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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