choices and wiser decisions by building greater empathy, not as a brainwashing tool. I believe there is a greater potential for VR, and especially MR, that goes beyond experiences designed to create entertainment, one that could truly help us become more humane, compassionate and wise.

CEO’s of companies like Facebook and Google love to talk about their altruism. They want to give back to society by solving some of the biggest problems using technology. But because their motives are driven by profit (which allows them to fund these initiatives) we tend to end up with flawed initiatives like Facebook’s Free Basics.

So instead of Mark Zuckerberg and Sergei Brin playing God by holding onto innovations and breakthroughs in VR, to develop a narrow set of products that suits their commercial purposes (which they should still do), why not also open source all the research and code and allow the world to build off it and find many more commercial, altruistic and innovative uses for this technology.

Seeing life through someone else’s eyes is unequivocally the greatest power and gift we can give mankind and who knows, it might be the one thing that can help save us from ourselves.

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Why Facebook, Twitter, Netflix and Others Have Personalisation Wrong.

Today, it is hard to escape digital technology’s great promise of personalisation and customisation. Every company under the sun is touting tailored customer experiences. One based on learning about individual habits, preferences and interests; driven by our past behaviours, choices and actions.

Every advertiser and marketer swears the new ‘holy grail’ of connecting more intimately with customers, and they are racing to build algorithms and artificial intelligence that gets better, as it learns, at predicting future decisions based on past behaviours. They learn about our interests, hobbies and consumption habits in a bid to sell us more of what we ‘want’.

Amazon recommends products based on our purchase and browsing history. Netflix suggest movies based on our viewing history. Delta sends us special deals based on our travel history. The Wall Street Journal recommends news articles based on our reading history. Facebook shows us posts in our news feed based on our ‘likes’, and even the screensaver image on my PC asks me to like the pictures I want to see more of – well, you get the picture.

However, I believe every one of these companies has got it wrong. There exists a fundamental flaw in the way they are approaching personalisation, one that does not truly deliver on the greatest promise of the internet and digital technology.

The internet, beyond connecting the world, allowing us to share, engage, collaborate – is about discovery. The ability to discover new peoples, cultures, places and even points of view. It has the ability to open our minds, widen our worldview and expand our horizons through discovery; so why show us more of what we already know, like, see and do?

It is great that technology has allowed companies to peek into our daily lives (for those who opt-in), and digital tools in turn allows them to deliver experiences and messages uniquely tailored to us. But here is what I want them to do with this power – use it to deliver on the greater promise – one that opens each of us up to new ideas, enables us to experience new things, and even challenges conventional beliefs and viewpoints. Let’s use it to experiment with broadening our worldview; rather than limiting it based on what we already see and do.

Only by doing this can we begin to unlock the potential of the human mind and deliver what I believe to be the holy grail of technology.

Today, Facebook’s feed algorithm works to show us more of what we already like. The same holds true for Twitter or CNN’s article suggestions and the principles behind every other personalisation algorithms – they are designed to show us more of what find most agreeable.

As a result there is little debate and no authentic discussion because we are in essence talking to ourselves. More importantly we learn nothing new, if we don’t have the opportunity to experience views, ideas and thoughts that are very different from our own.

Currently, technology is only perpetuating our natural human instincts to find and then quickly form safe, secure and comfortable tribes and online havens. Yet, societies only make progress through discord, based on debating conflicting ideas and diametrically opposed views, before the majority can find common ground and reach consensus to move forward on the most contentious issues.

My challenge to every company is to start applying a different set of principles their algorithms and in doing so redefine the idea of ‘personalisation’ along the following lines:

40% what I already like
+ 40% things that are new and different (stretch my worldview)
+ 20% that I will dislike/disagree with (challenge my thinking)

Now imagine what your Facebook and Twitter feed, Netflix recommendations, Open Table picks and Fox News or CNN article suggestions will begin to look like. I guarantee they will be richer, more rewarding and in time will also help us bring back civil dialogue and respectful debate on both the most divisive political and social issues; not to mention that our minds and society will be richer for it.

The Trouble with Monetizing Facebook

Aside from the fact that the CEO is a very young man who wears a hoody, I believe there are few other fundamental impediments to Facebook’s future success based on the very reasons that have made it so popular.

Think about what Facebook is at its most basic – a self-aggrandizement platform that is entirely built around feeding our obsession with me, me and me. From status updates about myself, to wall posts about things I like, to the latest gossip I want to share – it is nothing more than a one-way megaphone to the world; a modern day digital soap box for the one billion people who now use it.

I believe this has in large part been the reason for Facebook’s astounding success; it feeds into our most basic human desire to have our voice heard, in a completely unadulterated manner. Often while never having to listen or pay attention to other opinions. It is the modern day equivalent of “I post therefore I am,” as Descartes might have put it. It is as if the act of posting today guarantees the existence of self, for this socially driven over-sharing generation that has never known the world without the internet and Facebook.

