Thursday, February 7, 2013

Interrupt or Be Interrupted

I've noticed over my career an alarming lack of social grace, especially among brash young managers who want to be heard--they don't think twice about interrupting. In a business setting, just like in most circumstances, interrupting is plain rude. The rules have not changed. Just because you've been invited to the boardroom table doesn't mean you are now in a position to share everything you have bottled up inside, whether or not it pertains to the unfolding conversation.

The same civility can be cast aside, however, when you consider the broader conversation between competing enterprises. Here, the rule is interrupt or be interrupted.

If your business model and business plan doesn't interfere with existing business models or create concern among those in your industry, you need to try again. A good business plan is nearly always disruptive because it seeks to innovate beyond what already exists to reach new customers and carve out new opportunities.

I'm at a relatively new venture called Domo. One of our billboards states that "business intelligence is no longer an oxymoron." One of the challenges of any young organization is to become part of the conversation. That often requires a bit of an interruption, especially when you have something important to say that others will appreciate.

Domo promises a new approach to business intelligence, but we aren't saying much yet. Inherently, there's a lot business intelligence can tell you. When internal numbers and trends are combined with what you can observe within an industry, that intelligence quickly becomes an actionable strategy. The potential of what we are doing here at Domo is huge. But we also understand how important it is to be the company that interrupts, disrupts, and redefines rather than being interrupted, disrupted, and redefined by a competitor.

Domo is not brash and rude. Domo is young, enthusiastic, and brimming with passion, like the bright, young executive in the boardroom who is just waiting for the right opportunity to be heard.

Saturday, April 10, 2010

Fear of the Customer - the Worst Feeling in Business

Increased instability and uncertainty often lead to fear. The prevalence of fear today has prompted me to focus on that emotion for my next two blog posts. While fear can motivate positive change and action, decisions motivated by fear are typically shortsighted and suboptimal.

Today, I'm going to talk about corporate fear, and my next post will talk about using fear as a marketing motivation.

Any executive with experience has been there--a meeting with a dissatisfied client, a confrontation with a business partner, or a meeting to discuss what to do with a failed initiative. Fear is a common emotion in any of these situations.

How can we avoid fear and what should we do with the fear we feel?

Fear of the Customer

I learned early in my career as a product manager that things were never good if I was afraid of my customer. There have, unfortunately, been times when I was afraid to reach out to my customers. Why? There were typically two reasons:
  1. I was aware of the pain a product or service was causing for customers and didn't know how we were going to address that pain, or
  2. I knew that the organization I was working for didn't have the will or resources to address the customers' needs.
Under either of these scenarios, talking with a customer feels a lot like going into battle without a weapon or even protective gear. You know exactly what the danger is in walking out to meet your customer and can only rely on their mercy and benevolence for your survival.

Typically, companies fear their customers when promises are not kept, expectations are not met, or policies are unfair. In short, fear is typically the result of a company falling down on their side of the value exchange with their customers.

Signs of Fear

The following are 10 signs to consider to see if your company is afraid of its customers:
  1. You focus on retention through policies and procedures that make it difficult for your customers to sever their relationship with your company.
  2. You don't provide any clear method for providing feedback on your products and services.
  3. You have problems with refunds and chargebacks or set policies or hire staff to fight these "return" transactions.
  4. You hide or do not publish your company's contact information.
  5. You obscure your company's identity with DBAs and multiple brands.
  6. Websites, groups, and clubs form to express dissatisfaction with your company or products
  7. You suddenly feel a need to censor and moderate forums or message boards designed for customers to provide feedback.
  8. You decide you don't like your over-demanding customers and decide to focus on a new target customer.
  9. You refer to your customers using derogatory terms, such as idiots, morons, etc.
  10. You primary focus on your customers is in terms of revenue and transactions rather than how you can serve or satisfy their needs.
The Way Out

If you are in this position, the only way out is to decide how you are going to delight your current customers. The solution is NOT to find "better" customers or even "more" customers. The only way to get past your fear is to take care of the customers (or clients, partners, etc.) you already have. Once you are doing your best at keeping up with your end of the value exchange and communicating what you are doing, confidence will replace your fear.

1. Assess the situation
The first step is to learn how your customers feel about your company and products. Don't try to allay fears or address unmet expectations at this point. Instead, do everything you can to understand how customers view your company, products, and policies. Don't just ask "what" they like or don't like but "why" they like or don't like those aspects of your company.

2. Weigh the options
Once you understand where how your customers feel, you can now make decisions about what you are going to do to address the needs of your customers and overcome your fears in the process. Now is the time to weigh your options and discuss possible changes and their associated costs and benefits.

