2011 q3 McKinsey quarterly - The future of marketing

2011 Number 3
The future of
marketing
What every executive needs to know

2011 Number 3
This Quarter
Over the past two years, I’ve had the privilege of
meeting with several hundred leaders from institutions
in the private, public, and social sectors. Those
conversations have been an invaluable source of insight
about the issues that matter most today, and they
also have shaped my thinking about McKinsey’s oppor-
tunity to deliver ideas that will help global leaders.
One thing I’ve heard over and over is that leaders today, especially
business executives, need insight about the political, economic,
social, and technological context in which they operate. To help provide
that context in Japan, our Tokyo office recently invited more than
80 contributors to write essays about the future of the country. They
appear in a new book, Reimagining Japan: The Quest for a Future
That Works. In this issue of McKinsey Quarterly, you’ll find several
articles from that collection—three by outspoken Japanese CEOs
and two by McKinsey colleagues—that shed light on the road ahead
for companies in the world’s third-largest economy.

Regulation, whose scope has increased in the wake of the financial
crisis, is another critical area of context that’s top of mind for many
leaders I meet. My colleagues Andre Dua, Robin Nuttall, and Jon
Wilkins describe in this issue how the cognitive biases studied by
behavioral economists may be undermining corporate regulatory
strategies—and what to do about that. And in an interview, University
of Chicago behavioral scientist Richard Thaler suggests that busi-
ness leaders need to get ready for a world where regulators push for
even more transparency and free-flowing data than companies are
already accustomed to.
Marketers are on the leading edge of the trend toward more openness
as social media and other forms of digital engagement grow in
importance. One implication, according to McKinsey’s Tom French,
Laura LaBerge, and Paul Magill, is that companies no longer can
count on the marketing organization to do all their marketing. Accom-
panying the authors’ thinking is commentary from a trio of
practitioners—American Express chief marketing officer John Hayes,
Virgin Atlantic Airways CEO Steve Ridgway, and Duncan Watts,
director of the Human Social Dynamics group at Yahoo! Research—
whose professional diversity indicates the range of minds that will
be needed to master the new environment.
In addition to reflecting some of the themes I’ve been hearing in
conversations with global leaders, this issue also contains one
of those discussions: an upbeat interview with Chile’s president,
Sebastián Piñera, that my colleague Alejandro Krell and I con-
ducted. President Piñera, who spent much of his career in the private
sector, has been bringing a businesslike approach to leading
Chile through its immediate crises and a series of longer-term
economic reforms. I hope you enjoy the interview—and this
issue of the Quarterly.
Dominic Barton
Global managing director,
McKinsey & Company

On the cover
The future of marketing
We’re all
marketers now
How we see it:
Three senior
executives on the
future of marketing
Tom French, Laura LaBerge,
and Paul Magill
Engaging customers today requires
commitment from the entire
company—and a redefined marketing
organization.
Virgin Atlantic Airways CEO Steve
Ridgway, American Express CMO John
Hayes, and Yahoo! Research scientist
Duncan Watts on staying ahead of the
changes rocking the world of marketing.
26
35
Features
46
56
How new Internet
standards will
finally deliver a
mobile revolution
Remapping your
strategic mind-set
Bengi Korkmaz, Richard Lee,
and Ickjin Park
Pankaj Ghemawat
As the Web experience evolves, smart-
phones may soon live up to their
name, and every business’s mobile
strategy will grow in importance.
Winning the Web standards
battle: History shows that the best
technology doesn’t always come
out on top. Building an ecosystem that
shares benefits widely is critical.
Shake up your thinking by looking
at the world from the perspective of
a particular country, industry,
or company. “Rooted” maps can help
you unearth hidden opportunities
and threats.
54

68
74
Nudging the
world toward
smarter public
policy:
An interview with
Richard Thaler
Why good
companies create
bad regulatory
strategies
Andre Dua, Robin Nuttall, and
Jon Wilkins
Public and private data alike will
become more transparent, says
behavioral scientist Richard Thaler.
That’s an opportunity for some
companies and a threat for others.
Too few ask themselves, “Why would
anyone agree with us?”
Features
80 Rediscovering
Japan’s
competitive edge
Three Japanese CEOs and two teams
of McKinsey experts offer perspectives on
the road ahead for Japanese business.
All are drawn from a new book,
Reimagining Japan: The Quest for a
Future That Works.
Introduction: Toward a lasting
recovery
Yasuchika Hasegawa
Rebooting Japan’s high-tech
sector
Ingo Beyer von Morgenstern,
Peter Kenevan, and Ulrich Naeher
Staying in the game
Keiji Inafune
Japan’s globalization imperative
Naoyuki Iwatani, Gordon Orr, and Brian
Salsberg
Dare to err
Tadashi Yanai
Special report
82
83
86
90
93
Extra Point
Resolving
the centralization
dilemma
Idea Exchange
Readers mix it up
with authors of articles
from McKinsey Quarterly
2011 Number 2
Departments
McKinsey on
the Web
Highlights from
our digital offerings
7 1208

Understanding your
‘globalization penalty’
Is there a right way to pay
back shareholders?
To centralize or not
to centralize?
When big acquisitions
pay off
Preparing your organization
for growth
Managing crises and shaping
the future of Chile: An
interview with Sebastián Piñera
Martin Dewhurst, Jonathan Harris,
and Suzanne Heywood
Bin Jiang and Tim Koller
Andrew Campbell, Sven Kunisch, and
Günter Müller-Stewens
Martin Dewhurst, Suzanne Heywood,
and Kirk Rieckhoff
Strong multinationals seem less healthy
than successful companies that
stick closer to home. How can that be?
New research shows that the choice
between paying dividends and
buying back shares doesn’t affect
corporate value.
It’s a hard call made harder by power
struggles. CEOs can force a more
thoughtful debate by asking three
critical questions.
Some deals are quietly creating
value that doesn’t make the headlines.
Here’s how.
Companies that address their organi-
zational weaknesses as they implement
growth strategies give themselves
an advantage.
Chile’s president has taken a business-
like approach to recovering from
an earthquake, rescuing miners, and
rejuvenating his country’s economy.
12
16
Are your customers
becoming digital junkies?
Bertil Chappuis, Brendan Gaffey,
and Parviz Parvizi
Consumer behavior is shifting rapidly
as more people use digital devices
and platforms intensively.
20
97
103
109
114
Leading Edge Applied Insight
Ankur Agrawal, Cristina Ferrer, and
Andy West

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77
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By 2015, Chinese consumers will
account for more than 20 percent
of the global luxury market.
How is their behavior evolving?
Tapping China’s
luxury-goods market
In the wake of the economic crisis, the
US faces possible low economic
growth and high unemployment in the
long term. But some say the US
is on the brink of a golden age of innova-
tion and new economic vibrancy.
Join the new What Matters debate on
whatmatters.mckinseydigital.com.
New McKinsey research finds that the
Internet now accounts for a
significant share of global GDP and
plays an increasingly important
role in economic growth.
In this interactive video, Google’s
executive chairman shares his
strategies on hiring, running meetings,
designing “mobile first” business
models, and addressing joblessness
and education reform.
Other features:
Eric Schmidt on business culture,
technology, and social issues
What Matters Debate Zone: Has the
US passed peak productivity growth?
Measuring the Net’s growth
dividend
Highlights from our digital offerings
Now available on
mckinseyquarterly.com
©GillesSabrie

Readers mix it up with authors of articles from McKinsey Quarterly
2011 Number 2
Idea Exchange
8
Beyond expats: Better managers for
emerging markets
Carl Martin Faannessen
General manager, Himal Power Limited, Nepal
“Some risks are easier for expatriate managers to mitigate than locals. Local
employees can be more susceptible to local pressures from suppliers and
customers. It’s easier for expats to stick to signed contracts than it is for local
managers, since nonbusiness pressures are more easily brought to bear on
local employees. Also, local managers may—regardless of the indicators
being used to measure them—focus more on what’s good for their country
than what’s good for their company, unwittingly or not. Currying political
favors and goodwill are typically the drivers behind this kind of behavior,
especially in emerging markets. These issues need to be addressed clearly
and openly when discussing whether or not to localize a given position.”
As more companies pursue growth in emerging markets, questions of talent—
who will lead these efforts and where will they come from?—become
a more pivotal part of strategy. In our last issue, Jeffrey A. Joerres, the chair-
man and CEO of ManpowerGroup (formerly Manpower), argued for
local leadership; here, he addresses a reader’s concern about related risks.
Jeffrey Joerres responds:
“You certainly raise a valid point, but such risks exist everywhere and
companies must manage them closely—no matter who’s at the helm.
The benefits of selecting local leaders, among them the ability to most
effectively motivate local employees, outweighs the risks. Of course,
local leaders must align with the company’s goals and objectives (as expat
leaders must also do), and companies need to be vigilant of conflicts
of interest and nefarious behavior, but this is true regardless of where
the company operates.”

