Volume 99: The age of inconvenience.

1. The age of inconvenience.

tl;dr: A likely end to the convenience arms race.

Probably the least insightful insight in history is that convenience tends to win in any market. LPs gave way to CDs, gave way to MP3s, gave way to streaming. Free delivery gave way to free 2-day delivery, gave way to free same-day delivery gave way to free 20-minute or less delivery.

Across the economy, via startups and large corporations alike, a 20-year push has been toward simpler, faster, easier, and more convenient experiences with less friction and fewer impediments to a transaction.

But, and it’s a big but, convenience comes at a cost. And yes, this cost includes the environment and appalling worker conditions, but that isn’t what I’m talking about here because no matter what we might say, neither of these things tends to change our behavior as consumers. (well, it might for some, but statistically, they’re on the margins)

No, the cost most likely to end (or at least significantly curtail) our fetishization of convenience is that convenience has a nasty tendency to literally cost more to deliver than companies can make back in profit.

A problem that’s being exacerbated by a confluence of factors. First, supply chain issues and war are combining to drive up inflation worldwide (ably assisted by corporate profiteering), which drives up costs. Second, rising interest rates and souring investor sentiment vis-a-vis profitless companies make it much harder for convenience-centric corporations to absorb these costs. And third, a cost of living crisis is driving many to tighten their belts and take on debt just to make do (as an aside, the spectacular growth of non-mortgage indebtedness in the US is a deeply disturbing economic signal), which means the consumer appetite to pay for convenience that had previously been free likely doesn’t exist.

This creates a perfect storm for any business with a history of heavily subsidizing convenience features to grow and compete - higher costs, less consumer appetite, and drastically constrained access to the kind of capital necessary to continue the subsidies.

So what’s going to happen? Well, in a single word, POP. Yes, the convenience bubble is almost certainly about to burst. And it won’t be pretty. Many businesses will go out of business. Others will raise prices steeply and, in the process, become smaller. And some will simply get snapped up by larger, more aggressive predators with stronger balance sheets, which will further concentrate market power and drive up costs to the consumer.

So, what will this mean for you and I? Well, we’re going to have to get used to things not being anywhere near as convenient as they used to be, or pay a lot more for convenience features we used to take for granted, probably both.

2. The clock ticks on purple unicorn farts.

tl;dr: The tide is going out on profitless businesses.

Well, well. After I wrote this, Uber CEO Dara Khosrowshahi sent a memo. The read-between-the-lines is that investors have had enough of Uber fictionalizing its pretend profits and are worried it might run out of money. Anyway, here’s what I prepared earlier:

As the Fed raises interest rates again and signals more on the horizon, it’s worth looking back on the period we’re exiting to ask questions about the profitless brands that have become commonplace. Many will not survive the coming shakeout.

One of the defining features of a fourteen-year-ish period of ZIRP (Zero Interest Rate Policy) was the exceptional growth of profitless, tech-adjacent brands. Including, but not limited to, WeWork, Uber, Lyft, Doordash, Peloton, and almost the entirety of the “revolution” that ultimately wasn’t, namely, venture-backed DTC retail.

And while we all understand by now the breathtaking grift that was WeWork, other profitless businesses have had much less scrutiny. Uber, for example, has demonstrated a spectacular gift for fiction in its financial statements. Utilizing the much-abused “adjusted EBITDA” to magically exclude…almost every cost it incurs to show something they call a profit, but that bears a greater resemblance to a purple unicorn’s fart.

Looking into how these companies grew so quickly, it isn’t hard to understand what was happening. Massive venture funds like the Softbank Vision Fund took huge amounts of capital, mostly petro-dollars, and applied it to fast-growing startups. In the process, engineering one of the largest transfers of wealth in history - from the Crown Prince of Saudi Arabia to American millennials, mostly.

As a result of these huge capital injections, so prevalent that it was given its own name, a few hand-picked businesses grew ultra quickly by heavily marketing low-cost, convenience-driven value propositions that were impossible for the consumer to pass up, yet utterly unsustainable as a long-term business proposition. For example, at one point, I remember a cross-LA Uber ride costing just $8 when an equivalent taxi would’ve been $50+.

Why this happened is all down to ZIRP. With interest rates hovering around zero for so long, it pushed capital toward riskier investments. An oversimplification is to imagine global capital as if it were water - it will always flow to where there is a return. If interest rates are zero, it will flow to riskier alternatives. When interest rates rise, this capital will flow back toward safety again. And that’s exactly what happened. Unprecedentedly low-interest rates for an extended period of time upended investment expectations and risk calculations, which led to capital flowing into every investment type where it saw the possibility of a return (art, stocks, baseball cards, classic cars, homes, crypto, you name it), including the coffers of venture capitalists selling stories of disruption backed by the success of historical value-creating juggernauts like Google, Facebook, Alibaba, and Amazon.

So, what happens now that interest rates are no longer zero and capital is beginning to flow back toward safety? Well, likely nothing good for many of these businesses.

The problem for the likes of Uber isn’t the salience of its brand or its habit-forming product; it’s that its unit economics remain negative. This means it loses money on every ride you take or meal you have delivered, which is fundamentally unsustainable. To date, what has sustained it is investor capital and debt, but as I mentioned before, as interest rates rise, this capital will flow away like water - or in the case of Uber, like the tide going out. This is why the stock is down 50% from its 2021 high and is unlikely to move in the other direction anytime soon. (Not to mention that Uber might well be running out of cash…)

As Warren Buffet once famously said, it’s only when the tide goes out that you see who’s been swimming naked, and Uber isn’t alone in the naked stakes. None of Allbirds, Warby Parker, or Doordash make a profit or even look likely to, and all are way off their IPO prices. Allbirds, in particular, dropping precipitously from an IPO high of $32 less than six months ago to around $4 today.