3. Make a plan
The third step is to create a plan and time line. You will want to show evidence that you care about your customers and that your efforts are genuine and consistent over time. The plan should build momentum by moving from low-hanging fruit (the stuff you can "get out there" tomorrow) to the more difficult changes that are necessary.

4. Execute on the plan and communicate progress
The fourth step is communicating as things happen. Communicating before you have a strategy and plan only makes the situation worse. Don't apologize to your customers without also telling them what you are doing to make things better. When communicating, don't make promises that you can't keep. The best way to communicate is again by maintaining momentum by communicating improvements after they are made.

This isn't the time to pre-announce changes or set a time line. You're building confidence and removing your fear in the process. This isn't a time to increase your risk of failure by communicating specific tasks and deadlines--unless your customer relationships are so poor that your situation has become desperate and this style of communication is the only way to regain customers' confidence.


These steps will help you at times you become afraid of your customers, clients, investors, or partners. When fear creeps into your relationships, identify the fear and rectify the situation as quickly as possible.

Remember that fear of your customer (or any other business associate) turns your relationship from one of mutual benefit to one that is adversarial in nature. If you are fighting with your customers over time, your business has no hope for success.

Learning from Mistakes - A Case for the Humble Executive

I formulated a theory in junior high regarding two types of people: those who observe and learn from the mistakes of others and those who choose to learn from the hard knocks of life. Each of us actually learn using both of these methods, but those who are most adept at learning from the mistakes of others and avoiding those pitfalls altogether have a distinct advantage.

Marketers and business executives also have the opportunity to observe, research, and learn from the mistakes of others. Too often ego and a desire to drive a personal agenda get in the way of insight and lead to poor and avoidable business decisions.

Here are two powerful ways to minimize mistakes:

1. Understand all you can about the mistakes of others
2. Remain humble and fully experience pain for the mistakes you make

Mistakes are Largely Avoidable

Entrepreneurs and executives who take the time to evaluate their failures seldom admit they had the ability to avoid the mistakes they make. I have been in several postmortem meetings where the final stated conclusion has been, "well, at least we know what to avoid next time." While this sort of a statement sometimes indicates some learning has taken place, it seldom reflects the true nature of the most common underlying mistake: executing on a poor strategy.

Learning from the Mistakes of Others

Today, with so much information freely available, it's inexcusable to emulate another organization's previous failure. Marketing Sherpa, Harvard Business Review, marketing blogs, and other sources of case studies, catalogs of failures, and best practices are readily available. Not reviewing these sources of information when formulating and executing on strategies is in itself a huge mistake.

Even more inexcusable is a tendency to ignore institutional knowledge related to previous business failures. When I was a marketing director at, a new commerce manager suggested we create a product catalog for the 30 to 40 products we had at the time. Realizing I was being recruited to the project, I asked about the catalog's purpose and the expected impact it would have on sales.

The answers I received weren't very convincing, so I approached the publishing team to ask what they thought. In the process I learned they had created a catalog the year before. The catalog had been a lot of work and generated no measurable impact on sales. Not only had the project been a financial failure, it has also cost the company other publishing opportunities.

Although I recommended we not publish a new catalog, the project moved on without me. The result was  spending more than $10,000 on a catalog that was outdated as soon as it rolled of the press because of pricing changes and the introduction of new products. Copies of the catalog traveled to genealogy conferences (where no catalog was necessary because our products were already on display),  but the main point of distribution was our office's reception desk, which received virtually no walk-in business from our customers.

The website, on the other hand, had an e-commerce product catalog that was viewed by millions of people each month with a cost of less than a penny per visit. Printing the catalog was an obvious and avoidable mistake, but a new commerce manager was more enamored with the project than in pursuing measurable objectives.

Countless case studies now exist related to the effectiveness of print vs. online catalogs, especially for companies that are online. Could you imagine coming out with a print catalog tomorrow? (If you work at and have been pushing for this project, please reconsider.) Ignoring these case studies is foolishness. But some people do everything they can to avoid information that contradicts their own desires.

Knowing ahead that it may not be a good idea to create a print catalog for a website that is primarily promoted through email and has no offline presence might make others question the strategy. Why risk presenting information that might lead anyone to suggest your brainchild might be a bad idea? Maybe the last 10 companies that failed with your strategy had poorly executed on the concept, right? When you emerge from the smoldering ashes and charred chaos of your predictable failure, you can always exalt the learning that has taken place and say, "well, at least we know what to avoid next time."

