Kamakshi Sivaramakrishnan | Vox

Don’t Squash the Subsidy — The Apple Watch’s Success Might Depend on It

2019-03-06T05:40:51-05:00

First-year sales estimates for the Apple Watch vary between eight million and 41 million units. That 33-million device gulf reflects widespread uncertainty about how the Apple Watch will fare in the market, and as a marketing channel. Will it become a staple object like the smartphone, or remain a niche device for diehard Apple fans? The answer hinges not on the technology itself, but on its accessibility.

This same question faced iPhones when they first came out, which is why smartphone subsidies and service contracts were the norm from the dawn of the smartphone era until only very recently. The only reason why anyone was able to get a $600 or $800 phone for $100 or $200 was because Verizon or AT&T paid for it, and the subscription model enabled the carriers to recoup the cost from the consumer in six months. Today’s consumers are addicted to their smartphones, so even as the major carriers do away with subsidies, we’ll still go out and pay full retail price, or divide up the cost in monthly payments.

Subsidies enable scale, and Apple has sold 700 million iPhones to date, largely due to those subsidies. As a result of that reach, as well as the power the App Store brought, iPhones are a powerful marketing channel. Mobile ad spend is soaring, and 75 cents out of every mobile ad dollar is spent on iOS. In 2014, Apple led in ad revenue by a wide margin, according to a study from Opera Mediaworks.

The iPhone is such a powerful marketing channel because of its scale, and the same principle will hold true for smartwatches. The Apple Watch is just as expensive as a new iPhone — a 38mm stainless-steel Apple Watch costs $549. The hefty price tag makes it prohibitively expensive for many consumers, which makes scaling difficult. Without scale, the Apple Watch will never become a viable marketing channel.

Mo’ money, mo’ problems

At its unveiling, Apple CEO Tim Cook described Apple Watch as “the most personal product we’ve ever made.” The device was conceived as an important companion to the iPhone that frees people from constantly checking their phones by making important information viewable with a glance. The big, overarching vision is for the Apple Watch to become as prevalent as the iPhone. In this scenario, Apple would be able to generate revenue from ads and marketing, and not just device sales alone.

However, the Apple Watch will never become ubiquitous (on its own) at its current price point. In the Harvard Business Review, pricing-strategy consultant Rafi Mohammed wrote, “based on what I’ve read so far, I’d grade the Watch an A for ambition and a D for pricing strategy.”

Apple is known (and notorious) for releasing frequent updates that send existing devices into obsolescence at a rapid rate. This strategy works on iPhones because of subsidies, and without which people would be slow to buy and upgrade. Why shell out $549 now, when a newer, better version will be on the market soon? Or why spend hundreds on an upgrade when your current version works just fine?

“The lack of subsidies on the Watch will make — or at least should make — consumers even more anxious about the cost of upgrades,” Mohammed wrote.

Can Apple drive adoption without a subsidy?

If the Apple Watch remains a niche object, it will never become a significant marketing channel. Yes, the potential for marketing on the Apple Watch is huge. Over the past few months, a flurry of articles has come out anticipating all the ways that the Apple Watch will “change” marketing by creating new opportunities to reach and engage consumers with “extremely contextual experiences.”

Considering the trend toward carriers phasing out smartphone subsidies, the prospect of an Apple Watch subsidy doesn’t look good. Verizon just announced that it will no longer offer contracts or subsidies to new customers, and AT&T recently did the same. T-Mobile eliminated contracts and subsidies more than two years ago.

The argument that the iPhone achieved popularity because of subsidies is valid, but admittedly flawed. The iPhone — and especially the iPad, for that matter — also significantly benefitted from a “killer app.” In this case the killer app was actually the App Store, which opened up the device to developers and spawned the $25 billion app industry. We’ve yet to see a killer app on the Apple Watch, and consumers might wait until there is one to adopt the device more widely.

For example, a Forrester Research brief said, “smartwatches are the perfect fit for marketers to deliver value in micro moments when people are traveling, jogging, commuting or in a meeting.” A ZDNet article gives the example of an app that reminds you to use your asthma inhaler when you enter a more polluted area. Or you can use your Watch to check in and open your hotel-room door.

