For Immediate Release:

Friday, July 22, 2016

Back in the 1960’s, the venue of discovery was outer space, and particularly the race to the moon. In the late 1980’s, Star Trek popularized the holodeck, a virtual reality simulator that people walked into and “experienced.”
Today, we have the Oculus Rift, Google Cardboard, and Pokemon Go.  One can debate the merits of these specific products/services, but not their potential. They each will change marketing (and our lives) dramatically, in exactly the same way the internet did a few decades ago, or automobiles did a century earlier.
Imagine yourself to be Henry Ford, watching the first batch of Model T cars leaving the assembly line.  He might have been able to envision the impact of the automobile on society, but not likely the international geopolitics of the oil and gas industry, nor self-driving cars, nor uber.  That is where we are today.
There are two different approaches to these products:
1) Virtual Reality (VR):  In this mode, we are placed in a world that is completely artificial: we are “transported” into a video game-like environment.  To achieve this, one wears goggles (and sometimes gloves or controllers, and sometimes other sensors) that provide a completely immersive experience.
VR will be used to perform specific functions, including entertainment, travel, education/training, meeting/interacting with other people, and shopping.  But VR commercial success will only come when VR moves from being a silo-ized individual experience, to one where there is connection and interactions between virtual worlds.  A great analogy for this is the movement from PC-based programs (which were very capable) to the web and cloud computing.  Or the movement from email (which we still use), to the likes of Facebook, LinkedIn, and other social media.  The connected experience is richer, and more valuable in almost every respect.  The killer app for VR will likely be gaming.  And sadly, gambling and pornography.
2) Augmented Reality (AR): In this mode, the virtual is brought into our real world.  Over the last few years, AR has been used in smart phones to overlay data about the world around us, recognizing buildings, streets, etc, principally providing locational and commercial information.  Without a doubt, the killer app for AR is Pokemon Go: it gamifies the experience, and is responsible for introducing the AR experience to an exceptionally wide audience.  A proof point is the recent deal with McDonalds in Japan, where each of their 3000 locations are now Pokemon “Gyms” or Pokestops: this will drive significant traffic to each of their locations.   (Pokemon Go uses your smartphone to superimpose Pokemons on real-life locations, which users seek out and then battle.)
Eventually, AR will be used to provide background data on everything: click on someone’s picture and get their entire profile, pulled from multiple sources.  And then ask them   It will be used by retailers to provide virtual help with their products and services (Leading to less “may I help you sir?”).  Museums and historical sites will develop virtual (and “smart”) tour guides. Meanwhile, engineers might use AR to visualize the inside of a machine, doctors to visualize the inside of a patient, and police to visualize physiological changes in a suspect.  AR can change just about everything: A meeting with a colleague who is rendered using AR? Or how about a car without a physical dashboard – just an AR one?
Futures:  Remember “town squares”, a feature of many old cities in Europe?  These venues were a place of meeting, communication, and also a place where each person could choose to enter any storefront of interest to them.  Today, we’re in the midst of the biggest economic race the world will ever see: Who will create, and control, tomorrow’s virtual town square?  (Everyone else will be their tenants.)
The war is being fought by the usual suspects, all of whom are poaching people, filing patents, and acquiring promising VR/AR start-ups.  Their strategies appear to reflect their inherent strengths:

• Google (Daydream):  Google has momentum on a number of fronts:  Android (and the Android developer base) is huge.  Their search engine is the de facto go-to venue for anyone looking for anything.  It has been creating a “virtual” world through Google maps and Street view.  It is experimenting with products like Google Cardboard.  And finally, it has significant sales infrastructure, content deals, and agency relationships that can “sell” advertising, and likely more.
• Facebook (Oculus):  Facebook’s strategy is based on their de facto status as the world’s relationship engine.  Facebook has steadily improved how and what the community can share, from text updates, to pictures, to videos: “being there” (with people or brands you care about) is not that much of a jump.  The Oculus platform – the intimate connection with the user – completes the ecosystem.  Finally, Facebook’s robust apps (and app developers), sales infrastructure, content deals, and agency relationships will make it a formidable competitor.
• Microsoft (HoloLens):  Microsoft’s strength is building the development platform, and they are hoping this exact strategy will be successful in the VR/AR world.  The HoloLens isn’t just a piece of wearable technology, it is a complete development environment and platform.  Behind the scenes, Microsoft has the somewhat advantage of Bing (search, advertising, maps), a growing cloud infrastructure (Azure), and a huge developer base.  Probably more significant is the footprint of their existing software: what if HoloLens was built directly into the fabric of the Microsoft technology that just about everyone around the world uses?
• Samsung (Gear VR):  Samsung is primarily a technology company, so it isn’t a surprise that their Gear VR product is a headset powered by an Android phone. That being said, a system without software (or content) will never sell, so they have acquired exclusive VR content that works with their product.  Whether Samsung can compete at a more global scale, given Google’s Daydream strategy, is uncertain.  My view is that they do not have the stomach for the investment necessary to be more than a hardware provider.
• Apple (???):  Apple’s biggest strength is their brand: users are rabidly loyal, and will adopt just about anything that has an Apple logo.  A key reason for this loyalty has been that Apple products are slick, beautiful, useful, and “just work.” Apple has built significant private cloud infrastructure, the world’s most profitable App store, powerful mobile (and desktop) platforms, and a content sales and rentals business.  Apple has also invested significantly in maps.  Given their absolute secrecy, the world will only know what Apple will do when they announce it.  Their challenge will be breaking from their go-it-alone “walled garden” history: if they don’t figure out how to interoperate, they may find themselves squeezed out.
• Amazon (???):  Amazon’s strength first came from an entire e-commerce infrastructure.  Then it built one of the world’s largest cloud infrastructure businesses.  They then started hosting other’s stores (which accounts for approximately half their volume).  Then they started developing and selling content.   And at the same time, they have been developing respectable hardware (Kindle, Fire tablets, Fire-TV, Echo, etc).   More than any other player, their real-world distribution system is a strategic advantage:  it connects the virtual world with the real one. Their biggest strength, however, is the loyalty of their user base, and particularly, their high-spending Amazon Prime subscribers.

Despite the great promise of VR and AR, the fly in the ointment is the development cost of the platform and content: it isn’t cheap. And not everyone has the necessary software: the market seems small.  Two points:

1. Supply: Since we began developing websites 24 years ago, the development costs have fallen dramatically; the same will happen with VR/AR, which means more supply.
2. Demand:  Pokemon Go is revolutionary because it uses existing hardware (mobile phones) to widely introduce AR.  Google Cardboard is revolutionary because it removes the cost barrier to VR; it makes VR accessible to everyone.  This means more demand.

While it may sound Star-Trek-futuristic to consider where and how VR/AR will fit into (or alter) your organization’s strategy, now is precisely the time to do it:

• Might there be possible business model changes?
• Might you look at social media and community-building differently?  (And also look at your client service/business development/call center functions differently?)
• Might the data you collect from your Marketing Automation and CRM systems be used in a completely different way?  (And what data should you begin collecting now?)
• Might there be certain R&D or partnerships that make sense to look at now?
• Might there be certain experiments in VR/AR that you might consider doing, to test concepts and build internal capability?

This week’s action plan: Digital Transformation is designed to improve today-efficiency and today-marketing/engagement.  But more importantly, it should improve the tomorrow-possibility, and serve as the foundation for how you might take advantage of opportunities such as VR/AR.  This week, look at your web, social, marketing automation, CRM, etc, and ask whether they have been designed with this future possibility in mind.  (Most aren’t.)

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Randall Craig
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