On Being Teachable

Closely related to selective ignorance, the second cause of avoidable failure is pride--a lack of humility that obscures good judgment and prevents many executives from accepting responsibility for their actions. Failure hurts, and it should.

I have a problem when people internalize mistakes by claiming they have "no regrets" or that they would "not change a thing" or if given the chance they would "do it again." These people often say they are grateful for their mistakes because they "made me who I am today." If addressed properly, mistakes do give us insights, expose our weaknesses, and allow us the opportunity to change; however, the lesson learned should be how to avoid mistakes rather than how to embrace them as part of our identity.

To illustrate this point, I'd like to draw from two examples in popular culture: Mark McGuire and Jude Law.

The following is Mark McGuire's apology in January 2010 for steroid use during the his baseball career in the mid-90s:
"I'm sure people will wonder if I could have hit all those home runs had I never taken steroids. I had good years when I didn't take any and I had bad years when I didn't take any. I had good years when I took steroids and I had bad years when I took steroids. But no matter what, I shouldn't have done it and for that I'm truly sorry."
While not the most humble apology, his admission of steroid use was and associated remorse were clear. He was unequivocal in saying he should not have taken steroids, although he also made the argument that the steroids didn't really help him hit all those home runs. In the end, he got across the point that he regretted his actions and not coming forward earlier. That sounds pretty sincere. After his admission the story played in the media for a couple of days and nearly immediately died down.

Now contrast that with so many celebrities who make mistakes and never have remorse or take responsibility for their actions. Here's a quote from Jude Law on his past infidelity:
"There's no regret, you can't regret. I mean, I've felt regret but I've also refused to allow regret to sow a seed and live in me because I don't believe it. You feel it, it's like guilt, it's like jealousy, it's like all those horrible things and ... you've just got to snip them and get them out, because they're no good. Because if you regret, in a way, have you learnt and moved on?"
Wow! He says he "learned" and "moved on." Isn't it OK to regret mistakes? Or do we have to internalize them and say, "that's just part of who I am"? Mistakes don't make us failures; they make us human. But they also provide us with the opportunity to learn from the pain and discomfort they create. Why should we avoid the pain of our mistakes? Ultimately, isn't it the fact that we regret our mistakes that demonstrates that we have actually learned from them?

Remorse and of regret of our mistakes generates the pain that serves as a reminder that we don't want to repeat a poor decision. It's a natural consequence. How can we sincerely apologize and "feel sorry" if we try to avoid regret altogether?

Now I'm not saying we should have everyone who commits adultery walk around wearing a letter "A" sewn into their clothes. That's not what I'm suggesting here. What I am suggesting is that learning from our mistakes requires us to "own" our mistakes. That's the only way to move on. It's not good enough to say, "I have no regrets. Those mistakes made me who I am today."

A statement that shows true learning has taken place would be something like this: "I'm glad I learned from my mistake. I wish I hadn't done it, and I will do everything I can to avoid that mistake in the future."

Too many executives are unwilling or unable to face their mistakes and learn from them. Far too many excuses are made for mistakes that could have been easily avoided if only the executive had listened or learned from the insights and experiences of others.

When mistakes are made, it's more important to understand "why" the mistake happened than "what" the mistake was. The "what" is already obvious, but the root cause is the "why.". Understanding and coming to terms with "why" a mistake was made--the circumstances and process that allowed the mistake to be made--is the learning that helps us avoid the mistake in the future. That's the part that requires humility to learn.

I have found that working with executives who are humble and willing to admit and take responsibility for mistakes is not only refreshing but actually inspiring. It's amazing to see people actually own up and take responsibility for poor decisions. And when executives take responsibility for mistakes, those around them have more confidence that the executives and the organizations they lead will be able to avoid similar mistakes in the future.

So, let's learn from our mistakes and the mistakes of others. Let's allow the pain of regret to motivate us to improve the processes and scenarios by which decisions are made and overcome our blind spots to avoid repeating the same mistakes in the future.

Monday, December 14, 2009

The Next Big Thing - Network Intelligence

Last week I read and listened to two stories that when combined painted an interesting vision of the future. One story shared the results of a contest sponsored by DARPA in which participating teams were to find 10 red weather balloons released at various locations across the United States. The second story was that of Google launching personalized search.

The winning team in the DARPA contest was a group from MIT who used social networking and a multi-tiered affiliate rewards structure to provide a financial incentive that aligned the interests of the team in pursuit of a common goal. In listening to the story on NPR's Science Friday, I recognized the power of leveraging a social network to refine information and create consensus around points of knowledge. I also thought of why multi-level marketing (MLM) compensation plans are so effective at building a channel. Participants were rewarded for recruiting members who were ultimately responsible for providing information that led to the successful location of the 10 weather balloons, so people were rewarded for quality and results rather than on participation alone.

