written on 12-18-2013
I read Mark Andreessen's interview this morning: http://management.fortune.cnn.com/2013/11/21/marc-andreessen/. It's such a pleasure to admire his intelligent remarks, that I read this article twice, once in English and once its translated Chinese version:http://www.36kr.com/p/207950.
Disintermediation
His opinions about internet's disintermediation is very inspirational. The internet is disruptive to the world not because of the new, fancy technologies, but because of its transparancy. And transparency, I believe, is the very essence of internet.
Transparency drives the internet to evolve and develop in different forms. And one of them is disintermediation.
Here is the Wikipedia's explanation of disintermediation:
Disintermediation is the removal of intermediaries in a supply chain, or "cutting out the middleman".
Let me try to analyze how the middleman make money: they don't create value, they make money by controlling the distribution chanels, and grant access to anyone who pays for it. In other words, they are like gatekeepers who sell admission tickets.
But the internet is like a bulldozer, knocking down all the walls and fences. With internet, people can get whatever information they want, whenever they want. The gatekeepers are becoming irrelevant now. That is why I predict most "middleman" businesses will be replaced by Internet, and here is a list of them:
Real-estate agency. I have analyzed this market in an earlier blog.
Headhunters. The recruiting industry will be replaced by professional networking websites like LinkedIn, because companies start to realize they can recruit best talent themselves with the help of Internet.http://www.businessinsider.com/former-headhunter-linkedin-replaced-the-recruiting-industry-2012-5
Matchmakers. This is already dead meat. Dating sites like Jiayuan.com eat their lunch.
TV, newspapers, magzines. These are a different kind of middleman. The gate they once kept is people's attention - they controlled the chanels of content distribution. Now internet is the new thing, so the old monoplies now become mere content providers. This is what Mark refers to as re-intermediation.
Resellers. The development of e-commerce means that offline distribution chanels are less and less important. And online resellers are threatened as well, because for a consumer shopping online, it doesn't matter if she buys the product from a reseller or from the manufacturer/brand owner directly; and for the manufacturers, it make much more business sense to sell directly to consumers. That's why Alibaba built Tmall, because in spite of Taobao's exuberance, it's a dying business, and Tmall is the future. Ma Yun is smart enough to see that, but most Taobao store owners are not. If you think about it, the Taobao stores don't add an ounce of value in the reselling process, they are just complicating a buying process that should be simple. But why now? why don't the manufacturers sell online a few years ago? Because the online market was too small back then. Taobao has made 2 contributions over the years: First, it nurtured the ecommerce market, now most people are not just feeling comfortable shopping online, for some, it's the only way to buy stuff. Second, the delivery service has matured over the years, and people don't need to wait for long. So Taobao, Congratulations on a job well done, now Tmall will take over, thank you very much.
Advice for internet entrepreneurs, don't try to be the next Instagram or Snapchat, or whatever. Those are both like a casino and a fashion business, you have a very slim chance of winning, and even if you do, people will quickly lose interest and turn to the next hot thing. Instead, keep an eye open for the middleman, and replace their business with your online service. Who knows, you may disrupt an entire industry.
Ads
Mark also mentioned the failure of internet ads. Internet has already captured a large proportion of people's attention, but is only rewarded a small part of ads market. We cannot always blame the businesses for being too conservative, as the online ads services haven't proved itself to be effective. The banner ads are the worst kind of ads, basically useless, I believe over the years Internet users have evolved the capability to ignore these ads subconsciously. Now there is a new 'native advertising' thing, my understanding of this term is to make the ads blend within content, so that it looks less like an ad. It may be effective, but we should not underestimate the users' intelligence, they are becoming experts in discerning ads once they see it.
For ads to be effective, it has to be relevant. That's why Google and Facebook's ads are so valuable. Google's ads are relevant to the content, Facebook's ads are relevant to the person. Actually, we can define the context of an Internet use scenario with more dimensions, and try to make the ads relevant to this context:
The content. Adwords and Adsense provide ads that are related to the content viewed by user.
The user's interest model - his preferrences, recent online activities.
Location. With mobile phones armed with LBS, we get to know where the user is (if he allows). Can be used for advertising local merchants.
Time. People desire different things at different time. Morning: Coffee; 11AM: restaurants; 6PM: Bars, movies; 11PM: Taxi service? Hotels? Weekend: Shopping Malls/Parks?
Device: Desktop or Phone, or maybe TV?
Age group/Gender: If the user logs in with social account, this is easy to come by.
In terms of ad format, we should try hard to make the ads less intrusive (so, no banners). Better still, if we can make the experience delightful, we will win big. Using some gamefication concepts in ads design might be helpful. The ad content has to be appealing, too. This is an art.
Quote from the interview:
What about marketing? How will companies reach their customers five years from now?
I know two things for sure. One: I know for sure that most offline marketing spending is going to move online in the next five to 10 years. The reason I know that for sure is because most consumer attention is moving online, just look at how people are spending their time. Offline media consumption generally is dropping, certainly on a relative basis, and increasingly on an absolute basis. And so if the majority of people's time and attention is going to be online, then you're going to want to reach them online.
Two: The other thing I know is that marketing spending hasn't moved over yet, and it's primarily my industry's fault. The consumer Internet industry, really the consumer Internetmediaindustry, has done a terrible job over the last 20 years at giving brands the marketing solutions that they need. Solutions that provide the level of trust—the provable metrics, audience segmentation, and targeting—and the assurance that if something goes wrong it'll be made good: all the things that traditional advertising companies have been very good at providing. In our world too many companies try to just put all this stuff online and just make it a free-for-all. What that gets you are these online marketing auctions, these rock-bottom CPMs, and these just terrible, useless metrics. And it's just kind of been a sort of a race-to-the-bottom disaster.
I actually think what happened in retrospect was that companies in the Valley tried to implement advertising too quickly. We tried to do it too fast with banner ads, which never should have been the ad format. And so it's our fault that the money hasn't moved over. We haven't been giving the advertisers what they need. What's changed is companies, in particular Google, are starting to figure this out. Facebook has shown real progress, and now Twitter, and I think Pinterest, which is one of ours, will be the next stop.