With the recent performance of the
stock market - unprecedented for those under the age of 80 – it's easy
to become consumed and forget that a broader world exists. In a way,
it's a strange, almost self-fulfilling cycle. You hear bad news, focus
on bad news, focus less on the job at hand, and end up ushering in the
predictions by not operating as you might but more conservatively, with
less risk, and greater hesitance. Those with their heads down mitigate
if not escape this, none better than those in the performance-marketing
space.
Historical Context
For those who suffered their way
through the bursting of the Internet bubble, this current credit crunch
is starting to feel incredibly familiar. Interestingly, many of those
who suffered, didn't really suffer but thrived. Any notion of stress
came from the general economic uncertainty and litany of bad news that
permeated every page and pixel. That meant keeping adBrite founder Phil
Kaplan's F'd Company in the background, refreshing it constantly to see
the latest round of layoffs, memo's, and insider reports of downsizing
in progress. It was a world before blogging, one with any number of
sites to waste time but with fewer sources of journalism. It was a time
where, for a little more than two years, online spending decreased
month to month. That didn't inhibit optimism from existing, because the
macro trends all suggested a strong future for online advertising.
Those macro trends, which proved true, still propel the industry today
– a continued shift of media consumption online and ad dollars
disproportionate to that consumption.
Counterintuitive as it might sound,
plenty of companies saw significant growth during a time when the
amount of money available to make online shrank significantly. If you
work at a company that has existed before 2002, you work at one of
those companies. If you don't, chances are the founder of your current
company worked for one of those companies. Even more likely, your
company then and now only makes money when users complete an action on
an offer, be it a sale, a sign-up for a free trial, or a request for
more information. Companies that specialized in performance-based
advertising, worked with a different type of client than the countless
who went out of business when the Internet economy contracted. These
companies didn't simply want exposure; they wanted customers and could
quantify what a customer was worth and how much of that value they'd
pay. For them, the Internet offered the holy grail of marketing – fully
trackable, completely accountable, and cost-effective. The marketers
who now had access to relatively affordable inventory and figured out
how to connect those who wanted customers with the web surfers found
themselves almost printing money. It's a cycle that has repeated itself
multiple times over online – relatively not well understood but
scalable ad inventory and a healthy demand to reach the users of this
inventory by a large enough group of companies that do not have the
marketing expertise or risk profile to figure out how the new inventory
works. It happened with banners, email, desktop, paid search, and now
with social media.
The offers that can best leverage the
different mediums evolve, going in and out of vogue based on larger
business pressures and their competitiveness online. Some seem to come
out of left field and end up commanding an unprecedented share of the
performance-marketing space. The incentive promotion space did this,
and more recently, the mobile subscription service. When people hear
mobile, they often think of mobile as the third-screen, the next big
hit in online advertising since 2000. In the performance-marketing
sector, mobile means something else. It means completing a transaction,
in this case, a sign-up for a subscription service. It's a process that
uses the web to generate interest with the transaction completed on the
phone. In the past three years, mobile subscription services have
become one of the pre-eminent offers across multiple traffic channels.
With any success comes growing pains as the market attempts to create
the optimal balance of stakeholders. The mobile subscription services
market has gone through it, and one of the newest changes to come into
play is the focus of the second half of this article, specifically the carriers coming into play.
To understand the impacts of the change and why a certain side might
desire a change another wouldn't, we must first know the players who
control the market. The ecosystem surrounding mobile
subscription services is anything but simple. Each piece is essential,
and if one link in the chain has issues, the whole process is at risk
of breaking. As we see, it's not just complex, but aligning interests
is a full-time job, and like the game of telephone, the message often
changes in translation.
Flow of Money – Starting with the top, how money passes hands in the mobile subscription marketing space.
- Customer
– You, me, and everyone else with a mobile device capable of receiving
phone calls and in most cases interacting with other types of data.
- Carriers – The companies that provide the communications backbone; the ones that sell you airtime for voice and other data services.
- Aggregators
– they provide infrastructure and play a key role in the connecting of
carriers and the off-deck content services. They are used in much the
same way that affiliate networks are, to stream line the connections
between two parties; instead of advertises and publishers, it's
carriers and content service providers.
- Off-Deck Content Services
– In the context of mobile subscription marketing, the content
providers are aggregators in their own right; it is they who have
license deals with the artists, studios, etc. and have created and
administer the offering to the end-user. They are "off-deck" because
the user accesses the content through Web or WAP sites instead of
navigating through the user-interface associated with their phone.
- Affiliate Networks
– Technology and sales infrastructure providers for those who have
Internet traffic and those who wish to advertise online. Affiliate and
general CPA networks lower the friction cost and act as a major
catalyst for the generation of subscribers; they also play a major role
in regulating the industry.
