Analytics is changing everything. If you don’t understand how, you could be left behind
Andy Cocker doesn’t beat around the bush. “Old-fashioned media agencies will cease to exist. They will become redundant. It doesn’t matter how big you are any more: now, it’s all about algorithms and understanding customers through crunching data, and what technology you have at your disposal.”
The co-founder chief operating officer of north London-based Infectious Media is the antithesis of Don Draper, the larger-than-life Scotch-chugging star of TV’s Mad Men. Intense, reflective, slightly frayed around the edges, Cocker almost disappears in an empty room, yet what he and his company are doing is changing forever the way the advertising industry works.
He is also at the forefront of a potentially vast new industry that’s little understood, yet which is radically redefining the fabric of everyday life, creating a world where websites seem to know us better than we know ourselves, and where adverts anticipate what we want, even before we know we are going to want it.
Welcome to the fascinating world of analytics, where vast quantities of data are crunched to reveal to us what we (really) mean, feel, want, need and desire.
First, the bare facts. Analytics is neither small potatoes, nor flash-in-the-pan. It’s big, and here to stay. Market research firm IDC reckons the business analytics market, growing at 15% a year, will be worth £32bn a year by 2016. A recent report by McKinsey found that companies using analytics in decision making immediately boosted profitability and productivity by an average of 5%-6%.
Companies seeking to profit from the pressing need to understand this brave new world all are springing up overnight. Westminster-based Obis Omni, a self-professed industry “community”, helps explain analytics to (often baffled) mainstream business leaders. Chief financial officers – often the most comprehensively baffled executives when the subject of business intelligence is raised – are packed off to conferences like London’s Predictive Analytics World, slated for late November, with a strict brief to “get it”, or get out.
And for good reason. Firms that embrace analytics will profit increasingly in the interconnected world where data intersects with human behaviour. Those who get it will win, as will their shareholders. Those who don’t will most certainly be consigned, rapidly and unceremoniously, to the dustbin of history.
Let’s look at a few examples of how analytics – a term often used interchangeably with business intelligence and “big data” – works, starting with that most visible of modern industries: mass-market retailing. Year zero here was probably 1995 and the invention of the Tesco Clubcard, a collaboration between the UK supermarket giant and dunnhumby, an Ealing-based firm that leads the world in data personalization services.
Seventeen years ago, the Clubcard was a one-dimensional novelty, offering customers little more than discounts on future purchases. Now, it’s a multi-billion-dollar asset, as valuable to the firm as its overarching brand or land bank. Tesco’s analytics team works with dunnhumby to mash, crunch, sift, analyse and cross-reference the buying patterns of billions of consumers around the world. This has led to all manner of compelling and sometimes incongruous insights about our shopping habits, like the revelation that people who buy nappies have a propensity to throw a six-pack of beer into the basket.
Most retailers now boast some type of analytics operation, outsourced or retained in-house. A few non-British retailers are avid analytics addicts, notably the US chain Target, which is particularly adept at deducing which of its female shoppers are pregnant, then targeting them. (New parents, as a demographic, are notably likely to change their long-term shopping habits just before their first child is born.) But Britain’s London-based retailers, led by the likes of Sainsbury’s and Marks & Spencer are, says Caroline Sullivan, head of strategy and research at Obis Omni, “streets ahead of the global field in analytics”.
And it doesn’t stop there. Analytics allowed London-listed Punch Taverns, Britain’s biggest pub chain, to boost revenues by revealing why landlords bought some spirits and ales from them, but not others.
Lorne Vary, finance director at foldable bike maker Brompton Bicycles, says analytics helped keep costs static over the past two years, while sales jumped 110%. Analytics help Brompton work smarter, Vary says, noting: “Information overload means it’s sometimes difficult to see the wood for the trees when trying to identify the key data which will shape the future of your business.”
London wasn’t the birthplace of analytics. Many of the major providers of business intelligence software – IBM, Google – are based in North America, while US President Barack Obama is taking big data to new levels. His re-election campaign is turning America into its virtual call centre, sourcing and crunching public data from Facebook, helping figure out what turns voters on and off.
But London is increasingly the global nexus of this industry. That it is the world’s shopping capital clearly helps. British corporates have generally been quick to pounce on analytics as a way to boost profits while cutting costs during a time of austerity.
It’s even helping those more plodding firms among us to work smarter and leaner. BAE Systems happily bumbled along for years in Britain, processing multi-decade projects for the Ministry of Defence. When the Coalition government came to power in May 2010, everything changed. “Contracts became much more short-term,” says Charles Ravenhill, who ran BAE’s business intelligence division for seven years before leaving in spring 2012. “We’d need to reassign projects literally overnight, reprogramme projects, compile regular, even daily reports on all of our operations, rejig overheads, and reallocate resources.”
Before, that would have been logistically impossible, or hellishly expensive. But analytics, Ravenhill says, changed everything. “It allows you to take money away from a struggling business, and invest it in a business that will drive your company forward. And there’s a cultural shift here, too. It means you have a business where everyone is an information manager.”
Analytics’ biggest impact will be felt in the consumer space. “Cookies” – little files that track our movements between websites and loosely predict our future behaviour – are just the beginning. Companies are investing heavily in sentiment analytics and social media analytics, in a never-ending quest to understand customers better, and to find out what people really think of a product.
This process is still in its very early stages. But once started, it’s irrevocable, as most revolutions are. Andy Cocker spent 13 years in the traditional media space before co-founding Infectious Media. His firm has spent a small fortune creating its own media-trading platform, Impression Desk, which operates rather like a stock-trading terminal at a City brokerage. The company mines terabytes of data on customer behaviour, tracking online shopping movements and social media activity before connecting an advertiser with the right medium and the right advertising provider at the right price.
Say a leading corporation like Tesco or Vodafone is seeking to hit a specific target audience. In the past, they’d go to a major media buyer like WPP, who would use past viewing figures to predict which TV channels they should target. That’s all changing. Advertisers now want accountability: who, precisely, is watching their commercial, and for how long. They want to know how much money it takes to capture a new customer, helping control advertising spend. “We can do all of that,” says Cocker. “We create an algorithm tailored precisely to that commercial.”
Again, London is at the heart of this subset of the industry, known as media analytics, which is driven not by Mad Me
n but by data-crunching “Math Men”. Cocker, a proud member of the latter grouping, believes the industry is on the cusp of a new revolution. “The old-fashioned media proposition was all about size – the bigger the better,” he adds. “Now size doesn’t matter. WPP and the others – they are all trying to change, but it’s just not in their DNA.”
Cocker highlights two key shifts here, both interconnected. First, the shift in online advertising toward analytics. “Within the next two to three years, 80% of all online advertising will be data-driven through algorithms.” He highlights a key client, a global media firm, which has gone from spending 5% of its online advertising budget on media analytics to 50% in less than two years.
The second shift is consumer behaviour. Online advertising once meant internet banners and little else. Now it is the entire wired world: smartphones, internet-ready TV, digital advertising hoardings, even in your car.
Ultimately, everything will become interconnected, allowing companies and technology providers to deduce a link between online and offline activity – such as when you review a camera on a website, then buy it in-store the next day.
John Wanamaker, the father of modern advertising, once asserted: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Analytics, a global industry with London as its beating heart, is turning this truism on its head, just as it is reshaping the world around us, allowing companies, institutions and governments to know us better than perhaps we know ourselves.
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