The game has changed

I just read this post by Alan (Toad) of the Toad Stool. He has really hit the nail in the head regarding the changing world of advertising and how some companies really are stuck in the past.

In today's world, product performance is too transparent for advertising to have any significant persuasive effect. People don't look to ads to inform them about quality and performance, they look to Google.

End of story.

I met Alan for the first time at a social media panel discussion we did the other day (more on that in a later blog post). Alan is one of those ad guys who is refreshingly creatively pragmatic.

I am pretty sure that is a compliment.

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BabbleSoft Blogger moving on

I've been a fan of the entrepreMusings blog for a while. Aruni (who writes it and is the founder of BabbleSoft) is fun to listen to. And she always had/has great advice for new companies and entrepreneurs.

It turns out she is moving on (sort of) from her BabbleSoft position to a new J-O-B. It's tough times out there at the moment for new companies. And she has had a hard time convincing investors to take the plunge with her on BabbleSoft - which is kind of a web/mobile based parenting support tool.

As she points out, it's really a new market, and convincing investors to invest in creating demand in a tough economic climate is an up-hill task.

I wish her all the luck in her new endeavor and I hope BabbleSoft continues (she will be working on it part time).

I really think only crazy, ignorant and insane people start companies. And only people who start companies see any of those traits as assets. Aruni always struck me as a little bit crazy.

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Forrester Blog ROI

Early last year Charlene Li of Forrester fame wrote a report on blogging ROI. I saw this pop up in a recent presentation and wondered if you couldn't improve on some of these metrics.

Here is the list (you can click on the image to enlarge it):



















Not a bad framework for understanding how to value a corporate blogging effort. But I would change the following:

1. Blog Traffic - unique visitors to a blog is a pretty useless measure from both an effectiveness standpoint and as a stand-in for advertising cost. This is because blogs tend to have a very high bounce-rate - the number of people who come to the blog and immediately leave because it wasn't what they were looking for. This is just an artifact of 'search', not a blight on the blog itself. Advertising, in contrast, tends to get served up in places where it at least has some relevance to the page/site/task at hand. Not really an apples-to-apples comparison.

I would suggest equating non-bounced blog traffic with the value of click-through advertising traffic (not impressions). So how much you would have paid to get the equivalent number of people to click on your ad in said content channel?

2. Press Mentions - Having your blog talked about by the press is an obvious direct substitute for PR cost. If the talk is positive, all the better. Ironically, I think equating this to advertising cost in the publication probably undervalues it. People are far more likely to remember a mention in an article than an ad. Although I would value this on a case-by-case basis. Not all publicity is good publicity. Believe me, it's not.

3. Technorati and comments - Not every blog has a Technorati ranking so this may or may not be a useful measure depending on the industry you are in. Comments as equivalent to a 'buzz agent'? I've never hired a 'buzz agent' but I would imagine they might be a bit put-out by comparing their efforts to blog comment numbers. Buzz agents can move a lot of interested traffic to your site and that traffic might turn into comments, but it's probably qualitatively different from just general comment leavers - who are more likely to confine their WoM to your blog and your blog only.

Track-backs and Technoarti mentions are probably best valued by the cost of a 'buzz agent'.

4. Comments as customer insight - A complete farce. In the article Forrester equates $180,000 worth of qualitative research to 100 comments on a blog a month. That's effectively turning qualitative research into a sophisticated suggestion box. Which it isn't. Good qualitative research is commissioned to solve difficult issues - brand positioning; deep (very deep) consumer understanding (think about the difference between a blog comment and an ethnographic study); communication testing/evaluation; etc. If you are using qualitative research to get a few ideas every now and then from consumers, you are wasting a lot of money.

5. UGC and NPS (User Generated Content and Net Promoter Score) - I can see where they are going on this one, but it depends on establishing a robust relationship between sales and NPS. I had a look at the NPS's historic relationship to sales in this post - not a pretty picture for that industry at least. I haven't used NPS extensively, but can't help feel a little dubious about its link to sales (this is not going to be the case in all industries, there are bound to be some success stories. As part of the value equation for a blog though, it needs to be looked at on as case-by-case basis).

6. Leads - This one makes a lot of sense. Blogs can generate sales leads. Pretty easy to measure as well - "where did you hear about us?". Probably one of the most tangible value results.

So over all, while some of these metrics need to be tweaked and others (the consumer insights one in particular) ignored, it's not a bad framework.

