Playing by New Rules

It is pretty clear that the fallout from the subprime mortgage meltdown and ensuing financial crisis will impact everyone.   It is hard to think of an industry that will not feel the impact of retreating consumer spending and shrinking of credit and capital needed invest in the new projects.  

So, how-to maintain profitability in a volatile economy that requires more marketing innovation, and by innovation we mean doing more with less. 

The 2001 recession caused by dot.com bust and Y2K excess was vastly different from current state.  The rule was to refocus traditional marketing efforts to a different industry, such as financials, government or healthcare where the growth was robust.  Target the expanding Asian markets such as India, China and Taiwan, etc.   Coupled it with a reduction or redistribution of workforce to growing regions with cheaper and eager workforce and get high levels of profitability and growth. 

However, these approaches will not work during this economic downturn.  Emerging markets are in retreat and their new consumers will be more affected by the downturn.   The robust economic sectors are also feeling the pain and even the largest most stable customers are failing or retreating.

The Rules

“Micro-target” and look for pockets.  “Micro-targeting” is similar to spreading lots of small nets in the wide ocean.  Internet is perfect tool for “micro-targeting” because it delivers fast, cost-effective manner and reach your target and you get immediate feedback.

Dialup intimacy levels with your customer.  Yes, intimacy levels.  This is an extension to the get to know your customer rule.  To effectively “micro-target”, you need to know more about customer’s motivations, fear, goals, and problems.   Invest in creating profiles or personas that bring customers to life.

Shift more of the marketing strategy and dollars to the Internet.   In the past 3-5 years, Internet marketing came of age, while traditional media channels are in decline. The doubters need to look at successful Obama campaign and then look at the penny-stock of traditional newspaper media and then decide where to put your marketing dollars. 

Spend the time and put in place benchmarks, metrics and performance dashboards.  Internet, like no other marketing channel generates a lot of immediate real-time data.   But according to a recent McKinsey survey , is surprising how many companies don’t have any kind of measures to track their success. Quantitative metrics enable fine-tuning and optimization of results allowing to that allow you to track your success.

The Emergence of Social Network Intermediaries

At InterneXperts, we've recently come across two interesting companies which reflect an emerging trend within the social networking space. While early social networking sites focused on massing, a large audience (e.g., think facebook, MySpace, etc), the new iteration of social network sites are frequently specialized niche networks, focusing on specific issues, interests and activities. Although their audiences tend to be order of magnitude smaller, their users are very hands-on and highly-engaged. These social network capabilities can either be standalone sites or integrated into a popular, existing destination site.

One thing to keep in mind is that social networks are just the latest embodiment of a function that has always existed on the Internet: Whether they are usenet user groups, blogs, bulletin boards, newsletter lists, forums, or social networks, they represent a collection of users who share a specific interest or avocation. The truisim that "everyone is passionate about something" lives. There are more than 40 million such groups on the Internet today. The challenge is that these groups are highly fragmented; making it very difficult and inefficient for Internet advertising purposes. KickApps and Ning attempt to address this issue by offering a platform on which moderators can construct their own networks, and then monetizing that aggregated inventory that spans the social networks on their platform.

Now, we're seeing the emergence of the social network intermediary. Essentially, these are entities that seek to identify and link all the fragmented user groups for specific constituencies. Similar to the manner in which Federated Media aggregated blogs into an ad network, these new intermediaries strive to build relationships with the group leaders, and then help those moderators either directly or indirectly monetize their groups. The first example is a European-based startup, whose founders come out of the online community development. We’re under a NDA but hope to share more specifics in a follow up post. Essentially, their goal is to provide a range of value-added services for these group moderators.

The second startup is an interesting Cambridge-based startup called WEGO Health, backed by General Catalyst. They are identifying/recruiting health experts in a variety of health information categories. Frequently, these experts are responsible for forums, groups, newsletters, social networks within their specific area of interest. Over time, WEGO Health will likely want to offer tools and resources that contribute to the success of these consumer health advocates. By identifying and linking these experts, WEGO Health hopes to extend the health marketer's branding message, in time, to these distributed and fragmented groups: This would offer a pharmaceutical or health provider marketer efficient access to a very engaged, social media audience on a scale of reach and frequency that is not currently available.

While this is a very early-stage market, the business requirement for aggregating niche community groups and networks remains clear: Brand advertisers need reach, frequency and efficient access to an engaged audience for their campaigns.

