The real implications of GDPR for marketing

By Neil Patrick

GDPR isn’t over; it has only just begun. GDPR may lighten your mailbox of spam, but it also has huge repercussions for business that no-one is talking about...

Yes I know. Data protection regulation is a dull topic. But I'm writing about it anyway in this post, because GDPR has some profound and far reaching consequences for everyone.

For the last few months, just about every post about GDPR has been about what businesses need to do satisfy this new set of data protection regulations. And the enormous fines that can be levied upon those who fail to comply.

As the deadline approached, we all had our mailboxes filled with emails desperately begging us to give consent to receive communications from firms we bought things from possibly years ago, or maybe never. Some even from firms that we never knew had retained our email address for their own use.

I am not unhappy about GDPR. It kills the abuse of email for a start. It will force businesses to take a hard look at their marketing, which has been a race to the bottom for far too long. Why would I or anyone else who bought a wheel barrow, tennis racket or dining table want to get emails about more wheel barrows or tennis rackets or dining tables every week for the rest of our lives?

This sort of marketing might get a few takers, but it alienates many more. So most people have ignored these last ditch pleas. The result will inevitably be that our mailboxes will revert to a more modest overloading especially if you are in Europe.

Finally on 25 May, the regulations came into force. There are big repercussions for business and this post outlines some of them. It will change digital marketing activities for the better I hope. It will force brands to invest more sensibly in building real customer relationships. It will also deliver even more power into to a handful of huge global digital businesses.

First it will decimate a huge business sector which almost no-one has heard of

Behind the scenes, GDPR has caused the decimation of a huge industry sector which almost no-one knows about.

The sector is called ad-tech. LUMAscape has made it their business to map this vast and sprawling network of firms who have built their businesses to provide personalised data to those who want to sell us stuff online. And it looks like this (or rather it used to):

Ad-tech businesses mushroomed because the internet’s default business model is advertising. Advertising works on the principle that targeting specific ads at the right people is more cost effective than randomly advertising to everyone. And because our internet browsing data in aggregate is so much richer and more detailed than any other form of data, the people in ad-tech anticipated there was huge money to be made by delivering the data and tools to assist this targeting.

And at first they were right; VC investment and revenues poured into these firms until 2011, since when it has declined. It is absolutely no co-incidence that it was 2012 when the EU announced that GDPR was coming:

The whole ad-tech sector was predicated upon one massively flawed assumption. The ad industry thought that consumers would welcome ‘relevant’ and targeted ads. They forgot or at least ignored that hardly anyone actually likes advertising. We just hate targeted advertising a little less than we hate untargeted advertising.

But pre-GDPR, this dislike of advertising was not enough to stop the exponential growth of the sector. Which ironically gave rise to another high growth sector – ad-blocking software.

Some ad-tech companies have pulled out of Europe altogether. All have effectively had their oxygen of data cut off because post-GDPR, they require positive consent from us to hold and process our data. And almost no-one in their right mind will knowingly grant this consent. According to independent research by PageFair, only around 3% of people give this willingly and many of these are not eager customers, they are competitors, regulators and other snoopers. Suddenly around 97% of firms ‘prospects’ are reduced to zero or as close as makes no difference.

Without active consent, the value of an email address is zero

The targeting data created by ad-tech firms brought about a transformation that no-one liked. Coupled to an email address, this became gold dust in online marketing. Combined with the ability to send emails to millions of people and almost free, the floodgates were opened. It didn’t matter if only 1 in 10,000 people actually took up an offer, because the costs of communicating it were almost zero; it created a free for all and our mailboxes groaned under the strain. Email open and click rates have unsurprisingly been in free fall for years.

This was because many businesses adopted more or less the same flawed model in approaching online marketing. Email addresses appended to other data were key to this. It’s what marketers call the ‘top of the funnel’. This metaphorical funnel has personal data tipped into the top. And prime amongst this data is the email address. This was the data that would enable a business to send us emails to buy more of their stuff. And opting out of retailers’ email lists wouldn’t solve the problem if even one retailer was unscrupulous enough to pass on our details to someone else. Everyone knows this but no-one likes it.

GDPR will change this (at least amongst companies that care about acting within the law). They will be forced to completely rethink how they market themselves online.