It's the sort of thing I can see presented to the CEO or CFO as an honest attempt at valuing a social media effort. It might not be exact, but it's probably not going to be significantly distorted.

Of course, blogging and social media have flow-on effects that are harder to measure (honesty, trust, openness, closer connections to customers) but equally as important.

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Do Facebook ads rock? #2

A couple of weeks ago (that's 2 for anyone working at Panera's and handing out scones), I made a post about Facebook ads in response to Bob's post over at The Challenge Dividend.

Bob was kind enough to come over here and comment on the post. It pretty much backed up his original assertion that Facebook ads don't work. At least not nearly as effectively as you would think given the hype around social networking sites.

My post was one of two experiments. The experiments dealt with placing a text-ad on Facebook that pointed to an online Guitar Hero type game. It was just a small add that talked about a new version of a cool game. The kind of pass-the-time thing you would expect a majority of Facebook users to like.

In the first experiment, I ran the ad for a week and got 154,565 impressions among people who had expressed an interest in Guitar Hero in their Facebook profile. Of everyone it was served up to, 70 people clicked on it. A click-through-rate (CTR) of 0.05%. Summarized here:

In the second experiment, I dropped the requirement to have an interest in Guitar Hero to test how well a non-targeted ad performed. Results:

The CTR more than halved. This is exactly what you would expect. But it is different to Bob's original post where targeting didn't seem to have any effect on the CTR.

Bob's ad may have been a one-off. Maybe he got lucky on the CTR for the non-targeted audience? I'm not too sure. But targeting on Facebook does work. Which was my original bone of contention with Bob's conclusions.

However, the CTRs are still BAD, very bad. Targeting doubled the performance of the ad (0.02% to 0.05% CTR) - but that is like going from very crap to crap. Even average banner campaigns get to 0.1%.

Based on the cost per click, if I was selling anything on my website (assuming a below 5% conversion ratio) I would need to absorb around $20 per item sold on customer acquisition costs. Fine for some things, horrendously expensive for others.

The low CTR's on Facebook are a problem. They confirm that advertising really is the last thing you want to pay attention to when you're on the site. Maybe even less so than usual.

Like so many other things Web 2.0, it's an idea in search of a business model (Twitter anyone?).

Media was always bought on 'attention'. The new currency is 'intention'. Facebook needs to find 'intentions', or derive them in some way. Its current targeting is not cutting it.

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Annoying surveys, again...

I wrote about annoying customer service surveys here.

I recently started using Skype and after every call, EVERY CALL, they ask you about the call's quality. Bad mistake.

In trying to find a solution to this problem, I came across some great examples of why over-surveying is a bad thing. From some forum posts:

"If i would have know that every 3rd call, it's going to open up my web browser with no ability to toggle it off, i would have not purchased it. In addition, i (ALWAYS) click on the lowest rating when it brings up that quality feedback web page, despite how really wonderfull the quality of the call was, just due to not being given a choice about the popup."

"Why not let users have the choice of giving feedback or not ?
Since eBay took over I've seen a variety of these type of things that control your user experience.
Like the previous poster, if we all put in negative feedback in the voice quality page perhaps Skype will realize that the loss of real feedback is a serious enough problem to allow free choice for the user."

Amen.

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Some thoughts on advertising... from a tech guy

Phil Wainewright writes a blog over at CNET about Software as a Service (SaaS). SaaS is a very hot technology these days (and has been for a while). It's also one I'm intimately involved with as we're building our business around it.

SaaS is about application development so it's not surprising that many SaaS commentators (like Phil) end up talking about application monetization and hence, advertising.

Phil's stance is that the ad sponsored application model is fundamentally flawed. I agree with him, but not for all the reasons he states.

He lists three main arguments:

"1. Advertising is the creation of a disconnected era when businesses needed some way to get a message out to prospective customers that they couldn’t reach directly. The purpose of an ad is to motivate the prospect to get in touch. The Web, as we all know, puts us all in direct, real-time contact with each other, wherever we are in the world. Instead of advertising a message and waiting haplessly for a response, businesses can proactively connect directly with their prospects, reaching out to them in contexts where they’re ready to buy. What counts on the Web is product placement, merchandising and other forms of direct promotion."

