Today’s advanced technology brings us virtual broadband autobahns that move data across the globe with speed and precision. In an attempt to capitalize on fast-moving data, some companies are using sophisticated applications and compute power to make decisions faster than competitors. However, when machines move millions of times faster than humans, there are some implications for the decisions made by marketing professionals.
A previous column “Is the Speed of Decision Making Accelerating?” cited how a century ago, managers could take weeks or days to make important decisions. That’s because before the advent of the telephone, it would take a substantial amount of time for information to travel by courier. Fast forward to the 21st century, most executives now have a mobile device and can be reached at a moment’s notice.
Our global society is moving towards a zero latency world, where the reduction of time between decision and action is drastically reduced. And we need to look no further than Wall Street’s high frequency traders for evidence.
John Plender of the Financial Times recently defined high frequency trading (HFT) as a “type of computerized dealing (that) exploits the millisecond gap between news events and their impact on markets … such trading has expanded rapidly to the point where 60-70% of the trading volume is in U.S. equities. Much of this volume is conducted by a very small number of companies.”
So what’s wrong with HFT? Plender cites potential problems, such as the “ability (for high-frequency traders) to see orders before they are public” and the propensity for high-frequency traders to co-locate servers on the floor of stock exchanges for faster trading (something not available to the average investor). In addition, the race is on where the winner in high-frequency trading can close trades as fast as 250 microseconds—faster than you can blink your eye!
The speed of decision-making is accelerating. In HFT, the trend is unmistakable. Machines are trading with and against each other. They’re moving ahead of individual investors, leaving day traders in the dust. And as a Financial Times article notes, speed isn’t just confined to Wall Street: “Technology has changed many other big markets around the world and tied them more closely together … Such changes has created winners and losers.”
For marketers, the implications of zero latency are clear. For example, did you know that “robots” are purported to perform text mining on press releases when they hit the wire? With analysis completed in microseconds, advanced algorithms then execute trades based on what they’ve learned. Your company’s equity price could go up or down in seconds, based on the words in your press release!
In a zero latency world, what marketers (and other employees) say, write, tweet, and announce can all be used as fodder by the machines to either raise equity prices or destroy shareholder value. Our ability to react and “fix” our mistakes before they are noticed is greatly diminished. All it takes is a bad press release, poorly written whitepaper or negative analyst report.
And it’s not just PR. To borrow a phrase from Thomas Davenport, companies are now “Competing on Analytics.” Marketers must understand that they are now engaged in an arms race with competitors mining their own (and third-party) data for insights—increasingly by the hour and minute, and then taking action to better connect with customers. Companies without these capabilities will increasingly face mammoth disadvantage.
Zero latency decision-making isn’t the future. It’s now. Are you ready?
Consider the following:
Regarding decision-making, how fast is too fast? What could go wrong at high speeds? What happens when the human element is removed?
Tags: analytics, data, decision making, high frequency trading, PR, press releases, speed in decisions, zero latency
Oh boy! How true. We even encounter effects of “zero latency” in non-electronic communications.
I recently attended a training session conducted by someone several years, let’s say, “less experienced” than I am. The words rolled out so fast that my “more experienced” brain could not keep up. It was like cramming it all in, then trying to digest it at the speaker’s next pause for a mandatory breath.
I’m sure there was plenty of opportunity for me to miss points that may make a difference in understanding the presentation.
Wayne, the speed of decision making is accelerating – and so too apparently is the rate and pitch of some speakers! Appreciate the comments!
As a long term investor, primarily my retirement account, the HFT thing really rubs me the wrong way. I am all for the free market but don’t like things that enable people to game the market and provide advantage without adding any value.
It is especially unsettling to know that servers are co-located in the same facility as the exchanges. That is definitely not even close to a level playing field.
It is unclear to me why insider trading is bad, while things like HFT are fine.
As for speed, I find myself provided information very quickly and reacting to it quickly when appropriate and taking time when appropriate, too. I think that human analysis, judgement, and experience (as the commenter noted above) can trump just raw speed. When you combine these analytics with human intellect, then you have something of value.