After stripping away the financial incentive, the large social network created to find the 10 weather balloons was a use case of something that has been happening for years on a smaller scale online. Message boards and social encyclopedias are built and ultimately succeed as communities of interest gather around specific topics. The difference here was that the network was not a casual "ad hoc" network created to by a group of individuals trying to create the best encyclopedic entry on a topic of common interest or to share specific knowledge through altruism. The network MIT created to win the DARPA challenge was designed to achieve a specific goal, in part by providing a proper incentive.

The end result was what I am calling Network Intelligence, the aggregate intelligence of everyone in a network that surpasses the intelligence of any individual for the defined purpose of the network.

This is not so different from institutional knowledge; however, the concept of institutional knowledge tends to be historical rather than actionable. You could think of Network Intelligence as that portion of institutional knowledge that is transactional or relevant to a specific purpose that is being acted upon in the present.

Network Intelligence is also what will be taking Google's search to the next level once personalized search becomes "networked."

I was consulting with a friend on Thursday, and he was excited to show me how many pages on his sites had reached the #1 position for various keywords. I then remembered reading about Google's personalized search a week before. We went through his keyword searches on Google using our own computers and found we both received different Google result pages for the same searches. Prior to our meeting, my friend had spent most of his time reviewing his own sites and tracking internal changes over time. I hadn't spent much time visiting his sites in the past. Most of my searching using his industry keywords had been to conduct market research and sign up for offers from other companies.

Where he was seeing his sites and pages in the #1 position for very competitive keywords, I was seeing the same pages in the #3, #4, or #5 position. So our respective search results were indeed personalized based on what we had been searching and clicking on previously within the results page.

(I'm not going to go into all of the SEO and relevancy implications here, but there are now questions to be answered related to how new sites and pages are going to compete under this new methodology . . . at least until network intelligence is applied.)

BUT, what would happen if I had the option to have my friends' preferences and search habits influence mine? If, for instance, I had wanted to follow the same biases of my friend, who is an expert in his industry, could I have seen the results presented in the same order as his appeared?

In order to do this, Google, Facebook, or another aggregator of personalized information would need to create an algorithm to have the search results and preferences of friends influence the results of each other.

Another feature I want to have is to follow the search preferences of specific individuals who have opted in to allow their preferences to be followed. I could then (with the permission of my friends) see which search results were most relevant to them in specific areas. There are huge privacy implications here, but I think the service would work incredibly well as long as specific search terms for which my friends were searching weren't shared . . . or maybe it would be even better if they were.

I would love to know what my friends were searching for online. Oh, the implications on privacy and individual behavior! How would this impact a friend who becomes embarrassed because he is searching for nefarious content? How could this be leveraged for competitive research and corporate espionage? Allowing transparency and the sharing of search habits might change the behavior of those whose public values and private behavior is inconsistent because of positive social influence. Is that so bad? I think that could create one of the biggest safeguards against the viewing of illegal content and pornography. Would people be viewing it if they had opted into a service that let others know exactly what they had been searching for?

But I digress. The first implementation would simply be applying an algorithm to my search results based on the aggregation of my social network. I would refer to this as "social intelligence," but that concept has already been used by Daniel Goleman and others, who have spent the last 15 years defining different modes of intelligence. Network intelligence has already been used by computer scientists, such as Drew Major and others, to explain where "intelligence" resides in a network to manage request routing, caching, and other network concepts. But I think the concept of harnessing the intelligence of a social network (whether formal or informal) deserves the title of Network Intelligence.

The real-time internet, such as watching trending items on Twitter, provides some network intelligence, but the network is too broad to be useful for a specific purpose beyond identifying topics of interest. The REAL value of Network Intelligence is in the network itself--surrounding yourself with the most intelligent and thoughtful people on a broad array of topics to provide you with the most intelligent and insightful information on any subject of interest.

Now, here's the interesting point: How will network intelligence influence the evolution of social networks over time? What will happen to the relevancy of pluralism, multiculturalism, and the value of differing opinions and diverging theories? Won't someone just surround him or herself with like-minded people? Not if the intelligence isn't helpful over time.

Those who provide "bad intelligence" will over time become less relevant as the wisdom of the masses is refined through collisions with new thoughts and ultimately hardened through agreement. Network Intelligence is not static but a concept full of movement and change through "living" knowledge and wisdom. The network accommodates and assimilates new information that it finds useful and "loses" less meaningful information over time.