So, what’s going on? Well, the simplest way to look at this is that because interest rates are no longer at zero, capital is no longer flowing to risky sources of return that bring little more to the table than charisma and a good story, which means fantasy fiction masquerading as “disruption” is vastly less likely to capture investor attention moving forward, and the boring stuff like “does this company have a legitimate pathway to profit?” or “what does the free cash flow look like?” starts to be of much greater import.

And, what does any of that have to do with branding? You might not realize it, but there’s a direct line between zero interest rate policies (ZIRP) and the ultraboring tech-adjacent brands we’ve idolized in the past ten years. Our idolatry of innovators too often being pointed at profitless businesses with unsustainable business models that have been artificially boosted by the capital equivalent of anabolic steroids. Instead, we need to start thinking of them as aberrations created by a now outmoded set of monetary policies, which will be shaken out hard in the coming wash.

So…what’s my very long-winded point? Well, maybe all that capital built things that look like brands, but it happened in much the same way that Uber’s purple unicorn farts look like a profit…they aren’t really real, and as a result, they shouldn’t be something we look to for inspiration.

So, while the coming times will likely be rough for these businesses, it should ultimately be good for us. You can afford to be awfully, terribly, wastefully, ultraboring and still look successful when you have unlimited capital. But, as a counterpoint, now the days of easy money are over, and businesses are forced to outsmart rather than outspend; they’ll be forced to get bolder and more creative at the whole branding thing too.

3. One-to-one personalization at scale, AKA drunk monkeys throwing darts.

tl;dr: The most costly of all nonsensical marketing ideas.

The entire marketing industry is so awash in bullshit that I’m surprised any of us can smell anything over the top of it, even something as fishy as “personalization.”

The first time I heard the term “one-to-one personalization at scale” was approximately 2010 or so, uttered by a tech-savvy client who was completely enamored with a pending partnership with Facebook. Sigh, we now know where that kind of thinking leads.

At the time, I remember being a bit confused because I’d always worked on the basis that the power of brands was largely due to our shared understanding of them. So, to listen to someone waxing lyrical about building a brand via millions of highly personalized messages targeted directly at individuals, exactly at the moment they were going to buy, was, well, kind of breathtaking and scary and a bit “that sounds expensive, I wonder if it’ll ever work?”

Twelve years later, we can definitively look in the rearview mirror and state three things. Yes, it was very expensive, no, it was never going to work, and, yes, a handful of tech people got very, very rich selling the idea to gullible marketers while at the same time building a scarily inaccurate surveillance ecosystem (more on that in a minute).

The first problem is that it’s impossible. For example, take this quote from a recent article on the subject:

In an academic study from MIT and Melbourne Business School, researchers decided to test the accuracy of third-party marketing data. So, how accurate is gender targeting? It’s accurate 42.3% of the time. How accurate is age targeting? It’s accurate between 4% and 44% of the time. And those are the numbers for the leading global data brokers.

Now, let that sink in for a second. If you flipped a coin, your likelihood of accurately targeting by gender would be better than if you worked with the world’s leading data brokers, and if you targeted by age, you’d consistently be much better off with the coin.

Now, how many business leaders in our “data-driven” age do you think would instantly fire you if you turned up and said you were spending millions of dollars based on a decision-making system worse than a coin-flip? Yeah, me too.

Now, there are those out there who view this as a surmountable problem. We simply need more and better data, right?. Well, no. We’ve had approximately 20 years to fix this problem and haven’t, and with shifts in regulatory scrutiny and corporate privacy initiatives, it’s a fantasy that’s looking ever more fantastic.

However, it really doesn’t matter if we can make personalization more accurate because it doesn’t really work anyway.

There isn’t a single brand, ever, in history that was built based on superior advertising personalization because the idea of personalization at this kind of scale is simply oxymoronic (or just plain old moronic). As a tactic, it isn’t scalable because the overhead of all these messages, all this data, and all of the software, hardware, services, and compliance required to knit it all together rapidly rack up costs to an unsustainably inefficient level. The simple fact is that the world doesn’t work this way. The people doing the empirical research show that reach and non-personalized messages are the primary drivers of brand-building success, not hyper-focus and personalization.

But, the problem doesn’t end here. The biggest irony of “one-to-one personalization at scale” is that it isn’t an idea built through personalization but instead through billions of tech and consulting dollars spent to hijack marketing budgets, which has largely been successful. Many marketers today, especially those coming of age in the past ten years, take this stuff as a given, even though it doesn’t work, so unpicking it will be extremely difficult.

But, we should, because in addition to being impossible and not working, it opens companies up to all sorts of bad behavior. Like ad fraud which increases exponentially the more narrowly you try to personalize, or funding hate sites, which happens when you give up on context and instead focus solely on user profiles, and finally, the terrifying idea that in the not too distant future, a not-very-accurate surveillance ecosystem built for advertising will instead become an enabler of fascistic governments in surveilling and then incarcerating its population.

Anyway, I have to not think about that lest I completely explode, so I’ll leave you with this. If there’s anything dafter than a LinkedIn post by Simon Sinek, it’s one-to-one personalization at scale. Don’t waste your resources on it, and don’t accidentally enable hate via your advertising dollars.