From Ogilvy to Zuckerberg: How did Amazon, Apple, Facebook and Google change consumer research and targeting ?

Conventional (TV, print, radio) advertising often relies on research and targeting methods such as focus groups or demographic targeting to increase brand awareness and sales. These methods seem to be more and more outdated as targeting technology is already delivering better results.

A (very) short history of advertising research and targeting

In the past, as media was unidirectional (broadcaster to consumer), there were few ways retailers could efficiently target potential consumers. Advertisers would use consumer profiles and split purchasing options through demographic indicators (age group, location, education, sex etc.). By using statistic results they could outline marketing opportunities for certain demographic groups (Ex. “Women between 25 to 35 years, urban, having higher education are more likely to buy Product X”).

Having (theoretically) discovered a potential consumer profile they would then buy media in newspapers, radios or TV stations that would best appeal to that certain demographic group.

David Ogilvy
David Ogilvy

Of course this is just a skeletal description of the whole targeting process but it explains the process pretty well. Many companies have benefited greatly from this targeting and advertising system. Most of the brands we now know and buy were built this way. Even now, decades after the likes of David Ogilvy were setting up the rules on research-based advertising, the system is virtually unchanged.

“I notice increasing reluctance on the part of marketing executives to use judgment; they are coming to rely too much on research, and they use it as a drunkard uses a lamp post for support, rather than for illumination.” – David Ogilvy

How did the Internet change research and targeting?

Few could have predicted the impact Internet was to have on commerce and economy. Even less would have guessed how this initially “exotic” media would impact research and targeting.

20 years ago there was no marketing concept that could explain AdWords targeting and not be considered science-fiction.

Internet targeting and advertising renders most of conventional knowledge on research obsolete as technology has achieved what was once impossible. 30% of all human population is now in reach of all advertisers and they can now target more than just demographics.

Behavioral marketing is a concept that could not be possibly be achieved with conventional media. Using consumer behavior rather than demographics advertisers can target real time preferences and individuals rather than demographic groups. Say a user is known to have previously visited a car dealership website. He then browses websites in search of reviews on different car models. The car dealership could potentially target this exact user and serve him the most informative ads. Advertising ROI is sure to increase this way.

Some companies have become increasingly good at Internet research and targeting. One of them is now the most valuable company in the world in terms of market capitalization. Let’s have a look at how Apple, Amazon, Facebook and Google use large data to target and monetize consumer traffic.

How did Amazon, Apple, Facebook and Google changed consumer targeting ?

Amazon personalized recommendations

amazon logoAmazon is well known for its personalized products recommendations. How can it do this? Short answer: large data on consumer purchases and mathematics. Longer answer: Amazon holds a patent on its product recommendations which you can have a look at here (issued in sept. 2006). Although rather technical it focuses on certain key elements:

  • user profiling: Amazon holds valuable data on user demographics and previous purchases. Using this data it can map users in specific consumer groups. User profiling combines shopping cart contents, item ratings and recent purchases as purchase intents seem to change in time.
  • similar products information: say you bought three SF books. Similar products would be other books in that category. Some of these books would be more popular in terms of item ratings, reviews, views and purchases.
  • item affinity is the probability of some products to be purchased together. Say you are buying a Kindle on Amazon. You are very likely to buy a cover or case to protect your device. That means these products have a high affinity index
  • driver items are those products that are most likely to drive traffic to store. Again – the Kindle, Amazon’s best seller is not only a driver item but also a platform that insures further product purchases.
  • user path: the consumer will follow a certain path until it ads a product to the shopping cart or confirms a purchase. These paths are very important as they can be used to “guide” consumers to products they are most likely to purchase.

Using these information (and probably more) Amazon can first map users in consumer groups (1), extract popular, affinity and driver products (2), compile most profitable user paths based on previous history and other users actions (3) and than recommend the items most likely to increase basket size.

Recently Amazon announced the launch of its Kindle Fire product. This product is built on a Android platform and uses a proprietary web browser called Silk. The browser optimizes web traffic by routing it through Amazon’s servers. As Amazon already holds information on user profiles (users will have to login to synchronize their book collection) and now data on web traffic it can further improve its recommendations.

