Online startups are interesting micro-economies. Most of the systems are based on several variables like number of users, conversion rate and others, directly depending on the type of business systems they do (or do not) develop.
I have been studying the whole concept and focused on some of the variables that are usually left out.
The assumptions
The online startup I’ve studied to get a glimpse into this was an hypotetical online game. I’ve assumed the the game will be launched with a PR/advertising campaign, delivering an initial traffic to the website.
The game would sell power-ups to gain revenue. Other assumptions I have based my study on are that users would enter the website, register if they feel like, drop out and erase their account if it is just not their cup of tea, invite friends which would might or might not respond and of course, play.
The conventions
In order to test the user’s behaviour we will use several conventions, following Registration Rate (RR), Spread Rate ( SR – number of invited users / month / user ), Response Rate ( ReR – number of invited users actually visiting the website / month ), Dropout Rate ( DR – users cancelling / abandoning their ), Conversion Rate ( number of registered users buying upgrades), Medium cost per product (MCP).
I have also thought of a formula to determine purchase intent (PI), directly proportional to monthly visitors increase, RR and Influence rate of registered users (SR/ReR).
The Purchase Intent is Inversely Proportional to Dropout Rate (DR) and Medium Cost per Product (MCP).
The results
Although the concept hasn’t been tested on real life scenarios (I am looking for entrepreneurs willing to share some data for the study – 100% confidential) I guess I can outline some conclusions:
Number of initial users is important but not the most important
Spread rate (SR) is the single most important Indicator to be taken into account. Incentivize potential users to spread news and you have a booming business. Fail to do that and all the money in the world spent on advertising won’t guarantee safe revenue returns
The response rate (ReR) is not actually that important. It doesn’t actually matter users being influential but rather willing to share information with their microcomunities
Conversion rate (CR) is important but it will take more than that to have a really successful product. A tenfold increase in conversion rate is useless unless the registrants numbers goes up.
Micropayments are the best choice. Increasing Medium Cost per Product (MCP), while having a steady increase in user base, means decreasing potential revenue. Increasing cost by tenfold will decrease potential sales by more than 50%
Dropout rate (DR) is basically irrelevant as long as the dropouts are outpaced by new registrants.
So, if it is something you should be focusing on as an online entrepreneur this is Spread Rate, Micropayments, and number of initial visitors.
I started MB Dragan, the agency I run today, with a dream in mind – creating a new, better, interactive agency. The best in the world.
Three years have passed but they seem like ten to me. It was harder than I would have ever imagined. The last one was the hardest. It was full of sleepless nights, stressful deadlines and issues I never thought I would have stumble upon.
I wish I could say everything went by like a breeze but it didn’t. Some people let me down and I’ve let others down. Promises got broken. Some dreams too.
I had tough choices to make. Choices that keep me awake at night. I’ve made mistakes of which I am sorry. Mostly in my private life.
But through the darkest times I’ve realized how bright some stars can really shine. I am thankful to have met people like mr. Alex Buga, Gabi Nistoran and Andrei Gheorghe, which became my associates. I am honored by their presence and trust.
It’s not just about them. I thank all those I can still call colleagues and which I treasure more than I can say, although it’s getting harder to say it, being a larger group now.
We are the fastest growing agency in Romania. The people that joined this group are the best of breed in this domain. With a background like this, things aren’t always easy but the goal and path that lie ahead seem clearer by the day. We will be the best digital agency in the world. The agency for tomorrow.
The website as we know it, at least as a concept, is dying. It has been for the last 5-8 years and now its death is even closer. Let me explain.
A site on the web
If you think about the term it is composed of two words that explain what the concept represents pretty good. A place on the web. It was the perfect way to introduce the concept to the general public. People were already accustomed with the concept of “site”: be it a store, library, house – each of these were built upon a “site”. People would access this site using a address or, in the internet world, a URL.
As with physical address users would visit a certain (or more) sites, based upon their previous experience, friends recommendations and more. In the economic world brands got used to “kindly invite” (or not so kindly as some interactive advertising techniques show us) to the homepage and the user would browse around, consume content and hopefully come back.
The shift in user behavior
That was the case back in the day when the websites count reached numbers of, let’s say, tens or even hundreds of millions of pages. A lot you say. “A more recent study, which used Web searches in 75 different languages to sample the Web, determined that there were over 11.5 billion Web pages in the publicly indexable Web as of the end of January 2005″ states Wikipedia. And that, my friends, was 2005.
What is a user to do in such an environment. Browse? To hard. Visit the same websites? Extremely limiting.
The first big online brand to address this issue was Yahoo that started as a recommendation website founded by Jerry Yang and David Filo. For a short period they had a boom and people would relate to what Yahoo! as a helpful resource in the online jungle.
