Customer Data Is the Secret to Silicon Valley’s Success

Note: A version of this post originally appeared in Forbes

Scott Galloway’s new book, The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google, does a wonderful job articulating what makes each of these companies so uniquely successful. I’d suggest, however, that the key to their success can be located in their singular competitive advantage: customer data.

Each of “The Four” has built unparalleled infrastructure dedicated to knowing exactly who you are and what you like. They use it to track your behavior, understand your interests and personalize everything. All have found different ways to monetize that fundamental asset, but in each case, it has been the reason for their ascendancy to category domination.

Google and Facebook: The Advertising Duopoly

Facebook and Google are synonymous with Silicon Valley success, but their winning streak reads differently to digital marketers and publishers than to consumers or capital markets. The impressive stock performance, soaring revenues and steady user growth that wow Sand Hill Road, Wall Street and even Main Street tell a very different story on Madison Avenue: that story is one of a stranglehold over internet.

The numbers don’t lie. Brian Nowak, analyst at Morgan Stanley, estimates that 85 cents of every new dollar spent in online advertising will go to Google or Facebook, and according to recent analysis by Digital Content Next, a trade association representing publishers, the two companies accounted for all of the growth in digital advertising for the first half of 2016, even as the aggregate market share for everyone else actually decreased. “Duopoly” is how the industry has come to talk about this dominance — and it is the right word for it.

How did two technology companies achieve such asymmetry over online publishing and advertising, and over media in general? Simple: Google and Facebook know so much about you.

Before the advent of these two companies, marketing to large audiences was a clunky, inexact science. Mass marketing basically meant reaching as many people as possible in the hope that you would net some of the folks that were actually in-market for whatever it is you were selling. Waste was the norm. Marketing to real, known individuals was extremely hard to scale. Direct mail (where you have an address), telemarketing (where you have a phone number) and email (where you have an email address) were just about the only ways to do it.

Google and Facebook transformed the ad industry forever by introducing mass-market scale into the previously bespoke art of known user marketing. They did it by amassing identity graphs that span across devices, knowing with certainty who you are and how to reach you. They did this by becoming indispensable to users beyond their original functions. Not only do Google and Facebook have your identity across their owned properties where you log in — including Google (search), Gmail, Docs, YouTube, Instagram, WhatsApp and Messenger — they also track identity on third-party sites run by other publishers. The more you use Gmail or Facebook info to log in to other sites and services, the stronger FB and Google’s identity graph becomes.

Knowing who you are allows these companies to tie back your online activity to a single point of origin, forming a detailed and nuanced picture of your interests and receptiveness to different marketing messages. While marketers target ads against that behavior itself, Google and Facebook can target ads to the person responsible for it — and charge handsomely for the opportunity.

This people-based marketing concept is their core innovation and revenue driver, although it’s rarely talked about that way. They’ve also made it turnkey and simple. This efficient, effective and scalable people-based marketing is what keeps marketers coming back in ever-increasing numbers, and it’s what’s behind the soaring revenues, earnings beats and the power they now hold within the marketing ecosystem.

Amazon: The Retail Juggernaut

Who can step in and break up the duopoly? Most of the smart money is on a major entity that is increasingly on the competitive radar of business leaders across industries: Amazon. It’s Amazon — not Oath, not Snapchat, not Twitter — that Martin Sorrell, CEO of the mega-huge ad agency WPP, says keeps him up at night.

How is it possible that the world’s largest digital retailer is better poised to challenge Google and Facebook than seasoned advertising platforms? Because Amazon has one of the world’s largest (and most sophisticated) identity graphs. It knows who its users are on each device, cross-referencing that information with content viewing habits, shopping behavior — the works. That vaults its ad business way ahead of the incumbents — in fact, eMarketer estimates Amazon will total ad revenues of $1.65 billion in 2017, up 48.2% year over year, a trajectory outpacing virtually every other major publisher. All told, Amazon is now the fifth largest generator of digital revenue in the U.S., far behind Google and Facebook but eclipsing Twitter and Snapchat.

Of course, Amazon doesn’t even need to sell ads to monetize that core asset. It’s already doing so in the form of product recommendations, upsells, and promotions — each geared to your precise interests and shopping patterns. As Amazon continues to expand the products it sells through its platform, all of that disparate activity continues to point back to that single point of origin: the verified profile. That profile has grown so rich that Amazon could go into almost any vertical it wants and compete instantly.

Apple: The Sleeper

And that brings us to Apple. At first glance, it’s hard to see how customer data affects Apple’s bottom line. The company sells products that seem to resist personalization: meticulously crafted, rigorously uniform, elevating perfection in design over almost any other consideration.

But turn on your iPhone or iPad, and the story changes entirely. The first thing that new iPhone owners do when activating their device is to log in to iCloud. This mandatory sign-in makes your device yours, connecting your phone’s activity with your activity on your tablet and computer. iCloud profiles link your activity to your purchases on iTunes, to your contacts and so forth. The real key here is that iCloud enables existing iPhone owners to upgrade to new devices without losing any of their contacts or data. Since the majority of new iPhone buyers already have an iPhone, the identity layer of iCloud is a critical — if unheralded — factor in enticing existing owners to spend on a new one, and to keep spending on items within Apple’s curated universe. And all of that takes place before your scan your fingerprint (or your face, for the new iPhone X), and before you record your voice a few times to make sure Siri understands it. Your identity is baked right into the device.

That’s the real difference between Apple’s utilization of customer data and the rest of The Four: it’s designed almost entirely for Apple’s own benefit, to make buying a new iPhone — not to mention other Apple products — ridiculously easy. Which speaks to the seemingly limitless power of knowing you better. Knowledge of the consumer’s identity, relationships and interests is the key to product personalization, customized offers and targeted advertising. More than anything else, it’s what separates the dominant brands from those getting dominated.

Originally published December 11, 2017

Mike Sands

Mike Sands is a co-founder of Signal. Prior to joining Signal, Mike was part of the original Orbitz management team and held the positions of CMO and COO. Mike also has held management roles at General Motors Corporation and Leo Burnett. His work at General Motors led him to be named a “Marketer of the Next Generation” by Brandweek magazine. Mike holds a Bachelor of Science degree in Communications from Northwestern University and a Masters in Management degree from the J.L. Kellogg School of Management.

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