Online advertising models are far from optimal. Improvements would benefit everyone - from online media properties, to advertisers and even website visitors. Improvements can only be achieved with the commitment of leading web properties and advertisers to work together to continuously test innovative new online advertising models.
Unfortunately the same standards groups that drove the initial success of online advertising may now be holding it back. IAB standards transformed a highly fragmented online media landscape into something that large advertisers could purchase efficiently. Rather than dealing with hundreds of ad specs, advertisers could limit their creatives to a handful of standard banner sizes. While this was critical for catalyzing initial online advertising growth, things were optimized on a less than perfect model.
For proof of potential advertising model improvements, just consider the leading search engines of 1999. Three of four are basically dead, while Google moved from obscurity to a $160 billion market cap. This growth was largely on the back of an innovative advertising model. Google didn't follow the recommendations of the IAB, but the other search engines did. Google's new model delivered fantastic results to advertisers and provided a better experience for users. At my current venture, we largely built our business through Google Adwords.
I believe there is similar potential for dramatic improvement in advertising on destination websites. Again, pushing the envelop will require close cooperation between media properties and advertisers.
I first became fascinated with the potential of online advertising in 1995, when a friend showed me his business plan for an online advertising supported game site, Uproar.com. His concept was that people would register to play free online games for a chance to win cash prizes. Accurate registration information would let advertisers perfectly target their messages. I had been selling print advertising so was eager to move beyond the static, untargeted world of print advertising. In fact I took an interest bearing loan just to make an angel investment in the company.
When I later joined Uproar full time, we faced the daunting challenge of balancing advertisers' needs for results with visitors' desires for an entertaining experience. We launched with integrated animated advertisements targeted by demographics. However, since our audience was so small, we couldn't even give the ads away. We were faced with the challenge of building a large audience and making it simple to buy advertising. Eventually we settled on the standard IAB banners, but integrated them into the game flow to drive better results for advertisers.
There has been very little evolution in the 10 years since these standards were put in place. The primary difference today is that advertisers have become a lot more sophisticated at tracking results and media properties have added rich media. Surely it is time for savvy publishers and advertisers to join forces to discover a much more effective way to leverage the potential of internet advertising.
Great startup marketers generally make excellent resource allocation decisions. We are all faced with the temptation to gravitate toward marketing tactics that have worked in previous companies. Unfortunately, an old marketing mix is almost never a perfect fit for a new marketing situation. For example, when I ran marketing at Uproar.com we relied heavily on banner advertising, even running the most viewed banner on the entire Internet for a period of time. We also had a large affiliate program with over 30,000 partners. Leveraging these key elements of the marketing mix we achieved the lowest registered user acquisition cost of any publicly traded company for a free online service.
Naturally I tried to replicate these marketing tactics at my next early stage company. Unfortunately they didn't deliver the desired results. Though I still used a very online centric marketing approach, the marketing mix contained very different elements. For example, banners made up less than 10% of our marketing spend (compared to 90%+ at Uproar) and we didn't even have an affiliate program.
So what is the key to discovering the right mix of marketing tactics for your particular situation? It helps to have a relentless drive to try lots of programs until you find some that are successful. But assembling an effective marketing mix goes beyond simply effort. Before even considering the marketing mix, you need to have a handle on some marketing basics like a proven value proposition. You also need the tools and processes in place to determine the effectiveness of each tested marketing program. The rest is really an art of knowing what to test and combining effective tactics in an optimal marketing mix. Like any other art form, creativity is a key advantage in building winning marketing programs.
Metrics Driven Marketing drives strong overall marketing performance by improving predictability of returns on marketing investments. With a metrics driven marketing approach the majority of marketing funds are invested into proven programs. Still, 10-20% percent of the monthly marketing budget should be allocated to testing to stimulate progress. Tests should be large enough to give accurate performance insight, but small enough not to burn though a significant portion of the testing budget. The majority of the marketing team's time should be spent executing tests. Proven marketing activities can largely run on autopilot with periodic reviews of the performance reporting.
In an early stage startup it is relatively easy to apply the principles of Metrics Driven Marketing. That is because the purest form of Metrics Driven Marketing is direct response marketing - which should be a core part of every startups' marketing arsenal. Direct response marketing is a low risk approach. It favors the small budgets available to most startups. It also supports a startup's discovery process of identifying the right target customers and developing a powerful value proposition. Additionally, it allows a marketing team to focus on refining the brand experience and if applicable helps them optimize website conversion rates. As customer acquisition conversion rates improve, the ROI from the direct response marketing initiatives also improves.
