09 April 2015
Why Marketers Will Subsidize The Coming Connected Device Revolution
Published 09 April 2015
The annual Consumer Electronics Show wrapped up yesterday in Las Vegas.
One of the noticeable features of this year's event was the higher profile of marketers around the convention center. MRY's David Berkowitz analyzed this point in a post for Ad Age, pointing out that overall marketer participation was up 9% between 2013 and 2014, while CMO participation was up 11%.
So, what gives? Why are marketers so interested in a show theoretically all about semi-autonomous cars, bendable televisions, wearable fitness trackers and internet-enabled washing machines?
The first is a growing recognition among marketers that this new generation of hardware represents a fundamental shift in the consumer experience. Taken individually, the products being displayed at CES don't necessarily transform how people live their lives. Taken together, the new connected mesh of devices - recording and sharing data that can be used to automate and improve processes small and large - will irrevocably change the average person's day. Marketing is all about finding the messages, channels, and strategies that resonate with consumers' lives as they're lived, so understanding these changes will be essential.
But there is another reason, as well, that has to do with business model. The data that comes from connected devices will enable more precise, nuanced customer targeting and contextual, relevant offers than ever before. But first, customers need to actually adopt the hardware that produces the data.
It's clear that currently, consumers think many of these innovations are too expensive. According to a 2014 Nielsen survey, for example, 72% of wearables owners wish the products were less expensive.
Reducing the price of hardware to drive adoption is a major prerogative for many of today's largest electronics companies. Xiaomi, the breakout Chinese startup, is taking an ecosystem approach. In a single year between Q32013 and Q32014, the company's share of the global smartphone market jumped from 1.5% to 5.2%. To expand its presence, it is now partnering with hardware manufacturers around the world like US-based Misfit Wearables, who agree to sell a volume of units at cost. This reduced price point increases consumer adoption, and then Xiaomi profits through sales and services that accrue from having more people in the company's proprietary software ecosystem.
Xiaomi's model isn't the only way hardware will be subsidized, however. In the same way that traditional print and broadcast media were free or cheap for consumers thanks to advertising, so too do marketers have an incentive to get as many connected devices in the hands of consumers as possible.
Imagine, for an example, an alliance between a major fitness tracker and a healthcare or food/nutrition brand that gave that brand access to data from the devices for a direct marketing channel for the company's products.
The era of marketer-manufacturer partnerships is just beginning, but it is significant. Berkowitz puts it succinctly: "Partnerships present the greatest opportunity. Even if just a handful of the 20,000 product launches were done in conjunction with non-electronics brands, that would change the dynamic of CES. When all of CES is the official destination for creative communicators, then brands will have finally overtaken another show."
We're at the very beginning of the internet of things era, but what's clear is that marketers are going to have to innovate to stay relevant in a time when the channels and devices through which people access and share information are changing radically.
If CES is any indication, in 2015 we'll see an increasingly robust dialogue between marketers and hardware manufacturers. The question is simply who will best take advantage of the new opportunities that conversation represents.
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