In the end, I believe the concept of network intelligence will drive us to the pinnacle of human intelligence that can be found through the reasoning of humankind. While I believe there is a higher source of knowledge that a human social network, I don't believe there is anything more powerful that can be created through the integration of human behavior and technology.

Wednesday, December 2, 2009

Black Hat Marketing Techniques Exposed and Why to Avoid Them

Exposing Black Hat Marketing Techniques

Well, I said nearly a week ago that I would put this post online. This post has implications that go far beyond online marketing and economics into the realms of politics, ethics, and even religion. I'll leave it to the reader to make those connections and associated implications for him or herself.

There is a principle I've found to be valuable throughout my career called "work." I remember sitting in a physics class at Butler Middle School when Mr. Browning said, "you can't cheat work." As a principle of physics, he was absolutely right. And the principle also applies to online marketing and life in general. If you want to succeed in the long run, you have to work for results and to build long-term value.

Yes, you can innovate and find seems and creases to exploit and make money through improved efficiencies. That's a great guerrilla marketing strategy I have employed when creating search-term optimized awards programs, niche interest pages, and directories of user-generated content. But those projects all had something in common--they provided added value to the economic system. Partners, customers, and search engines loved these programs for improving relevancy and access to valuable content.

Most black hat marketing strategies drive results through unfair or unethical practices by ultimately attempting to cheat work. And what most of these approaches share in common is that they are only effective for a short time before they are exposed or lose their effectiveness (requiring just as much or more actual work than legitimate marketing methods).

Here are a few examples of black hat marketing to consider:

The Bump

A bump is an offer added to the end of a lead or CPA offer to essentially get people who have just signed up for something to (usually unwittingly) sign up for a second or third offer as well. When implemented, the bump offer usually appears as a required step in completing the initial registration process. Typically, this offer is pre-selected on the first confirmation page with "hidden" billing terms. In essence, the customer is now being billed for two different offers by completing one. Credit card information entered for the first offer is usually shared with the owner of the second offer as well, so the user doesn't have to go through more than one registration process (or see that they are actually going to be billed for subsequent offers).

I think was the first company I saw effectively employ a bump offer when signing up for a free site membership. Upon completion of the registration, the site made it appear that you needed to complete a credit card application to before the process was completed. This offer was presented as a way to receive access to their premium services or to receive a $15 credit. They implemented this offer back in 1999, so the details have become fuzzy in my mind. I just remember being mad when I clicked through and saw what they wanted me to do. This old bump offer, however, wasn't nearly as slick as current bump offers. You still had to complete a second form rather than being opted in automatically to participate in the offer.

Shared Billing

This is very similar to a bump but comes in a few different forms. Many offers I've seen recently promote free access to a premium service. The catch? To receive the free premium service, you must sign up for one or more partner offer. Similar to the bump, you are often caught in a seemingly never ending cycle of registrations to get what you thought was a straightforward offer. Those who are most effective include a page where you can sign up for multiple offers and then enter your billing information once for all of the offers.

This practice of sharing credit card information across vendors is dangerous. It also tricks the consumer who is just trying to get a free offer into paying for service he or she doesn't want or need through a confusing registration process.

You can read about one such program, run by Affinion, that was recently exposed and featured on Good Morning America among other media outlets: Co-registration probe. Evidently, companies including 1-800-Flowers, Orbitz, Shutterfly, VistaPrint, and more than a dozen other companies made more than $10 Million from this program. is included in the $10 Million circle. Dozens of other companies earned more than $1 Million from the program.

Advertising and Referral Arbitrage

This is a rather simple and unsophisticated tactic that employs PPC advertising and SEO pages to generate incremental advertising revenue from Google AdSense and other advertising networks. The tactic usually consists of creating SERP (Search Engine Results Page) spam pages tied to specific keyword where advertisers are paying a high cost per click. The trick is to then get traffic to these pages that have little value in themselves and then get people to click on the ads.

You've probably visited dozens of these sites. Most make little sense or are simply directories of keyword categories with advertisements. What's wrong this this tactic? The "marketer" is not adding any value and is actually frustrating the customer who is looking for legitimate, valuable content. The advertisers also lose because their ads are getting additional clicks from customers who are tricked into clicking on ads rather than actual product links.

In the past, I have literally clicked through up to a half-dozen lead referral and directory sites before getting to a page where I could actually purchase the product I had search for in the first place. Far from adding value or efficiency, the companies that run these sites are simply inserting themselves as "value sucking" intermediaries.