Eventually a successful startups company will have to complement their direct marketing initiatives with more scalable branding campaigns. That's where Metrics Driven Marketing gets really tough. Fortunately earlier efforts to refine the value proposition, brand experience and conversion metrics will pay dividends in broader reaching campaigns. To track the effectiveness of these campaigns most savvy marketers use test markets and trend analysis. Metrics Driven Marketing is not always about perfect ROI tracking - it's about continuously pushing the tracking envelope and directing marketing funds to the most effective and accountable initiatives. Rex Brigg's book "What Sticks" provides excellent guidance for executing a Metrics Driven Marketing approach at scale.
It is also challenging to analyze the marketing effectiveness of Blogs, viral marketing and word-of-mouth initiatives. Fortunately most of these activities require relatively small financial investments, though the time investment can be quite large. These activities require more creativity to determine appropriate measurable ROI targets than others. For an example on tracking blogs see my post on measuring the loyalty impact of social media.
What about marketing activities that provide important benefits that can't be tracked? I discuss this in another recent article.
Metrics Driven Marketing is surprisingly underused by many experienced marketers. The marketing leaders who do use it (and succeed with it) generally have a good balance of analytical skills, discipline and a deep reservoir of creativity. Not just the kind of creativity needed to come up with clever slogans, but rather business creativity to invent new marketing methods and tweak existing methods for cost-effectively reaching their target customers. If this creativity runs dry, the testing halts and marketing results stop improving (and often start declining).
Of course, Metrics Driven Marketing is just the foundation of a strong integrated marketing approach. Market research, particularly in depth customer research, is essential. As is customer segmentation strategies, enhancing the brand experience, PR, mapping marketing objectives/strategies to overall company objectives/strategies... But, these can all be strengthened by a foundation in Metrics Driven Marketing.
Metrics Driven Marketing can trace it roots to Claude C. Hopkins (1866-1932). His book, Scientific Advertising, was published in 1923 and was a major breakthrough in testing the effectiveness of advertising (Read it free at http://www.scientific-advertising.co.uk/ ). Lester Wunderman was also a key driver of Metrics Driven Marketing, primarily through his advancement of direct marketing (a phrase he was believed to have coined in the early 1960s). More recently Rex Briggs has carried the torch of better marketing accountability to broader reaching brand advertising. His book "What Sticks" is a must read.
The uniting goal of all these pioneers is a desire to push the tracking envelope in all marketing activities and drive better, more predictable results.
I am a big believer in the power of Metrics Driven Marketing. At my most recent venture, my first marketing hire was trained as an actuary (actuaries are the math wizards at insurance companies who calculate premiums based on risks). This helped create a highly analytical marketing culture from the outset.
Here is a quick overview of what I presented. Initial success requires combining an urgent quest to discover profitable customer acquisition methods with a fear of wasting marketing dollars. Ensuring that every dollar counts requires a very disciplined approach to testing. It is essential that the right measurement and reporting systems are in place before testing begins. In the earliest stages of a company, you don't have the luxury to try to develop much brand equity - it's all about identifying a sustainable high growth business model. Once you've found profitable customer acquisition sources, building brand equity is a critical next step for building momentum.
This is the process that I used to kickstart my current venture. In my earlier startup, Uproar Inc., we really hadn't refined the process yet.
]]>I also met Rex Briggs at the conference. He's just completed an interesting research study where he worked with many forture 500 companies over the last five years and used cutting edge methods to track the effectiveness of their advertising across all media. He then identified those marketing teams that had the most efficient advertising spend and looked at what they were doing differently. All of his findings are published in a book called What Sticks. I highly recommend it. Again his ultimate findings are that the most effective marketers use a similar approach to us.
All of my research has been in an attempt to discover ways to improve our marketing process. While I have discovered a few useful minor elements, I've also been able to validate that our highly effective marketing approach works for companies of all sizes. It's also great to interact with other marketers that are working to push the envelop of effective marketing by using detailed analysis and an continuous improvement testing approach.
]]>]]>Thanks for your email Sean. The laws of branding are simple, but applying them is not always easy. There are times when line extension is the best way to go. But you need to remember that it does dilute the brand in the mind.
Some companies focus on a customer and then sell them a wide variety of services. USAA is a good example, selling all types of insurance to Army officers. The line is extended but the customer is focused.
The software industry does have some differences. Microsoft can get away with rampant line extension because they have a monopoly on the operating system. But in areas where they face strong competition this strategy has not worked, MSN, Money are far behind.
Good luck.
