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How true is the story that Facebook is the future of advertising?

Future of Advertising

It would be easy to take Facebook’s recent earnings as a signal that the advertising world had reached a tipping point. Facebook’s results continued to be positive with a 61% increase in quarterly revenue, most of which came from advertising. What pleased investors the most however, was that 62% of this revenue had come from Facebook’s mobile ads, quashing the concern that it would struggle to make this transition.

What is interesting from the way that the media and the markets have focused on these results is that there appears to be a growing view that the future of advertising is really all going to be about social advertising and that as a consequence, Facebook will become a dominant force in this market.

The mirage of the changing landscape

It is easy to see how people are drawn to this view as a result of the popularity of two main narratives. First, we are increasingly led to believe that mobile phones are the dominant technology that have effectively replaced computers and TVs. Second, it is a commonly held view that people are spending an all of our time on social media instead of watching TV or doing other things on the Internet. Although there are elements of truth to both of these stories, neither are completely true and certainly not to the extent that they have significantly impacted the ways advertisers reach consumers.

Even though Facebook’s results were impressive, it is worth putting them into some context. Globally, the advertising market is worth just under $600 billion this year. Digital advertising represents 25% of the overall market and of that market, Google has a 31% share. Facebook’s share is just 7% of the digital advertising market.

Global Advertising Spend eMarketer

Not all ads are equal

The other thing to consider is that much of Facebook’s mobile advertising revenue comes from what are called “app install ads”. These are ads for actual Facebook applications like “Candy Crush Saga”. The issue here is that although this may be an extremely profitable advertising stream at the moment, it isn’t likely to continue growing at the same pace as Facebook saturates its own market.

The real nirvana of advertising of course are true social ads. This form of advertising has been shown to be more effective than regular advertising. They emulate the idea of word of mouth and become a personalised recommendation. The challenge for Facebook is how to increase the number of ads shown in a person’s Timeline without users becoming frustrated by the experience.

TV is still king

Despite the claimed 40 minutes a day US Americans spend on Facebook each day, they still spend nearly 5 hours a day watching TV. In terms of access to consumers, TV advertising is going to be a major part of the overall advertising budget for some time to come. Even if this moves online, it is Google with YouTube and companies like Netflix and Hulu that will still command most of that market.

Facebook doesn’t necessarily have to be an effective advertising platform to be successful in generating revenue from ads, it just needs to continue to create an environment where businesses believe that to be the case. Also, with control over the News Feeds of its users, it can create conditions where the only way a company can get the attention of consumers on Facebook is to pay for ads. This will work as long as Facebook itself maintains its popularity, which although its growth in users is slowing, is likely to be for some time yet.

Evidence-based medicine is broken: why we need data and technology to fix it

Evidence based medicine

A recent paper in the British Medical Journal suggests that evidence-based medicine is in crisis. Evidence-based medicine is based on the practice of employing treatments that have scientific research that backs up their effectiveness. It is usually set against medical practice that is based on anecdotal experience or simply doing things because that is the way they always have been done.

Ways evidence-based medicine is broken

The authors of the paper point out however that there are a number of problems with evidence-based medicine that together, significantly compromise its effectiveness. The first problem is that evidence-based medicine plays right into the hands of companies and organisations with a vested interest in seeing a treatment recommended. Of particular concern are drugs that are recommended for treating pre-diseases. The classic example of this is the use of statins to lower cholesterol in the attempt of reducing cardiovascular disease.

The National Institute for Health and Care Excellence (NICE) has offered evidence-based guidance on prescribing statins that has reduced the required level of risk before treatment is offered, effectively increasing the number of people taking statins significantly. The bar for being put on statins is very low and cholesterol levels can be considered normal and the person could still have a risk profile that puts them on the pathway for treatment.

Drug companies have a vested interest in funding trials and journals are more likely to publish positive results than negative ones. The authors of the BMJ paper cite “one review of industry sponsored trials of antidepressants showed that 37 of 38 with positive findings, but only 14 of 36 with negative findings, were published”.

Another major problem with evidence-based medicine is the fact that statistical significance in a clinical trial does not necessarily mean very much at an individual level. This works to overemphasise benefits and to underestimate risks.

People writing the guidelines to implement evidence-based medicine face a growing challenge of dealing with ever increasing amounts of evidence. At the end of this are the clinicians that have to deal with an explosion in the guidelines themselves which can be complicated and even more so when they have to be applied to a patient with all of the real-life complexity and idiosyncrasies that they bring.

The authors are not suggesting abandoning evidence as the basis for clinical treatment. What they end up recommending are modifications of how the evidence is gathered, reported and implemented.