Arguably, we are all better at talking than listening. We humans have always yearned to be heard, preferably without anyone offering an opposing argument or opinion. Well, there is no better place or platform to fulfill this need, than Facebook. However, this does not exactly make Facebook a great platform to get my attention as a marketer, or to try to sell me stuff when you think about it in this way. So it is not surprising to me that among the hundreds of people I know, who use Facebook regularly, not one person who has ever clicked on (other than accidentally) or bought something after seeing an advertisement on Facebook.

The other fundamental issue with Facebook and the notion of social commerce that it is trying to tap into is that people don’t buy simply based on what they see their friends or family buying. Also, not everyone wants to broadcast their every purchase, publicly. We may go see a movie that has been recommended by a good friend or perhaps have our interest piqued about one being discussed on Facebook but I know that I will never buy an i-Pad or a new car just because one (or many) of my friends bought one and advertised it on Facebook. Not to mention the fact that it would become incredibly tedious (and sometimes embarrassing) to see a continuous list of purchases made by my friend list – find me one person who enjoys seeing each and EVERY song being played by their friends…

The fact that Facebook has always been free for users also poses a challenge when it comes to monetizing any of their features or services. The New York Times is struggling to gain paid subscribers after being free for so many years. Once you set such a basic expectation with people it will be viewed as a betrayal to try and charge for something they have come to consider a right. Facebook just started to offer the ability to pay to “promote” posts, this after a failed experiment in New Zealand, where they tried charging people a nominal fee to ensure that their friends could see what they wrote on their wall posts. Not surprisingly the pay per post experiment was a complete disaster because of the transient and self-obsessed nature of the information posted on Facebook; in my estimation. Not only is it societally worthless but certainly not valuable enough to people posting it, to pay to have it seen.  Think about how many of your status updates and posts on Facebook you think are worth paying to share with your friends?

The final part of Facebook’s problem boils down to behavior and human programming. Think about how we function in our daily lives; from brushing our teeth to the brand of toothpaste we are loyal to. The rituals and routines we develop happen over time and are formed due to comfort, familiarity and a level of trust that, over time, leads to an automatic-ease and unconscious behavior.  I go to Google to search, to Amazon to buy stuff, to a news site for the latest news – why do you go to Facebook?

Facebook: Not $$$ocial Enough?

Earlier this week General Motors decided to stop advertising on Facebook. GM made this announcement “after deciding that paid ads on the site have little impact on consumers’ car purchases” according to the Wall Street Journal (“GM Says Facebook Ads Don’t Pay Off”). Albeit, the total amount, $10 million, is but a tiny fraction of Facebook’s whopping $3.15 billion in reported 2011 ad revenues, the timing was not great. It was less than one week before Facebook’s much vaunted IPO.

So while the revenue loss is paltry, there are two larger concerns for Facebook. One, GM is the third largest advertiser in the US and their announcement might lead other advertisers to re-evaluate their advertising spend on Facebook. The second more worrying thing is that it is a major blow for a young company trying to convince the world that “social advertising” is not only effective but provides Return on Investment (ROI). In the short-term the impact may not be that great simply because Facebook is about to reach 1 billion active users (approximately 14% of the world’s population); and this number alone is hard for most advertisers to ignore. But as a public company, with shareholders, they will soon need to prove that they are worth their high valuation, in revenue terms.

Every company feels compelled to have a social advertising budget, even though there is scant evidence that these dollars generate any sales, or return on investment. The advertising and social marketing industry will have you believe they are effective sales drivers but the reality is that there are few independent studies or evidence to support this hypothesis. If you think about the number of times you have clicked on a Facebook ad or decided to make a purchase based on seeing someone’s status update (or wall post), you will likely reach the same conclusion. Facebook’s ad revenue actually fell in the first quarter of 2012 from the fourth quarter of 2011.

Here is something to ponder about Facebook’s current IPO valuation. According to Anant Sundaram (of Tuck School of Business at Dartmouth) the average price to earnings ratio for the majority of US companies, over the last one hundred years, has been around 15. Apple is at 15 and Google is apparently a little bit higher. However, Facebook’s price-to-earnings ratio is 100.

He goes on to say that “at current levels, it would take Facebook 100 years to generate enough profits to pay for itself. That number is so high because investors are betting Facebook’s profits are going to explode. Sundaram says, judging from this price these investors seem to believe that the company’s profits will double, and then double again, and then double again — all within the next few years. For that to happen, Facebook will need to attract 10 percent of all advertising dollars spent on the planet “across all media – print, billboards, radio, television, Internet.”  To put this in perspective he adds that “Facebook had just over $3 billion in global ad sales. TV ad sales in the U.S. alone last year were $68 billion.” (NPR: “Is Facebook Worth $100 Billion?”).