- Laura
Yesterday Errol Smith (who produces Jack Trout Radio) posted a comment on the Metrics Driven Marketing Blog about Jack Trout's radio interview of Chris Anderson (the author of The Long Tail). Talk about a fascinating interview! In the interview Jack Trout seems to be a bit more accepting of The Long Tail than he was in my original correspondence with him. Of course he may have just wanted to be cordial to his guest. Still, by listening to the two authors discussing their views I have crystallized many of my conclusions. To me, it's not really a question of The Long Tail being right or wrong. It's more a question of how important the emergence of a "long tail" sector is to the overall economic landscape. While in some industries it has very little impact, in my industry - software - it is extremely important.
As Jack Trout points out in many of his books on strategy: proper marketing situation analysis is an important part of shaping marketing strategy. Because of the Internet, consumers have more choices than ever. This is starting to shape their expectations. For example, I can rarely buy a marketing book in Barnes and Noble anymore, since most of the books are too main stream. However, at Amazon there are hundreds of marketing books that I would like to buy. In software, buyers no longer want mega-products that can do everything. If they have a problem, they Google for a solution and download a couple free trials of "perfect fit solutions." Research indicates that this is the case for buyers ranging from an individual consumer up to a large enterprise buyer. For a marketer, this offers an opportunity for a very fast conversion from trial-to-purchase and also a clean digital trail for tracking ROI. Contrast this against the major challenge facing all marketers - getting attention in a world of extreme advertising clutter. A good software strategy in a long tail world suggests breaking mega products into many micro products and finding all opportunities to market these micro products to active seekers. Each product is an onramp to acquire new customers and an up sell for existing customers.
I completely agree with Jack Trout's insight in the interview that "the long tail" can be an important place for market research. By using Google Adwords to reach all active seekers of a specific product, marketers can identify vertical segments where a product is getting the most traction. With this research, a company can define a relevant value proposition for the product in that segment and concentrate advertising funds to build awareness and demand within that segment. Obviously it is important for the segment to offer enough headroom for growth and for the company to have a competitive advantage within the segment.
Overall both books are extremely important for shaping marketing strategy. If you haven't read them yet, I highly suggest doing so.
]]>The first book is Marketing Warfare, by Jack Trout and Al Reis. It is a classic marketing book from the 80s that is extremely relevant today. I really consider it light reading, since it is as much about history as marketing. I'll write a full review when I'm done with it, but I can already highly recommend the book (especially for someone who likes history). The most relevant "lesson" the book has taught me (or at least reminded me) is that you shouldn't spread yourself too thin - it is essential to concentrate your marketing resources on the best opportunities. Fighting a multi front war is dangerous. It's always tempting to want to place a chip on every good segment or product idea, but history teaches us that this is a mistake that often drives companies out of business.
The other book that I just started today is The Long Tail, by Chris Anderson (I'm about 1/3 of way done with the audio version). Talk about a book that has just reached the tipping point! I had never heard of it, then within a week heard the book referenced by several different people. It provides some cutting edge marketing data that supports almost the opposite view of Marketing Warfare. According to the book, many successful companies are generating a substantial amount of their profits from niche products. This is particularly true for internet retailers that aren't constrained by shelf space. By having thousands of products available, online retailers can have a very "long tail" of profitable products. From just listening to the first CD on my way into work this morning - the book triggered some really great ideas for altering the marketing strategy for one of our products. I've bounced the new ideas off a few colleagues and they are as equally excited about them as I am.
While I'm sure my conclusions will evolve as I get further into the books, both books definitely have merit. The web (particularly Google Adwords) makes it easy to harvest demand from multiple segments. But effective demand creation requires a tight concentration of funds into a specific target customer segment. Good marketing strategy finds an optimal balance between both demand creation and demand harvesting.
]]>But software marketing is changing quickly. Retail software companies like Egghead and Software Etc are gone. Even the software sections at CompUSA and Staples are a fraction of what they used to be. Comdex and other key tradeshows are history. And value added resellers are scrambling to come up with more value added services to replace their dwindling software sales.
Why? Customers are now much more empowered then they used to be. Who needs retail or a reseller when a free software trial is only a few clicks away? Looking for an FTP program? Google it and you will find several free, secure, and easy programs – whatever your needs, you are only a few minutes from finding the right solution. Not sure if you trust the brand, Google the specific brand. Generally you will find at least one review from a reputable publication.