Cookie Stuffing and Other Affiliate Fraud

You're on a site looking for a new phone service because you're not happy with the one you have. You find a site that lists six competitive services. You click on one to check it out. The site you are on is an affiliated site of the six services you are comparing. They have signed up to receive a commission from each of the six competing phone companies any time someone they have referred makes a purchase. But they want to be sure they get credit for making the sale . . . whether or not they actually do. So instead of setting a single cookie that tracks the affiliate click to a single company, they run a script that sets cookies for ALL SIX COMPANIES before handing the customer over through the first link. They may also set a few cookies for phone conferencing or other phone-related products as well just for good measure.

What's more? The site is most likely masquerading as a review site, so you believe you are getting an impartial review of the products in question. In this case, all of the products probably sound great, but the service that provides the best commission probably sounds just a little bit better.

Promoting Products and Services with Little or No Value

Take a look at the affiliate offers on when you have a little time or want a good laugh. Many of the offers are nothing more than publishing free online content as eBooks or aggregating and selling videos from YouTube as a "video tutorial series." These companies make sure they charge enough for these "products" that they are able to enlist greedy or gullible marketers to push their offers. Is an eBook on how to assemble your own windmill really worth $700? Even when those instructions are found on the Internet for free?

Carefully research any product or service you promote, so you aren't unwittingly associated with a scam or even a horrible product. Chances are, those who sell such deceptive and valueless goods will not survive long enough financially to get around to paying you for your marketing services.

How Black Hat Marketing Poisons the Well

So, what's the big deal?

There are three main reasons to avoid black hat marketing: 1. personal or corporate integrity, 2. buying into a fraudulent ecosystem, and 3. sacrificing long-term success for short-term fixes.

Personal or Corporate Integrity

Do you really want to be associated with any of these tactics? I hope not. I was talking with someone last week who participates in advertising arbitrage. A comment he made when I explained that he should add valuable, unique content to the optimized pages he had created was, "that sounds like work." I can't think of any better personal indictment or clear sign of a lack of integrity than the stated desire to get something for nothing. Someone I admire recently shared something his father had taught him: "any deal that is too good is stealing." He was evidently arguing for the principle of fair value exchange, someone fewer and fewer people seem to embrace.

Buying into a Fraudulent Ecosystem

I've ranted a few times about this point already, so I'll be brief here. Once you engage in black hat marketing practices, you are damaging the economic engine for the industry that is paying your bills. You are also swimming with sharks and shysters who are also trying to do the same thing. The borderline between what is ethical and what is legal can quickly become blurred, and you may find you have been treading on the wrong side of that line.

Another risk is that all of the revenue you are "earning" may never actually make it into your bank account. Why? Merchant accounts in shady industries are often frozen or suspended, marketing partners may not pay in a timely manner, and many companies that sell products or services that are "too good to be true" will fail financially or be shut down. This is an ecosystem in which you can't afford to participate, even as a little fish.

Sacrificing Long-Term Success for Short-Term Fixes

Yes, any company can get drunk off of their own bad revenue. Such a drunken stupor nearly always results in bad decisions that stifle the long-term success of the company.

I am aware of a company that was making money on ads that promoted trivia quizzes, IQ tests and that like that found it very difficult to ween themselves from the revenue these ads provided. What seemed like innocent ads were actually powerful and deceptive tactics to get people to sign up for paid services to receive the results of their quizzes. Wouldn't you want to give your cell phone number to receive your IQ results if you just spent the last 20 minutes completing the evaluation? Evidently, lots of people wanted the results of their quizzes. The fact that they were signing up for a monthly recurring bill was hidden in the small print.

They were so successful with their offer that they were willing to pay an $8 CPM (Cost Per Thousand impressions) to any website publisher who would run the ads. But it didn't last. After some time, they decided (probably with help from the FTC or FCC) that they needed to make the terms of service in the small print more obvious. This reduced their conversion rate and the rate they were willing to pay for CPM advertising. They were probably still getting tons of complaints and credit card chargebacks because they soon added a phone text verification to the process. This again drove down the conversion rate and CPM they were willing to pay.

Meanwhile, the website publishers who were making money on these offers were reluctant to shuck the ads from their sites, even after receiving angry complaints from site visitors. Why? Because they had gotten drunk off the revenue and didn't have a good revenue replacement. And the downward spiral continued. The publishers with foresight focused on improving their services to get more qualified visitors and expand their advertising inventory. Those that reacted poorly focused on increasing the number of ads units on their sites and on other short-term strategies to temporarily prop up revenue that had been too good to be real and sustainable.