Sparking creativity in teams:
An executive’s guide
In our last issue, McKinsey’s Marla M. Capozzi, Renée Dye, and Amy
Howe described four techniques for fostering the creativity and innovation
that companies need to grow. The conversation continued online at
mckinseyquarterly.com; featured here are two reader comments and the
authors’ subsequent responses.
Christina Ehrlich
Manager, Trianz, Santa Clara, California
“Your article shows some great exercises teams can use to force thinking
outside the box. But how do you ensure that the company’s culture is one of
innovation and risk taking?”
Creating an innovative culture
The authors respond:
“One way to improve risk taking in a culture is to encourage early experimentation.
Doing so allows employees to apply techniques like the ones we describe and also
to move the ideas those techniques generate onto the next steps of prototyping
and testing. A high-tech company we’ve studied offers prizes in its internal innovation
competitions for experiments that didn’t move forward as expected but that still
generated useful knowledge, and they give equal recognition to employees who win
these awards.
“Such efforts need to be reinforced by leaders and through performance management
and skill building. We’ve seen companies create incentive schemes that ‘paid back’
employees for bonuses they had forgone while working on special projects, so as to
not penalize them for taking risks. This all requires vigilance from senior managers:
in a world where companies focus on multitasking and maximizing productivity, leaders
need to create environments that help employees make time to innovate.”
9
The role leaders play
Tim Ayers
Vice president of services strategy–CTO Group, Tellabs, Chicago, Illinois
“Leaders are critical to the equation. If leaders say, ‘We highly value innovation,’
but in practice value and promote the status quo, discourage risk taking,
and send a message ‘not to rock the boat,’ real creative dialogue goes under-
ground. And then it goes out the door to venues where people with ideas
and passion to explore them can do so.”
The authors respond:
“We strongly agree, and believe that leadership is one of the greatest predictors of
innovation outcomes. Leaders need a vision for innovation and must also serve as role
models for the behaviors they wish to see. Many innovative companies we’ve seen
establish recognizable ‘guard rails’ to help employees understand acceptable levels of
risk. Public companies, for instance, may explicitly choose to take greater risks in
smaller, newer businesses—as opposed to the core businesses closely watched by
analysts. Such choices can help generate ideas that are more likely to be successful.”

2011 Number 310
Seven steps to better brainstorming
Leonard Koningswijk
Owner, Quanteus Consultants and New Dialogues, Amsterdam, Netherlands
“The article does not mention the opportunities social media offer to take
brainstorming to the next level. My experiences with online tools have
been very positive: they allow for input from groups of all sizes, where partici-
pants can bring up ideas and discuss them in a very safe environment.
Since participants are anonymous, there is no distortion from rank or social
status, and they can contribute without having to travel to a single location.
It makes it very easy to involve participants from different backgrounds—for
example, different functional departments, ranks, regions, and beliefs—
which can improve the quality and quantity of the outcome enormously.”
Kevin Coyne and Shawn Coyne respond:
“We agree that social networks and electronic brainstorming are exciting tools
whose potential contributions to new idea generation are only beginning
to be understood fully. Among their many possible benefits, these tools
offer the potential to draw upon much greater numbers of individuals
for ideas and to allow people to express themselves thoughtfully and in
writing when they might not be comfortable speaking up ‘on the spot’
and/or in front of others in traditional brainstorming sessions. Provided
that these tools are used wisely as one part of a well-designed, com-
prehensive approach to idea generation, we believe both could become
game-changing additions to the ideation tool kit.”
Also on the subject of generating better ideas for growth, McKinsey
alumni Kevin P. Coyne and Shawn T. Coyne, cofounders and managing
directors of The Coyne Partnership, a consulting firm, described an
approach that requires more focus and active participation than traditional
brainstorming. Here is an excerpt of their longer response to reader
comments on mckinseyquarterly.com.
Dom Ventura
Global ideation manager, British American Tobacco, London, United Kingdom
“The real creative articulation really starts, in my opinion, just after the
[brainstorming] event has finished. Whoever picks up the output of the ideation
session should be a creative group capable of capturing all the little thoughts,
even if they’re on Post-its or scrap paper, and consolidate them into bigger
‘creative clumps.’ After that, the iteration process can start, where you build on
the proposed clumps and start to structure the ideas into clear propositions,
benefits, and payoffs.”
Kevin Coyne and Shawn Coyne respond:
“We caution against thinking that the only effective means of generating ideas is via
large-group, single-session efforts. You can generate ideas by working in groups
and working alone, working in single sessions and working in multiple sessions over
time. The key in solving any given ideation challenge is to choose the tools that best
fit the specific demands of your situation and that best leverage the resources at
your disposal, whether they are inside or outside your organization.”
The advantages of electronic brainstorming
One size does not fit all

Is your emerging-market strategy
local enough?
Emerging markets such as China, India, and Brazil present huge growth
opportunities for multinationals. McKinsey authors Yuval Atsmon, Ari
Kertesz, and Ireena Vittal made the case that companies should focus
on clusters of cities and on consumers with similar characteristics.
Here, Vittal responds to a reader comment on the sociolinguistic
boundaries that differentiate consumers in India.
Deepak Seth
Business intelligence solutions architect, HealthNow New York,
Buffalo, New York
“The ‘clustering’ in India cannot just be based on socioeconomic indices; it also
needs to factor in state and linguistic boundaries. For example, the cluster
around Delhi spans across the states of Haryana, Uttar Pradesh, Rajasthan,
Madhya Pradesh, and Uttarakhand, each with its own local laws that will
impact a marketer’s objective of achieving some kind of homogeneity across
the cluster. Similarly, the cluster around Kolkata spans across the Hindi-
Bengali sociolinguistic divides, while the one near Hyderabad is affected
by the political crisis around which states that area falls in.”
Ireena Vittal responds:
“Yes, getting granular in India requires understanding the market not only
geographically but also through other relevant lenses, including language
and community. Indeed, some of the best insights emerge at the ‘sweet
spots’ where all of these variables intersect. For example, one food retailer
has looked at Mumbai as a grouping of 32 separate wards, and then as
a mix of two or three cultural communities within each ward. The resulting
clusters are very revealing. For example, there are catchments within
Mumbai with food tastes that are similar to catchments in Chennai, and
others that more closely resemble Ahmedabad.”
Idea Exchange
Visit mckinseyquarterly.com to share your
own comments or see more from our readers on these
and other topics.
11

12 2011 Number 3
The rapid growth of emerging
markets is providing fresh impetus
for companies to become ever
more global in scope. Deep expe-
rience in other international
markets means that many companies
know globalization’s potential
benefits—which include accessing
new markets and talent pools
and capturing economies of scale—
as well as a number of risks:
creeping complexity, culture clashes,
and vigorous responses from
local competitors, to name just a few.
Less obvious is a challenge
identified by our latest research:
global reach seems to threaten
the underlying health of far-
flung organizations, even highly
successful ones. In particular,
we have found that high-performing
global companies consistently
score lower than more locally
focused ones on several critical
dimensions of organizational
health—direction setting, coordi-
nation and control, innovation,
and external orientation—that we
have been studying at hundreds
of companies over the past decade.
Understanding this threat, and
its causes, is a first step toward
diminishing its impact.
Martin Dewhurst, Jonathan Harris, and Suzanne Heywood
Strong multinationals seem less healthy than successful companies that stick closer
to home. How can that be?
Understanding your
‘globalization penalty’
Leading Edge
Research, trends, and emerging thinking
12 16 20
Is there a
right way to
pay back
shareholders?
Understanding
your ‘globalization
penalty’
Are your
customers
becoming
digital junkies?

13
• These global leaders also find
maintaining professional standards
and encouraging innovation of
all kinds more difficult.
• Because they do business in
multiple countries, they find it
more challenging than local
leaders do to build government
and community relationships and
business partnerships.
These findings are troubling. For
starters, the weaknesses touch
on all three major areas of organi-
zational health—alignment,
execution, and renewal. Since
related research from our
colleagues Scott Keller and Colin
Price indicates that at least
50 percent of an organization’s
long-term success is a function of
its health, this globalization
penalty should be a red flag
for high performers with a rapidly
expanding international reach.
What’s more, the global leaders
we studied represented the
cream of the crop—they not only
enjoyed strong financial per-
formance but also had significant
global scale and scope, which
Weaknesses
The data to support this finding
come from McKinsey’s organizational-
health index database, which
contains the results of surveys of
more than 600,000 employees
who assessed the health of nearly
500 different corporations.
Within this database, we identified
20 “local champions,” which
had outperformed their industries
over the previous ten years,
and 18 “global champions,” which
had likewise outperformed their
industries and met our composite
criteria for full globalization.1
We then compared these
companies across the elements
of organizational health, which
we define as the ability to align
around a strategy or change
program, to execute, and to renew
a company faster than its com-
petitors can.2
Highlights of this
analysis included the following:
• High-performing global organi-
zations are consistently less
effective at setting a shared vision
and engaging employees around
it than are their local counterparts.

