Agencies and Regression to the Mean

I recently read the fascinating Thinking, Fast and Slow by Nobel Laureate Daniel Kahneman. The novel is a detailed look at how the human mind functions, makes decisions and the inherent biases that we all have when it comes to solving simple and complex problems.

As I was reading it, I came across a concept that Kahneman calls Regression to the Mean. He describes it using two equations that he once entered into an Edge magazine competition for ‘favorite equation’:

Success = talent + luck
Great success = a little more talent + a lot of luck

For most people, the idea of luck seems strange. Surely luck doesn't really play a role in success, does it? But when you think about it, you realize that – of course – luck plays a role in all outcomes.

Kahneman describes these equations using a simple golf example (apologies for the quote length but you won’t regret reading it):

“The unsurprising idea that luck often contributes to success has surprising consequences when we apply it to the first two days of a high-level golf tournament. To keep things simple, assume that on both days the average score of the competitors was at par 72. We focus on a player who did very well on the first day, closing with a score of 66. What can we learn from that excellent score? An immediate inference is that the golfer is more talented than the average participate in the tournament. The formula for success suggests that another inference is equally justified: the golfer who did so well on day 1 probably enjoyed better-than-average luck on that day. If you accept that talent and luck both contribute to success, the conclusion that the successful golfer was lucky is as warranted as the conclusion that he is talented.

By the same token, if you focus on a player who scored 5 over par on that day, you have reason to infer both that he is rather weak and had a bad day. Of course, you know that neither of these inferences is certain. It is entirely possible that the player who scored 77 is actually very talented but had an exceptionally dreadful day. Uncertain though they are, the following inferences from the score on day 1 are plausible and will be correct more often than they are wrong.

Above-average score on day 1 = above-average talent + lucky on day 1
Below-average score on day 1 = below-average talent + unlucky on day 1

Now, suppose you know the golfer’s score on day 1 and are asked to predict his score on day 2. You expect the golfer to retain the same level of talent on the second day, so your best guesses will be “above average” for the first player and “below average” for the second player. Luck, of course, is a different matter. Since you have no way of predicting the golfer’s luck on the second (or any) day, your best guess must be that it will be average, neither good nor bad. This means that in the absence of any other information, your best guess about the players’ score on day 2 should not be a repeat of their performance on day 1. This is the most you can say:

·      The golfer who did well on day 1 is likely to be successful on day 2 as well, but less than on the first, because the unusual luck he probably enjoyed on day 1 is unlikely to hold.
·      The golfer who did poorly on day 1 will probably be below average on day 2, but will improve, because his probably streak of bad luck is not likely to continue.

We also expect the difference between the two golfers to shrink on the second day, although our best guess is that the first player will still do better than the second.”

Think about Tiger Woods. For years, he was the most talented player in golf - winning 70+ tournaments, including 14 major championships. He was unstoppable and couldn't miss. His putts fell when they needed to and he got it done. But what phase was more likely? Continuing his above-average pace or coming back to the average? Suddenly, 2 years goes by and he hasn't won a tournament - was it because he no longer was as talented? That other players had caught up? That his personal issues had forever impacted his game? Or that his luck changed? In truth, it's a combination of everything, but the point is that he had above-average luck and that had to go back towards the average eventually.

Regression to the Mean resonates with me, especially as someone who works at an agency. All agencies are full of talented people – some more talented, some less – but most who are equally driven to create great work, build value for their brands and clients and do the best that they can to create world-class experiences.

When you look at the history of agencies, from when Saatchi & Saatchi got hot in the 80’s to BBH in the 90’s and CP+ B / GSP in the last decade, you can see that these runs are a combination of the right people who have created great ideas and won business – but shops that have had luck on their side as well. This isn’t meant to discredit them in any way – it’s just a fact that these runs have a bit of luck mixed in with the skill, passion and talent of the people working on them.

And, as Kahneman writes, those with above-average luck for a period are more likely to experience average luck at a later point. Goodby, Silverstein and Partners is a prime example of this – an strong agency that had a meteoric rise in the last decade only to have it’s worst week in history last February after losing Spring and HP in a matter of days.

Regression to the Mean.

Luck, especially in our creative industry, plays a role in almost everything – in winning business, coming up with the right idea, executing it well and getting noticed by the target. So how do agencies ‘plan’ for luck?

The truth is, we can’t. We can only keep improving what we can – helping our people get better, pushing for stronger ideas, working harder, not settling and doing everything we can to help our brands succeed. Get half of the equation (the most important half) as strong as we can and hope that we land on the right side of chance. The key, I think, is recogizing that luck is there and that even when an outcome might appear to be only talent related, there are always bad breaks and - of course - lucky outcomes.


The Attention War

I recently finished The War for Late Night; a detailed account of the Jay Leno and Conan O’Brian late-night saga that consumed NBC (and anyone interested in late night) for the better part of a year. While the story has many fascinating parts, one of the points that I found interesting was the importance of the Tonight Show time slot.

Broadcast at 11:30PM for decades, the Tonight Show was a steady part in a troubled NBC line-up. Despite being one of the four powerful networks, NBC is essentially run by their affiliate and regional networks.  These local broadcasters have a lot of sway and can decide which programming to air. They also all have 11PM news broadcasts that then feed viewers into the Tonight Show at 11:30.

Why is this important?

Because when NBC gave Conan the Tonight Show, they also gave Jay Leno a new show at 10PM on NBC. The result of that decision was catastrophic for the affiliates. Leno bombed in the 10-11 slot and, as a result, ratings for their local news broadcasts went off a cliff. Bad ratings result in less ad dollars being fed into affiliate budgets. Less money, results in angry partners and a massive headache for NBC. Most people know the result – Leno goes back to 11:30, NBC tries to get Conan to 12:05 and chaos ensues.