InterneXperts, as always, welcomes your feedback and opinion.

Thanks!

More ComScore Data Supporing a Google Slowdown

ComScore's February 2008 data reports that Google had 515 milliion paid clicks during the month, a 3% year-to-year increase. When accounting for the additional day for leap year, click volume remained essentially flat. At InterneXperts, our conclusion is that it's impossible for Google's business to not be impacted by an overall economic slowdown. In a recession, consumers cut back their spending which directly translates into less interest in clicking on a search ad. In addition, search is a great advertising medium, but it is maturing, and Google has yet to successfully diversity its revenue stream. Yes, Google deserves credit for evolving their programs and policies to reward "relevant advertising" even at its own short-term expense. However, these policy changes can only dampen the economic effects of a recession and a maturing core business.

On the other hand, InterneXperts maintains that the overall short-term and longer-term prospects for the US Internet advertising market remain very strong, even in a recession. The continuing flow of ad spend from offline to online continues, and in a recession, priority is given to ad spend that is more tightly aligned with short-term sales opportunities. Both trends support a continued, healthy Internet advertising market. However, in spite of the increasing focus on performance, ROI-driven campaigns, fewer clicks translates into potentially fewer dollars spent on Google's sponsored search. It is true that fewer clicks creates upward price pressure on keywords, but performance-driven advertisers in a free market may increasingly seek out alternative advertising mediums that may offer lower customer acquisition costs.

Monetizing Social Networks

At InterneXperts, we're frequently asked by our clients about advertising opportunities on social networks, particularly facebook, and to a lesser extent, MySpace. There's a great article in March 18, 2008 edition of The Economist, called "Online Social Networks - Everywhere and nowhere". The article echoes the increasing doubts the industry is having about whether these large social networks can be monetized effectively in a broad scale. We share these doubts and generally steer our clients away from these high-reach, social networks.

One of the most promising Internet trends in the past five years has been the increasing focus on peer interactions and the increasing ease at which loosely-coupled social, political, and economic interests and be identified and linked. This is one of the fundamental benefits that Internet technologies offer. But somewhere along the line, we became fixated with the current notion of a social network. Since many brand advertisers require mass-market audiences (i.e. "reach") to make effective use of ad budgets, these two concepts were linked and just assumed to be the next great business opportunity. From our perspective, there are many ways to enable people and consumers to share information and opinions among like-minded peers. We are only in the first of many product cycle iterations of social network concepts and very early in the learning-curve of how to effect social interactions in a compelling way, much less figuring out how to monetize these interactions. Early experiments frequently fail, but our learnings from these failures is critical to ultimate success.

We are beginning to conclude that these large-scale generic social networks are not effective for most advertisers. These networks are generally focused on social interaction with limited economic intent. It is difficult for advertisers to inject themselves into the discourse without appearing self-serving and intrusive.

Some opportunities are emerging for advertisers, though, on social networks. These networks reflect the next iteration of social network models. Typically, they are more specialized, niche-focused with passionate, active participants. Successful examples of these social networks are often not standalone, but well-integrated into an existing brand, or "mid-tail" vertical website. These sites may not offer the reach of a facebook or MySpace, but the audience is highly relevant and engaged. A good example in the US is with the DIY cable network (part of the Scripps Networks media conglomerate), which focuses on home improvement projects. They have successfully incorporated social network capabiliites (using KickApps' system) and have created an imaginative and highly-interactive forum for their viewers to share and learn from each other's home improvement projects. It's also been a commercial success as they have successfully sold ad inventory within the social network area, at a premium CPM rate.

The adage that "everyone is passionate about something" holds true for these niche, social networks: They may suffer from limited audience reach, but they can offer advertisers a high-quality and engaged audience. So, while we share The Economist's generally dim view of the current generation of social networks, InterneXperts remains more optimistic about the commerical opportunities for future iterations of the social networking concept.

We welcome your comments and ideas. For more information about InterneXperts and our Internet Marketing Strategy and Management Services, please visit us at http://www.internexperts.com/

Google Clicks & An Ad Recession?

There has been much discussion of late within the online community, as to whether Internet advertising is entering a recession. Much of this discussion was triggered by a ComScore Inc. report that showed a January 2008 7% decline in the number of consumer clicks on Google, as compared with December. While we're watching closely for more data to support these trends, we remain confident that Internet advertising revenue will either continue to grow this year, or decline by only a modest rate. There are several key points regarding Google and Internet advertising behind this conclusion:

1) During the same period, the number of clicks at Yahoo decreased only 1%, and increased 4% at Microsoft. We need to see more data to establish a clear pattern and trend.