14 2011 Number 3
is why we included them in the
sample. If organizations like these
can’t stay healthy as they grow
globally, can any company?
Pain points
To understand what lies beneath
these findings, we interviewed
executives at 50 global companies.
Those interviews, while hardly
dispositive, suggested a relationship
between organizational health
and a familiar challenge: balancing
local adaption against global scale,
scope, and coordination.
Almost everyone we interviewed
seemed to struggle with this tension,
which often plays out in heated
internal debates. Which organizational
elements should be standardized?
To what extent does managing
high-potential emerging markets on
a country-by-country basis
make sense? When is it better, in
those markets, to leverage scale
Do companies pay a penalty for being global?
Q3 2011
Globalization
Exhibit 1 of 1
Alignment Direction
Leadership
Accountability
Capabilities
Motivation
Culture and climate
Coordination and control
Innovation and learning
External orientation
Execution
Renewal
Organizational-health index score, %
Champions are companies that outperformed their peers in
10-year total returns to shareholders (TRS)
Not effective Common Superior Distinctive
1 Companies were deﬁned as global based on proportion of sales outside of home geography, proportion of employees outside
of home region, geographic diversity of top management team, and proportion of shareholders that are outside of home region.
Source: Organizational-health index database; McKinsey analysis
Do companies pay a penalty for being global?
62
70
59
64
77
59
60
72
0 50 70 85 100Factors in organizational health
Statistically signiﬁcant difference
Local champions
Global champions1
53
51
54
66
47
59
69
66
67
66

15Leading Edge
and synergies across business
units in managing governments,
regulators, partners, and
talent? One global company, hoping
to realize the benefits of scale
and, simultaneously, of focusing
intently on India and China, recently
started deploying business
unit “CEOs,” whose responsibilities
cut across both of those high-
growth markets.
Complicating matters further, our
interviews suggested that, for most
companies, about 30 to 40 per-
cent of existing internal networks
and linkages are ineffective for
managing global–local trade-offs
and instead just add costs and
complexity. Many companies, for
example, can’t identify trans-
ferable lessons about low-income
consumers in one high-growth
emerging market and apply them
in another. Some struggle to
coalesce rapidly around market-
specific responses when
local entrants undermine traditional
business models and disrupt
previously successful strategies.
Finally, many executives we inter-
viewed are clearly wrestling with
the corporate center’s role in their
increasingly globalized institu-
tions. The feasibility of centralizing
three functions in particular—
human resources, finance, and
marketing (broadly defined
to include brand and reputation
management)—was a question a
number of leaders raised. In
fact, our interviews suggest that
it may be time for some companies
to reimagine what the corporate
center does, even to the extent of
considering whether a single
center is suited to the task of
effectively directing and
coordinating global operations.
It’s easy to see how organizations
working through such funda-
mental structural and operating
questions might also struggle
with activities—like setting a clear
direction, building alignment,
and maintaining innovative energy—
that contribute to organizational
health. Since even leading multina-
tionals appear to suffer this
globalization penalty, the impor-
tance of addressing it will
only grow larger in the years ahead.
For more and more companies,
the globalization imperative is
intensifying, and that could present
additional organizational and
leadership challenges that are not
yet fully understood.
Martin Dewhurst is a director
in McKinsey’s London office,
where Suzanne Heywood is a
principal; Jon Harris is a
director in the New York office.
1
We compared the degree of globalization
using four metrics: the proportion of
sales originating outside a company’s home
geography, the proportion of employees
working outside a company’s home region,
the geographic diversity of a company’s
top management team, and the proportion
of shareholders residing outside a com-
pany’s home region. Of these, we weighted
the source of sales and the location of
management most heavily.
2
For more, see Scott Keller and Colin Price,
“Organizational health: The ultimate
competitive advantage,” mckinseyquarterly
.com, May 2011.
Copyright © 2011 McKinsey Company.
All rights reserved. We welcome your
comments on this article. Please send them
to quarterly_comments@mckinsey.com.

16 2011 Number 3
Successful companies
have piled up a mountain of cash
in recent years—$2 trillion in
the United States and Europe alone.
As the global economy’s pulse
quickens and companies start paying
out more of that cash to share-
holders, those companies will face
the perennial question of how
to distribute it: dividend payments,
share repurchases, or a mix of
both. Can fine-tuning these options
influence market perceptions
and increase corporate value?
In a word, no. Our research
shows that how the distributions are
made doesn’t affect value. We
found that no matter which method
companies use, the earnings
multiples of those that make similar
total payouts are essentially
identical.1
We also found that total
returns to shareholders (TRS)
are the same regardless of the mix
of dividends and share repur-
chases.2
These results should not
be surprising. Ultimately, what
drives value is the cash flow that
operations generate. That cash
flow is a function of the growth rate
of a company and its returns on
capital—not the mix of how it pays
out excess cash.
These findings run counter to an
oft-stated argument for share
repurchases—that they increase
value because they increase
earnings per share. In truth, an
EPS rise of this nature is a simple
mathematical effect offset by a
decline in the price-to-earnings ratio,
since a company becomes more
risky as a result of higher leverage.
The net effect on share value is zero.
So how should a company
decide between repurchases and
dividends? It depends on how
confident management is about
future cash flows—and how
much flexibility it needs.3
Share
repurchases let companies
tailor how much cash they hold for
changing strategic demands—
unexpected investment opportunities
or shifts in an uncertain economic
environment. In contrast, companies
that pay dividends enjoy less
Bin Jiang and Tim Koller
New research shows that the choice between paying dividends and buying back shares
doesn’t affect corporate value.
Is there a right way to pay
back shareholders?

17Leading Edge
Earnings multiples are not affected by the payout mix.
Returns to shareholders are unrelated to the payout mix.
Q3 2011
Payback
Exhibit 1 of 3
Level of total payouts: average annual payouts (dividends +
share repurchases) as % of total net income,1 2002–07
1 Insufficient data for payout levels of 96–130% at payout mix of 65 to 100% dividends and for payout levels of 130% for all payout mixes.
2For 279 nonﬁnancial companies that were in the SP 500 at the end of 2009, were continuously in operation since 1999, and paid
dividends or repurchased shares. EBITA = earnings before interest, taxes, and amortization.
Earnings multiples are not affected by the payout mix.
0–65% 66–95% 96–130%
Payout mix: average share of dividends in
total payouts, 2002–07, %
Ratio of median enterprise value to EBITA multiple,
year-end 20072
0 5 10 15 20 25
0 (100% share repurchases)
20 to 40%
40 to 65%
0 to 20%
65 to 100%
Q3 2011
Payback
Exhibit 2 of 3
Level of total payouts: average annual payouts (dividends +
share repurchases) as % of total net income,1 2002–07
1 Insufficient data for payout level of 66–95% at payout mix of zero dividends (100% share repurchase).
2For 293 nonﬁnancial companies that were in the SP 500 at the end of 2009, were continuously in operation since
1999, and paid dividends or repurchased shares. CAGR = compound annual growth rate.
Returns to shareholders are unrelated to the payout mix.
0–65% 66–95% 96–130% 130%
Payout mix: average share of dividends
in total payouts, 2002–07, %
Median total returns to shareholders (TRS),
CAGR, 2002–07,2 %
0 (100% share repurchases)
20 to 40%
40 to 65%
0 to 20%
65 to 100%
0 5–5 10 15 20 25

18 2011 Number 3
flexibility because the investment
community has been conditioned to
expect that they will be cut only
in the most dire circumstances. Thus,
managers should use dividends
only when they are certain they can
continue to do so. A dividend
increase inevitably sends signals to
investors that managers are confi-
dent that they will be able to continue
paying at the new, higher level.
Share repurchases also signal
confidence but offer more flexibility
because they don’t create a tacit
commitment to additional purchases
in future years.4
That flexibility
seems to have become important
to a growing number of companies
in recent decades: share repur-
chases have increased from less
than 10 percent of distributions
in the early 1980s to 50 to 60 per-
On average, US companies have returned about 60 percent
of their net income to shareholders.
Q3 2011
Payback
Exhibit 3 of 3
US net income payout ratio,1 %
1 Sample includes nonﬁnancial US companies with real revenue $100 million in any year between 1989 and 2009.
2Data for 1991–92, 2001–02 are excluded because of abnormally low net incomes.
On average, US companies have returned about 60 percent
of their net income to shareholders.
130
1965 1970 1975 1980 1985 1990 1995 2000 2005 2008
120
110
100
90
80
70
60
50
40
30
20
10
0
Dividends as share of
total net income
Share repurchase as share
of total net income
Ratio not meaningful2

19Leading Edge
cent today. Over that period,
the total share of earnings returned
to shareholders by US companies
in the form of dividends or share
repurchases has remained relatively
constant, as it has since 1965.
In theory, companies could
repurchase undervalued shares
for the benefit of shareholders
who hold onto them. We’ve seen
few companies with a good
track record of repurchasing shares
when they were undervalued,
however. Market timing is as hard
for companies as it is for individuals.
If it weren’t, share repurchases
surely would bring higher shareholder
returns than dividends, instead of
delivering the same results.
Bin Jiang is a consultant in
McKinsey’s New York office, where
Tim Koller is a principal.
1
We also used statistical techniques and
found that the dividend or share repurchase
mix had no impact on the value of com-
panies once we adjusted for differences in
total payouts, growth, and returns on
invested capital.
2
After adjusting for differences in total
payouts.
3
See Marc H. Goedhart, Timothy Koller, and
Werner Rehm, “Making capital structure
support strategy,” mckinseyquarterly.com,
February 2006.
4
The academic research on whether dividend
increases or share repurchases send a
stronger signal to investors is not conclusive.
For more on payout strategies, see the full
version of this article, “Paying back your shareholders,”
on mckinseyquarterly.com.

