How does the blockchain technology change marketing?
A guest blog by VALID advisor Rolf Rauschenbach
Marketing can be understood as a machine that operates a data and information cycle that consists — from a simplified point of view — of market research and promotion. In a first step, the marketing machine absorbs all possible data concerning potential customers in order to understand which properties a particular product should have, which price elasticity prevails, how the product is to be promoted and distributed. After processing this data, the marketing machine completes the cycle by providing potential customers with advertising messages. New offerings are changing the consumption preferences of the target audience, requiring a new market research cycle and starting the game over again.
Every data point is an artefact that is generated according to certain rules and exchanged according to specific protocols. Thanks to technical progress, the type, quality and quantity of marketing-relevant data has increased massively in recent years. This development is also reflected in the advent of new protocols. The newest type of protocol became known as blockchain. It is based on the concept of distributed ledgers, mathematically complex encryption methods (cryptography) and the sequential connection of records (the chain). This combination allows a novel architecture of data exchange:
- Due to the decentralized configuration, roles can be redefined: Who generates data? Who owns the data? Where is it stored? Who has what access to data? Cryptographic methods allow for increased data security and privacy.
- The new architecture even leads to new types of data: While money before the advent of blockchain technology was a sui generis category, it is now possible to fully digitize money and understand it as a data set, or to merge data and monetary values together completely.
- The temporal concatenation not only enables an irrefutable traceability into the past, but also a machine-based programming of mechanisms in the future. Data from today can be linked to possible data from tomorrow and corresponding derivations thereof. This lays the foundation for digitized legal claims that automatically update themselves on the blockchain based on possible future events (smart contracts).
The history of marketing, market research and advertising can be represented as follows: analog phase (1), digital, centralized phase (2) and digital, decentralized phase (3). As we will see, blockchain technology will fundamentally change the fundamentals of marketing.
(1) The analogous world consists of a variety of physical phenomena, which only become relevant when they are observed, measured and interpreted. The production of data in the analog world is a very labor-intensive process, which nevertheless often produces unsatisfactory results. Correspondingly scant is the relevant database for marketing in the analog era: official statistical material from censuses and the like is supplemented with results from surveys and focus groups, produced by market research institutes. Equally undifferentiated are the communication options with which advertising messages are sold: posters and advertisements, commercials on radio and television, promotion channels such as events, sponsoring, merchandising and more. Again, the work is done by countless agencies, graphic designers, brokers, event managers. The weaknesses of this situation are obvious: In spite of considerable investments, it remains unclear to a large extent what the benefit of marketing actually is.
(2) From the 1990s on, the Internet started to mirror more and more analogue areas of life digitally. This creates virtual worlds that mainly consist of data. While under analogous conditions, data is limited and questionable in quality, digital worlds offer vast amounts of high-quality big data. The more comprehensive and dynamic the digital worlds become, the more traffic they provoke, allowing even more data to be generated. While the first websites proudly displayed the number of visitors with a primitive hit counter, it is now possible to measure every Internet user on all of his devices according to a wide variety of criteria and analyze them with artificial intelligence. Although the basic principle of the Internet is decentralized, central structures are emerging for the time being. Only the observance of uniform rules enables the networking of all with all and everything. Accordingly influential are the actors who shape the new protocols. The term protocol is to be understood broadly. Not only “thin” protocols in the sense of SMTP or HTTP are meant, but also “thick” protocols such as those of search engines, social media and e-commerce platforms. They structure the data exchange via the user interface. A few dominant players like Google, Facebook, Amazon or Alibaba provide and control the infrastructure on which most of the market data is generated. On the same infrastructure, the individual advertising messages are tailored and delivered. From the point of view of marketing professionals, digitization and centralization means immense progress: relevant market data in abundance, direct, targeted communication with customers and the ability to accurately measure the success of marketing efforts in cents and milliseconds. But even the new situation has shortcomings. Robots falsify the data and cause considerable damage by means of click fraud, spam overflows the email-inbox and ad blockers reduce the effectiveness of advertising measures. In addition, marketers are becoming more and more dependent on a few large corporations, which, with the slightest change in their algorithms, can determine the profit or bankruptcy of others. Although consumers receive individualized advertising messages, they only do so because they largely forgo their privacy.
(3) Although Bitcoin’s first blockchain application has been in use since 2009, we are still at the beginning of this technology. This is related to its complexity, but also to the different way of how data and new data types can be exchanged via the blockchain. Whether and how the centralized structures are replaced by decentralized, block-based architectures is still unclear. However, the following selection of existing applications shows that the technology may displace many existing marketing solutions.
Blockchain technology can shift data sovereignty back to natural persons from big tech companies. Companies like Patria Digitalis, Procivis with VALID or Steamr are working on self-sovereign identity solutions. Everyone should be able to independently manage and market their data (identity, health data, financial data, social media, browser history, etc.). Market research will have the highest quality data available, but better privacy protection will make data crossing no longer as easy as with centralized architectures. The blockchain technology also allows new market research methods. Augur and Gnosis are two forecasting platforms that can, for example, determine price elasticities of products much more accurately than with traditional surveys and focus groups, as they combine the concepts of swarm intelligence with economic incentives.
Today, the purchase of digital ad space is a highly intransparent endeavor. Thanks to blockchain technology, it is possible to measure and rate clicks-per-mile with much greater accuracy. Smart contracts make it possible to eliminate middlemen and simplify payments. Platforms like AdChain, AdShares, MadHive, NYIAX, and Papyrus already offer interesting solutions here. It is even possible to buy the customer’s attention directly: Earn or Brave with the Basic Attention Token are examples of how reading an email can be rewarded. However, the changes can be even more profound, as blockchain technology shifts trust away from institutions to transparent processes. Brands are centralized institutions whose value is based to a large extent on claims. Blockchain technology allows customers to validate these claims on every transaction. As a result, only those brands will survive that will succeed in creating authentic values and documenting them beyond any doubt. Tierion is a platform that offers a hand. Community building will continue to grow in importance. What today are loyalty points and air miles, tomorrow will be coins and tokens, with which new, partially closed, business cycles can be built. First examples are Loyyal and Blockpoint. In the long term, strong brands will be releasing their own crypto-currencies, which will not only buy clients exclusive deals, but also pay for their role as brand ambassadors.
These examples illustrate the potential of blockchain technology. Marketing will be even more efficient and more responsive to customer needs. At the same time, it challenges many mechanisms of the centralized phase. Actors using traditional methods will soon have to adapt to avoid missing out on the new age.
Original publication in German in the Swiss Yearbook for Marketing 2018 by Kömedia. St. Gallen, Switzerland