We’re living in a world increasingly controlled by intelligent algorithms.
The algorithm for the personalisation and recommendation of movies used by movie rental site Netflix is now responsible for 60% of rentals from the site. It is astounding that an equation that can literally be written on the back of an envelope, generates more than US$3 billion of Netflix’s revenue. British AI firm Epagogix uses algorithms to analyse a new movie’s script along with the box office takings of similar films to predict how much money it will make.
Chicago-based Narrative Science pulls financial data from a variety of public and private sources to automatically generate equity research reports. The HR software firm Evolv helps employers predict when an employee is most likely to leave their job and the profile of employees that tend to perform much higher than others.
A major basis for competition in the future will increasingly be the algorithms embedded in products and services.
John Zysman, a professor of political science at the University of California, Berkeley, declared that we were in the midst of the fourth services transformation, when the application of machine intelligence to service activities would transform the services economy, altering how activities were conducted, and how value was created.
These automated processes will displace people, but will also complement human intelligence and knowledge. The crucial issue for marketers in this era will be how to harness machine intelligence to develop consumer insights and apply them in automated customer interactions.
Since the 1960s with the first appearance of marketing science, one can distinguish three degrees of application of machine intelligence to marketing. At the first degree, marketers make decisions with limited use of analytics and marketing campaigns are handcrafted and executed manually.
At the second degree, marketers make analytically supported decisions, but marketing campaigns are still designed and executed manually. At the third degree, machines take on the fully automated decisioning and execution of customer interactions, while marketers focus on strategy development. Amazon.com is a poster child of this world of frictionless commerce mediated by machine intelligence.
In any given week, Amazon has to price and promote more than 250 million products lying in 89 warehouses to 240 million customers.
To optimise its marketing activities at this level of scale and complexity, Amazon boosted its artificial-intelligence chops by setting up several machine-learning research groups in cities such as Bangalore, Seattle, Palo Alto, California and Berlin.
While the algorithmic marketing revolution may have begun, many organisations are still neglecting the benefits that digitisation can bring to their operations.
I believe that many organisations will still enjoy first-mover advantages in their industries if they start now.
Marketers at all levels of seniority will also do well to review their quantitative toolkit. Traditional MBA-level marketing courses are woefully inadequate to prepare marketers for the challenges of algorithmic marketing.
In the near future, marketers will need to have at least a conceptual grasp of marketing science techniques such as correspondence analysis, factor analysis, cluster analysis, discriminant analysis, choice modelling, market mix modelling, time series analysis and experimental design.
Former IBM chairman and CEO Sam Palmisano spoke of a future dominated by the three I’s – instrumentation of our physical environment; interconnectedness through ubiquitous wireless networks; and machine intelligence.
These overarching trends will pave a way for industries, cities and entire societies to be more productive and efficient. The three I’s are driving the algorithmic marketing revolution, and I invite all future-oriented marketers to join me in this exciting journey.
The writer is George Chua, former head of intelligence of Celcom. He is currently Associate Partner – Global Communications, Media and Entertainment Industry, IBM Global Business Services.
The Futurist is an annual column by A+M featuring senior marketing professionals and their commentary on what they think is the future of marketing.