20 2011 Number 3
Bertil Chappuis, Brendan Gaffey, and Parviz Parvizi
Consumer behavior is shifting rapidly as more people use digital devices and
platforms intensively.
Are your customers
becoming digital junkies?
New McKinsey research
highlights a dramatic increase in
the intensity with which people
use digital devices and platforms.
Nearly 50 percent of US online
consumers are now advanced users
of smartphones, social networks,
and other emerging tools—up from
32 percent in 2008.
We have been tracking consumers’
digital habits through a series of
surveys covering more than 100,000
respondents across North America,
Europe, and Asia.1
Our 2010
US findings highlighted the growth
of advanced multidigital and
rich-media segments: the people
most likely to be early adopters
of new technologies (whom we label
“digital-media junkies”), often
younger men; those spending more
time on social networks (“digital
communicators”), often women; and
those more likely to consume
Internet-based video (“video digerati”).
Meanwhile, we have seen a
decline in segments focused primarily
on one kind of digital use (such
as e-mail or gaming), as well as late
adopters whose digital consumption
is superficial. Behind these
broad category shifts are meaningful
changes in how consumers use
core technologies.
Social networks as
communications gateways
Social networks, particularly Face-
book, are emerging as the
dominant digital-communications
channels. For people aged 34
and under, they already are
the preferred channel (by minutes
of use per day), displacing
e-mail, texting, and phone calls.
Social-network use, growing
swiftly among all segments of our
survey population, has doubled
among those over 55. Such networks
also are becoming information
portals for people seeking items
such as videos, photos, and
content posted by friends. In our
latest survey, 33 percent of the
respondents said they use social
networks to navigate content
on the Web, up from 13 percent in
2008. While search engines
continue to be the leading way

21Leading Edge
consumers access online content,
the use of social networks is
growing. As consumers spend more
time on them, decisions about
what to purchase often reflect inter-
actions with friends and other
influencers. In response, leading
marketers are adapting their
strategies to reach increasingly
networked consumers and placing
more stress on tactics such
as word-of-mouth marketing and
storytelling.
Smartphone as ‘Swiss
Army knife’
As the usage and processing
power of smartphones increase in
tandem with the rising speed of
3G and 4G data networks,2
mobile
devices are invading the domains
of single-purpose gear such as game
consoles and portable media
players, as well as PCs.
Smartphones are also becoming
the device of choice for e-mail, Web
browsing, and product research.
A third of smartphone owners prefer
using it for Web browsing or
e-mail even when they are near PCs.
Over the past two years, iPhone
users have spent 45 percent more
time e-mailing on their smart-
phones and 15 percent less time
e-mailing on their PCs. More
than 60 percent of smartphone
users would consider buying goods
with it or have already done so.
As the power and functionality
of devices grow, the possibilities for
making money from mobile
platforms will continue to improve.
We found, for instance, that
smartphone users already are more
accustomed to paying for digital
content and services than traditional
online users are. Three-quarters
of iPhone users, for example, now
pay for one or more apps each
month, though most remain free.
As more products are distributed
over mobile channels, greater
competition will raise the importance
of design, ease of use, and
new mobile payment options. These
findings are good news for
content and service providers that
wonder if mobile solutions will
deliver real returns.
Internet video: Challenging
traditional TV
As digital platforms multiply,
consumer video-viewing habits
continue to change. Among
our survey respondents, 69 percent
now view videos on their PCs and
Advertisers must refine
marketing plans so
that they reflect new video-
viewing behavior, while
getting creative about
targeting users who are
time-shifting and
dividing their attention
among platforms.

22 2011 Number 3
33 percent on their smartphones.
Twenty-four percent view
Internet content on their TVs—a
percentage that has tripled
over the past two years as Internet-
enabled game consoles, DVD
players, DVRs, and TVs have prolif-
erated. Although these users
are 1.5 times more likely than the
general population to say that
they intend to cancel their pay-TV
service, only a quarter of them
are satisfied with the experience.
That should open the door to new
areas of competition and innovation;
pay-TV companies, for example,
are starting to offer their program-
ming across tablets and mobile
devices.
Web search and video providers,
meanwhile, see opportunities
for services that help consumers
navigate the fragmented domain
of online video, a role similar to that
of traditional TV-programming
Digital consumers fall into seven distinct groups characterized
by the types of digital experiences they prefer.
Q3 2011
iConsumer
Exhibit 1 of 1
US example
Segment Size of segment, 2010,
n = 16,839, %
Absolute change in
share, 2008–10, %
Behavior relative to
survey average
Source: 2008, 2009, and 2010 McKinsey surveys of ~20,000 US Internet users, aged 13–64
Digital consumers fall into seven distinct groups characterized
by the types of digital experiences they prefer.
Engaged with multiple digital platforms
Deeply involved with a single digital experience
Limited digital engagement
Digital-media
junkies
3 times more likely to be early
adopters of new technologies
19 +7
Use social networking
3.2 times more
Digital
communicators
16 +4
Video digerati
View 2.6 times more videos
across all platforms
14 +6
Gamers Play video games 2.2 times more10 –6
Professionals Spend 44% more time on e-mail6 –8
Traditionalists
Spend 79% less time on
social networking
24 0
On-the-go
workers
Use mobile phones for voice
3 times more
11 –2

23Leading Edge
packagers. Advertisers must
refine marketing plans so that they
reflect this new video-viewing
behavior and get creative about
targeting users who are time-
shifting and dividing their attention
among platforms.
We have seen similar digital
disruptions in other key platforms,
such as gaming, e-publishing,
and music. The digital revolution,
still in its earliest days, will continue
to upend how we interact, entertain
ourselves, buy, and work.
Bert Chappuis is a director
in McKinsey’s Silicon Valley office,
Brendan Gaffey is a principal in
the Dallas office, and Parviz
Parvizi is an associate principal
in the Boston office.
1
This article focuses on recent results
from our US research, covering 20,000
people since 2008. Respondents aged
13 to 64 with Internet access were asked
about their digital behavior in areas
including social interactions, e-commerce,
video preferences, and device ownership.
2
The term 3G, or third generation, refers to
a generation of multiple standards for
mobile phones and mobile telecommuni-
cations devices, while 4G is the fourth
generation of cellular wireless standards—
with higher speeds.

ArtworkbyKeithNegley
The rules of engagement for companies
and customers have changed
dramatically over the past decade as
the digital-marketing revolution has
accelerated. Few companies—and
even fewer executives from outside the
marketing organization—have kept pace.
They need to, because in this new era of
customer engagement, marketing must
become a company-wide responsibility.
The first article in this package provides
a blueprint for that transition. Then,
read more about where marketing is
headed from a CEO, a CMO, and a
global authority on the social dynamics
of human behavior.
The future of
marketing
26
We’re all marketers now
Tom French, Laura LaBerge,
and Paul Magill
35
How we see it:
Three senior executives on the
future of marketing

26
For the past decade, marketers have been adjusting to a new era
of deep customer engagement. They’ve tacked on new functions,
such as social-media management; altered processes to better integrate
advertising campaigns online, on television, and in print; and added
staff with Web expertise to manage the explosion of digital customer
data. Yet in our experience, that’s not enough. To truly engage
customers for whom “push” advertising is increasingly irrelevant, com-
panies must do more outside the confines of the traditional marketing
organization. At the end of the day, customers no longer separate
marketing from the product—it is the product. They don’t separate
marketing from their in-store or online experience—it is the experi-
ence. In the era of engagement, marketing is the company.
This shift presents an obvious challenge: if everyone’s responsible for
marketing, who’s accountable? And what does this new reality
imply for the structure and charter of the marketing organization? It’s
a problem that parallels the one that emerged in the early days of
the quality movement, before it became embedded in the fabric of general
management. In a memorable anecdote, one of former Chrysler CEO
Lee Iacocca’s key hires, Hal Sperlich, arrived at the automaker in 1977 as
the new vice president of product planning. His first question: “Who
is in charge of quality?”
Engaging customers today requires
commitment from the entire company—and
a redefined marketing organization.
Tom French, Laura LaBerge, and Paul Magill

27
“Everybody,” a confident executive replied.
“But who do you hold responsible when there are problems in quality?”
Sperlich pressed.
“Nobody.”
“Oh, shoot,” Sperlich thought. “We are in for it now.”1
To avoid being “in for it,” companies of all stripes must not only recog-
nize that everyone is responsible for marketing but also impose
accountability by establishing a new set of relationships between the
function and the rest of the organization. In essence, companies
need to become marketing vehicles, and the marketing organization
itself needs to become the customer-engagement engine, responsible
for establishing priorities and stimulating dialogue throughout the
enterprise as it seeks to design, build, operate, and renew cutting-
edge customer-engagement approaches.
As that transformation happens, the marketing organization will look
different: there will be a greater distribution of existing marketing
tasks to other functions; more councils and informal alliances that
coordinate marketing activities across the company; deeper partner-
ships with external vendors, customers, and perhaps even competitors;
and a bigger role for data-driven customer insights. This article
provides some real-life examples of these kinds of changes.
Marketing’s cutting edge is being redefined every day. While there’s
no definitive map showing how companies can successfully navigate
the era of engagement, we hope to help senior executives—not just
marketers—start to draw one. (For a complementary set of practitioner
perspectives, read “How we see it: Three senior executives on the
future of marketing,” on page 35.)
The evolution of engagement
More than two years ago, our colleagues David Court, Dave Elzinga,
Susan Mulder, and Ole Jørgen Vetvik unveiled the results of a research
effort involving 20,000 customers across five industries and three
1
David Halberstam, The Reckoning, first edition, New York, NY: Avon Books, 1986.
In Halberstam’s telling of the tale, Sperlich used an expletive that rhymes with “hit.”

28 2011 Number 3
continents.2
Their work showed how collaborative the buying process
has become and how difficult it is to influence customers by relying
solely on one-way, push advertising. In the words of American Express
chief marketing officer John Hayes, “We went from a monologue
to a dialogue. Mass media will continue to play a role. But its role has
changed.” (For more from Hayes, see page 39.)
Over the past two years, that evolution has only accelerated. More
and more consumers are using digital video recorders to fast-forward
through TV commercials and are consuming video content on Web
sites such as YouTube and on mobile devices. Billboards alongside train
lines and bus routes struggle to capture the attention of people
absorbed by the screens of their smartphones. Meanwhile, today’s more
empowered, critical, demanding, and price-sensitive customers are
turning in ever-growing numbers to social networks, blogs, online review
forums, and other channels to quench their thirst for objective
advice about products and to identify brands that seem to care about
forming relationships with them. Individuals even are posting their
own commercials on YouTube. In short, the avenues (or touch points)
customers use to interact with companies have continued to multiply.
The problem for many companies is that the very things that make
push marketing effective—tight, relatively centralized operational con-
trol over a well-defined set of channels and touch points—hold it
back in the era of engagement. Many touch points, such as calls to cus-
tomer service centers and interactions between the sales force and
customers, sit outside the traditional marketing organization, which has
little or no permission to reach into other business functions or units.
Companies have traditionally divided responsibility for touch points
among functions. But a comprehensive strategy for engaging custom-
ers across them rarely emerges and, if one does, there’s often no system
for executing it or measuring its performance.
More pervasive marketing
To engage customers whenever and wherever they interact with a
company—in a store; on the phone; responding to an e-mail, a blog post,
or an online review—marketing must pervade the entire organization.
Companies such as Starbucks and Zappos, for which superior engage-
ment has been a critical source of competitive advantage from the
beginning, already exhibit some of these traits. But these companies
2
See David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik, “The consumer
decision journey,” mckinseyquarterly.com, June 2009.