Why GDPR will fill Google, Amazon and Facebook’s pockets 

These changes will confer even greater power to the tech giants such as Amazon, Google and Facebook. These firms have secured their positions because they have an entirely legitimate reason and our consent to hold our personal data. And because targeted ads are not their primary form of ad revenue. Just look at Amazon's share price surge post the advent of GDPR:

The collapse of the ad-tech sector will create growth at least initially in other forms of online advertising, less emails and less targeted advertising. It will also I suspect lead to less scrupulous firms adopting devious tactics to secure consent to receive emails. The model for this is that at every step of engaging with a business online, we will be faced with craftily hidden email consents. This is in breach of GDPR which prohibits ‘implied consent’, but it won’t stop some people trying to work around it.

An unintended consequence of GDPR is that it has ensured the recovery of Facebook’s share price is complete. A combination of the weakness of the governmental interrogations from the US and EU and the impact of GDPR has enabled Zuckerberg to make a full recovery from the Cambridge Analytica crisis:

This is the unforeseen consequence of GDPR. It has comprehensively disarmed some enfant terribles of the advertising world only to confer more power to a handful of giant tech firms and those who for whatever reason will flaunt the rules.

I still think GDPR is actually good news for business

Most businesses are sitting back now breathing a big sigh of relief that they have completed their GDPR compliance project. Thank god that’s done. But it’s not. It’s not even started really, because now the challenge is how to grow businesses online in a post-GDPR world, where suddenly they have consent to email just a tiny fraction of the people they used to.

Businesses need now to take a hard look at their online strategies. The lazy marketers’ fall back of emailing thousands of people with offers is finally dead. Now it’s time to get back to real marketing and figuring out how to make your customers really love you online.

The internet wasn't built in a day, but the barbarians are already at the gate

Hubert Robert: Vue imaginaire de la Grande Galerie du Louvre en ruines

The greatest challenge the internet faces isn't what it can make happen. It's what it can stop happening. And right now, it's not stopping enough from happening.

The online world has become one in which deceit and deception are running riot and out of control. Caught in the middle of the cross-fire, businesses and brands are under pressure from fraud and regulation simultaneously.

Increasingly, the only way to gain advantage online is to cheat. If you are a business that plays fair and by the rules, it is increasingly difficult and costly to win online.

We have a perverse situation emerging in which legitimate businesses are having to spend millions to defend their businesses on the internet, while armies of digital pirates are cheating their way to win online sales. The internet has become a new Wild West for fake goods, fake sellers and now fake reviews. This descent into online anarchy threatens business and society alike.

Against this tide of trickery we have a thing called the General Data Protection Regulation or GDPR. Compliance with this has been estimated to cost every legitimate business an average of $100,000. Few will risk non-compliance as penalties for so doing are 4% of annual global turnover or €20m, whichever is greater. Six years in the making, GDPR perfectly illustrates the ineffectiveness of conventional law-making to tackle the problems that the digital world creates. It's like the cops arriving in town six years after the bank has been robbed.

Instead of creating a level playing field in which free, fair and open competition is supported, the internet is creating its own distorted markets where caveat emptor is a more vital consumer watchword than ever before.

This is a far cry from what the original internet visionaries had in mind. The open, transparent and fair digital marketplaces their dreams envisioned are manifesting instead as nasty neighborhoods full of muggers and criminals. And even the boundaries between the good and the bad guys are getting blurred.

So what’s my evidence? 

I could cite dozens of examples to evidence my assertion, but to save space, here's just one more or less random case.

In December 2017, the boss of German shoe brand Birkenstock accused Amazon of a failure to tackle fraudulent sellers flogging cheap knock-off versions of its sandals. Chief Executive, Oliver Reichert accused Amazon of acting as "an accomplice" to sellers of cheap copies of their sandals. He said, "The truth is that Amazon makes money with these fakes. As far we're concerned, Amazon is an accomplice."

Birkenstock terminated its business relations with Amazon's European website on January 1, 2018 because of "a series of violations of the law on the marketplace platform". Reichert said: "If you sell dodgy merchandise on your market place, you have to answer for that."

Guess what? There’s an app for that…

Several entrepreneurial businesses recognised early on that the growth of online business would inevitably create numerous marketplaces where an independent measure of product quality and customer satisfaction would be beneficial to businesses and consumers alike.

Businesses like Trustpilot recognised the opportunity and soon established themselves. And platforms such as Amazon, Ebay and Trip Advisor promptly integrated their own customer rating systems so that consumers could see independent opinions from other buyers.

Sounds good in principal, but in practice, these systems are just not working. They are being gamed on a massive scale. Some US analysts estimate that half of the reviews for certain products posted on websites such as Amazon are fake.

"Sellers are trying to game the system and there's a lot of money on the table," said Tommy Noonan, who runs ReviewMeta, a website that analyses online reviews. "If you can rank number one for, say, bluetooth headsets and you're selling a cheap product, you can make a lot of money," he said.