Things got bigger and bigger. The internet expanded and users needed even more. They needed answers, they needed something to guide them to what they were looking for. Thus Google started a long and successful journey that led to a multi-billion enterprise. Google helped by pinpointing exactly the website on was interested in. And people were thrilled.
Has the internet stopped there? Hell, no.
More and more information hit the interwebs. What was once a resource for mainly text and image documents had turned into the worlds biggest collection of data. Be it photos, documents, books, videos – the world started storing its information in the big reservoir that we call Internet.
So many options, so little time. What to choose?
Going back to basics
People relate to their closest human peers in times of doubt. Not even the mighty Google could replace a kind word or the warm advice a friend is able to offer.
But our friends were already there. People gathered in online social networks and interacted. They would recommend the things they liked asked for advice when needed.
It started with forums, continued with blogs, hit new heights in human interaction with social networks such as social networks and now we have Twitter, the global phenomenon that let people tell one another what are they doing (be it watching TV or fighting a dictatorial regime). Under 140 chars.
Follow the users
The fact is no one ever needed websites. They needed “stuff”. They were on the look for data, a nice gift to buy grandma on her 76th anniversary, a fun video to watch, the coolest hit to download. Never for a simple website.
Being focused on the industry of interactive advertising I will focus on brands and maybe offer good advice. Brands need to realize that their users and potential consumers don’t actually need another website. They need what they want. They want fast answers, they want brands to “follow” or “befriend” them, not the other way around. They have the options and they have the power to select.
Brands are not what they used to be. At this moment the vast majority of Brands are still the big Advertisers that still expect to spend money on big media advertisements and have consumers lining up to their store or website (notice I use the terms pretty close to one another. They are.).
This is not the way. Huge opportunities await those that will follow their users, build presence around their users and still maintain brand awareness and a coherent communication plan.
A short example and some advices
I reached Zynga Poker on Facebook. Played around a little bit on the Facebook app they’ve built. Downloaded the application on my iPhone and bought virtual upgrades with real money. Until today, I have never visited their website. Zynga is a startup that has revenues in the orders of tens of millions of dollars (and growing).
I will leave you with some advices I consider helpful:
Think outside the website.
Be present in the social media.
Stop thinking advertising. Think relationships.
Build mobile applications.
Study your market. Close. Closer.
Develop intelligent applications.
Let people play with your brand.
Cut the TV ad budget. Cut the radio and print ad budget. Move online.
As a boy I remember I was dreaming, while watching Star Trek (I am a huge trekkie), of one day to “boldly go where no man has gone before”. I still have this dream.
Several months ago I’ve met some people that share the same dream. ARCA Space. These people dream of putting a man in space but first they will land a rover on the moon, as part of the Google X Prize.
The Road to the Moon
They have already developed the cheapest space technology that may some day make the dream of space flight available to anyone. They have already developed the first eco-friendly rocket engine. They are the favourite team in the Google X Prize.
The Problem
But now, they need founding.
So we thought of offering everyone a different kind of trip to the moon. We launched ARCALunar.com where you can send your personal information to the moon. Through a time capsule you can send photos, text, audio files and even videos. Send them to the moon and to future generations.
Your financial efforts will keep the ARCA Space program live and who knows – maybe some day make space flight as cheap as a low cost plane flight.
Several years ago, before the iPhone was launched I was thinking about the current man-machine interaction methods. Most of them are built around touch. Buttons for example or the latest trend – the multitouch interface popularized by Apple.
But is this as good as it gets? Probably not. Enter motion detection and processing.
1. Motion detection and processing
Imagine having a huge screen in front of you. How would you interact with it? With a remote? Pressing buttons? Why not waving your hands around?
Funny? Maybe. Easy to use? For sure. We use gestures to communicate. Actually nonverbal communication amounts to almost 60% of meaning. And most of nonverbal communication is based on gestures. So why not really talk to computers?
About 3 years ago I was building a team focused on the study of video interaction based solely on gestures. The project was meant to run on Flash platforms and later used on mobile phones as a revolutionary way of interaction with mobile devices. Remember – that was previous to the iPhone. The project got canned due to lack of finance and I moved on.
This year I was thrilled when CamSpacelaunched. The technology is simply amazing not only by what it does but by what it can do. Imagine interacting with any device without keyboard, mouse or even touch. Here’s a quick demo:
I expect this kind of interactive processing mainstream in the next 5-10 years, used in entertainment, advertising, communication and even home appliances.
2. Brain to computer control
Throughout the centuries mankind has learned to control animals, tools and the world around it with physical gestures. Means of control got restricted to push, pull, touch etc. The time has come to redefine that.
Scientists and technology companies are working on developing brain-to-computer interfaces. Yes, ladies and gentlemen, we are working on the mind-reading computer. Better yet – the device that lets us communicate to computers in a way we could not before.
