Google’s Chief Business Officer Philipp Schindler said last week that we’re living through "a generational shift to digital." As you might imagine, I think he’s right. After all, we saw "two years of digital transformation in two months" just last May. And we know that digital will drive the next decade of business growth. Do you think it’s likely that we’ll see this step change in customer behavior again anytime soon?
Please don’t misunderstand me. This shift is ongoing and, if anything, accelerating. But at some point the pace of acceleration will slow if for no other reason than your customers will have already made the shift. So, the question becomes, what do you do about it? How do you set your business up to take advantage of this generational shift to digital?
This episode of Thinks Out Loud looks at what’s going on right now with your customers’ shift to digital. We break down the playbook digital giants like Google and Amazon are using to win. And, we look at how you can set your business up to benefit from the generational shift to digital now… and for generations to come.
Want to learn more? Here are the show notes for you.
Thinks Out Loud Episode 317: We’re Living Through a Generational Shift to Digital Headlines and Show Notes
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- A Brief Introduction to Thinks Out Loud. As a bonus, we’ve also included this PDF document that highlights some of our core episodes to help you dig into what the show is about. We think it will help you capture the show’s essence while you’re working your way through the 300-plus episodes published so far. Download it here.
- Digital & E-commerce Maturity Matrix. As a bonus, here’s a PDF that can help you assess your company’s digital maturity. You can use this to better understand where your company excels and where its opportunities lie. And, of course, we’re here to help if you need it. The Digital & E-commerce Maturity Matrix rates your company’s effectiveness — Ad Hoc, Aware, Striving, Driving — in 6 key areas in digital today, including:
- Customer Focus
Show Notes and Links
As always, here are the "regular" show notes, detailing links and news related to this week’s episode.
- Amazon (AMZN) Q4 2020 Earnings Call Transcript | The Motley Fool
- Amazon.com, Inc. – SEC filings – SEC Filings Details
- Amazon Q4 2020 Form 10-K PDF link
- Alphabet Inc (GOOGL) Q4 2020 Earnings Call Transcript | The Motley Fool
- Alphabet (Google) Q4 Form 10-Q PDF link
- Apple (AAPL) Q1 2021 Earnings Call Transcript | The Motley Fool
- Microsoft (MSFT) Q2 2021 Earnings Call Transcript | The Motley Fool
- Facebook – Facebook Reports Fourth Quarter and Full Year 2020 Results
- Facebook (FB) Q4 2020 Earnings Call Transcript | The Motley Fool
- IAC/InterActiveCorp (IAC) Q4 2020 Earnings Call Transcript | The Motley Fool
- Snap Inc. (SNAP) Q4 2020 Earnings Call Transcript | The Motley Fool
- Pinterest (PINS) Q4 2020 Earnings Call Transcript | The Motley Fool
- Godzilla vs. MUTO "Let Them Fight" Scene – Godzilla (2014) Movie Clip HD – YouTube
- Are You Destined to Lose to the Frightful Five? (Thinks Out Loud 303)
- A Digital Transformation First Step: What You Can Do Right Now (Thinks Out Loud Episode 294)
- The Five Drivers of E-commerce and Digital Transformation for Your Business (Thinks Out Loud Episode 293)
- How to Build a Digital Company (Thinks Out Loud 302) Tim Peter & Associates
- Why Google Keeps Winning. And How You Can Win Too. (Thinks Out Loud Episode 263)
- Is Google Destined to Win?
- How to Differentiate Your Brand
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Past Insights from Tim Peter Thinks
You might also want to check out these slides I had the pleasure of presenting recently about the key trends shaping marketing in the next year. Here are the slides for your reference:
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Running time: 22m 05s
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Transcript: We’re Living Through a Generational Shift to Digital Transcript (Thinks Out Loud Episode 317)
Well, hello again, everyone. And welcome back to Thinks Out Loud, your source for all the digital marketing expertise, your business needs. My name is Tim Peter. This is episode 317 of the big show. Thank you so much for tuning in as you do every week. I really, really appreciate it. It means a lot to me. I think we’ve got a really cool show for you today.
