In the future, the company with the best algorithm will win.
But in some cases, it seems likely that we will all be working with the same algorithm. When that happens, it is unclear who wins. Do we all win? Do we all lose? How can competition exist in an arena where every company is using the same algorithm?
This was a question of some debate at a recent meeting of marketing professionals in New York City. The discussion revolved around the growing role of AI and machine learning algorithms in advertising.
The truth is, a lot of advertising exists on one of only a few large platforms. Consider the fact that 2019 is the year where more than 50% of all ad spend will occur online vs offline. And consider that Google and Facebook control nearly all of the online advertising market.
Each of those companies, along with Amazon, Bing and a large number of smaller platforms, is working on algorithms that better serve the right ads to the right people at the right time. They are doing this because the future of their business relies on advertisers successfully reaching customers and driving sales. And a better algorithm, it’s thought, will be more adept at fulfilling that promise.
But at some point, we must consider that all of the advertisers on Google are running ads on the same platform, and that platform is running the same algorithm (or set of algorithms) to determine when and where to show different ads.
Here are four potential outcomes when this happens:
1) The companies with more/better data will win out over the companies with less/poorer data
When we are all using the same algorithm, the data that we are able to feed into it might determine who succeeds and who does not. Those companies who have the ability to store massive amounts of clean data, data that feeds back into the platform (whether it’s Google or anywhere else), will be better positioned to take advantage of the algorithms of the future. With more data, the algorithm will work more effectively for that company than it may for another.
In this scenario, the real level on which companies are competing is on data.
2) The marketplace will determine winners and losers
This is potentially a dangerous, anti-competitive scenario. But one we must consider. Google and Facebook already have incredible amounts of power. And if they can use their algorithms – intentionally or otherwise – to control what companies succeed in reaching new customers and what companies do not, be careful.
I don’t think any of us wants this kind of a future. Google and Facebook will tell us the same thing. But who is preventing it?
3) Branding will become more important than ever
When there is no real competitive advantage on targeted digital advertising, companies will need to rely on other areas to compete. Brands are one possible area of competition.
While brand loyalty has been trending downwards for some time, it may be that effective branding is going to see renewed importance over time. And that’s because consumers who seek out certain brands will bypass, in a sense, what the algorithms are doing.
4) Pricing will become more important than ever
This one requires very little explanation, because it is similar to #3. And while it might sound like good news for consumers (more companies competing on price and lower prices in the marketplace overall), it spells trouble in the long run.
A price war – with each company trying to lower prices to out-offer competitors – could precipitate a race to the bottom on quality and service. It could also mean that giant companies, like Amazon, undercut competitors to the point that they become near-monopolies.
This scenario is not great of competition either.
The Possibilities Are Endless
These are only four potential scenarios. They all might come true. Or none will come true. There are thousands of other ways this could work itself out.
But if you are responsible for advertising your business, or growing your business in any way, you have to start thinking about the future of competition. Because it may not look like competition today.