29
aren’t our focus, which instead is the kinds of actions everyone else
can take as they strive for world-class customer engagement.
The starting point is a mind-set shift around customer interaction
touch points. Companies typically think of them as being “owned” by a
given function: for instance, marketing owns brand management;
sales owns customer relationships; merchandising or retail operations
own the in-store experience. In today’s marketing environment,
companies will be better off if they stop viewing customer engagement
as a series of discrete interactions and instead think about it as cus-
tomers do: a set of related interactions that, added together, make up the
customer experience. That perspective should stimulate fresh dialogue
among members of the senior team about who should design the overall
system of touch points to create compelling customer engagement,
and who then builds, operates, and renews each touch point consistent
with that overall vision. There’s no need to worry about traditional
functional or business unit ownership: whoever is best placed to tackle
an activity should do so.
Design
Designing a great customer-engagement strategy and experience depends
on understanding exactly how people interact with a company through-
out their decision journey. That interaction could be with the product
itself or with service, marketing, sales, public relations, or any other
element of the business.
When the hotel group Starwood sought to enhance its engagement
with customers, for example, the company pored through data about
them and identified clear demographic groups staying at its more
than 1,000 properties. In 2006, the company unveiled a specific new
positioning for each part of its brand portfolio, ranging in afforda-
bility from Four Points by Sheraton to its Luxury Collection and
St. Regis properties.
Each brand seeks to deliver a different customer experience, on dimensions
ranging from how guests are greeted by staff to the kind of toiletries
offered in rooms. Crucially, for each type of property, Starwood sought
to design not only the desired experience but also how it would
actually be delivered. It therefore had to decide what coordination would
be necessary across functions, who would operationally control dif-
ferent touch points, and even what content customers wanted in the
company’s Web site, in loyalty program mailings, and other forms
of communication.

30 2011 Number 3
Starwood’s experience underscores the fact that, despite the growing
impact of digital touch points such as social media, effective customer
engagement must go beyond pure communication to include the
product or service experience itself. “At the end of the day,” says Virgin
Atlantic Airways chief executive Steve Ridgway, “we fly exactly the
same planes as everybody else. If we get our customers off the plane
happy, and they go on to talk about that and get others to come and
then come back again themselves—that’s a huge marketing tool.” (For
more from Ridgway, see page 36.)
Build
Once a company designs how it will engage with customers, it needs
the organizational capabilities to deliver: adding staff, building a social-
media network infrastructure, retooling customer care operations, or
altering reporting structures. Functions far removed from marketing
often have important roles to play, so one or more marketing teams
at the center may have to build skills in other parts of a company. A
global energy company took that approach and then largely dissolved
the group when those capabilities were in place.
Allocating responsibility for building touch points is increasingly
important because of the degree to which Web-based engagement is
requiring companies to create “broadcast” media.3
Some have built
publishing divisions to feed the ever-increasing demand for content
required by company Web sites, social media, internal and external
publications, multimedia sites, and coupons and other promotions. Many
luxury-goods companies, for example, have built editorial teams to
“socialize” their brands: they are transforming the customer relationship
by producing blogs, digital magazines, and other content that can
dramatically intensify both the frequency and depth of interactions.
Last year, LVMH Moët Hennessy–Louis Vuitton, for example, launched
an online magazine, NOWNESS, that offers what the company calls
“information reference” about its luxury brands. The site presents a daily
multimedia story with little pure advertising and (in conjunction with
LVMH’s efforts on Facebook, Twitter, and YouTube) seeks to deepen
the engagement customers have with the company’s brands. British
luxury brand Burberry has undertaken a similar venture with its Art of
the Trench site. France’s Chanel has for years used its own creative
and artistic directors to develop content, without any need for help
from external agencies.
3
For more on the marketing organization’s role as a publisher, see David C. Edelman’s articles
“Four ways to get more value from digital marketing,” mckinseyquarterly.com, March
2010; and “Branding in the digital age: You’re spending your money in all the wrong places,”
Harvard Business Review, December 2010, Volume 88, Number 12, pp. 62–69.

31
Content-oriented strategies like these require creative employees who
can feed the customer’s ever-increasing need for timely, relevant,
and compelling content across a variety of media. They also provide an
opportunity for productive dialogue within companies about the role
of marketing versus other functions in building critical touch points that
drive engagement.
Operate and renew
For companies in industries as diverse as consumer packaged goods
and financial services, digital technology has upended the engagement
expectations of customers, who, for example, want one Web site to
visit and a relationship seamlessly integrated across touch points. Meeting
such expectations requires extraordinary operational coordination
and responsiveness in activities ranging from providing on-the-ground
service delivery to generating online content to staying on top of a
customer care issue blowing up on YouTube.
Behind the scenes, that new reality creates a need for coordination and
conflict resolution mechanisms within and across functions, as well
as budget procedures that allow flexibility and rapid action should the
need arise. PepsiCo, for example, has sought to provide a single point
of contact for its digital-marketing efforts by creating the role of chief
digital officer: an executive without line responsibility who drives
the application of best practices across the beverage group’s global
digital efforts.
Companies also need a clear approach for monitoring touch points and
renewing them as needed. At one major hotel chain, for example,
a single group circumnavigates the globe acting as a “monitor and fix”
SWAT team. It meets with hotel licensees, educates them about
the company’s customer-engagement approach and management of key
touch points, demonstrates new behavior, and trains the staff in
new operational processes. Given the speed of information sharing today,
constant monitoring and adaptation—indeed, continuous improve-
ment of the sort that came to the operations world long ago—is bound to
infiltrate marketing and grow in importance.
The marketing organization’s new look
As the chief marketing officer collaborates with the chief executive and
other senior-team members to nail down a shared approach for
designing, building, operating, and renewing customer touch points,
he or she also will require a new kind of marketing organization.

32 2011 Number 3
For marketing to truly become the customer-engagement engine that
orchestrates the delivery of the end-to-end customer experience, it must
evolve along four critical dimensions.
Distribute more activities
As marketing becomes more pervasive, the marketing organization will
increasingly be defined by a core set of tightly held responsibilities,
such as branding and agency relationships, and a set of responsibilities
distributed among the functions and groups best placed to manage
and use the information generated by customer interactions. Procter
Gamble, for instance, has created a group within the purchasing
function to buy digital-media advertising space. The group spans geo-
graphic boundaries, reflecting the global nature of the medium,
and while it sits within purchasing, it is staffed by people with mar-
keting experience.
At companies where the marketing organization’s responsibilities will be
split between core and distributed activities, CMOs will increasingly
be held accountable for the performance of groups that don’t report solely
to them. When CEOs ask for the marketing-org chart, they will see
a complex web of solid- and dotted-line relationships showing the roles
that marketing plays in designing, building, or operating touch points
across the whole organization.
The chart will also show where marketing activities have been embedded
in other functions. One major logistics company, for example, puts
marketing resources within each sales district to adapt corporate-level
marketing initiatives to local circumstances. This approach mutes
complaints from sales reps who feel bombarded with marketing pushes
from the head office by giving them simple, customized ideas for
driving sales within their regions.
More councils and partnerships
While leading companies have long used marketing councils to
boost management coordination, the new marketing organization will
require many more of them, with greater representation from other
functions. One global financial institution, for example, has created
a digital-governance council with representatives from all customer-
facing business units. The company’s goal was to ensure that data and
analytics are shared, that customers receive the same experience
regardless of channel (such as Web sites, branches, call centers, or auto-
mated teller machines), and that IT systems meet the customer’s
digital-engagement needs.