- Performance Marketers
– The specialists in performance-based customer acquisition. This group
includes the affiliates, many of whom rely on paid search to gain users.
Regulators – The outside influencers
- Federal Trade Commission
– The top of the food chain, whose rules apply throughout all states
and all forms of commerce. They are often the last to enact policy
given the overarching consequences.
- State Attorney General
– Each state has its own legal task force responsible for protecting
the interests of its people. In the mobile marketing world, the Florida
Attorney General has taken the lead on policy setting and penalty
collection from different components in the above list of stakeholders.
- Mobile Marketing Association
– A professional trade association that works on setting guidelines for
those in the mobile marketing industry; plays a similar role as the
IAB, a non-regulatory, best practices agency.
- Google
– The largest source of online traffic, with a history of creating
guidelines for advertisers in order to create the customer experience
they feel is best.
- Carriers
– They now have specific requirements in place and complex penalty
systems for those who they feel do not abide. In the past, they have
not gotten into the regulation game.
Every industry undergoes change. It
must adapt to a changing environment and find the right balance between
those with a stake in it to not just survive but grow. The mobile
subscription services space is no exception. Two years ago, few would
have predicted that offers for ringtone and premium text services would
become a multi-hundred million dollar business and for a while
certainly one of Google's top verticals. It is today the little known
secret that powers a vast majority of social media monetization,
especially for international traffic.
This growth, though, has come with its
share of obstacles, and it has led to not just tension but legislative
activity and even fines. The real challenge and this applies to any
fast growing industry that involves multiple parties, especially large
corporations, is communication and coordination. It is easy for one
entity, and this includes everyone, to focus only on their needs
without always thinking of the upstream and downstream consequences.
Everything feels urgent and of the utmost importance, and when
everything is urgent, it means decisions get made that don't always
make the most sense for the long-term health of the system. The past
year and half has seen quite a few landmark changes to the mobile
subscription marketing industry beginning with regulating the use of
the word "Free." No less important, other changes have been more subtle
and more subjective, such as disclosure language, placement, and size.
During this growth process, T-Mobile even instituted a penalty process
whereby they would withhold payment if too many complaints were
generated. In the end, regardless of the change, they all stem from the
same drivers, the customer.
Customer Satisfaction
Those who drive traffic and get paid
on a performance basis might not always like the changes that get
implemented, but the motivation behind them generally makes sense even
if the execution doesn't. The carriers in particular want to make sure
those paying for the service understand what they bought and are happy
with the service. The carriers earn I'm guessing in the neighborhood of
$40 per user per month, and through the use of incentives they can keep
these users for a year if not longer. If a user joins a third-party
subscription service, the carrier might make $5 per user per month. In
the $40 revenue scenario this is 12.5% boost, and it's almost all
profit, as it doesn't have the servicing cost associated with their
regular business. If the customer isn't happy, though, it does. Now,
instead of their representatives dealing standard questions, they must
deal with things they don't really know, issuing refunds, dealing with
increased turnover, and losing their customers.
More than just the cost to adjust
operations to deal with the influx of unhappy customers, the real
concern even beyond the revenue is the impact to the brand. A company
like at&t spends hundreds of millions of dollars per year on
building its brand. The cost of litigation isn't high, such as the
settlement reached with the Florida Attorney General; the real cost is
their potentially being known as the company that doesn't do right by
its clients. No amount of incremental revenue is worth that for them.
The Long Tail Challenge
Perhaps the biggest change to occur in
the space in quite some time if not ever has happened recently. Verizon
and Sprint decided in the summer, and have asked, with threat of
non-payment, that no signups occur through carrier landing pages. To
understand the significance of the change, we must understand the
importance of search and the rules of search to the generation of new
signups. Banners are tough, the inventory options limited; email is hit
or miss. Search on the other, touches upon such a vast audience both
through the keyword targeting and its syndication on content websites.
It's easy to go to Google.com, type in a phrase and think of that as
the search experience, but especially for mobile subscription
marketing, the actual experience comes more from users going to a
content website, e.g., one that offers website layouts and seeing a
ringtone ad through Google's content syndication program AdSense. The
reach of Google on tier 2 and tier 3 entertainment sites is
astonishing, and among the best performing offers for Google and their
publishers are the mobile subscription ones.
In the off-deck content syndication
world, there are really only a handful of players at scale, whose
efforts play an integral role in the mobile subscription marketing.