What you have there is one way we can use this. This man was paralyzed from the neck down. He managed to get 90% of the tasks he was supposed to correctly. Using only his brain. This kind of technology can offer paralyzed people, people that are trapped in their bodies the freedom they’ve once lost.
But it can do much more. Using it we can one day achieve instant connectivity to anyone on the planet. We can drive complicated machines without any prior training. We can communicate like never before with computers and humans and much more…
…But that will take time. My bet is the close future belongs to touch. And for those embracing this new interaction method – here are a few tips on designing touch user interfaces.
Why did I use VS between Brand building and Sales? Couldn’t they just team up? Can’t we have both of them in our marketing strategy?
Sure we can but in times of crisis management seems to focus on short term clear results and want to see sales figures going up or at least staying afloat. The longer term strategy of building brands, earning consumers’ hearts and adding intangible value to the company seems a little too “fancy” and expensive to be considered. But is it?
Short term sales versus long term vision
Crisis separates followers from leaders in the economic world and in the battle for mind and pocket share. Truly visionary brands innovate, invest and develop during the hard times. Today’s big brands are the ones that not only survived but made the most out of the difficulties they’ve encountered.
Short term tactics may add profit points but if we were to take into account the brand value losses companies cutting corners end up losing more than they’ve initially planned.
If everyone is doing something, that thing is probably wrong. I know it may seem risky but companies need to differentiate, even in terms of marketing strategy.
So, when your competitors are focusing on short term tactics, focus on tomorrow and build your strategy and brand around the bigger picture. The crisis may be the only oportunity you’ll get.
Using LinkedIn’s new Polls Application I started a survey regarding the Interactive Agency. Here it is. I would be thankful if you would help me with your voted opinion.
I remember the story of a roman general that declared war machines can go no further than catapultes. 2000 years later and a few nuclear bombs after, some people might disagree.
As the interactive world keeps changing by the hour here are some of the things that I am sure will make it mainstream, with the help of Internet:
1. Social television
Ever felt like some show is just awesome and you should share it with your buddies? Well, interactive television is only the first step in letting viewers gain ever more control on what they watch, how and when they watch it.
Enter the social television, powered by your friends’ preferences. You will be able to see shows recommended by your friends, watch and comment live TV shows and many others.
2. Mixed-Brand Publications
You like reading the New York Times but you would also read the new Esquire without paying extra? You gonna do it.
By mixing media brands, sites and others you will soon be able to create your very own newspaper, featuring stories in the matter you would read your Feed Reader.
Will this paper be displayed on interactive paper or will it be printed on demand? Will it be based on a subscription or will it be free, advertising based ? Future will tell.
3. Virtual over-the-internet companies
The world is changing and fast. The virtual market is here for the taking. Challenger economies have a lot to offer and developed countries have a lot to gain by tapping in this global pool of talent.
I know companies based in UK, marketed from Germany, researching and doing development in India, having their creative advertising in Tokio, delivering products all over the world.
This is globalization but I am sure something else will emerge. An economy completly free from distinction based on place of birth, color of skin and others.
4. Global access to internet
We will have global broadband access to Internet. Underdeveloped countries will be able to access global informational resources leading a global change on a scale never seen before.
5. Over the internet telepathic communications
Sure, it sounds weird but I am sure at some point we will be able to communicate telepathically and reach new depths in human interaction.
This will break-down cultural and language barriers that kept people appart for so many thousands of years. Imagine an westerner being able to understand the depths of eastern culture, free from misconceptions, misunderstandings and others.
Will it be a chip we’ll use to help us communicate? Will it be a mind scanner we’ll use just as the laptop’s built-in camera ? I don’t know but what I do know is this is something that will lead human kind to new means of interacting and thinking. Which brings us to…
6. Collective thinking
At the moment we are all gathering information in the largest library the Earth had ever had: the Internet. But is that all we can together?
What if we could argue and settle argues between thousands, millions of people in less than a fraction of a second?
What if we could not just work together, live together but also think together?
7. Artificial intellingence
This is something the world has been waiting for such a long time. We want something that would work, think and act for us. Aren’t we lazy?
Google is working on this. Others are too. Will we live to see this happening? I think so.
8. A new ecommerce
A new way of doing commerce will develop. We will have shops that exist both online and offline and you can have the same experience and benefits on each.
You will be able to try on clothes online and save your basket for later purchase offline. You will be able to spend a great afternoon shopping online with your friends and in the same time shop offline with home delivery jumping from one product category to another.
9.The death of the cubicle
People crammed in huge buildings and campuses will become a thing of the past as many jobs are getting less and less location dependent.
