Today’s column is written by Jeff Lunsford, CEO at Tealium.
“Who are you disrupting?” entrepreneurs are almost inevitably asked in conversations with press and venture capitalists. “Whose margins are you feeding off of? What industry sector will suffer from your success?”
The questions are warranted, for within disruption lies value creation. New technologies combined with new social and economic realities allow smaller, more nimble companies to build high-growth, profitable companies while larger incumbents struggle with Clayton Christensen’s “innovator’s dilemma.”
There is, however, a class of disruption where nobody loses and all incumbent industry players benefit. I call this “friction disruption."
Prime Friction Disrupter: Sabre Holdings
In the digital world, friction disruption has frequently been accomplished when specific industries were growing rapidly and specific information was needed to transact within those industries. These industries quickly realized that a point-to-point architecture of sharing information among consumer and service provider endpoints would not scale. Enter Sabre Holdings, a company that came to flourish as a shared repository of flight information between airlines and travel agents.
It’s not the first time the ad industry has been compared to the airline sector, whose early days were marked by travel agents with proprietary, one-to-one connections with airlines. That worked to a certain point of scale, but as the industry grew in the 1960s, Sabre built a neutral meeting place, where all travel agents could come to see information from all airlines. Both the industry and consumers benefited. The only market participants who suffered were those who did not embrace this new way of transacting business.
Sabre’s growth was held back somewhat by the fact that it was owned by an airline, but it was eventually spun off from the airline to become truly neutral and independent. It flourished as a neutral platform and, today, Sabre connects an estimated 370,000 travel professionals with more than 400 airlines, as well as an expanded network of 100,000 hotels, 25 rental car companies, 50 rail providers, 13 cruise lines and other travel service providers.
Sabre was a company that embodied newly conceived, neutrally positioned layers of the technology-and-information stack within the airline industry. The company came to be out of pure necessity – out of the technological and economic forces creating enough friction in the information sharing function that a tectonic shift occurred and a new layer of the information stack emerged. They were catalysts, not disrupters. The only thing they disrupted was friction itself.
Friction Disruption In Digital Marketing
Digital marketing has grown from about 10 major vendors in the early days of the Internet to more than 1,500 today, according to Luma Partners. This represents a Darwinian soup where some companies grow rapidly, some shrink and others have emerged as dominant providers in their categories. Google’s leadership within paid search is the most prominent example of such dominance.
Interestingly, whereas in other technology categories the industry consolidated around a few surviving large companies, the exact opposite has happened in digital marketing. The number of digital ad tech startups and successful companies has actually increased over time. If current trends hold, digital marketing technology is destined to be a multivendor sector where customers are able to choose from best-of-breed providers for many years to come.
Within this widely diverse group of more than 1,500 digital marketing service providers, a clear opportunity for friction disruption has already begun to play out and it can be found in data unification and standardization.
Each of these companies’ solutions is data-driven and, over the years, each company has developed its own, proprietary method for data collection and data distribution. For the first two decades of digital marketing, customers tolerated supporting these varying, nonstandard systems for data collection. First one, then two tags were added to websites, then a third and so forth. And now, in the mobile app universe, it began with first one software development kit, then a second, third and so on.
On both the web side and the mobile side, the cost of collecting and distributing digital data has slowly built to a breaking point. Engineers now throw their hands up in protest and push back. Instead of an impasse, however, engineers and business people collaborate on defining standard data layers and a new category of “data layer service providers” has emerged. Data layers are key components of most enterprise tag-management solutions.
Given the sensitive and confidential nature of digital marketing data, one industrywide platform such as Sabre has not emerged. Instead, what has emerged are platforms where enterprises can create their own private data clearinghouses. Enterprises that have architected such data layers are now enjoying substantial decreases in development time and substantially lower friction in sending data to and from the various systems they use to accomplish their digital marketing objectives. Volumes of data flowing through these shared enterprise data platforms have skyrocketed, growing more than 2,000% in the past two years, according to Ghostery Inc., which collects and reports on data collection activities within millions of browsers.
Every once in a while in technology, we see this type of rapid industry adoption. We saw examples of it, with relational database management systems, application servers and server virtualization – all new layers of the software and data stack. These “phase transitions” occur when friction slows things to an unacceptable pace and then innovative minds invent a better way.
When digital marketing works better as a category, overall marketing budget allocations shift toward the digital bucket. Digital marketing budgets are growing at 16% compound annual growth rate, and with the crystallization of the data layer as the newest friction disrupter, that growth should continue for many years to come.
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