33
More robust formal and informal external partnerships will be critical
too. Customer forums, such as the one Virgin Atlantic Airways used
to create a taxi-sharing app for smartphones, are one example. More
structured relationships with distribution partners also can enhance
engagement. The consumer-packaged-goods company Nestlé, for example,
manages its relationship with retailer Wal-Mart Stores via what it
calls the Nestlé–Wal-Mart Team. This unified cross-business, cross-
functional group is responsible for everything from in-store activity
to promotion, logistics, innovation, and product design. As a result, Wal-
Mart has a single point of contact with one of its largest suppliers,
Nestlé enjoys a stronger relationship with the retailer, and, critically,
both companies gain a better understanding of, and engagement
with, packaged-goods consumers.
Elevate the role of customer insights
Generating rich customer insights, always central to effective marketing
efforts, is more challenging and important in today’s environment.
Companies must listen constantly to consumers across all touch points,
analyze and deduce patterns from their behavior, and respond quickly
to signs of changing needs.
One implication is that the types of talent required to derive such insights
will change. A premium will be placed on problem-solving and
strategic-marketing skills, rather than on traditional market research
capabilities such as designing surveys and commissioning focus
groups. Some organizations also may need help from external partners,
a pattern that’s already apparent at several insurers and health care
payers that have neither the time nor the budgets to build the necessary
data-gathering and -analysis capabilities in-house and at scale.
The insights group’s position in a company could even change. At one
high-end hospitality business, for example, responsibility for generating
customer insights has moved out of the marketing function entirely.
The group now reports directly to the head of strategy, who uses infor-
mation from it to redesign core business elements such as pricing,
sales targeting, and the selection of properties for development.
More data rich and analytically intense
Reinforcing the importance of all these changes is an exponential increase
in the volume of customer data and the intensity of the analysis
required to process and act on it effectively. Without cross-functional
collaboration and a clear delineation of roles, it will be impossible
to gather, collate, gain insights from, and disseminate data that streams

34 2011 Number 3
in from every customer interaction. The sheer volume of data is
extraordinary: social-media gaming company Zynga, for example, gene-
rates five terabytes (the equivalent of about 1.5 million song files) of
data on customer clicks every day.4
What’s more, “Marketing is going
to become a much more science-driven activity,” says Duncan Watts
of Yahoo! Research. (For more from Watts, see page 42.) In the trenches,
this change suggests a shift toward sophisticated data analytics sim-
ilar to the revolution that has already taken place in industries such as
financial services, as well as in airlines and other industries where
yield management is important. Some marketing organizations are
already making their moves: to send targeted e-mails to customers,
retailer Williams-Sonoma, for example, analyzes an integrated data-
base that tracks some 60 million households on metrics including
income, housing values, and number of children. These e-mails obtain
response rates 10 to 18 times as high as those sent randomly.5
Such
capabilities don’t necessarily have to be built in-house: many companies
will enter into creative arrangements with outside parties to exchange
data and run joint tests of alternative marketing tactics.
The major barrier to engagement is organizational rather than conceptual:
given the growing number of touch points where customers now
interact with companies, marketing often can’t do what’s needed all on
its own. CMOs and their C-suite colleagues must collaborate inten-
sively to adapt their organizations to the way customers now behave
and, in the process, redefine the traditional marketing organization.
If companies don’t make the transition, they run the risk of being over-
taken by competitors that have mastered the new era
of engagement.
Copyright © 2011 McKinsey Company. All rights reserved.
We welcome your comments on this article. Please send them to
quarterly_comments@mckinsey.com.
4
See Brier Dudley, “QA: Zynga founder talks about Seattle hiring spree, Amazon,
Facebook,” Seattle Times, April 13, 2011.
5
For more, see the McKinsey Global Institute report Big data: The next frontier for
innovation, competition, and productivity, available free of charge on mckinsey.com/mgi.
The authors would like to offer special thanks to Roxane Divol and to
acknowledge the contributions of Whit Alexander, Jean-Baptiste
Coumau, Blair Crawford, Dave Edelman, Ben Fletcher, and Tariq Shaukat
to this article.
Tom French is a director in McKinsey’s Boston office; Laura LaBerge is
a senior expert in the Stamford office, where Paul Magill is a principal.

35
There is no quick path to success in the new
era of customer engagement. Progress is likely
to come incrementally—by listening to customers,
making adjustments to engagement strategies,
and learning through trial and error. Since diverse
perspectives will be essential to mastering this
new landscape, McKinsey’s Luke Collins, Tom French,
and Paul Magill recently sought out three prac-
titioners with very different vantage points on mar-
keting’s future.
Virgin Atlantic Airways CEO Steve Ridgway talks
about how his company recently has been pushing
the boundaries of collaborating with customers,
while experiencing the pleasant surprise of a suc-
cessful mass-media campaign. American
Express CMO John Hayes discusses what today’s
“marketing revolution” means and describes some
of the organizational steps he has taken to get ahead
of it. Duncan Watts, principal research scien-
tist of the Human Social Dynamics group at Yahoo!
Research, explains how today’s data-rich envi-
ronment exposes the limits of intuition in marketing
and the need to take a scientific approach to
understanding consumers. A summary of those
conversations follows.
How we see it:
Three senior executives on
the future of marketing
Steve Ridgway
CEO of Virgin
Atlantic Airways
John Hayes
CMO of American
Express
Duncan Watts
Principal research
scientist at Yahoo!
Research

36 2011 Number 3
Steve Ridgway has been the CEO of Virgin Atlantic Airways since
2001. A native of England, he joined Virgin in 1990. Previously,
he served as executive director of customer service and managed
the company’s frequent-flyer program. In 2006, Queen Elizabeth II
made Ridgway a Commander of the Order of the British Empire
(CBE) in recognition of his service to British industry.
Where mass media still matter
It’s popular these days to say that television and other traditional forms
of marketing don’t work—that it’s a fragmented world out there, and
marketing is henceforth all about the thousands of little things that
companies do in different constituencies, markets, and segments.
I’m not sure that’s altogether right. Focused, laser-like efforts are
certainly very valuable, but I worry that we might get all the “micro”
things right and miss the bigger picture. I don’t want to lose sight
of how important it is to have all of our marketing efforts somehow
embodied in something bigger—something iconic, even.
That lesson was driven home for me by the recent success of two of
our, what would be considered traditional, “above the line” television
campaigns.1
The first was in 2009, when Virgin Atlantic Airways
was celebrating its 25th birthday. At the time, everyone was depressed
about the world economy, and we just wanted to put a smile on our
customers’ faces and on our own faces. The result was “Still red hot,”
a TV campaign2
that started in the UK, went viral, and had an
Virgin Atlantic Airways’ Steve Ridgway
The CEO
“
”
If we get our customers off the
plane happy, and they go
on to talk about it, that’s a huge
marketing tool for us.
1
“Above the line” refers to marketing campaigns that use paid channels such as television,
newspapers, or magazines. Traditionally, in “below the line” marketing efforts no
commission is paid to an advertising agency, such as with direct mail or other promotions.
2
Released in January 2009, the 90-second “Still red hot” commercial was set in London’s
Heathrow Airport at the time of the airline’s launch, in June 1984. It featured a young busi-
nessman wearing suspenders and carrying a brick-sized mobile phone, who becomes
spellbound by a group of Virgin Atlantic flight attendants wearing flame-red uniforms. The
commercial is filled with other 1980s artifacts, including its soundtrack, Frankie Goes
to Hollywood’s “Relax.”

37
absolutely massive effect in creating a positive halo for our brand not
only among our customers but among our staff and suppliers as well.
We’ve always focused heavily on brand and brand awareness, but this
campaign sparked something more—it energized and engaged a
whole new constituency out there before they’d even set foot on a plane.
Of course, beneath the traditional campaign sat a series of related,
“below the line” efforts in all the new mediums. But it was quite a revelation—
and a surprise, frankly—for us to see how powerful it can be to put
ourselves out there in the market with this really big, confident shop-
window, rather than concentrating on the fragmented world that
everybody is telling us we have to be in. We simply wanted to reinvigorate
our brand, to produce a powerful campaign to show that we were still
alive and kicking and that our brand still had spirit, and it suddenly
became more than that. The experience has spurred us to launch a
second TV campaign, “Your airline’s either got it or it hasn’t,” and its
success has taught us more still, while further convincing me of the need
to have a traditional, big-hitting, resonant presence in the marketplace.
Catalyzing social-media engagement
Social media hasn’t required a huge investment from us thus far, in
part because we’ve tried to build social networking into things that we
knew we had to do anyway. We’ve also done some interesting things
with outside “self-developer” groups, where we adopt the role of catalyst,
or pump primer.
VJAM is an open-innovation initiative we did with NESTA, the UK’s
National Endowment for Science, Technology, and the Arts. We provided
seed capital to support the development of an outside development
group that has gone on to create some very useful applications for our
customers. It created a taxi-sharing app, for example, that lets pas-
sengers on the same flight or on flights arriving at a similar time share
a taxi ride if they’re going the same way. This saves people money and
is better for the environment—and it was all done by developers who are
themselves our fans, followers, and customers. Our flight tracker
app was developed in a similar way and has also become very popular.
It’s been really fun working with this group; they’re very fired up. Of
course, we could have spent a fortune on a glitzier version of all this, but
it wouldn’t have been better. What they’ve done is very good, and
when you consider the speed at which it was done and the infectious
enthusiasm they bring to the table—and the pride they take in the
work—it’s just fantastic. And it’s all possible because there was sufficient
motivation and engagement out there to convince these people to want
to do this for us.
How we see it: Three senior executives on the future of marketing

38 2011 Number 3
Customer experience as a marketing tool
Before we start marketing anything or talking about our brand
proposition, we ask ourselves, are we being brave enough to get ahead
of consumer expectations? One way we try to think ahead of our
customers is through creating a superior customer experience. If we
get our customers off the plane happy, and they go on to talk about
that and get others to come and then come back again themselves—
that’s a huge marketing tool for us.
Making that happen requires having the elements in place to help
the staff do their jobs and make our customer experience distinct from
what other airlines are offering. Those elements include things like
putting our clubhouses in a different design world than the other air-
lines’ lounges. Differentiation also is visible onboard the aircraft in
all the design work we did in our upper-class suites to get the best flat-
bed possible and in taking the fit and finish inside the aircraft to a
whole new standard.
But getting the tools right isn’t enough. We were the first airline to
put in-flight entertainment systems in our planes, for example, and now
everybody’s got them. And, frankly, there are some airlines out there
now—in the Middle East, for example—that have very deep pockets and
spend lots of money. So we need to go further.
The real key is people and developing the chemistry and the attitudes,
in our staff, that create the right experience for customers. We’re
constantly pushing this in our professional training because without
the human element, all the rest counts for nothing. There’s massive
complexity in doing this well because it extends from a customer’s first
phone call to saying, “Goodbye. Come back soon.”
When we get both things right—connecting the tools and the people—
then our staff can really engage customers with attitude and spirit.
They feel proud of what they’re doing; they like being winners. And at
the end of the day, that really matters. After all, we fly exactly the
same planes as everybody else. We fly them under the same very strict
safety rules. Yet if you go on one of our planes and experience the
service, you’ll see it’s very different from many others.