And it’s not only consumers and small businesses using the web to find software. Enterprises are also empowered to research and buy solutions online. For example, at the very early stages of my current company (only a couple years ago) one of the world’s largest technology firms began assessing our solution. Before the sales team even had a chance to speak with someone from the company, dozens of people were deep in evaluation. How did they find us? Google Adwords, of course. We’ve now completed several six figure transactions with this company on a trial that cost only a few dollars to generate.
Smart software marketers are enthusiastically following their customers onto the web. It is a perfect medium for promoting and distributing software. The web provides much better measurement than traditional marketing mediums. Each campaign can be tracked by the cost of generating a trial and a purchase and comparing that to the projected lifetime value of each customer. Campaigns that don’t yield a positive return on investment can be cut, allowing the marketer to concentrate funds in the most effective marketing campaigns. Also, VARs no longer stand in between the publisher and customer. Since the software publisher now fully owns the customer information, they can make a much more effective investment in CRM. And brands can be built over time through branded customer interaction rather than through risky, less accountable print and trade show investments. Finally, since packaging and distribution costs have been eliminated, software now really does have virtually zero marginal cost.
Online marketing, particularly search marketing is great for harvesting existing demand, but creating demand for a new category of software can be a bit trickier. I’ll cover that in a future post. Also, the software marketing landscape continues to change with the increasing popularity of software as a service (SaaS). This brings additional challenges, but is even more suited to the web than traditional licensed software. Again, I’ll cover SaaS in a future article.
For a company with registered users/customers, it is best to start by creating a field in the database representing each social media program. Each time a logged in customer participates in a program (such as reading the message boards) it should be recorded in the database. After enough data has been collected it should be clear whether there is any correlation between participating in the program and higher customer lifetime value (improved customer loyalty). If there is a correlation, more funds should be concentrated in social media programs. If no correlation can be identified, resources should shift to other, more direct ROI generating programs.
]]>On the other hand, corporate marketing Bloggers have much less to gain from Blogging. This is why there are so few corporate marketing Blogs. And there is plenty to lose. Every Blog entry carries risk. Am I revealing company secrets? Am I giving my competition something they can use? Am I suggesting weakness to potential investors or business partners? Corporate marketers must filter every word in a Blog for appropriateness. This is hard work and slows down the process.
So why do we do it? Well I can’t speak for every corporate marketing exec, but there are two main benefits I derive from Blogging. The first is that it provides an opportunity to interact with other marketers and become part of a bigger marketing community. It’s almost like open source for marketers and raises all of our games. I read the ideas of another marketer and in tailoring a response or opinion I really need to think it through. If I just ponder it for a moment, it is easy to fool myself into thinking I have it figured out. But in a Blog entry I reread it and realize that it doesn’t make any sense. I know that if I am a bit confused by my own words, any outside reader doesn’t have a chance of getting my point. So I rewrite and rewrite until it is clear. I’ve found this process not only helps my ability to figure out different marketing concepts, but it also improves my skills at articulating marketing concepts to my team and the rest of the company.
The second benefit I get from Blogging is that it lets me establish an identity that extends beyond my current role. Most marketing leaders are at a company for less than five years. With a Blog they can build an identity and reputation that lasts an entire career. Of course this is very self serving – but isn’t every Blog?
It really wasn't that long ago that I was the new marketing kid who got the web better than the old school marketers. In 1996 I began marketing on the web with very little prior marketing experience. I was able to rationally invent a system that was perfectly tailored to the web rather than trying to retrofit my previous methods. This system helped my company, Uproar, lead our category with a much smaller marketing budget than our competitors (Sony, Microsoft, Yahoo...). Their experienced marketers couldn’t keep up with the more nimble neophytes.
Now that I am more experienced, "getting" Web 2.0 is a little tougher than it was the first time around. This is despite having a Blog and being an avid Podcast listener. I've even bought advertising on Blogs, Podcasts, and Digg. Yet, I have been unable to get a good enough ROI to continue advertising on these mediums. I'm fairly confident that Web 2.0 marketing could be an important part of my marketing mix, but I just haven't figured out how to tap it yet.
It’s probably not completely age/experience related. Seth Godin is a rare experienced marketer that picks up on new trends very quickly. He has written quite a bit about Web 2.0 marketing, despite being burdened by significantly more years of marketing experience than me. But, who knows if he has actually effectively applied these theories beyond launching his own Web 2.0 site called Squidoo? Another group that has tapped Web 2.0 properties for a good return is spammers - but for a real brand spamming does more damage than good in the long run.
If anyone knows a reputable company that has effectively tapped Web 2.0 properties to drive marketing results – please let me know. I'll just reverse engineer the marketing approach that some newbie wiz kid probably thinks is totally logical.