Three quarters of UK adults use online reviews and almost half believe they have seen fake reviews, according to a survey of 1,500 UK residents conducted by the Chartered Institute of Marketing. The government's Competition and Markets Authority estimate such reviews influence £23 billion of UK customer spending every year.

Fake Amazon reviews are being openly traded on the internet.

The BBC found online forums where Amazon shoppers are offered full refunds in exchange for product reviews. The platforms are well aware that such fakery is going on, but evidently have not managed to eliminate it.

In 2016, Amazon introduced a range of measures to combat what it called "incentivised reviews". Instead of solving the problem, this effectively drove it underground, leading to the emergence of Facebook groups where people were encouraged to buy a product on Amazon and post a favourable review in exchange for a full refund.

This is the insidious nature of the online economy – controls recognise a problem and clamp down, only for it to adapt, reconfigure and re-emerge elsewhere in the system.

Pandora by John William Waterhouse, 1896
Amazon says:

"We do not permit reviews in exchange for compensation of any kind, including payment. Customers and Marketplace sellers must follow our review guidelines and those that don't will be subject to action including potential termination of their account."

Fair enough, but no policy such as this will deter those who can gain from breaching it. They simply increase the sophistication of their deceit. This is a war which the platforms and brands are not winning because the stakes are just too high, the available remedies too feeble and the villains too fast moving.

In the final irony, can Trustpilot be gamed too?

Responding to adverts posted on eBay, the BBC was also able to purchase a false 5-star review on Trustpilot. Trustpilot say they are “committed to being the most trusted online review community on the market. We have specialist software that screens reviews against 100's of data points around the clock to automatically identify and remove fakes”. I can be committed to anything I choose, but that commitment doesn't make it manifest. If even Trustpilot can be gamed, that's like vote rigging worthy of a rogue state.

So I'll say again - the greatest test the internet faces isn't what it can make happen. It's what it can stop happening. 

Consumers are being conned. Brands are being hijacked. Online marketplaces are being corrupted. Internet markets are not delivering their promises. And the war on this banditry is being lost. This is not so much the Wild West where a marshall’s posse would hunt down the miscreants, it’s more like a digital Mafia state.

And GDPR will do absolutely nothing to deter even the smallest gangs of bandits.

Gibson, Eurovision and the disruption of music

No Substitute: Keith Moon's memorial plaque at Golders Green Crematorium
Photo credit: BlueRaspberry

By Neil Patrick

The digital revolution is eroding rather than enhancing creativity. The idea that waves of digital disruption will unleash spectacular creativity is just not living up to its promises.

If we want to truly understand how digital technology changes the world, then we can learn much from an examination of the very first industry it disrupted. And the industry with the longest timeline of digital degradation is music.

Today, the music industry is not only financially shrivelled, it has been denuded of its vital creative life force. We’ve never listened to more music, in more ways, in more places. Yet after reaching a peak in 2000, the music industry now earns half the money it used to. It has lost over $7 billion of revenue since the dawn of the internet.

Anyone who was alive between 1950 and 1980 can recall that music then was in a golden age. Yet these were difficult economic times for the UK. Burdened with a disintegrating empire, faltering manufacturing, the rise of militant trade unionism and the costs of surviving rather than winning two world wars (it was the USA which ‘won’ WW2, at least economically speaking), things in Blighty were pretty bleak.

But in the 1960’s against this unpromising backdrop, Great Britain gave birth to a whole host of world beating music superstars whose like we will never see again. The Beatles, Deep Purple, Led Zeppelin, The Who, The Rolling Stones, Pink Floyd, Yes, Genesis. In the 1970s and early 1980s, this creative torch was carried on by a new generation; Queen, Black Sabbath, David Bowie, U2, Judas Priest, Iron Maiden and Def Leppard.

To see the sort of brilliantly creative controlled chaos I am talking about, just watch this clip of the Who playing live in 1978 including Keith Moon, just weeks before his untimely death:

Everything here is analogue. No digital enhancement or aids. No light show. Just raw talent, spontaneity and naked musical energy unleashed.

Every one of these bands sold millions worldwide and still does. Every one is cited by today’s contemporary artists as being influential. None of them began with anything other than their own passion, talent and determination. And they needed it, because whilst plenty of live venues existed and record contracts were generous by today’s standards, getting anywhere at all required dogged persistence for years to become established. I know the histories of every one of these bands and they all began by slogging it out with no money, playing in dingy clubs and pubs, slowly building their fan base from the bottom.