2) Google's goal is to provide 'relevant advertising' to its users. In pursuit of that goal, Google periodically takes measures that eliminate poor performing ads and advertising techniques from their system. Google's measurement is increasingly focused on whether a consumer actually converts when they reach an advertiser's landing page, not simply whether they clicked on an ad. The short term result of eliminating poor performing ads is a reduction in the number of clicks in their system.

3) Macro trends all point to the continued growth of Internet advertising. The Internet currently captures 21% of all consumer media exposure, yet reflects only 7% of US advertising expenditures. While overall US advertising may decrease in a recession, we expect Internet advertising to weather the storm better than the advertising sector as a whole.

4) We're anticipating that a recession will shift the distribution of ad spending from brand advertising to performance marketing. As ad budgets are re-evaluated, we're anticipating a tight focus on linking ad spend to lead generation and sales. We believe that a higher priority will be on advertising campaigns that have direct, clear and measurable impact on quality leads and short-term sales. This environment favors Internet advertising in general, and search marketing in particular.

5) The reality is that search marketing is approaching maturity, and advertisers need to be creative in identifying new Internet advertising channels. New forms of online media generate high CTRs when they are launched, but their effectiveness decreases over time, as customers increasingly ignore the ads. This pattern held true for display advertising, email advertising, etc, and it is holding true for search engine marketing. Advertisers need to actively look for new advertising forms that put them at the top of a 'new curve'. Search marketing will always hold great value because search advertising is so tightly correlated to 'intent', but its growth has natural limits.

6) Search marketing has become increasingly expensive. As more advertising dollars are shifted to online, there is increasing pressure to put them to effective use. For many advertisers, search engine marketing is a primary tool in their Internet advertising campaigns. The problem is that there are only a finite number of valued keywords (e.g. 'short-tail keywords'). Keyword prices have increasing risen, as more ad dollars are chasing the same keywords.

7) Advertisers need to remain focused on CPAs. Savvy advertisers remain focused on the cost to acquire a qualified lead, independent of the Internet advertising source. Although many advertisers strictly view display ads as appropriate for "brand advertising", experienced advertisers are increasingly turning to display advertising for "performance marketing" campaigns. Although search typically generates quality leads at a higher rate because of the search focus on 'intent", display advertising is also be used to drive traffic and convert site traffic. Free market economics drives this choice. At the moment, keyword prices are up and CPM prices have dropped, for many advertisers resulting in cheaper Cost Per Action/Acquisition with display ads than search ads. This is true, even when you take into account that consumer click rates are far lower for display ads than text ads.

We're sure there will be a continuing discussion in the months ahead about the impact of the U.S. recession on Internet advertising. We're confident that in a recession, measurable, performance-based Internet marketing will remain a high-impact expense in tightening budgets. We welcome your comments and feedback. You can find more information about our Internet Marketing Strategy services at www.InterneXperts.com. Thanks!

Welcome To InterneXperts

Today we're launching a new blog for InternExperts. InterneXperts is our small, boutique Internet Marketing Strategy firm, based in Palo Alto, CA. Our team has a unique combination of executive experience and Internet expertise that enables us to craft Internet strategies based upon business and market strategy, and to implement them using the most effective Internet technologies and techniques.

Our point of view is from having successfully built and run marketing organizations, delivering marketing services that align with a company's overall business objectives and sales processes. We've heard from our clients that there is currently a gap between the specific technical skillsets within Internet marketing (SEO, SEM, Email campaign management, etc.) and a fundamental understanding of more traditional market and corporate strategy. Our goal is to bridge that gap, by integrating the unique Internet marketing disciplines into an integrated program, that is based on a fundamental understanding of corporate, market and sales strategy.

We provide insights into appropriate Internet marketing strategies, and we insist on owning responsibility for implementing the strategy and delivering the results. In doing so, we collaborate with our clients; leveraging existing client expertise, the InterneXperts team, and external Internet marketing specialists to deliver results that meaningfully impact our clients' success.

Along the way, we hope to engage with others who are interested in Internet marketing strategies; sharing insights, best practices and trends.

For more information, please visit our site at http://www.internexperts.com/.

Thank you and welcome!