Removing the human element seems a recipe for things that might make a quick buck for someone but do not add value. It seems a sophisticated regulatory regimes, that adapt quickly to change (is that a misnomer?), would be useful and perhaps welcome by most in the same way that players on a sports field welcome a good referee who seems fair.
Neil, appreciate your comments. I pointed to HFT mostly because it portends the future of what near zero latency decision making looks like on a grandiose scale. It’s not just a few companies involved in HFT, it’s all the former investment banks, hedge funds and “liquidity providers” among others. And “speed” is providing advantage over other players.
Indeed, the stoplights on the information superhighway show green and for all industries, the race is on to build faster and more advanced machines capable of reading data streams and executing intricate decisions in mere milliseconds. This trend will impact human decision making and in some instances, remove the human element altogether. The Flash Crash of May 6, 2010 was, in my mind, a harbinger for when decision making moves too fast. Regulators are STILL trying to figure out what happened.
Now combine your post with this:
http://www.youtube.com/watch?v=NLlGopyXT_g
and this:
http://www.ted.com/talks/matt_ridley_when_ideas_have_sex.html
and bionic making artifical memory for brain…
I don’t have a structured model in my head yet of all these things going around, but my thoughts are:
0. Trading is work, done by people (some enjoy it, some don’t, but it is time-consuming work as milking a cow)
1. Marketing (trading) is really in the root of development (as noted in Ted’s talk)
2. The faster we trade, the faster we develop
3. “The net” is a fast learning and trading machine
4. So … “the net” will take away most of our trading work
5. The less we will need to do this work, the more time we will have for other stuff
6. And if trading is mostly done by machines, marketing gets back to basics => helping the machine understand what people need and want (machine is using us)
7. When you include bionics, the things become severly fast. But then you can learn back from machine.
8. This scares us. Big time scarry movie. But not our kids and their kids. Most probably they will notice that artifical legs are better than the real ones? Buy them and run faster then ever? Well, it’s the same as having a peircing.
Don’t know really if this is the future, since we’re experiencing this from our very narrow angle. When I go up the mountains here, I can see people not really wanting that fast trade. When I go down to the seaside, I can see people playing cards and catching fish. On the other hand, if machine will give them better option for their daily bread, they will take it.
Now this is a rubbish comment.
Dusan, in the years to come, zero latency decision making enabled by more advanced technologies such as AI may in fact become the norm. Marketers will soon find that speed in our decision making processes will be the new competitive advantage. If I, as a marketer, can turn around a quality marketing campaign in 24 hours based on my learnings and analysis from my customers–whereas you take 2 weeks–then presumably (and all things being equal), I have advantage. In the technology space, we’re seeing faster processors, in memory analytics, more advanced algorithms, and people acquiring and assembling the necessary skill sets to make near real time a reality.
You mentioned, “When I go up the mountains here, I can see people not really wanting that fast trade. When I go down to the seaside, I can see people playing cards and catching fish. On the other hand, if machine will give them better option for their daily bread, they will take it.” That’s the thing about a new epoch, is one rarely recognizes the rapid changes while in it – only in hindsight will we someday truly understand the radical change and transformation we’re experiencing today. Zero latency decision making may be the “narrow angle” today – tomorrow it will be the norm.
As always, I appreciate your contributions to the discussion and good links!
This from a forum on HFT, written by a HFT programmer:
“All of the serious HFT firms these days use “natural language processing”, which means using artificial intelligence to extract profitable information from news streams. People think of this as just headlines but really it’s anything that might contain useful information – these computers have all of the cable news channels supplied to them digitally and use everything they can scrape. Some of the firms even use facial recognition software to determine whether the speakers believe what they’re saying. My friends joke about how Cramer is a goldmine for their algorithms but that the profitable trades rarely match up with his advice.”
Net, net marketers, these “bots” are surely reading your press releases and marketing materials, and this is, I’m afraid, just the beginning.