The group includes around 90 people, and there will be other UK companies over in the US for the event as well, making the UK the biggest country group outside of the USA and Canada.

South-by, as it is known to it’s friends, does an amazing job of bringing together the digital media industry (and, yes, social media is a subcategory of that ;) ). I’ll be posting photos on Flickr and blogging on the Digital Mission blog throughout the event, and you can follow the DigitalMission on Twitter for real-time updates. The full list of companies is here:

Amberlight Audioboo Blueleaf Digital Brainient Codegent Codility Cube Interactive Face Group FreshNetworks GigLocator Howard Baines Illumina Digital KMP Digitata Likecube Little World Gifts Littleloud Mendeley Mobilized MOFILM Moonfruit MusicMetric Nsyght oneDrum Orange Bus PageDo Pixeco Plug-in Media Qhub Rummble Silence Media Skimlinks Slicethepie Smidgn SubHub TweetJobs UberVu Vibio Videojuicer Wolfstar WorldTV

I am looking forward to getting to know each of them, and sharing the wonders of SXSWi as we head through a packed agenda of events focussed on understanding and engaging with the US market. Newspepper will be there, so expect video updates from Hermione Way – they’ve already put together a trailer:

Digital Mission 2010 from Newspepper on Vimeo.

Many of the companies met up for a pre-event mixer last week, slideshow below, which gave people the chance to get to know each other before we head over to Austin Texas. Digital Mission really is a team event, and over the last couple of years it has been amazing to watch a strengthened network of hundreds of digital businesses emerge here. While the attention might be on London, the companies are from all over the UK, and watching them support each other to become international players has been, and continues to be, a real privilege.

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The whole ‘free’ thing is worth wrapping your head around. It is probably worth starting with Chris Anderson’s article from last year, but then reversing out a bit with Alan Patricks two great posts on Freeconomics: PART I and PART II and his notes from the panel: CHINWAGGING or the podcast). You can read a journal of the panel session on the Bluedoor blog, where Abigail has blogged her tweetage, as it were, and there is a full write up at Brandrepublic.

You see, ‘free’ isn’t really free at all. It’s been funded by the VCs and selling data, and the VCs aren’t playing anymore. The concept of Anderson’s free is that transactional costs (the price of ‘doing things’) tends to zero on-line and at scale. However, transactional costs tending to zero is very different then them being zero see… Someone’s got to pick up the tab, see Nic Brisbourne’s post, and I quote:

The other takeaway that I hadn’t considered fully is that for many services in reality the marginal cost of delivery is not zero.  This was made most forcefully by panelist Alan Patrick, but also by panelist Bruce Daisely of YouTube who made the point that the worlds favourite video service now accounts for 10% of total bandwidth consumption – which I’m sure costs Google a lot of money.  This point knocks a sizeable whole in the ‘free’ argument, although ‘free’ fans would argue that these costs are going down all the time.

So, I threw in a question at the end, on the basis of these three forces “Won’t free end up eating itself?”

1. Free Attracts The Freeloaders.

If you advertise your service as free, hoping to up sell people to a paying service later (the freemium model), you may well be attracting the wrong crowd. I don’t mean in the sense of bad people, but rather the people that want something for free. That leaves those who want to pay as potential customers for a competitor. More importantly, you have probably attracted ‘customers’ that choose on price (free), rather than features. I put the word customers in quotes there very deliberately. Since they aren’t paying you anything, they aren’t really customers. They are prospects. And that is where ‘free’ is interesting: As a marketing ploy. It is a good one. But wait up…

2. Free Drives Value Out of the Market.

Imagine there’s a nice bar. A really nice bar. They charge £10 per drink, but it’s nice and you like it there, so you pay your £10. Now, someone opens up a bar next door. The drinks are free. I mean £0 free. You’re going to check it out aren’t you? Seriously. At least once? The £10 bar is going to loose at least some revenue, if not customers. You’re running the £10 bar. What will you do? Drop prices? A buy-one-get-one-free offer?

Markets are elastic. If someone enters the market with a lower priced offer, it drags prices down. It’s called competition, and it’s generally a good thing. As customers, we like it. However, when someone enters the market at ‘free’ it isn’t the usual ‘more efficient competitor’ entering. No, it’s a value destroying monster. Value will disappear from the market. That inevitably means that companies will too, which will reduce competition in the long run – and that isn’t good. And the competition that’s left? Oh, it’s bad…

3. Free Spreads Across Markets.

Traditional competition focusses on price. As marketers, we try and combat price competition by introducing features that (in our minds at least) create value and preserve the price. Some choose to build more efficient businesses, so that they can compete on price, but maintain margins. In the world of ‘free’ you can’t compete on price. You have to compete on features (or quality, which I’d argue is a feature anyway). That means wherever two players are in the same market with a ‘free’ offer, the temptation, if not the action, will be to gradually add more and more features. Think about the value for the market. More and more of what was revenue, ends up as ‘free’. Remember those ‘freemium’ businesses, giving you free stuff, hoping to upgrade you? There is less and less to upgrade you to that isn’t free.