Payments, geofencing and beacons, social media and health all present exciting opportunities for marketers. These opportunities are less about attracting new customers as driving engagement with existing customers. Marketers and advertisers will have to be innovative about their campaigns, but down the road, the Apple Watch could open up interesting new advertising revenue streams.

Marketing only matters at scale, and marketers can’t and won’t advertise on the Apple Watch if they are only going to reach a very limited group of people.

Without subsidies or a killer app, the Apple Watch will remain a luxury product without a broad reach. This means that all the hype about it being the “Next Great Marketing Channel” is blown out of proportion. Yes, there are exciting possibilities for what marketing on the Apple Watch could be, but they won’t turn into a reality unless, one way or another, more people start to buy the Apple Watch.

Kamakshi Sivaramakrishnan is the founder and CEO of Drawbridge, the leading programmatic cross-device technology company, and the first and foremost solution for cutting-edge cross-screen marketing strategies for Fortune 500 brands. Drawbridge was named the fastest-growing ad/marketing company in the world in the 2015 Inc. 5000. Named one of Business Insider’s “Most Powerful Women in Mobile Advertising” three years in a row, one of Ad Age’s “40 Under 40,” and an E&Y Entrepreneur of the Year Finalist, Sivaramakrishnan is an expert on advertiser-buyer connections in today’s multi-screen environment. Always an innovator, she left her role as lead scientist at AdMob (acquired by Google in 2009) to solve the digital advertising problem of cross-device identity. Reach her @kamakshis.

This article originally appeared on Recode.net.

We Shouldn’t Have to Give Away Our Identity to Use the Internet

2019-03-06T06:24:46-05:00

Facebook, Google and a host of other companies have undoubtedly changed the way we interact with the Internet. This has given us the luxury of enjoying tons of free Web and mobile services. However, we need to remember that if we aren’t buying something from a site or app, we (or our personal data) are likely the product being sold. At the end of the day, almost no one can truly control the use of their own identity information — in exchange for these “free” services, our identities are being traded without us being a part of the value chain.

The economies of the Internet have long been made viable by digital advertising enabling most free services to indeed be free. Most news sites, social networks and other online applications are ostensibly free to access, because their revenue comes from marketing partners, not consumers. This is in obvious contrast to e-commerce properties, which realize revenue directly from consumers and hence, rarely rely on advertising.

The more these ad-supported sites know about their users (us), the more valuable their ad space is. As consumers, we give a great deal of personal information away when we sign up for mobile applications and online services, sometimes without our knowledge. But that personal information — phone numbers, home addresses, birthdates, family members, interests, sexual orientation, political views, medical history, credit card numbers, etc. — is often distributed to other apps and sites.

This practice is nothing new. Filling out a sweepstakes entry at the mall to win a car is essentially the same idea. What is new is that selling data has never been as invisible or sneaky as it is today. In fact, while we may give these sites and apps our data “willingly,” we may not be aware of what happens behind the scenes. It’s usually only in the terms of service and privacy policies which, chances are, we’ve blindly agreed to, that companies specify that our personal information can be used for marketing purposes and/or shared with “trusted partners.” We get automatically “opted in” to things we may not realize we’re opting in to, and pretty soon our personal information and identity is no longer ours to control.

Backlash

In today’s multi-device world, where Americans own an average of four digital devices, keeping a hold on our identity is more difficult than ever. With each website we visit and app we use collecting data on us, the opportunities for data-driven, personalized marketing are endless.

And while personalization is great for marketers to deliver and even for consumers to receive, many of the ways this data is collected and used make it difficult for us as consumers to keep a hold on our online identity and privacy. Our penchants for working, socializing, researching and buying products across devices provides near-infinite outlets for our personal identity to be out of our control and in the hands of for-profit entities.

Some sites and apps have even started to revolt against these kinds of policies. Ello has positioned itself as the “anti-Facebook” with an ad-free interface and policies that allow its users to enjoy greater privacy. This is one way to approach the problem, but as Internet users we shouldn’t have to give up our favorite social experiences just to ensure that our personal identity information isn’t used for marketing purposes. There is a fine line between enabling free services with ads that are relevant to users, and abusing consumer privacy. If secular governments can be built on the separation of the church and the state, can’t we bring this secularity to our online lives?