The internet and the concurrent explosion of media options was the catalyst for the comprehensive destruction of this creative powerplant in Britain’s economic engine. The internet’s first salvo was free file sharing. The second was the consequent demise of radio and live music venues. Next was Amazon and iTunes extermination of music retailers. Finally we now have an overwhelming flood of material – the replacement of carefully crafted work with a deluge of mediocre mass market music amongst which, the best new things are hard to find.

When the internet began, most musicians rejoiced. It was seen as the great equalizer. Through free global reach, the best talent could reach bigger audiences and rise to the top regardless of whether or not they had the support of a record company. The punk DIY ethic would empower all musicians in a new musical democracy. But as The Wall Street Journal describes, that dream did not materialise – instead it created an unforeseen consequence:

“It has never been easier to listen to vast quantities of music, discover new artists and create, distribute and promote your own tunes. But there’s a downside: It is harder for artists to break through the cacophony of today’s global pop-music machine.

“The music business is pumping out more music than ever before, industry experts say, the result of cheap digital-production tools, round-the-clock social-media marketing and the prodigious output of hip-hop stars. Both artists and fans are feeling submerged.”

The internet has ensured we are drowning in music. And it’s not just artists who are struggling with this. Just last week, a business which is one of the very few I actually and genuinely love, filed for Chapter 11 bankruptcy – Gibson guitars.

Gibson's factory in Memphis
Photo credit: H. Michael Miley 

Gibson lost the plot and the struggle to redefine itself for the 21st century. Its management decided that it wasn’t simply the greatest guitar maker in the world, but rather a ‘lifestyle brand’. This redefinition would build on its immense heritage and grow by debt-funded acquisitions away from the core of the brand. But this wasn’t transformational innovation. It was a layering of bad decision upon bad decision, piling up to wreck a business that as recently as the early millennium could lay fair claim to being a world leader. Today, Gibson is carrying around $500m of debt and its future looks decidedly uncertain.

Unlike say Polaroid, Gibson has not been blindsided by superior digital products and shifting consumer preferences. Certainly, their premium pricing, slipping quality control standards and poor staff treatment didn't help. But Gibson is nonetheless indirectly a victim of the internet because it sells new guitars when consumers want used ones which the internet delivers in droves:

“The market has softened. It’s not as vibrant as it was in say the early 2000s,” according to Brian Majeski, editor of Music Trades. “We think that an enormous factor…has been the improved availability of used product, and the rise of a generation used to buying things on the internet.”, an online clearinghouse for musical instruments, will sell between $400m and $500m worth of guitars in 2018, Majeski estimated – “and almost all of them are used”.
There’s a further great irony here too. Music isn’t something people love less than they did. Musicians still love music and so too do audiences. It’s not as if something came along which suddenly made music obsolete.

On one hand, digital technology has enabled musicians access to equipment and media capabilities that their forbears could only contemplate if they were the most famous and successful performers. On the other hand, the fragmentation and demise of radio, record labels and touring venues have taken away the vital infrastructure which supported and enabled hundreds of performers and their multi-million pound contributions to retail, jobs and ultimately GDP.

The music industry globally may not be dead, but it is a shadow of what it used to be. Not just commercially, but also creatively speaking. And the ways it survives at all are often truly tragic. Only last weekend I watched the Eurovision song contest (or rather the first thirty or forty minutes of it – because I could bear no more). This is a sad manifestation of music indeed. It’s an over-produced, politically correct, mush of mediocre performers. It’s not even a pure talent contest – it’s a sanitised mashup masquerading as a beacon of increased international understanding. It is fundamentally contrived and has little or nothing to do with talent or real music.

In case you've never seen it, here is a sample of what's on offer. And despite the video title, I'd contend that this isn't the worst, it's actually a pretty representative sample:

Instead of spreading peace and love around the world, Eurovision actually embodies some of the worst characteristics we complain about in the rest of society – it is highly creative only in the ways it generates money by leveraging nationalistic pride and prejudice. Even Terry Wogan, the UK’s presenter of Eurovision since 1980 stood down from the BBC One's broadcast in 2008 saying "The voting used to be about the songs. Now it's about national prejudices. We [the United Kingdom] are on our own. We had a very good song, a very good singer, we came joint last. I don't want to be presiding over another debacle".

This is what the digital revolution does to creative industries; it sanitises, it packages, it expands quantity but erodes quality. Essentially it devalues everything it touches. Eurovision certainly shows no signs of throwing up the next David Bowie or Queen. But I guess it might just manage an Ed Sheeran or Beyoncé clone.