]]>Passion is a key driver of the patience and energy needed to climb the learning curve. Marketing improvement requires theoretical study and practice. It’s good to read books, but unless you put that knowledge into practice it will be forgotten. Also, too much focus in one particular area of the marketing continuum often means that rust builds up in other key areas. After completing a marketing book, it’s good to integrate some elements into your overall marketing approach, but try to retain the balance of activities that have been effective in the past.
Regardless of the passion you bring, you'll never come close to mastering marketing. Sure, different parts of your approach will improve, but as soon as you think you have everything figured out - you choke.
]]>One of the best ways to accomplish a trusted relationship is by offering a very valuable, completely free product or service. This gives you an ongoing opportunity to patiently introduce the benefits of your premium products. I call this approach free-to-premium marketing. It is important to understand that these products must be completely free and valuable, not just free trials or “crippleware”.
Once traction has been established with free-to-premium marketing, it can also be very effective for attracting new users via word-of-mouth. People love to talk about valuable free products, and this not only applies to consumers. Business buyers also enjoy being “in the know” about free alternatives and sharing this information with their peers.
Many successful businesses have been built using the free-to-premium model. One of the most noteworthy is Efax. Efax has attracted over 9 million registered users by offering a completely free fax number that delivers faxes to your email. Many Efax users upgrade to the premium version, which lets you choose the area code for your fax number. Efax likely contributes a significant portion of its parent’s (J2 Communications) $1 billion market cap.
Other successful free-to-premium products include AVG and Zone Alarms. Both products entered highly competitive markets (anti-virus and firewall) and became significant players in their respective categories. In 2004 I also introduced this model at my company. Since then we have attracted millions of users – with upgrades driving sales across several product lines.
Not all products and services are ideal for the free-to-premium model. Even within the same category, one provider might be able to execute the model while it is impossible for another. For example, one of my competitors, Webex, tried to replicate our free-to-premium model, but eventually discontinued it. There are several confidential reasons why we had an advantage offering a free version.
In order to be successful, free products or services must have a low marginal cost and very efficient marketing. While word-of-mouth will likely become a strong driver, a company must first gain initial market traction. This generally requires both a large marketing investment and near flawless marketing execution. Acquisition costs must remain low since a large portion of the free users will never generate any revenue. Once free users have been acquired, you must continuously work the funnel to improve upgrade rates. Finally, there is downselling pressure for anyone that discovers the premium product first or upgrades and then decides that the free version was enough.
Still, with the right product and marketing execution, a free-to-premium model can be a powerful growth driver.
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We've all heard the statistics. Most startups fail. It is hard to find official VC success rates (most VCs don't disclose financial results) but anecdotally I've heard that less than one in ten investments hits big and most result in investment losses. Even with these low success rates, many VCs generate excellent overall returns.
As individual team members we don't have the luxury to make a portfolio investment of our time across multiple startups (at least not without significantly diluting our efforts). I've averaged about 5 years in each of my two startup experiences. I consider myself extremely lucky to be 2 for 2 in joining pre-funded companies that hit big. The typical stats would suggest I would hit big one in ten times. Those odds aren't very appealing, especially when you consider the other risks and costs of a startup.
According to Salary.com, a Marketing VP in the Boston area should earn a median income of $219,000/year. However, marketing VPs at most venture funded startups are lucky to earn $150,000/year. So right out of the gates, a startup marketing exec is likely giving up more than 30% in salary. Then consider that there is a lot less job security with little if any severance if things don't work out. Also you're fortunate if you can get fully paid health insurance, 401 K contributions, etc.
Still, startups attract great talent. Why? Well for one thing, there is a lot of upside with the rare successful exit. But successful startups also offer employees at all levels a better opportunity for fast career growth. Most run as a meritocracy - generally larger companies have internal political pressure to offer somewhat equitable structured career paths and salary increase caps. Startups have to reward the stars or risk losing them. Without star employees, they are sure to fail.
So considering the risks and rewards of startup life, is it wise to base a career on startup hopping? For some, yes. Success generally requires a combination of luck, skill, self confidence, perseverance and careful assessment of each opportunity. A comfortable, secure lifestyle requires all of these to mesh within the first couple of opportunities. Otherwise, you could easily be on the startup treadmill for your entire life - working hard and providing little long-term financial security for your family.
In future posts I will explore some key ways to increase the likelihood of success for startup hoppers. I'll also discuss the profile of people with a decent chance of success and those who should avoid a life in startups.
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