It's by no means a negative, but off-deck content brands are not well
known by the end user. They don't spend hundreds of millions on pure
branding. For customers, the company that aggregates the content
matters much less than the content offered. They are not brand
sensitive. It's like air travel and the reason that online travel
agents like Expedia have done so well. Consumers care about the end
destination and the price, not necessarily who takes them there. The
value proposition of Expedia, bringing together all of the choices and
helping chose the one that makes the most sense, has led to sites like
it being responsible for the vast majority of all air travel bookings.
The same holds true with the mobile subscription, e.g., ringtone world.
The sites that have brought together the top off-deck providers into a
single experience have dominated the acquisition of subscribers.
The typical user experience through
search involves three steps. The first is a carrier landing page. It is
a page that lists the carriers, generally in graphical format, has
marketing message regarding the receipt of ringtones for enrollment,
and prompts the user to click on their carrier. That takes them to page
two, the cell submit page. Here, the user is asked to enter their phone
number (think of this step like entering the travel destinations), and
the site will see what carrier their number is actually going through
and what services are available. Completion of the cell submit does not
sign the user up for anything. Completion of that page will take them
to the third step, the PIN submit. The user does not get signed up on
the cell submit, but a text message is sent to the phone number they
provided. That message contains a PIN number. Entering that PIN number
on the PIN page and hitting submit will then sign them up for the
service. It is this last page that is the equivalent of the check out
page and is where the transaction occurs. Google has very specific
rules regarding their advertising. The carrier landing pages are
partially in response to those rules but also in response to lots of
testing of conversion flows to see which makes it profitable to
purchase traffic.
The changes by Verizon and Sprint
interrupt this flow. It is the equivalent of American Airlines deciding
that they won't participate on Expedia or similar sites. If you are
Southwest, and your brand revolves around being different, you can
support this. For everyone else, it will mean a loss in business with
users not going to their site. In the mobile scenario, users from those
carriers will not sign-up for the service, and they won't be heading to
find the alternative, as in many cases, they don't know an alternative.
Verizon and Sprint want all signups to occur on the off-deck content
provider's page. This presents a potentially crippling change for two
reasons. Sending users straight to the off-deck provider's page lowers
conversions. It will mean 30% less traffic from that alone. If it did
work, people would do it now instead of the carrier landing pages. The
second drop comes from how that change would restrict the end
marketers. If this were American airlines, by working with Expedia,
Travelocity, Orbitz, etc., for any airline query, they have the chance
of getting a user through not just those sites but their own ad. If
they stop working with them, now they have just one chance at that
customer, who is going to head to one of the other sites anyway for the
value they bring in aggregation. Put them together, and you have a loss
of a minimum of 50% of the volume. Were the off-deck guys in the search
business, creative solutions could mean instead of 50%, perhaps just
35%, but that would take a lot of effort.
Who Do You Follow
The changes by the carriers make
perfect sense. They want to avoid what happened during the growth phase
of the industry – complaints and potential brand degradation. Their
legal teams then draft policy to avoid this. Their legal teams aren't
search marketers, aren't performance marketers, and have no grasp of
the intricacies driving the business. To them saying a) no carrier
landing pages and b) all conversions must come from the off-deck
content company's site seems simple, elegant, and painless for all.
They wouldn't know the impact it has, and they have no process in place
to even begin to understand it.
Private companies are really the low
man on the totem pole of regulation. If we go up a level and look at
the State Attorney General, in this Florida's State Attorney General,
we see a different set of guidelines than those required by the
carriers. In the past, when changes were added by the state and by
Google regarding language and opt-in placement, we discussed how the
two didn't always match up 100%. But, they were close enough, and while
challenging from a conversion rate perspective, not insurmountable or
unreasonable. These changes aren't even close. The Florida Attorney
General, who has taken the lead on compliance and collection, has no
issue with carrier landing pages. And, unlike Google, they don't
require opt-in language on the cell submit page as no transaction
occurs and no use of the data occurs. Where they spend a lot of time is
on the PIN page, because the transaction takes place there. All jokes
aside, if it is good enough for the Florida Attorney General, who has
an entire division on this, you would think it should stand-up across
all fronts.
Those doing the marketing along with
those servicing the marketers face a double challenge. They often must
take the financial risk, and when it comes to revenue generation, they
sit at the bottom rungs of the ladder. We call it biting the hand that
feeds you, because by making changes without involving the crucial
players in the traffic acquisition, carriers will essentially see their
volume come to a standstill. The message sent is one that says, we
don't want to be in this business, as opposed to saying, we care about
our customers and we care about all excelling. It is in many ways like
the days leading up to CAN-SPAM. Email showed us that you can't operate
functionally if all the pieces of the ecosystem aren't talking and each
piece has its own rules. Mobile subscription services are already
dangerously close. Mobile subscription services are already
dangerously close, but it's not too late.
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