Facebook recently tried a new revenue generation experiment in New Zealand by charging people two New Zealand dollars (US$1.53) a post to ensure that their own friends see what they write (Wall Street Journal: “Facebook Gets Religion for Revenue”). Are your status updates and posts on Facebook valuable enough to start paying to share it with your friends? I know mine are not and never will be.

Let’s just say I am holding off buying Facebook shares because I don’t believe they have a real revenue model, yet. That is not say that they will not find a Google like search cash cow but let’s just say ad banners on the site are not the Holy Grail that Mark Zuckerberg wants us to believe.

#Netflix and the New Red…

Yesterday customers received an email from Netflix, and in one fell swoop this much loved company, one that was a darling of its customers, had put that strong equity on the line. It is ironic that they were thanking customers for their business, in this email, even as they were clearly holding a gun to their heads with another price hike.

Netflix succeeded in pummeling Blockbuster by re-inventing the movie rental category with an innovative business model, high customer satisfaction and a low cost service that was based on giving customers flexibility and not forcing them to adhere to policies designed to make the company lots of money.

I understand that Netflix’s runaway success propelled then into a space filled with deep pocketed competitors in the form of cable providers, telecoms, Google, Apple, Amazon, movie studios, TV networks and a slew of other companies all vying for a  piece of the pie.  I also realize that the company desperately needs cash to pay for the rising cost of content, and has to lower its costs (example postage) to survive and compete.

Steve Swasey, VP Corporate Communications said today, to MSNBC:

“We anticipated some folks were not going be happy with the change. It didn’t surprise us. 30,000 or so is a sub set of 23 million subscribers. They’re not speaking for the majority. We would like those members to stay with Netflix, but the reality is people will leave. We’ll make it up over time and the service will continue to grow. I don’t want to sugarcoat this. We do expect a certain amount of people to leave the service. Besides, Netflix members already go to Redbox, order cable, go to theater and Amazon.”

Barely a few months ago Netflix changed its plans raising their prices and forcing everyone to add a streaming option. So it seemed like they were gently moving their customer base into a streaming only world; gently being the keyword because new releases are currently not available for streaming and will not be for the foreseeable future and the streaming quality is still mediocre, at best.

Netflix has a customer base that is has been the envy of every company; staunchly loyal and fiercely evangelist; and many would have followed the company to the ends of the rental earth. But large numbers are now seeing a very different kind of red. And somehow I don’t think Mr. Swasey’s words are going to placate them.

This customer outrage is picking up steam. It remains to be seen how many of their        23 million customers will cancel their subscription, rather than pay the 60% increase being demanded, and how many will stay to help Netflix truly stay out of the red…

Groupon: To Deal or Not to Deal?

I struggle to see a viable business model behind this much publicized company that is about to jump on the current tech IPO bandwagon.

I can see some short-term value for membership based business’s like Costco or Zip Car using a 30%-50% discount on the first year membership fee to attract new customers. Businesses like these will make up more than the discount value in subsequent sales, as someone buying the coupon is obviously interested in what they offer. I will also say that there may be some intermittent value for local businesses that are more indulgences than necessities, like a river cruise with dinner that people would not consider spending on without the 50%-70% discount.

BUT for pretty much every other type of local business like restaurants, clothing retailers, supermarkets, etc. I see absolutely no value in offering a 50%+ discount to attract new customers; and more so doing this repeatedly.

Additionally, I have read upwards of 70% of businesses (I know at least two first hand) that have used Groupon, swear they will never use it again. Groupon denies this and does not share any of its figures. Whether Groupon is lying or not (we will not know until after the IPO) there still remain many fundamental flaws with their model:

– There are no barriers to entry into the daily deal market; and the number of competitors is growing with Facebook and Google the latest entrants. Basically, all you need is a sales force

– There is also nothing unique or special about Groupon or its relationships that creates or incentivizes loyalty from its customers

– Groupon terms are also supposedly far from endearing: “Each time Groupon sells a voucher to users, it collects cash up-front. Merchants’ share of the proceeds, which averages about 60% world-wide, is remitted later—sometimes much later. In North America, merchants get paid in installments over 60 days. Internationally, it typically takes 70 days.” Seems Living Social pays within 15 days and Google says they will pay within 4 days. (WSJ: http://on.wsj.com/oO2XdQ).

Beyond these issues I also don’t see why any business would discount their product or service repeatedly because it very quickly devalues their brand and will erode forever any premium people were willing to pay for it.

Finally, I also have serious ethical issues with the company. Aside from how quickly they threw their agency under the bus after the Super Bowl ad debacle, it turns out there has been a lot of insider selling going on. The owners have taken out $870 million so far from the $1 billion they raised. Odd given that the company lost $150 million last quarter and needs lots of cash to compete and stay ahead of its rapidly growing list of competitors. (Read the article @Business Insider)

My take: Groupon is smoke, mirrors and hype. This is why they had no choice but to turn down Google’s $6 billion offer, and also the reason their insiders are cashing out now, ahead of the public scrutiny an IPO will bring.