In another instance, I worked with someone who was promoting his product through a bump offer. In the end, he had so many credit card chargebacks (for what could have been successfully marketed through legitimate methods) that the merchant account provider assessed him with a huge fine and canceled his account with more than $20,000 in frozen funds. After several months it appears he will be able to collect most of the money that was frozen in his account, but the cost of the lost cash flow was tremendous. In the end, the decision was made to shut down the site rather than open a new merchant account and start over.


After reviewing the tactics listed here and several others, I am still of the opinion that there is no free lunch when it comes to internet marketing. I don't believe people who engage in these practices will ever enjoy long-term success. Instead, they will continue to hurt consumers and the economy at large as they exploit their next opportunity and execute their next scheme. They merely understand how to combine technology with the art of deception to line their own pockets at the expense of customers and the very companies they promote. They engage in changing the dynamics in a zero-sum game, where if they succeed everyone loses.

Thursday, November 12, 2009

Is social advertising a house of cards?

Chris Lee, the owner of Heritage Quest and a former colleague of mine at, passed along an interesting read this morning, and article entitled "The Digital Economy's Coming Subprime Crisis (And What You Can Learn From It)," a Harvard Business School article written by Umair Haque.

Interestingly, the article's URL is facebooks_scam_ads_and_the_loo. This is an ongoing issue that Facebook has been addressing with partners but hasn't taken head on itself. Here's a quick example: Facebook suspended dozens of applications a couple months ago because of noncompliance with the company's new advertising terms and conditions. A new application quickly appeared showing where Facebook itself was still serving and profiting from these same ads that they had used as justification for suspending the applications of their "development partners."

As someone who lived through the .com bomb, I see several of the same symptoms today that were prevalent then when advertising rapidly declined. I love this article from an economic perspective, but the evidence is also easy to see when buying and selling advertising:
  1. New ad networks are constantly popping up (how many can be supported by the economy?)
  2. New "models" provide no incremental value but are simply created to get ads in front of consumers. Anyone remember in 2000 or in 1999?
  3. Some ads are pervasive across the internet. Can anyone really be making a profit with ads that are presented millions of times per day to a broad swath of consumers? Maybe for a few weeks . . . but the diminishing returns will certainly turn to losses very quickly.
  4. Finally, there is the problem of an investment-funded economy. Companies that have received investment often use that money to prop up metrics that don't equate to revenue, such as registration or visitor numbers. An economy that is not based on real value exchange will always decline.
Great read. It also ties in nicely with what I wrote about a couple weeks ago on Competing in a Down Economy.

For those who are trying to market your site or products in the current online environment, I'd love to get your thoughts on this.

Friday, October 30, 2009

Using Interactive Marketing to Compete in a Down Economy

Yesterday, Cydni Tetro, the CMO of shared that a VC she met with said, "flat is the new up" when referring to revenue trends. It seems that everyone I've been talking with lately has a company that falls into one of three camps:
  1. Well positioned in a declining market.
  2. Maintaining sales at a higher cost than the past.
  3. Experiencing growth because of their position in a growing market.
In healthier times, I would expect to see more companies in a fourth category: companies aggressively growing within an expanding market; however, I'm not aware of these firms today. One of the challenges of a down economy is that the rate of innovation tends to slow. Instead of adopting "reinvent or die" as a mantra, companies are hunkering down for survival and trying to maintain their current revenue and market share positions with as little investment as possible. Since the "entire economy" is down, they believe that maintaining their revenue position and market share is an adequate goal. And for the most part, they are right.

But, whenever there are challenges in the market there are also corresponding opportunities. Why? Because each company will react to those challenges differently. The variables by which success has been measured and through which success has been achieved will start to move unpredictably, and companies can see success turn to failure overnight if they are not vigilant and adept at adapting to these fluctuations.

This was certainly the case for after the Internet bubble burst in 2000 and 2001. could have easily become another casualty and gone the way of, but we were always looking at our bottom line and were able to use interactive marketing to continue to improve the position the brand and service. We had visibility into what was happening in the market and with our online marketing. We were thus able to implement programs and tactical changes to maintain market share at the same time the online economy was in rapid decline. The big difference then was that online activity and purchases were actually increasing at the same time businesses were failing, causing an overabundance of cheap ad inventory. was able to increase their "interactive dragnet" at the same or lower cost than before. This is one of the key reasons the company is in the position it is in today. But today, the challenge is that online spending is flat or in decline at the same time competitive pressure is increasing. The remedy today is a little different.

