October 23, 2017

Is Tesla Motors a Hidden Warrior for Consumer Digital Privacy?

Amid the privacy intrusions of modern digital life, few are as ubiquitous and alarming as those perpetrated by marketers. The economics of the entire industry are built on tools that exist in shadowy corners of the Internet and lurk about while we engage with information, products and even friends online, harvesting our data everywhere our mobile phones and browsers dare to go.

This digital marketing model, developed three decades ago and premised on the idea that it’s OK for third parties to gather our private data and use it in whatever way suits them, will grow into a $77 billion industry in the U.S. this year, up from $57 billion in 2014, according to Forrester Research.

Storm clouds are developing around the industry, however, and there are new questions being raised about the long-term viability of surreptitious data-gathering as a sustainable business model. Two factors are typically cited: Regulators in Europe have begun, and those in the U.S. are poised to begin, reining in the most intrusive of these marketing practices; and the growth of the mobile Internet, and the related reliance on apps rather than browsers for 85% of our mobile online activity, have made it more difficult to gather user data.

Then there is Tesla Motors and its advertising-averse marketing model, which does not use third-party data to raise awareness and interest in its brand, drive desire for its products or spur action by its customers. Instead, the electric carmaker relies on cultural branding, a concept popularized recently by Douglas Holt, formerly of the Harvard Business School, to do much of the marketing heavy lift that brought it to the top of the electric vehicle market. And while Tesla is not the only brand engaging digital crowd culture and shunning third-party data-gathering, its success is causing the most consternation within the ranks of intrusion marketers.

Policymakers in Europe and the U.S. looking to respond to industry concerns that privacy regulation would suffocate digital brand marketing should note Tesla’s recent success in marketing its as-yet unbuilt Model 3. The vehicle, intended as a mass-market cousin to the luxury Tesla S, attracted 500,000 customers in the weeks following its unveiling this spring. Those customers each made $1,000 deposits to secure a place in line to acquire a car sometime in the coming 24 months.

To achieve this marketing triumph, Tesla did not buy digital ads from online marketplaces that use third-party data to identify potential customers. It did not, in any apparent way, intrude on the privacy of its potential customers by surreptitiously gathering information about their online activities. What it did do is persuasively demonstrate that brands could achieve great success without using customer-abusive, data-gathering methods.

Some additional brief background on each of the marketing models mentioned may be useful to understand the current state of play.

Third-party, data-based marketing models rely on detailed information about prospective customers to target future online advertising. This marketplace concept was honed by Google in 2008 when it bought DoubleClick and combined that company’s ad-serving technology with its own knowledge of consumer online search behavior. Other big players, such as OpenX, Microsoft Ad Exchange and AOL’s Marketplace AppNexus, also rely on deep and timely information about your online activities to sell digital ads to brands. Facebook adapted that model within its captive environment. Now, Google and Facebook control 64% of the digital advertising dollars spent in the U.S.

By contrast, the digital crowd model does not require response to online ads. It draws power not from the accumulation of private digital data, but rather from the authenticity of information received from trusted members of the culture-shaping digital crowd.

A brand that achieves success in this way can create a powerful and democratic cultural phenomenon and have additional bragging rights as a responsible corporate citizen that does not violate customer privacy.

Tesla has used that latter model, or been used by it, to build a culturally relevant brand that has enjoyed remarkable success in the auto industry, a category with substantial barriers to entry including the $44 billion carmakers spend on marketing, according to research company Schonfeld & Associates.

Tesla has relied on some straightforward strategies to become relevant:

1) It has embraced organizational clarity. Tesla has communicated a clear picture of its products, their role in the marketplace, and a vision for how its products will change the world, and has done all of that in a transparent way that energized its key stakeholders, customers and employees.

2) It has unleashed its celebrity CEO. Elon Musk is not your typical business leader. His combination of articulate passion for the future and his grasp of everyday business challenges has made him an ideal spokesperson for the Tesla value proposition.

3) It has allowed the brand to be shaped by Tesla “enthusiasts,” including celebrity endorsers. The digital conversation about Tesla is highly energized, social and embracing of Tesla’s values. While there are naysayers, even those tend to be more adoring than angry. According to PR analytics software TrendKite, within the first week of its March 31 launch, Tesla’s Model 3 had more media mentions—34,000—than the rest of the electric car industry. And it doesn’t hurt when the likes of Stephen Colbert are willing to become unpaid brand advocates.

4) It has marketed with low intrusion, awareness-building techniques. The total cost of Tesla’s first year marketing campaign was estimated at about $2 million. In contrast, all other automakers spent $3.4 billion in 2015 on mobile advertising alone, according to eMarketer, a category especially reliant on data-driven targeting. What did Tesla do with its marketing budget? It paid $20,000 or so for Google AdWords and $1 million for advertisements in influential print publications. Both were designed to encourage prospective customers to visit tesla.com and willingly engage with the brand on a first-party basis. The balance was spent to manage and market, mostly via billboards, its Test Drive America campaign, itself designed to build awareness and drive visitors to tesla.com.

Realistically, it is still uncertain whether Tesla can actually deliver on the boldest predictions of business observers and upend the global auto market. It will face a thicket of manufacturing, service and franchise issues on its way from producing 50,000 vehicles in 2015 to 500,000 vehicles in 2020.

But there is no question its success has sent a jolt of uncertainty through the digital marketing industry. In a consumer and policy environment in which digital privacy intrusions are increasingly unacceptable and millions of consumers are installing ad and third-party blockers to protect their data, society’s willingness to allow intrusive marketing techniques is being severely strained.

U.S. marketing strategists are no longer asking if additional mainline brands will abandon shadowy, intrusive digital marketing models in favor of those, like Tesla Motors’, that are more transparent and respectful of their customers. They are asking when.

Comments

  1. reju p rajan says:

    When will toyota make a 200 mile electric plug in.

  2. Bryan Baker says:

    Great article, thanks!

  3. How silly. Most companies make bland products with no particular virtue to them. They need marketing to create fake enthusiasm mainly for consumption that does not really need to exist. That’s why it is called marketing, not it-sells-itself.

  4. Aigars Mahinovs says:

    You do know that every Tesla car automatically updates to the newest version and regularly uploads full and detailed debug information to the Tesla servers that include location, speed, acceleration, steering wheel position and hundreds of other variables for every second of every drive? They even send back information on what the cars sensors see all around the car. They do this to provide the best possible service to their customers by knowing that they have a problem with the car before the customer does and arranging for a fix even before the problem becomes apparent. And they use all that sensor data to continue to improve the Autopilot algorithms on the real roads. And I do love them for that. But Privacy Warrior they are not.

  5. “Is Tesla Motors a Hidden Warrior for Consumer Digital Privacy?”

    Do pigs fly?