What I Learned During the Digital Giants’ Earnings Calls
I want to start by saying that I’m a little weird. Now, I’m pretty sure for any of you who’ve listened to this show for any period of time, that’s not news; I mean, we’re all a little weird in our own way. But I look forward every quarter — I eagerly look forward — to the earnings calls from Apple, from Google, from Facebook, from Amazon, from Microsoft, from IAC, from Spotify, from a whole host of other companies each quarter, to get a sense of the pace of digital transformation, of how quickly the marketplace is evolving. In just the last week, Apple, Google, Facebook, Amazon, Microsoft, whether you call them AGFAM or the Frightful Five, or whatever you want to call them, they all had their earnings calls in the last week or so. And there were some really fascinating takeaways. Now, I also look forward to Shopify to get a sense of what’s going on with small business, but they don’t report for a couple more days. I’m recording this on Sunday, February 14th, and I think they record on Wednesday of this week. I’ll give an update on them later, probably in a few weeks.
To be clear, I’m not interested in any of these as investments or I’m certainly not for purposes of this podcast. In fact, let me say right now that none of what I’m going to talk about right now should be taken as investment advice. If you’re taking investment advice from some random guy on the internet, you probably thought the game stop stock thing in the past month was a missed opportunity or something, but let’s leave that to the folks at Wall Street bets. I’m just interested in what they have to say and what it means for the larger digital ecosystem, because I use them as a proxy for what’s going on with digital transformation. And some quarters, there’s not a lot to talk about. So I don’t.
Jeff Bezos is Leaving Amazon: NBD?
This time, there’s a ton to talk about. Now, the big news that lots of people focused on from the earnings calls, of course, the biggest story that came out is that Jeff Bezos is stepping down from Amazon later this year. And no offense to Jeff Bezos. He’s an extraordinary business leader. He’s done some amazing things, but for our purposes, I’m like, eh, whatever. I’m not saying his departure isn’t important to Amazon. I’m not saying it won’t have an effect on their business down the road. I’m not saying it won’t have an effect on your business down the road. I’m saying that it’s not that important to where we are at this moment. It certainly suggests that Amazon feels pretty good about where they are and that it’s an okay time for them to go through this transition.
As we’re going to talk about, there’s a lot of data to support that position. It’s just not particularly relevant to what we care about today.
Digital’s Growth is Accelerating
Instead, the being news that I want to focus on is that the growth of digital continues to be, as you might imagine, extraordinary, and it shown no signs of slowing down. If anything, it’s speeding up even a year into the pandemic. Phillip Schindler, who is Google’s chief business officer, gave us the title for this episode because he talked about the fact that we are living through a generational shift to digital. So I’m going to add that to our list of things of two years of digital transformation. Two months, and digital will drive the next decade of business growth, but we are seeing a generational shift to digital.
Just to give you some specific examples, Apple hit an all-time quarterly services record. I’m not talking about the sale of phones or iPads or Macs. I’m talking about people signing up for their services. They now have 620 million paid services subscribers, up from just 140 million a year ago. Microsoft saw a 34% increase in its cloud business, which is amazing when you consider it was already doing many tens of billions of dollars per year in revenue. Facebook had a 31% lift in its advertising business year over year in Q4 alone, up from what it had been in each of the prior quarters. All of these companies did all of these things while also growing their profits. And while also incurring additional COVID related expenses. That says an enormous amount, just a ton about who’s winning. The Frightful Five, Ag fam, whatever you want to call them, are crushing it right now. This moment was made for them and they were made for this moment. That’s the broad implication for you.
Amazon vs. Google: The Case for Amazon
Now, to illustrate why this is such a big deal, I’m going to narrow this down to just two big players, two of them for a moment, Amazon and Google. Let’s start with Amazon. I’m going to throw a bunch of numbers at you. If you don’t know the exact numbers, don’t worry about it. I will post a link to them in the show notes. The key is the scale we’re talking about here. Amazon added a half a million new employees. They added 175,000 new employees just in Q4 of 2020. Now, obviously Q4 is a big quarter for them, but in 2019, they added 50,000. So they added two and a half times more employees in Q4 this year, this past year than they did in the prior year. They increased the square footage of their fulfillment and logistics network by over 50%. These employees accounted for almost $126 billion in quarterly revenue with a 38% annual top line volume growth, a 30% growth in AWS revenue year on year, and then 84% increasing annual profits year on year.