Free is a Short-Term Win and a Long-Term Lose

‘Free’ feels good, but it is really an inevitable race to the bottom, ensuring that markets are destroyed by low price expectations and poor (service) quality. Watch the providers of ‘free’ – as advertising revenues (and tolerance for advertising) falls, and VC money dries up, expect them to come asking for money or to start selling your data to the highest bidder. The end of ‘free’ might well come from the strangest of places: mobile e-commerce. The latest iPhone software let’s you make payments within iPhone apps themselves. That’s iPhone apps that you probably paid for in the first place too! Nokia, Microsoft and a host of others are planning similar offers.

The Way out of Free is Utility

As much as product marketers bang on about the latest much have feature, one thing that we do pay for is utility. I can make a local phone call very cheaply, if not for free – depending on where I am. That same phone call costs significantly more on a mobile/cell phone, and yet the technology took off. People were paying for utility: being able to make calls from anywhere, not just when they were stuck in the house or the office. It made great sense as people became more and more mobile. And, as the technology took off, people got more and more mobile in their work and social lives, driving the technology even faster.

So far, the Internet is just catching up with the whole mobility thing. Web browsers are improving in leaps and bounds, as is the provision of mobile-friendly websites and improved screens on phones. Mobile Internet is taking off. And do you know what? It probably isn’t going to be ‘free’.

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South by South West Interteractive was even more of a whirlwind than I imagined it would be, and I had imagined it being frenetic. The event brings together people from the film, music and digital interactive spaces, which provides a rich context in which to talk about the future of marketing.

In between the Digital Mission events I caught a few panels, and (in true SXSW style) had lots of corridor conversations with industry verterans. For me, one of the highlights was meeting with Hugh MacLeod, aka GapingVoid. Hugh was one of the first bloggers I started to read, and I’ve been a long-time admirer of his cartoons (a warning: some strong language). I think it would be fair to describe him as an accidental artist – in fact I’m sure those are his words not mine. I have come up through an engineering and technology route to the marketing world, or as Hugh put it, I’m a “geek.” Hugh started in the marketing agency domain, before arriving into the technology world via blogging, back at the beginning of the century. That gives him a unique perspective on both the old and new marketing worlds.

As we sat in a favourite SXSWi watering hole, the Ginger Man, I quizzed him about where he saw marketing going and listened to his stories. I also sat in on the blog to book panel towards the end of SXSWi, but more of that later – and on Hugh’s upcoming book Ignore Everybody: and 39 Other Keys to Creativity (sample excerpts  and pre-review)

Over the last year I’ve come to the conclusion that it is best to interpret broadcast media, and the broadcast marketing that comes with it, as an anomoly. Since the invention of radio and TV advertising, marketers have been able to “buy” our attention by inserting adverts into content that we choose to consume. I distinguish radio and TV from earlier billboard and poster advertising, since they are media that already have our attention before the advert. With poster ads, marketers had to win our attention; with broadcast ads marketers simply need to make sure that they don’t loose our attention.

Arguably, broadcast media has laid waste to innovative marketing and made marketers lazy. Big brands have lived off of the program-ad-program sandwich “bait and switch” format for a generation, but we aren’t playing the attention game anymore. About the time that our second child was born we got a large screen TV. Not for us – the TV is hardly ever on when we are home – but for our baby sitters. Having a big screen TV made us an attractive employer for sitters.

Times have changed. Just before I headed over to the US for SXSW, our baby sitters arrived. They didn’t ask for the TV remote, they asked for the WiFi password so they could surf the web on their laptops. The younger generation is increasingly switching from watching TV to surfing the Internet. The older generations are too. The story is just by way of example, the broader trend is supported by industry statistics too.

Along with the switch from the big screen to the “small screen” we’ve become increasingly immune to advertising. Experiments that monitor eye-scanning patterns of web surfers show that they quickly learn where ads are placed in the page, and avoid looking at them. Our attention can no longer be so easily bought. The web doesn’t support bait and switch. If people (and the brands that employ them) want to get our attention, then they are going to have to be much smarter than they have been in the past. They either have to get better and better at grabbing attention, or to switch from interuption-based marketing, to conversational marketing.

In parallel, the growing domination of web search as the means of information gathering has changed the way that people look for products. Marketing is increasingly about discovery, rather than broadcast. A transition from from push (broadcast) to pull (discovery) seems increasingly inevitable.

Of course, we know all this, but old marketing habits die hard. The short term answer has been for companies to do more and more (broadcast) advertising, aided by the falling cost of media. That has simply exasperated the problem, saturating audiences and diluting attention. There is no point carrying on with the old model and hoping that it will still work. It won’t, at least not unless you have a huge budget. You can compensate for efficiency by pushing harder, but eventually things will still break.

The future of marketing lies in its the past. Companies have to switch back to authentic conversations with customers, building communities and finding the influencers and amplifiers within them.

Some shots from the Ginger Man and out and about in Austin.

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