Interactive Marketing in Red and Blue Oceans

Here is a sample scenario in terms of interactive marketing, but the same applies elsewhere (in a cause and effect sequence):

In this scenario, the economic pressure creates an increasingly bloody "red ocean."
  1. Fewer consumers are looking for your product that is clearly an unnecessary purchase.
  2. You chase these customers with more advertising dollars to maintain revenue and market share.
  3. Your advertising rates increase.
  4. Your cost per acquisition increases.
  5. Your competitors increase their advertising spends.
  6. Everyone starts getting "cute" to exploit perceived gaps, creating wide swings in cost and performance.
  7. Soon, you or your competitors decide the increased cost isn't worth the return and decrease spending levels.
  8. Costs temporarily come back down below previous levels.
  9. You or competitors jump back in with more money because costs are now lower.
  10. The cycle continues . . .
This is the issue with advertising dollars in the "bloody ocean." (If you haven't heard about red and blue oceans by now, where have you been hiding?) The challenge is that when consumer demand goes down, it actually costs more to reach potential customers because of increased competition for scarce or effective advertising inventory. Economic theory would state that, overall, when the economy declines advertising rates should also also decline because fewer companies can afford the same ad rates. Demand for advertising inventories should decrease, leaving an excess supply, which should drive down costs. However, as outlined in the above scenario, this is not the case in a very competitive market . . . until competitors in the bloody ocean simply can't afford to pay existing rates. So, how can you compete effectively when you and your competitors are tempted to act irrationally? What should happen is the following: Pursue a "blue ocean" marketing strategy:
  1. Fewer consumers are looking for your product that is clearly an unnecessary purchase.
  2. You take the time to identify advertising strategies over which you have the most control and the least exposure to competitive pressures.
  3. You maintain or decrease your red ocean spending strategies, such as PPC search ads, sponsorships, and display advertising. You don't want to just turn these off, but you don't want to focus on these strategies to maintain market share at the same time your competitors are becoming more desperate and may drive up marketing costs for these programs. Give these strategies time rather than money, and you will likely see your advertising rates decrease.
  4. Advertising rates maintain or decline based on your decision not to escalate spending.
  5. Now, you focus on creating a "blue ocean" marketing strategy. You should always be doing this anyway, but this is more important than ever in a declining market or in a weak overall economy.
Swim into the Blue Ocean

The following are five strategies to creating some "blue ocean" from an interactive marketing perspective:
  1. Engage in joint marketing initiatives. Join with companies with related products to share marketing dollars through product bundles, barter advertising, value added free trials, or other joint efforts. You are now increasing visibility of your product or service without incremental cost. You are also focusing on strengthening your market position through strong partner relationships. This is a great long-term strategy.
  2. Go after the long tail. Instead of concentrating on current interactive marketing, where competition has been fiercest, expand your advertising efforts to include a longer tail or into a market that is less competitive.
  3. Focus on relationship programs. Affiliate programs, friend referral programs, and social marketing are extremely low risk. All of these programs are free or straight pay for performance based on actual customer acquisition (rather than impressions, clicks, or other metrics). If you can't motivate your customers to share your product with their like-minded friends, your problem may be much deeper than your interactive marketing strategy. Similar to joint-marketing initiatives, these programs provide you with a long-term strategic advantage. A customer who invests time and effort to share your product with someone else far more likely to become "bonded" to your brand than someone who doesn't. The same goes for those who invest time optimizing affiliate links or talking about your service on Facebook or Twitter.
  4. Focus on business model innovation for thought leadership. Can you make your business model more attractive or implement a marketing strategy that generates buzz? Similar to engaging with partners, any strategy that leads OTHERS to talk about your product and participating in your marketing strategy stretches your advertising dollars. If you have a CD-ROM product, consider an online offering. If you have an online offering, consider making more of your service available for free.

    Don't just make a change (i.e. providing your service for free for a limited time or implementing an ongoing customer competition with weekly winners), but tell everyone about it. Bloggers, analysts, and even the press are likely to pay attention to anything that is novel related to business model innovation. In mature markets, this is one of the BEST strategies to create a strategic barrier. Ask yourself: "How many of my competitors can afford to change their business model right now?"
  5. Think guerrilla warfare. Consider using, Keyword Spy,, or another service to gain insight to your market segment and gain an idea of how your competitors are reacting to the economy. Competitive insight and careful analysis of data and trends are important activities that can give you a competitive advantage during difficult times for your market or the economy at large. See how you can improve your online presence using free and low-cost services, such as free download services, social media, participating (thoughtfully) in forums and message boards, etc.
As with any economic disturbance, you also need to be able to separate the effects of the economic downturn from other factors that may also be hurting your sales. I'll write another blog entry about how this is done, but it begins and ends with having excellent business analytics.

Taking the time today to invest in interactive marketing relationships and experiment with blue ocean strategies will ensure you are properly positioned to get the biggest gains when the market rebounds.