For the first time in the 20-plus years since the rise of the consumer Internet, there is a middle ground. Today it is possible to enable the ad-subsidized world of the Internet to work while still protecting consumer privacy. Here’s how:

Two diverging paths for the future of identity: Deterministic and probabilistic

The goal of any digital marketer is to reach the target audience that is likely to engage. Marketers rely on a combination of their own customer data and other data from publishers and ad-tech partners to define these targets. But there are two different ways to get there, one of which is far less intrusive than the other.

Facebook and Google are examples of companies that use our login credentials from their owned apps to make a deterministic ID of users, across every device we sign in to. Because we’ve agreed to Facebook’s Terms of Service, we consent to Facebook enabling marketers to utilize our data (which we’ve willingly provided) to reach us on Facebook and any place within the Facebook Audience Network. Now when I sign into my Instagram account on mobile, Facebook knows it’s me, the same person who logged into my Facebook account on a laptop two hours earlier. It also has all of my personal information available to use in delivering targeted ads.

That data is incredibly valuable to marketers, but it comes at the expense of our identity. Does it have to be that way? Isn’t there an approach whereby consumers, marketers and advertising technology platforms can all collectively and equally benefit?

Instead of identifying consumers with a deterministic approach, probabilistic methods ensure that marketers are able to reach the right audiences, while protecting consumers’ privacy at the same time. Probabilistic methods involve collecting non-permanent, user-resettable identifiers such as browser cookies and device IDs, and correlating the different data points to predict device ownership, demographic information, interests and other attributes.

These probabilistic identity solutions can be just as valuable and are potentially larger in scale than any single app’s or site’s user-base. They also have the flexibility to be used in a variety of marketing platforms. Because these are only predictions about users, this is a win-win: Our privacy as consumers is respected, and marketers have what they need to reach relevant audiences at scale.

Opt-in or opt-out: By force or by choice?

Today, the Googles and Facebooks of the world provide their services to us across devices and offer our data to their partners because we have agreed, via a single opt-in process, to both use their services and have our identity data used for marketing purposes. There is currently no possible way to be a logged-in user of Facebook, Google, Yahoo or Twitter while restricting those services from using and sharing our private identities for marketing purposes. Where on Facebook today can a user opt out of identity-based marketing?

While Facebook and Google universally opt us in for identity-based marketing, probabilistic solutions take the opposite approach — an option to universally opt out. In other words, probabilistic solutions provide an option for a single opt-out that takes effect across all of our devices. Though we never explicitly opt in for identity-based marketing with probabilistic solutions, are we really, truly opting into this on Facebook, Google or these other services? Or does it just appear that way because we’ve opted into using the service, which is tied to the tracking?

Facebook, Google and others with deterministic data could take a more responsible approach and build probabilistic solutions that don’t rely on our personal information. These companies have incredible visibility into our daily lives, and have the resources to build unobtrusive identity solutions. Or — and this is admittedly a bit farfetched — if these businesses insist on utilizing our deterministic identities, they could compensate users and make us part of the value chain.

What do you think? Should Google and Facebook change their approach? Will login-based, known identities persist, or does the future have in store the adoption of predictive identity models?

Kamakshi Sivaramakrishnan is the founder and CEO of Drawbridge, the leading programmatic cross-device technology company, and the first-and-foremost solution for cutting-edge cross-screen marketing strategies for Fortune 500 brands. Named one of Business Insider’s “Most Powerful Women in Mobile Advertising” three years in a row, one of Ad Age’s “40 Under 40,” and an E&Y Entrepreneur of the Year Finalist, Sivaramakrishnan is an expert on advertiser-buyer connections in today’s multi-screen environment. Always an innovator, she left her role as Lead Scientist at AdMob (acquired by Google in 2009) to solve the digital advertising problem of cross-device identity. Reach her @Drawbridge.

This article originally appeared on Recode.net.