How the Internet of Things is transforming digital marketing

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Product Manager IoT Division - Connected Products, IBM

Ever heard of John Wanamaker? No? Born in 1838, Wanamaker was a merchant and religious, civic and political figure, and he was considered by some to be one of the first marketing geniuses in American business. A huge proponent of advertising, Wanamaker said: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

Fast-forward nearly 160 years to 1995 and another pivotal moment in history—the first time I got on the Internet, which was through a dial-up modem. Not really knowing what to do on the Internet, I surfed the web, but back then there wasn’t much content. The waves weren’t big, so I turned off my surfboard, or my Compaq desktop, and probably put on a CD or something else 90ish.

The magic of Internet ads

One thing I’ll always remember about those early Internet days was ad display. Banner ads—later on, pop-up ads—all seemed like billboards along the freeway. There was no data and no ability to establish causation in relation to top-line growth. A couple years later in a college Lit class, a professor instructed us to Google a book written by Johann Wolfgang von Goethe to get clarification on what some obscure passage meant. I actually think I applied for a job with Google that night after realizing how superior the search experience was in comparison with Yahoo. A few years later, a good friend of mine got a job at Google and on the phone one day he explained how Google made its money. He asked me to search for something, and then directed me to click on the square ad on the right side of the results page, and I did.

“See, you just made Google money,” said my friend.

“Genius,” I thought.

Since then, new channels have continued to enter the digital marketing and advertising landscape, in addition to banner ads and a search capability already in place. Soon came YouTube video, and shortly after that came mobile and social computing. Marketers now have a significant variety of channels and platforms to get their messages out, and now hiding from the taxman is easier than avoiding being advertised or marketed to—no matter what you’re doing or where you are.

The return on digital advertising

Today, significant money is spent on digital advertising, and while estimates vary, possibly more than $120 billion will be spent on digital advertising in 2016. That amount of money is spent because marketers know that doing so is effective; they just can’t tell how effective.

Imagine an organization is budgeted to spend $1,000 a year on digital ads. For simplicity’s sake that company earns revenues of $2,000. In theory, you could say marketing produced 100 percent return on investment (ROI) for the organization’s fiscal year marketing budget, which would be a great return. But what if it only spent half that amount? Would it only earn $1,000 in revenues?

This scenario offers a basic example, but it illustrates my thesis: the most sophisticated customers and marketing analytics platforms struggle to establish true causality. Many come very close, but marketing spend will always be a correlation to sales, not the reverse. wonder what John Wannamaker would say now? Correlation is not causation—but it sure helps!

The value of behavior

Today’s marketers see strong correlations to Google ad buys and increased revenues. That’s why Google is such a powerful company, and its revenues continue to increase after more than 15 years of being in the Internet search business. Google has data on our searches, our YouTube views, our email content, our Global Positioning System (GPS) data and much more. Google can segment its user base, using highly advanced analytical tools that correlate preferences, context and location of an individual and deliver relevant engaging offers. Yet there’s still room for improvement.

Improvement is needed because even though an individual may click a text display ad or a search link or a video banner ad, no implicit assurance of how that ad impacted a sale exists. If the ad hadn’t been there, would the sale have happened regardless? With no insight into how or if, marketers remain unsure how much top-line growth they’re contributing to the company, and they remain unsure of the cost of revenue.

With banner ads and, for that matter, billboards and television ads, the goal is to simply reach an audience. But in today’s world, companies are trying to promote specific behaviors that represent value to a marketing organization. Facebook likes, shares, tweets, registrations and yelp reviews all represent valuable data to the marketing department, and metrics such as cost per impression are less valuable. Metrics more closely aligned with revenue, such as pay per call, cost per order and cost per lead take a large step forward in articulating correlation and, perhaps in some cases, causality. But room to improve still exists.

Marketing organizations of the future, after solving the how-and-the-if challenge, should be able to measure themselves by a simple cost of revenue metric, as in, what does it cost to buy more revenue? The Internet of Things will enable marketers to measure cost of revenue because the data created from connected devices can solve the how and if. But how can it do so?

The Internet of Things and caffeine management

In the future, and to some extent today, Internet of Things connected devices are connecting themselves to other devices and exchanging data. A wearable device knows how long the person wearing it sleeps and when that person wakes up in the morning. It can communicate that data to the coffee machine, and the act of waking up triggers the coffee to start brewing. In addition, one coffee unit can be subtracted from the personal coffee inventory.

A wearable device also knows when its wearer is away on business, and coffee won’t be made if that person is not sleeping at home. The same person’s spouse, who only drinks decaf on Sundays while reading the New York Times on a tablet, has a wearable device that also communicates with the coffee maker. As a result, two coffee types are brewed on Sundays, and two units are subtracted from the home coffee inventory.

Coffee deliveries typically take five days to arrive, so 10 days before the coffee runs out, a message from the coffee maker arrives with an ad that says “buy”—no more emails with a repurchase reminder, no more alerts or cookie-based banner ads attempting to grab someone’s attention. And the risk that a person may forget to click a link and make selections no longer exists. Certainly, cross-sell and up-sell communications and additional offers will be made, but sizable segments of marketing budgets will be hypertargeted offers that fuse sales and marketing into an unbroken continuum of ecommerce.

That offer may come from someone else, perhaps a food and coffee supplier, and the message may appear on a tablet, a wearable device, in a car or by some other means. It may come in email form, a text, a phone call, an instant message or some other communication channel. The person receiving the message may have set this event up to preorder coffee at the six-days-left period, in which case a message may not come at all—just a receipt.

The point is, marketing will have the data and the ability to actually determine the cost of revenue. Now imagine that message comes from a competing brand with an offer to try its coffee, with access to the data and maybe with offers to switch to tea. The more connected the devices are in our lives, the more precise the offers will be, and it seems the precision may be limitless.

The causality determination

The future of the Internet of Things is one in which the point of sale is everywhere and anywhere. It blends sales, marketing and advertising into an omnichannel, platform-agnostic ecosystem that captures sales conversion metrics and links them to purchase-intent data, establishing causality. Matt Ackley, chief marketing officer (CMO) at Marin Software, calls this future “audience-based marketing.” Kevin Cain, director of content strategy at OpenView Venture Partners, calls it "targeted content." But I think this Forbes blog post comes closest to what I’m saying here by labeling it “integrated marketing.”

Essentially, we’re all saying the same thing. By using data and analytics, we can market and advertise by delivering offers to highly defined, hypersegmented audiences and make those advertisements and offers as personal and contextual as possible. The huge advance that isn’t discussed is what the Internet of Things enables, which is the data-driven identification of marketing-to-sales causality, or figuring out true cost of revenue—which is the true Holy Grail of marketing.

Now is the time to invest in integrating passive marketing and promotion capabilities into your Internet of Things products and devices. A tsunami of data is crashing down upon the enterprise, and only those who have plans in place to capitalize will make it out the other side.

An Internet of Things integration trial

Speaking of advertising, do you want something complimentary? Maybe a Raspberry Pi? Want to know what to do with it? Give this IBM Big Data & Analytics blog post by Bret Greenstein a read. It tells you all about how to set it up and start using it to test the IBM Watson Internet of Things platform. Try integrating the platform with a push notification, and send yourself a marketing message every time the Raspberry Pi detects an Internet of Things event. And if you do, send me a pic @peter_ryans or reach me here.