This chaos was all because of the lead in shows and the time slots. While Conan played well at a later hour to a niche audience, when he was brought forward things were different. Ratings dropped and he struggled between NBC execs and who said ‘make your show appeal to a broader target’ vs. those who wanted him to ‘continue to focus on his base of Conan fans’.

Today, many would argue, everything has changed. Time becomes less important with PVR’s, the Internet and ‘view-whenever-you-want’ power results in users having the ability to watch what they want, when they want. It’s the strength of content that draws a following, not just when it is broadcast.  

This isn’t to say that TV viewing is declining because it isn’t – it’s increasing. So is our time spent in front of screens of all kinds – from mobile to PC, digital display to the traditional TV.

Enter the new YouTube. Fresh from a new site redesign, the platform also announced that they were investing $100 million for content creators to develop original programming for the site. Google asked a variety of professional creators to pitch their channel ideas for a chance to get some funding to make it happen. Top brands like Comedy Central, Demand Media and Lady GaGa have entered the mix and are creating new shows just for YouTube.

In a superb analysis for the New Yorker, John Seabrook writes about the team behind YouTube's transition and their desire to make programming more and more niche - to focus on passionate groups of users who want very specific types of content vs. mass programming that may have mass appeal, but comes at a high failure cost if it doesn't. Led by Robert Kyncl, team YouTube is focused on creating original content to drive up viewer numbers through the platform and - ultimately - drive advertising dollars from the traditional networks to the platform. 

In his 2011 Entertainment Keynote at CES, Kyncl outlines his detailed strategy for YouTube over the next few years. By 2020, he believes that all channels on TV will be viewed over the internet (stat from CES 2011). Think about that. What was once a closed system, run by four networks, is rapidly becoming a platform that anyone will be able to broadcast to and reach an audience. Couple that stat with the reality that almost all TV's will be internet enabled in the near future and you can see that viewing over the digital space will quickly become the norm. So much so that Kycel believes that by 2015, 90% of all internet traffic will be for online video

YouTube is positioned well to take over this space, however there is work to be done. Currently, the average time spent on the site per day is roughly 15 minutes per user. Contrast that with US TV viewing which is in the 4-5 hour average per day and you can see that there is work to be done.

This brings me back to the importance of time. 

Despite the ability to watch what I want, when I want, there are still certain realities that I live with - I can't watch 2 hours of TV at work from my computer, I only go to YouTube to watch short clips (currently) and the shows that I really want to watch are normally ones that have been created by the likes of HBO, NBC and other major networks. Why? Because they are quality productions, are well written and have top talent.

Beyond that, the live nature of TV is still it's most compelling proposition. Shared, cultural events like X-Factor in the UK or the Super Bowl in the USA are always top rated broadcasts that most people feel they need to watch so that they can have something relevant to contribute at the water cooler the next day. YouTube is starting to get into this space with live streams and I suspect that they will make a play for more event-based content in the near future to start creating habits among niche viewers. 

In the coming months, there are going to be new channels, YouTube shows and events. I'm excited to see which of these creators builds their own following and bypasses the traditional ways of becoming a show business success. I just hope I have enough time to watch them...after all, it is NFL playoff season.


Wide vs. Deep

A few months ago, I finished Nicolas Carr's The Shallows; a novel about how our brains have changed with the emergence of the internet and many new technologies. Essentially, Carr argues that our minds have shifted from being able to concentrate on one topic (go deep into a book / thought / argument) to being able to work across a series of topics but not concentrate on a specific one (wide range of surface-level knowledge). Through a series of examples, Carr makes this point over and over - we are wide thinkers now, not deep ones.

With 2012 now here and the world coming up with thousands of different resolutions, this wide vs. deep thought got me thinking about my own behavior. As a planner who loves digital, I find that I have a continual need to try every service, social network, application and experience that comes across from my Twitter stream, Zite feed, RSS feed or colleague who has found something worth sending a mass email about. In the ongoing rush to 'stay ahead of the game' and never be caught out in a meeting not hearing or using a specific type of technology, I'm always signing up, starting a profile and checking out the latest things. I really enjoy doing this but it takes up a lot of time and, in all honesty, 90% of these services don't really add much to my work life, let alone my own. This exploration takes a lot of time as well, most notably because the justification to try a new service usually comes at the expense of thinking more about a specific topic.

Recent example:

In one of my usual Sunday Starbucks work sessions trying to write a presentation, I take a 5-minute break to check Twitter. An hour and a half later, I have an Empire Avenue account and I'm reading everything Scoble has to say about it. How many times have I used Empire Avenue since? None (although I do get the weekly emails telling me that my 'share' price continues to look like RIM's).

When I look at my own digital life and the specific areas that I want to spend more time on, it is equally as fragmented. There is all the personal stuff (email, Facebook, Google, Calendar, etc) and all the content stuff (blog, Tumblr, book review site, film reviews, etc) and everything just seems - well - shallow. Hence the lack of AdJoke posting during 2011 - while work is busy, my 'digital time' has been fragmented more than ever in 2011 and my deeper level desires have been surprised.

So for 2012 I'm going to focus on a few deep areas vs. start 100 things that never really take off. The list is currently being prioritized but it should be pretty simple - Ads. Books. Films. Nothing to 'announce' as of yet but it's coming. A few new projects. A few things 'killed'. All in all, a priority to get out of the shallow-end in 2012.