39How we see it: Three senior executives on the future of marketing
A marketing revolution
We’re going through a revolution a whole lot like the Industrial
Revolution. The change is that profound. I had a conversation recently
with an employee about this new age of marketing. Basically, it went
like this: “As we try to go to market with your idea,” I said, “the world
is going to decide whether or not this has real value, talk about it,
and then position it pretty much how they want to position it.” The
person responded, “OK, so we really have lost control?” I said, “Yes,
that’s right. I don’t get to control everything that’s said about us.” Then
I said to the person, “But understand, you’re still 100 percent
accountable for the outcome.”
The reaction to me was, “That’s not fair.” And it’s not. But it’s the world
we live in. It’s more exciting because if you really do have a great
product or a great program, it can catch fire in the marketplace. That’s
exciting. But the challenge for most people who are marketers today
is, “How do you hold me accountable for the success of this when I can’t
control what somebody might say about it or what somebody else
might contribute to this conversation?”
John Hayes has been American Express’s chief marketing
officer since 2003. Previously, he was the company’s
executive vice president of global advertising and brand
management. Hayes joined American Express in 1995,
after holding senior positions at the advertising agencies
Lowe Partners, of which he was the president; Ammirati
Puris; and Saatchi Saatchi Compton.
American Express’s John Hayes
The CMO
“
”
I haven’t met anybody who
feels they have their
organization completely aligned
with this revolution.

40 2011 Number 3
Meeting the organizational challenge
I haven’t met anybody—and I talk to a lot of my colleagues in the mar-
keting world—who feels they have the organization completely
aligned with where this revolution’s going, because it’s happening so
fast and so dramatically. Marketing is touching so many more parts
of the company now. It touches on service; it touches on product
development. We need to organize in a way that starts to break down
the traditional silos in the business.
We’re creating cross-business function groups and seeing how they
work. If you’re not experimenting, you’re not learning. So we’ve created
a marketing council with the key marketer from each business unit.
At first we wondered, “What is this marketing council really going to
do?” Well, when we got everybody together, it was clear that there
were issues that the whole group was having, and there were issues
that some parts of the group were having with other parts of the
group. Taking folks out of their business unit environment and putting
them in more of an enterprise-wide environment changes some
behaviors because it helps people understand more clearly that we have
shared customers. We need to talk about how to serve them better,
and we may have synergies between two or three of our business areas
around specific growth opportunities.
We’ve done this now in a variety of areas, not just on a general marketing
basis but also, for example, in areas that have to do with digital
transformation. The result of some of this work is that we’re not just
marketing and selling on Twitter and Facebook today, we’re servic-
ing customers as well. When you bring these cross-functional teams
together, people start to say, “Well, if people are asking questions
on Facebook and Twitter about how to redeem Membership Rewards
points, shouldn’t we be there answering them? Wouldn’t that help
our marketing efforts?” When you start to see things come together
like this, that’s when the light bulb goes on.
These cross-functional teams—some may be temporary and some may
be permanent—will play a very important role in creating more
fluidity, more enterprise-wide understanding, and more initiatives
that lead to a more cohesive outcome for our customer base.
Understanding and engaging customers
We’re fortunate to have a very passionate, action-oriented community
of cardmembers. For example, they know—almost to a person—
their “member since” date. Despite all those passwords and all the
other things people have to remember in life, they’ll immediately

41
tell you, “Oh, I’m a member since 1991.” I can’t think of too many brands
where people know their tenure as a customer.
The strength of that relationship manifests itself in many different ways.
Take the earthquake in Haiti that took place in January 2010. We
made one small piece of communication to our cardmembers about
what they could do to help relief efforts, and within eight weeks
our cardmembers had donated over $100 million and 87 million
Membership Rewards points.
When you understand that this is a group of people who really feel a
sense of belonging—that this brand matters to them—you start to
build your marketing plans around the sense of joining a community.
So if we find, based on your purchasing profile, that you love wine
or you love dining out or you love golf, we can further engage you in
the things you’ve already made clear are important to you as a person.
It’s really a dialogue, which isn’t just us sending out an e-mail and some-
body sending something back to us. The dialogue has to do with us
guarding your privacy at all times but doing appropriate things to under-
stand what interests you and then serving you better. That’s part of
the dialogue; that’s how we listen.
We also benefit from seeing what people are writing about us in blogs,
what’s being said in the social space, and understanding the buzz
out there. We’re at the point where we can actually monitor this pretty
carefully by just reading what people are saying on the Web, under-
standing whether there’s a positive or negative sentiment, and how it
compares with the buzz around our competitors. It’s become very
useful because we learn, for example, not to overreact to something that
is likely to dissipate very quickly. It has really helped to calibrate how
we respond in different circumstances.
We’ve created a group of measurements that are early indicators, which
tell us we’re on the right track. And then we have business measures
that give us the ultimate outcome. Consider a program like Small
Business Saturday.3
When we asked ourselves, “Did it work?” we
first measured the buzz—what were people saying about it in social
media? There were nearly 1.5 million people who liked this effort
on Facebook. That’s a lot of people and a positive early indicator. Then
that support materialized into business: among all retailers that
accepted our card on that day, sales increased 9 percent year on year.
Among small businesses that participated in Small Business Saturday,
sales rose 28 percent. Those are pretty strong numbers.
3
A US shopping promotion, created by American Express, that was first held on the Saturday
after Thanksgiving in 2010. It encourages consumers to shop at smaller, local retailers.

42 2011 Number 3
The data revolution
Marketing has long been data driven, with a lot of survey research
and polling. But the volume and kind of data that we are beginning
to acquire is vastly increasing, requiring better computing facilities
and greater knowledge to handle. The kinds of questions that we can
ask are much more sophisticated and require a whole new science.
The study of social networks, for example, has long been something
that sociologists and marketers have thought was important. But
there really wasn’t much we could do, because a lot of the data simply
was not available to us. Prior to a few years ago, you couldn’t have
observed the ties that existed between hundreds of millions of individ-
uals. Now we have Web services that provide exactly that kind
of data.
The limits of intuition
One consequence is that we now need to start suspecting our intuition.
We can’t help thinking that we know why people do what they do
or what they’re going to do. But whatever hypothesis or intuition you
Yahoo! Research’s Duncan Watts
The Scientist
“
”
Once you accept that your intuition
about how people behave is
inherently flawed, then you really
need a different model for learning
about the world.
Duncan Watts is the principal research scientist at Yahoo!
Research and director of its Human Social Dynamics group,
which explores how information diffuses and how people
influence one another online. The Australia-born researcher
was a professor of sociology at Columbia University from
2000 to 2007. He is the author, most recently, of Everything
Is Obvious: Once You Know the Answer (Crown Business,
March 2011).

43
have, however self-evident it may seem, when you test it against the
data, it’s wrong—not every time, but very often.
So the marketing world is about to experience a shock. We have these
spontaneous intuitions about why people do certain things and
how we can make them do other things, whether it’s engaging with
our brand or buying our product or evangelizing our product to
other people. We tell ourselves plausible stories about how consumers
are going to behave if we do x, y, and z. But then when you actually
get the data, they don’t do that. They don’t do anything crazy; they just
do something different from what you expected.
A recent example of this strong intuition that seems to be wrong is
word-of-mouth influence. We imagine information or influence propa-
gating through a network in the manner of an infectious disease.
We talk about viral videos and viral media, and we really think things
spread this way. What we recently stumbled on is that almost
nothing spreads. Instead, the vast majority of all adoptions happen
within just one degree of the seed. This is shocking to people who
study diffusion, and it’s shocking to viral marketers because it completely
changes your premise of how things work in the social world.
Research suggests that when we do see big events—things that we call
viral—something other than word-of-mouth, peer-to-peer diffu-
sion is happening. Once you think about it, in fact, it’s clear that this
has to be true. If you consider the famous viral video of the little
baby penguin that suddenly got 100 million views or the subservient-
chicken campaign, which was one of the first to be labeled a viral
campaign, all of these benefited from tremendous mass-media cover-
age. Once you get your so-called viral video on the front page of
Yahoo!, 100 million people see that. So this is not about viral anymore.
This is mass media.
Measure and react
Once you accept that your intuition about how people behave is
inherently flawed, then you really need a different model for learning
about the world. Everything becomes data driven in a real-time,
reactive way. A classic example in the Web industry is what we call
bucket testing, where you might say, “I don’t know what to put on
the front page of Yahoo!. I have very good editors who have plenty of
ideas, and they can generate a pool of good candidates.” But if we
want to optimize this, we actually have to go and show these different
combinations of articles to buckets of people. Within a few minutes,

44 2011 Number 3
we’ve got a million clicks that we can use to tell us which articles are
getting clicked on more.
We can do the same thing for the display of advertisements, for the
design of pages. All sorts of design parameters and choices that were
once within the purview of intuition, of experts, are now tasks that
can be distributed to the user population and learned empirically in
real time.
This kind of measure-and-react strategy, as I call it, is particularly
powerful on the Web because the numbers are very large and the cost
of generating multiple versions is very low. But, in principle, this is
something that could be done in the offline world as well. We see it in
the fashion industry with Zara and in the casino industry with
Harrah’s or in retailing, where you can systematically rearrange product
positions on shelves in stores.
Making better predictions
Grasping the limits of your intuition is not the same thing as saying the
world is completely unpredictable. We have this irrepressible ten-
dency to make predictions about the future. We see it in the media all
the time—talking heads and experts and pundits constantly making
predictions. There are some things that we can predict and others that
we cannot. We need to be able to tell the difference between the two,
and if it turns out that certain things are hard to predict, it’s better to
know that.
Advertisers, for example, create elaborate stories about representative
consumers, and then they build a campaign around selling to this
person that they’ve created in their minds. That, to me, is deeply flawed
because what we’ve learned from many years of psychological
research—not to mention what we should have learned from actual
business experience—is that if any of these assumed factors that
you’re including in your simulation are wrong, then the person may do
something completely different. So this way of predicting behavior
by simulating it in our own brains is a problem.
But if you have data on billions of mouse clicks per day by hundreds
of millions of users, there are empirical regularities. They can be modeled.
They can be predicted—not deterministically, with 100 percent
accuracy, but that’s not the point. The point is that you can do better
than guessing. There are some things that are predictable. And we
should learn how to predict them.