Advertising wasn't created because we were 'disconnected', it was created because we were CONNECTED - connected in the sense that we watched the same shows, read the same newspapers and listened to the same radio stations. It exploited economies of scale as a many-to-one communication medium. It was/is not, as Phil seems to think, a sales tool. Most advertisers don't want people to 'get in touch', they want them to buy a product. This is just confusing the role of Marketing and Sales.

"2. Placing ads in software is the height of absurdity. It’s software for goodness sake — people use it to get things done, not to read ads. Instead of wasting valuable screen space publishing banners and text ads, why not embed some functional links, buttons and menu options that add some value to the task in hand? Cut out the ads and substitute a direct connection to a useful service. Add a pay-per-use clipart library to an online slideshow editor, embed a link to a live tax expert in an online accounting application, build workflow into an online travel booking service that conveniently helps the buyer choose and book flights, transfers, hotel and dinner."

Couldn't agree more. But there are some glaring examples of where advertising in apps does work. Gmail for instance. Contextually relevant adds alongside email topics are actually useful. Just as ads for clip-art, photo services, or design services would probably get a lot of traffic in an online presentation tool. Making ads relevant to the task at hand is the key. And the ability to mash-up services in apps could potentially blur the line between an ad and a service. Where does the ad stop and the service start? Desktop gadgets are a good example of ad/services that meld nicely with workflow.

"3.There will never be enough online advertising in the world to support the software industry, let alone the entire Web. Below is a slide taken from a presentation I gave a couple of years ago to an auditorium full of marketing professionals, called (you guessed it) ‘Web 2.0 and the end of advertising’. While it’s true that software is a smaller industry than advertising, both of them pale into significance when you look at the entire value of the retail industry — or even more if you measure the total value of a year’s global trade. Instead of trying to carve up the bite-sized advertising pie, on-demand providers should claim a slice of all those real-world transactions by making it easier for sellers to find buyers."

Agree. The most powerful monetization strategy is to match buyer and seller. But the potential pie is a lot smaller than Phil makes it out to be. Transactions completed online is a better yardstick than retail in its entirety, or global trade (that last one is really stretching it). And then all the easy apples have been picked - search, online auctions, online retail, local search, etc.

I think argument number two comes closest. Ads in apps are just stupid. Especially if they have nothing to do with the task at hand.

Phil finishes with an insightful paragraph on the future of monetizing worklflow:

"There needs to be a reliable infrastructure for measuring whatever is due to each partipant in the partnership, and there needs to be highly effective workflow so that the user experience is seamless and convenient. The ease of funding everything through advertising has meant the giants of Web 2.0 (and many venture-funded startups) have neglected the more sophisticated infrastructure needed to support such functionality."

SaaS companies participating in a web of interconnected services that support workflow and carve up the proceeds is the future of application monetization. This will triumph advertising every time. Pity it's almost entirely fiction at the moment.

But that will change.

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What can we learn from gas prices?

I just caught this CNN article on the current state of gas (fuel) prices in the US. According to the article, the month of March 2008 saw the single largest fall in 'driving' by US residents since records began in 1942 - a 4.3% decline (or 11 billion fewer miles if that percentage decrease didn't feel large enough).

The fascinating thing about this reaction is that it's almost pure sticker shock. The article talks of whole families foregoing Memorial day camping vacations to set up tent in their backyard! As if the cost of gas has become so great as to preclude using it at all.

But this just isn't the case. Yes, the average gallon of gas in the US is now just shy of $4 ($3.93), but it's only 70c more than it was a year ago. 70c per gallon translates into $10-$15 more for a tank depending on your car (more for a large SUV). Those aren't break-the-bank numbers.

The reason for the decline is the price points that people are now seeing - $60, $70, $100 fills. When you are used to $46.73 for a tank and you hit $60, sticker shock kicks in - that familiar feeling of 'it can't be that much? Really?'.

As human beings. our thought process in the face of rising pump prices is:

I can handle that.
That's a lot, but within my budget.
Woa, that's pretty high, grin and bear it.
No, that's way too high - kids, we're camping in the backyard this year!

We hit a ceiling. A threshold that we can't/won't pass. We don't, as many people think, gradually reduce our level of demand at each increase. It only looks like that in aggregate.

This has implications for marketers setting prices. While you look at the overall numbers and see this perfect relationship between price and demand on aggregate, think instead of the thresholds you've crossed.

You need to ease people across thresholds. Good sales people know this instinctively. Marketers less so. But they also have the harder job.

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