The Bankwatch

Tracking the consumer evolution of financial services

The coming media crisis and parallels with the financial crisis

A general thread that has been building for me for some years now is highlighted in a few things I have seen recently. The thread is my hatred of advertising and in particular online advertising. For me it lies in the same category as junk (paper) mail except worse. I can simply throw paper junk mail out as one package, so it is not intrusive. Online advertising is horribly intrusive because it is pervasive. I use lots of things to ensure my online experience is minimally interrupted by ads

In 2004 people were asking about blog business models. Now it is social network business models. I have suggested other ways to deal with business models, but the mob continues to aim directly at advertising as the answer. It will pollute the web, and result in the opposite result than what is desired. It will not bring sustainability for them using advertising.

So what happened this week.

  • twitter volumes are already dropping. Pick any topical topic and search it on twitter – result 80% of the tweets are re-tweets of the topic. Its a gigantic echo chamber. In fact the next question – how many of those re-tweets were someone with a vested interest, a professional marketer, or a PR company? The theoretical value of wisdom of crowds does not allow for gaming the system. The black swan of twitter search.
  • the volume of requests to me at this blog for linkbacks, blogroll links and outright requests for ads is increasing significantly. That will never happen btw. However it is indicative of the desire for ‘social media’ results
  • A good friend who despite my recommendations still uses hotmail (now windows live). This persons entire contact list and archive of emails were deleted and it turns out this person not alone. Some kind of scripting virus inside hotmail launched by making the wrong click and signing up for something let the virus in. The clue was emails to all the contacts notifying my friend was happy with some TV or the like. Needless to say my friend is now using gmail exclusively but its a bitter lesson.
  • techcrunch reported on the real evil of ad networks online and the significant money being made. Its a long post, but the key is that no-one is generating any real value here. Individuals are getting rich and that is all.

So what is the point of these seemingly unrelated observations especially as I am a devout proponent of the value of internet. What I am against is traditional interruption advertising coming online. It pollutes the medium and hinders the genuine creation of new and valid business models.

Today I read Umairs post at Harvard and that solidified it all for me (Umair does that). He points to the coming online crisis that is the online version of the subprime crisis. Readers of this blog get the sub prime crisis. The coming online crisis is one of trust, and realisation that online activities require security and protection yet something more which is still to be invented – control. It will be a crisis and it will be a broad based internet crisis of confidence. The result will be serious and cause serious grief for banks and others who have come to rely on online for servicing.

The parallels with the financial crisis are interesting. The financial system was getting better and better at recycling money and the convoluted networks that were built lost sight of the origin of the credit instrument, and the underlying risk. Causes were lack of transparency, shadow markets, rapid expansion, and mis-allocation of risk amongst others. In the case of the online advertising market, there are similar attributes. Transparency is non-existent in most cases, because there is no way to know who is behind those ads. Shadow markets and rapid expansion – ditto. Mis-allocation is interesting. I avoid online ads because they are interruptive. At a deeper level, they are mis-allocation of resources away from user experience and towards the requirements of a stupid ad server that is busily collecting data on you. The value is highly one-sided – worse the server is gather data that may or may not be of any value. Internet is simply clicks – do clicks imply desire, need and future purchase patterns?

Relevance to Bankwatch:
Smart banks and others will look at the embedded value in the customer base they have and define models that add value to those people, not spam them. What is known about your customer base, and what do your customers actually want. Traditional advertising models assumes customer needs – internet models will (I believe) enjoin the customer to participate in the definition of what they need and in return protect them (the customer) from spam advertising. One example is the promise of VRM. But it is only one – others will be developed, and will be supported by powerful authentication tools.

Innovation is another loser in this coming crisis, or as Umair notes unnovation. In advertising land, innovation is all about finding ways to get inside peoples click patterns and drive ad revenue. There is not value created for the majority of consumers (90% + who do not click), nor for merchants who actually desire long term client loyalty.

This has turned out to be a negative post, but really it is intended to provoke thinking beyond online advertising and ad servers. Which innovations will align customer advocates and merchants in a genuine and trusted manner?

Written by Colin Henderson

November 12, 2009 at 21:57

5 Responses

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  1. Colin: Could not agree with you more. The internet has the power to do wonderful things, but it can also be horribly intrusive. I work hard to block out unnecessary approaches and advertising through a variety of programs which block these things. The down side is a slower system- but well worth the privacy.

    Marketers should realize that advertising interruption does not serve their purpose. the consumer has such great control over what is coming in that not only will they block you, they will be annoyed by your interruption. Isn’t it better to offer something remarkable to them and seek their permission to tell you about it? The days of pushing your product out to the market are long past. As are traditional ways of reaching out to consumers.

    Transparency is what is required for trust to build and yet many of these advertisers violate the very tenets of ethical advertising, thus contributing a great deal to the reputational risk they run. Wouldn’t it be so much better to just be known for your integrity, straightforwardness and the ability to deliver on what you promise? What complicate matters? Seems commonsensical to me.

    deborah nixon

    November 13, 2009 at 13:39

  2. Exactly Deborah. Also the balance of power between merchants/ advertisers and consumers must be rebalanced.

    Colin Henderson

    November 14, 2009 at 02:54

  3. Hi Colin
    Again, this is an instance of the internet redressing the imbalance between consumer and provider. Finding new ways to ‘get one over’ the consumer by unscrambling patterns, predicting behaviours and generally obfuscating value/quality/experience is a zero-sum game that’s a legacy of broadcast, one-way channels.

    In the old days, consumers couldn’t respond – they had no way to draw back the curtain. Now, the task for advertisers becomes ‘how can I develop trust in a two-way environment… the simple answer of course is by providing tangible value (honesty counts as value!) in much the same way as someone might in a real world conversation. Who on Earth would want to enter into a conversation with someone you think is annoying or continually spouts bullsh1t? You just wouldn’t.

    This is a tough new lesson for marketeers to learn of course – it’s a paradigm shift from the standard operating procedure of the last 100 years. Because of this, things will certainly get worse before they get better.


    November 16, 2009 at 16:41

  4. Colin, many of your points are exactly the reasons why I’m bullish about niche banking. It’s the internet that has enabled this new soon-to-be movement of niche banking, and I believe strongly it will do so in a way that does indeed add value to people (not spam them). It’s not about interruption marketing…in fact it’s almost not about marketing at all. In the long tail of banking, banks have to add value (beyond just products and services) so or else they have no market. In fact in my vision of the long tail niche banking future, people are buying that value to the extent that the banking services themselves are a distant secondary focus.

    To your point about innovation, I’m a big believer that not all innovation is technical (in fact I posted about that recently). I think the type of innovation we’ll see with niche banking is not so much about whiz-bang technology, but rather a very innovative and paradigm-shifting use of EXISTING technologies to create long tail banking experiences.

    I realize this is somewhat philosophical and vague at this point…there will be better, more concrete examples in the near future.

    Niche Banker

    November 18, 2009 at 20:44

  5. @Niche Banker – I agree on the ‘philosophical’ point you make. There has to be additional value beyond just another bank accoutn with complicated service charges.

    Colin Henderson

    November 25, 2009 at 23:24

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