45
So by all means, make predictions. But record them. Nobody ever keeps
track of the predictions they make. Our enthusiasm for making
predictions is matched only by our reluctance to be held accountable
for them. There’s a tremendous amount that can be learned—both
about your own ability and about your organization’s collective
ability to predict things—simply by measuring the track record over
time. This is something that is difficult to do. But it would have a
transformative effect on the way people think about their ability to
predict and plan.
Copyright © 2011 McKinsey Company. All rights reserved.
We welcome your comments on this article. Please send them to
quarterly_comments@mckinsey.com.
Luke Collins is a member of McKinsey Publishing and is based in
McKinsey’s Chicago office, Tom French is a director in the Boston office,
and Paul Magill is a principal in the Stamford office. They would like to
thank Dieter Kiewell and Liz Hilton Segel for their help with these interviews.

47
How new Internet
standards will
finally deliver a mobile
revolution
Bengi Korkmaz, Richard Lee, and Ickjin Park
As the Web experience evolves, smartphones
may soon live up to their name, and every business’s
mobile strategy will grow in importance.
The problem
A new Web standard known as HTML5
will allow the mobile Web to perform
much like the PC-based Internet, with
browsers—rather than applications—
doing the heavy lifting. That represents
a major departure from the situation
today, in which users must commit to a
particular technology or device.
Why it matters
As the range of content and services
provided by the mobile Web broadens
and the user experience improves,
companies that don’t have a mobile-Web
strategy will lose out to competitors
that do. Simultaneously, the economics
and competitive dynamics of mobile
devices, software, services, content
providers, and advertising markets will
shift dramatically.
What to do about it
Elevate the importance of mobile
customer engagement in overall business
strategy. Tailor marketing and adver-
tising approaches accordingly. Deter-
mine how a more Web-centric mobile
environment could change the way you
engage with employees. And be
prepared for strategic investments in
supporting IT infrastructure.
ArtworkbyLloydMiller
Read the accompanying
article, “Winning the
Web standards battle,”
on page 54.

48 2011 Number 3
1
Hypertext markup language.
An arcane-sounding change with potentially significant
implications for consumers and businesses is under way on the Web: the
shift to a new generation of HTML,1
the programming standard that
underpins the Internet. Senior executives, regardless of industry, should
take note; like the exponential growth of device-specific applications,
this evolution of HTML will further boost the power of mobile devices,
accelerating changes in the way people consume content and the
potential use of smartphones and tablets as both a marketing platform
and a productivity tool.
The next generation of the Internet standard essentially will allow
programs to run through a Web browser rather than a specific operating
system. That means consumers will be able to access the same programs
and cloud-based content from any device—personal computer, laptop,
smartphone, or tablet—because the browser is the common platform.
This ability to work seamlessly anytime, anywhere, on any device could
change consumer behavior and shift the balance of power in the mobile-
telecommunications, media, and technology industries. It will create
opportunities and present challenges. This article seeks to provide a
primer on these changes for senior executives, who may feel the effects
of the move toward “Web-centricity” much sooner than they think.
Web-centricity
In some ways, the evolution of mobile technology resembles the battle
among PC makers in the 1980s. While we today take it for granted
that Microsoft’s Windows operating system underpins hardware from
countless manufacturers, it wasn’t always that way. Remember the
operating systems that powered the Commodore 64, the biggest-selling
PC of all time, or the Apple II? Before the emergence of Microsoft’s
DOS and then Windows, PC users faced a tough decision about which
technology to adopt, because that determined the games and utilities
they could use, as well as the general usefulness of their computers. The
same occurs today with mobile devices. Users must weigh the hardware
and software merits and commit themselves to a technology, whether
it’s a device from manufacturers such as Apple or Research in Motion,
the ever-increasing array of tablets and smartphones running Google’s
Android operating system, or, soon, offerings from Nokia running on
Microsoft’s Windows Phone 7 operating system.
The next generation of HTML, known as HTML5, may narrow these
differences between mobile devices. HTML5, the most significant

49How new Internet standards will finally deliver a mobile revolution
evolution yet in Web standards, is designed to allow programs to run
through a Web browser, complete with video and other multimedia
content that today require plug-in software and other work-arounds. In
theory, this will make the browser a universal computing platform:
without leaving it, users could do everything from editing documents to
accessing social networks, watching movies, playing games, or listen-
ing to music. Not only would any device with a Web browser have these
capabilities, but consumers would also have access to all content
stored remotely “in the cloud,” independent of locations and devices.
That’s the first reason Web-centricity holds particular promise for
mobile devices. The second is that it helps overcome the relatively weak
processing power of smartphones and tablets compared with PCs and
laptops. It’s partly this lack of horsepower that has fuelled the explosive
growth in applications (or “apps”) to optimize the performance of spe-
cific devices: the average smartphone user now spends more than 11 hours
a month using apps, more time than either Web browsing or talking,
according to a March 2011 study by research firm Zokem. HTML5 has
the potential to improve the mobile experience—its specifications enable
browsers to locally store 1,000 times more data than they currently do,
so users can work when offline—writing e-mails, for example—and their
devices will automatically update when a network becomes available.
What’s more, programs and applications run faster because complex
processing tasks are handled by network servers, although mobile-
network capacity must go on growing to deal with heavier data demands.
Of course, not all programs are suited to running through browsers, nor
is HTML5 the first would-be universal platform to emerge: Sun
Microsystems (purchased by Oracle in 2010) promised that with its Java
language, programmers could “write once, run anywhere.” Things haven’t
worked out that way. And there’s never a guarantee that one kind of
standard will prevail. (For more on platform competition, see “Winning
the Web standards battle,” on page 54.) The rate at which developers
are writing apps and consumers buying them is dizzying, and ingrained
behavior can be hard to change. Web-centricity may raise security fears
among users because programs are no longer installed on specific devices
and because data are stored remotely. And there could be fragmentation
issues with both the standard and the browsers—after all, existing ones,
such as Google’s Chrome, Microsoft’s Internet Explorer, and Mozilla’s
Firefox, don’t all treat the current standard, HTML4, the same way.2
2
Various plug-in programs written for HTML4, such as those that run audio or video files,
often require multiple versions customized to specific browsers. As the complexity of Web
programs accelerates, those mismatches are increasing. To read more about how HTML5
may help the Web keep up with the pace of change, see Bobbie Johnson, “The Web is reborn,”
Technology Review, November/December 2010, Volume 113, Number 6, pp. 46–53.

50 2011 Number 3
Despite these possible headwinds, the number of HTML5 Web sites
is increasing by the day. Hardware manufacturers are lining up behind
HTML5, and the development community is undertaking efforts
to safeguard data in the cloud at a very fast pace. We therefore estimate
that more than 50 percent of all mobile applications will switch to
HTML5 within three to five years—and the rate of transition could be
considerably higher and faster. No matter how quickly the shift
occurs, it will affect both consumers and businesses significantly.
Consumer impact
Consider a simple task many consumers currently use mobile
devices for: reading news headlines. Today, that requires accessing
a specific Web site—often a sluggish exercise in frustration—or
separately installing an application on every device used and, for those
that charge a fee, paying each time. With Web-centricity, a single
application can theoretically be accessed from any device through a
browser—pay once and you’re done. And because all content is
stored in the cloud, billing information and preferences can be seam-
lessly shared and accessed, and all devices remain in sync. A con-
sumer can start reading an article on a tablet and then switch to a
laptop, picking up where she left off. In a more advanced example,
she could start an instant-messaging or video-chat conversation on
her desktop computer and continue it on her smartphone. The
bottom line for consumers: Web-centricity represents a major step
toward genuinely “smart” devices that offer the same simple,
relevant, and personalized experience everywhere.
Industry impact
These changes to consumer behavior may affect the economics of
industries ranging from telecommunications and media to technology
and even advertising. As Web stores selling applications that can
be used across devices proliferate, for example, cutthroat competition
may leave ad agencies reminiscing wistfully about the days when
they could claim up to 40 percent of every dollar of mobile-advertising
revenue. Consider, briefly, the implications for the following players
in a world where content is everywhere and the relative importance of
operating systems and Web browsers for creating and distributing
programs and applications is shifting.
Software developers. Application developers currently pay a fee
of up to 30 percent to device makers, telecommunications operators,
or operating-system developers whenever an application is sold
to a consumer. In a Web-centric world, developers can avoid these
intermediaries: not only can the same application be sold across

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2011 q3 McKinsey quarterly - The future of marketing