Apple Genius recommendations

apple logoAlthough Apple does not explicitly state it monitors iOS user actions it doesn’t deny it either. If it does, however, it might access a huge pool on users data such as web traffic, mobile purchases, locations, call history, social networking information (through access to contacts information, call history, SMS and iMessage history etc.). Basically everything there is to know on its customers profile.

For now the most visible way Apple uses data to increase sales is iTunes Genius, the music and video recommendation system. iTunes Genius uses purchase history and iPod activity to recommend potentially interesting songs, albums or videos.

Although iTunes Genius probably uses a system similar to Amazon’s it is not yet known to be as accurate. The performance issues are probably connected to the number in customers and items on sale. Amazon has a wider products inventory and a larger pool of potential customers. This leads to a larger database and increased accuracy.

Technology based companies have changed the way we think of consumer targeting and advertising. Innovation lead to profits and behavioral targeting will probably develop in the future. Tomorrow we’ll have a look at how two of the largest advertising – revenue based companies, Facebook and Google, use large data to improve consumer targeting. Stay tuned.

Amazon sells more ebooks than paperback and hardcover books. How come?

Amazon is already selling more ebooks then we might expect. For every 100 paperback and hardcover books, Amazon delivers 114 ebooks to its readers in UK. The fact is astonishing as this is sure to trigger the same long-term effect as iTunes had: it will change the publishing industry just like iTunes changed the music industry.

kindle dx
The Kindle DX

Change happened gradually. Legend has it Jeff Bezos saw the eInk readers and understood that such a device might be, in the wrong hands, Amazon’s arch-nemesis. In 2004 he order 30 eInk readers and asked Steve Kessel to setup a research facility for a future switch to ebook publishing.

In 2007 the team at Lab 126, Amazon’s subsidiary in charge of Kindle’s R&D, launched the first product. It was a big hit. Users could choose from 88 000 books, which was way above any other competitor in the ebook reader market.

The elements involved in Kindle’s success are invisible when we look at the product. The sleek design, the beautiful typography or the eInk technology are not enough to understand the ecosystem that lead to Amazon’s results. Let’s have a look at some key factors involved in Kindle’s adoption and evolution:

1. The existing clients: When Amazon launched the Kindle it already had more than 65 million customers. Even at a low adoption rate Amazon would have had the greatest chance to succeed selling ebooks.

2. The large selection of electronic books: The 88 000 books available at launch were more than any of the competition had to offer its readers. 5 years after the first generation Kindle Amazon has extended its ebook offering largely.

3. Impulse buying: In 1999 the US Trademark Office issued a patent to Amazon.com regarding 1 Click buying. By using previously entered credit card information the user can skip the shopping cart hassle and purchase any item with the click of a button. This patent was never awarded in Europe but Amazon created a impulse-buying consumer behavior that lead, in time, to the success Kindle is right now. By using this technology Amazon makes sure that consumers don’t think too much about purchasing. They just do it. Psychologically this resolves the so called “buyer’s remorse”.

4. Instant delivery through Wi-Fi and the Whispernet 3G network: one of the greatest things about the Kindle is the fact that you don’t have to wait until it’s shipped. The books are being delivered anywhere in the world instantly. The Whispernet network is nothing short of genius and its benefits in customer satisfaction greatly exceed the costs.

5. Syncing: the current lifestyle of many of Amazon’s customers doesn’t allow them to read to peacefully enjoy reading a book for more than an hour at a time. Our attention span has greatly decreased as modern jobs leave little time for personal development. Kindle is available as a standalone application on the PC, Mac, iPhone, iPad etc. Basically we can read our book wherever we are, whenever we can. Using internet connection the books are synced cross device and readers can enjoy books whenever they can.

6. Evolution of indie publishing: The Kindle allowed many indie authors to self publish their books. As these authors entered a market they couldn’t previously tap into prices have dropped and the book selection has increased. It’s not yet clear whether buyers are reading or just collecting the books. However – they pay for them and that means a shift in spending that will lead to further changes in book publishing.

The 6 facts above are the things we don’t usually see when looking at the Kindle but they are very important. One cannot try to understand Kindle’s success without understanding the ecosystem Amazon has built to support ebook sales.

In 2011 Amazon launched its Android powered Kindle Fire. This year the company is generating 89% of iTunes App Store revenues selling Android Apps. Read more on the subject here.