They did this all while spending 11 and a half billion dollars on COVID related costs, just on COVID related costs. Now, I’m not 100% clear on what all of those were, but it included testing, precautions, all kinds of things. So, damn. That’s a lot. That’s a pretty healthy sign of growth in digital. It’s also a pretty healthy sign of the rich getting richer. Now, let’s compare that with what’s going on with Google.
Amazon vs. Google: The Case for Google
Google spent a lot of time talking about customers of theirs and what their customers did. So they noted that Petco saw 100% increase in their e-commerce business, largely due to curbside pick up and pick up in store. But Google also saw a 52% increase in Google Cloud revenues. Now, Google Cloud operates at a loss and there are some reasons why that’s probably okay for them right now. They’re still trying to grow the business, but a 52% increase in revenue is pretty spectacular. And they still basically saw all of their earnings increases in ads of some kind. Now, obviously they would like to diversify their revenue sub, but that’s not a bad number because it shows that lots of advertisers are finding utility and value from advertising on Google. And remember, they’re investing in this advertising in the heart of a pandemic. So it speaks to the value they’re finding from digital.
Now, one of the things I found most fascinating was, throughout their earnings call, how much Google focused their story on e-commerce and retail. They get that right now, it’s existential between them and Amazon in terms of where consumers choose to browse, to shop and to buy. More importantly, and this is why Google care so much, it’s about where customers start, where do they begin their journey. Be prepared because I’m going to talk a lot about this in the next few weeks. But we’re living through, we’re witnessing right now, a cold war between Google and Amazon at the moment. It’s not the only one. Obviously we’ve got pretty serious sniping between Apple and Facebook, and then Microsoft is going against Google and Facebook to a degree.
Amazon vs. Google: "Let Them Fight"
But for today, we’re going to stay focused on Google versus Amazon. And I want to be clear. I’m really not taking sides in this. Well, actually, that’s not true. I’m totally taking sides in this. I’m not taking sides in favor of one or the other. I’m more like the actor, Ken Watanabe, in the Godzilla movie — you’ve probably seen the meme — of "let them fight." Because the more they fight, when they’re fighting, you win. As a consumer, you win because they need to make better products and services to attract your interest and your action. And you often win as a business because they need you and what you offer to continue to attract that consumer interest. Basically a strong, healthy, competitive marketplace where people are going at it is good for us all in the longer term.
The Battle for the Global Consumer
But let’s be clear. This is a battle. It’s a battle for the hearts, the minds, and eventually the wallets of the consumer.
Google is talking so much about e-commerce because they recognize that when people have learned to start at Amazon when they’re looking for something to buy, that means that’s a lost opportunity for Google to enable that transaction — and let’s be really clear, to monetize that transaction. And of course, Amazon recognizes the more that they can get people to start with them, the more things they can offer so that people continually come back to them again and again and again. That’s what this is all about. Now, there are others fighting in this war. There’s little side battles and things like this. Some other companies who are cropping up are hoping they can pick up the pieces in different places. I’m going to talk about a couple of them in just a moment. But the reality remains that this is hugely important. This is this generational shift and people are trying to find their seat at the table.
How Do You Win During the Generational Shift to Digital? Differentiation
Now, how do you do that? How do you find a seat at the table? Well, I said many times that there are only two ways to win in digital:
- One is you are the dominant player. That is, you get big. You are the place everybody goes.
- Or two, are a differentiated offering. That is, you own a niche.
I typically position these as, "you get big or you own a niche." But the technical terms are you become the dominant player or you’re differentiated.
In reality, that’s not actually true. In reality, there’s only one way to win. That is you must be differentiated. Becoming the dominant player is itself a form of differentiation. It’s just that their differentiation is that they’re the one-stop shop. You’re Google? You find, organize and make available all the world’s information. Or in Amazon’s more succinct phrasing, you’re the everything store.
What Difffentiation Really Means
There’s a lot of misconception about what it means to be differentiated. My friend, Mike Moran, has the best definition I know or have ever heard. Because "differentiation isn’t just something that makes you different. It’s a difference that customers are willing to pay for." If they’re not willing to pay more in money, in time, in attention, if they’re not willing to go out of their way to find you, you are not differentiated.