Technology and data as a solution

What the authors don’t mention though is the role that technology has to play in providing a solution for the problems that they have outlined. The first element of a technology-based solution actually runs counter to the author’s point of crisis. What is needed is more evidence and data, not less. Large data sets providing detailed monitoring of patients combined with genetic information will eventually be able to reveal specific information about what makes a treatment work in one patient and not another. This type of information goes much further than the limited range of measures normally collected as part of current clinical trials. To enable this collection of data, we will need to be monitoring people pervasively and collecting that information on a continuous basis.

Clinical analytics of this so-called “clinical big data” can potentially reveal much more information about the effectiveness of particular drugs and treatments given a specific individual with a set of symptoms and illnesses. What we will then need is sophisticated artificial intelligence as portrayed in the fictional film “Her” that guides clinicians through a range of true evidence-based treatment options that have been personalised for the specific patient at that moment in time.

It is possible that as a society we are not ready to trust the likes of Google CEO Larry Page with the task of collecting and analysing patient data on this massive a scale. He declared our ability to save thousands of lives through this approach. Despite our reticence, it is clear that he is right.

Companies such as PatientsLikeMe have also faced skepticism when arguing their ability to contribute to clinical research through the massive, but self-reported data they collect from patients.

Despite the resistance, sites like PatientsLikeMe, CureTogether and the personalised genetic profiling company 23andMe are part of the future of medicine.

These companies have the ability of providing extensive information about the effectiveness of treatments, symptoms and side effects of people outside of the restrictions, and some would say artificial settings, of a clinical trial.

All of this does not deny the needs for the skills of a doctor, at least until the technology has advanced to the point where it makes those skills redundant.

Microsoft culls a massive 18,000 staff. Does this spell the end of its devices?

Satya Nadella

The pain, it seems, is not over for former Nokia workers as their new employer, Microsoft, prepares to cut its workforce by a massive 18,000. Although Microsoft has not announced where all of these cuts will come from, but 12,500 are expected to be from the newly acquired Nokia mobile business which added an extra 25,000 staff this year to swell Microsoft’s staff numbers to 127,000.

It is not surprising that Microsoft would want to reduce its staff numbers. In a simple comparison of productivity of net revenue per staff between Microsoft and other tech leaders like Google and Apple, Microsoft was lagging even before it took on the extra Nokia staff (see table below). At 127,000 staff, profitability would have taken a big hit.

Net Revenue per Staff (2013) Data from Google Finance and Wolfram Alpha

The layoffs are expected to cost Microsoft between $1.1 and $1.6 billion over the next year in pre-tax charges which makes the Nokia purchase even more expensive.

The New Direction

Recently, Microsoft CEO Satya Nadella sent an email to Microsoft staff announcing the new direction for the company. No longer would it be a simple “devices and services” company but it would become a “productivity and platform company for the mobile-first and cloud-first world”. It was no secret that former CEO Steve Balmer completely misread the iPhone’s potential and consequently consigned Microsoft’s role in the mobile market to that of an extra. Microsoft however have always believed in the mythology that even though they come to a market late, they could always catch up through sheer will and the declaration that they are suddenly all about devices and services. This was certainly true when they held a monopoly in the PC market, but it is unfortunately not the case in markets for which they no longer have any influence.

Satya Nadella is now doing what most new CEOs do and declaring a new vision for Microsoft which is all about productivity. This may guide Microsoft into deciding what they don’t want to be doing but unfortunately says very little about what they can do in a market in which they have no presence.

The massive cuts perhaps signal that Nadella has no confidence that Microsoft will be able to make something of the mobile phone business it bought for $7.2b. This wouldn’t be the first time that Microsoft has written off a massive purchase. In 2012, it wrote off most of the $6.2 billion it had spent on online advertising company aQuantive.

Nokia’s mobile phone business was already struggling before Microsoft bought it and with the layoffs and change of direction, it seems clear that this is unlikely to change.

Xbox not core

As part of the re-definition of Microsoft, it seems that some of the staff cuts will come from the no-longer-core Xbox division. At one point, Microsoft used the Xbox as the spearhead in the fight for the living room. Again, they viewed the battle to be about PCs. Prior to the Xbox, Microsoft had developer Windows Media Centre with the view that people would have a PC in their living room and this would replace all other types of media devices.

What happened however was that people didn’t want PCs in their living rooms and opted instead for smart TVs and a plethora of small inexpensive media players that include the Apple TV and Google’s Chromecast. If they wanted to surf the web at the same time, they used their tablet and/or their mobile phone.

As far as the Xbox went, this was never going to make it out of the gamer of the family’s bedroom. It was certainly never going to make it to be the centrepiece of the living room.

The Microsoft legacy

However Microsoft decides to “tweak” or restate its business, its fundamental challenge will be that it has no presence in the mobile market. As Apple and Google continue to eat away at the dominance of Windows on the PC, even Microsoft’s two principal cash cows, Windows and Office, are at risk. If mobile defines our future productivity, Nadella’s vision for his company seems unrealistic and it is hard to see a future where Microsoft continues to play anything other than a legacy role.