New devices as the iPhone or Blackberry are proof that corporate office will shrink ever more untill they will be devices you’ll carry around and use to complete the daily tasks.
10. The death of advertising
Advertising will evolve to Informative Advertising, targeted, permission based, totally interactive and only on demand.
In the end – I don’t know for sure what the future holds but I know that we live interesting times. And some people will take advantage of this.
Unless you’ve been living under a rock in the last year, you have already heard about this thing called “The Financial Crisis”. I am also sure there was nothing too joyful about it.
So – what is this Financial Crisis and how are we, as interactive advertising people, affected or helped by the monster?
The Basics
First of all I will get into the basics of the Financial Crisis, nothing too complicated, just a simple “Financial Crisis 101″. Here goes:
a. The Recession is NOT the Apocalypse.
Although you may have heard some rumors regarding this, there is nothing spectacular about recession. It’s just part of the usual economic cycle.
You know when you get a lot of money, and spend it on useless stuff? You borrow some bucks from your friends, only to give them back at the next pay check. That’s exactly what happens with American economy. Only on a larger level.
b. So, are the recession and financial crisis the same thing?
Well, no. Financial crisis is the thing that happens when your friends stop giving you money because you didn’t pay them back the last time. Also – you don’t have a job and the money you make can barely give you a decent living.
That’s pretty much USA these days. The recession usually happens on a period of 10 years. The country needs some money in excess, borrows from other countries and than pays back in the next 10 years.
60 years have passed since the USA financial super-bubble started to inflate. Guess what … it went “Pop!”. The crisis has just began and it will affect a lot of people next year too.
c. Where can I hide?
The bad thing about this is that the whole world will “benefit” from it. Some will win and some will lose. In the bigger picture, you can look at the Crisis as the “wealth redistribution program”. Probably China and India (unlike the USA, they have a rising economic trend) will gain more and more influence. Probably the world will invest less in cars and more in green technology (we already see the rising demand for anything that is “green”, and it was predicted that green technology will outpace the Internet growth in 2008).
For what I am concerned I am sure the world will invest more into Interactive Advertising and less in Conventional Advertising, starting 2009. Which brings us to…
The Interactive Advertising Industry in 2009
Basically, if you want a safe place to keep your money until the times get better, look for an interactive agency that showed a profit in the last year and has a growing trend. Invest there.
What are the stats ?
I’ve put together some data to get the conversation started:
Business to Business marketers will increase their Internet spending by 16% in 2009, compared to 6% in conventional advertising, according to eMarketer;
Small and Medium business will increase their online buying activities by 40% due to lower costs and better services;
Top 100 Advertisers moved 1 billion dollars to Internet from the conventional media (a huge 33% growth, as reported by AdAge);
Top ten UK Interactive Agencies have totaled a £ 304.608.921 turnover last year;
60% of the top 100 interactive agencies are independent.
These seemingly disparate data will lead us to some very interesting conclusions you might or might not agree on. Let’s see them.
We will have to learn Chinese
No self respective interactive agency won’t be able to compete in a globalized market without some .cn expertise. 253 million users (and rising) are not to be ignored. At the moment the things are not very clear there but I am sure the government will ease up on censoring the Internet, allowing it’s citizen to enjoy more virtual freedom, as well as a chance for Internet related jobs and services.
Many conventional agencies will die
It does sound a little rough but I am sure clients won’t allow too many unaccountable spendings in 2009 with the recession at its peak. Advertising spending will rise overall as the market will be more and more competitive but some agencies are just not trained for results.
The new interactive advertising
Interactive advertising has proved successful and many clients will need the same accountability in off line advertising as they have online. The theory of media convergence will prove itself in 2009. We will start seeing displays that record the users preference, billboards that target your mood and contextual TV advertising.
Global budgets handled by Interactive Agencies
Most interactive agencies are way more budget conscious than conventional ones. Clients love that and they might consider this move.
Conventional Agencies acquired by Interactive Agencies
Interactive agencies are now the Cinderellas of Advertising but the times are changing and I would bet on at least three huge take overs or mergers next year.
Huge advertising groups will start fading. At least one new Interactive Communication Group will rise.
The likes of WPP, Omnicom, Interpublic, Publicis, Dentsu and Havas will have big problems trying to hold their position in the new market, as capital is scarce, clients are ever demanding and the companies they run are inflexible. I sense that there will be at least one group with a interactive-based business philosophy that will rise to challenge the giants. Who will that be?
The world needs results in these times of economic struggle. Conventional has lost its spark and Interactive Advertising is getting better and better. These “new” (some are over 10 years old) agencies are growing at a faster rate anyone has predicted, just as the Internet does. The future holds many secrets but one thing I’m sure of: the interactive advertising is here to stay.
If you would have to place your bets, what would you bet on ?