Google’s differentiation is, you can go there and get the answer to everything. Amazon’s differentiation is, you can go there and buy anything. And because that’s true, customers go there to begin their journeys all the time because they know they’re going to get what they need.
What Differentiated Looks Like in Practice
Now, there are other kinds of differentiation, of course. Booking.com and Expedia differentiate by focusing exclusively on travel. Airbnb and VRBO differentiate by focusing exclusively on vacation rentals within travel. DoorDash and Uber/Postmates differentiate by being the local delivery version of and I’m going to say everything; today it’s somewhat limited, but that’s the trajectory they’re on, is how do they become the everything store locally? Etsy differentiates on the place you go for handmade. Reverb differentiates on musical instruments and in particular, resale musical instruments.
And if you notice for each of these companies I mentioned, Booking.com, Expedia, Airbnb, VRBO, DoorDash, Uber, Etsy, Reverb, they are all trying to be both big and niche. They are trying to be the biggest player in a differentiated market.
Other Differentiated Offerings
Niche doesn’t necessarily mean small. It means differentiated. Of course, you can be small if that works for your business and it works for your business model and your cost structures and your ambitions, you could be the best pizza in town. You could be the most luxurious mansion hotel in Charleston, South Carolina. You could be an athletic apparel store that focuses relentlessly on the needs of runners.
But you better be extraordinarily differentiated. You have to be because you then need to be worth seeking out and you must cultivate — and I use that term on purpose — diehard, passionate fans. You want your customers to be a cult devoted to your offerings.
How to Differentiate Your Digital Offering
I’m going to have a lot more to say on how and why you need to do this over the next couple of weeks, but I want you today to recognize what’s happening. We’re living through this generational shift to digital, and there’s only one way to win. So you have to start asking yourself:
- what makes you special? Do you know what makes you special?
- If you do, do your customers know what makes you special?
If your answer to any of those questions is no, then you know what you need to do next. You need to think about what makes you special, what makes you a cult worth joining. You then need to demonstrate that difference, that thing that makes you special in every interaction your customers have with you, whether it’s offline and especially online. You need to make that differentiation clear in every touch point, every message, every page, every post. Because you can only benefit from this generational shift if you manage to do that. And the great thing is that Google and Amazon and all the other big players right now, they’re giving you the playbook. They’re showing you how it’s done.
Important Questions for Navigating the Generational Shift to Digital
- How do you separate yourself in a way that says you’re worth finding?
- What is the benefit that you give that is so special that makes you worth the time for people to seek out?
The Generational Shift to Digital Conclusion
You can do this. You just have to begin to define what makes you worth finding. Just the way people want to find Amazon, just the way people want to find Google, just the way that they want to find Airbnb and VRBO and Expedia and Booking.com and all of the others that I listed, Reverb, Etsy, et cetera.
If you can’t come up with anything else, then just go back to what I started with at the beginning and figure out how can you be a little weird?
In any case, expect a lot more about this over the next couple of weeks. I think there’s a lot to talk about here and a lot to unpack. And I’m looking forward to doing that with you.
Show Closing and Credits
Now, looking at the clock on the wall, we are out of time for this week. I want to remind you that you can find the show notes for today’s episode, as well as an archive of all past episodes by going to timpeter.com/podcast. Again, that’s timpeter.com/podcast. Just look for episode 317. Don’t forget that you can click on the subscribe link in any of the episodes you find there to have Thinks Out Loud delivered to your favorite podcatcher every single week.
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With all of that said, I want to say again how much I appreciate you tuning in. I want to give a quick update. I’ve had a really good couple of weeks since the last episode I posted. To all of you who reached out to me personally, I cannot tell you enough how much it meant to me. I heard nothing, but warm encouraging words. It’s just great to hear from you all. Thank you so much for that. It really does mean a lot. I hope you continue to stay well. I hope you stay healthy. I hope you take care of yourself. Have a great rest of the week. I hope you have a great weekend ahead, and I’ll look forward to talking with you here on Thinks Out Loud next time. Until then, please be well, be safe. And as ever, take care, everybody.