The key word in all of these ideas has been quality and not quantity. Today there is a focus on quantity before quality. We see this expressed in ideas like Freemium and in internet success stories like Google, YouTube, Twitter and Facebook. The simple idea that the market leadership on the web is can be measured by the number of nodes within the network.
The underlying assumption in all of this is that big traffic means big (future?) revenues, which means big (future?) profits. To date the only market leader – i.e. traffic leader – to have proven this model is Google (See Let’s call it the Google). All the others have failed miserably.
What I have attempted to show, by looking at the history of the MobCon, is that this assumption is fundamentally flawed. It isn’t the number of nodes in the network that we should be measuring. It is the quality of the connections across the network.
Until you start to measure and quantify the value of those connections then the metrics you are gathering a little more than noise on the radar.
Experienced marketers know intuitively that the secret to profitability is not volume. Margin is what determines your profitability. Low margin goods and services require very high volumes. High margin goods and services less so.
Customers can be measured and segmented along the same lines. Experience will tell you that some are productive and profitable. Some are not.
Customer Profitability = Duration x Value x Frequency
As a rule of thumb 20% of your customers generate about 80% of your profits.
They key to business success is to build a network of high value connections. The key to profitability online is no different.
You can go Freemium or you can go Premium. In the end the choice is yours. However be warned. Mark Cuban is right when he says that those who live by the Free die by the Free.
The secret to sustainable profitability is in the targeting of your most profitable customers and building your relationship with them. Holding them close to you is the marketing jargon we use today.
To do this you not only need to know who you want to do business with. You need to know why they would want to do business only with you! andyou also need to start removing those customers that take away valuable company resources from your most profitable clients.
Take a look at the customer relationship matrix below and ask yourself how do we increase our share of the customer’s wallet? The answer is simply by profiting through stronger relationships
Customer Relationships
Where do your customers fit in the matrix? You’re most productive and profitable clients are in the top right hand corner of the matrix. These are the customers you need to be thinking about acquiring for life.
If your customers see you as a low value Tactical Make Easy Supplier then you have a big problem. This of course is the key limitation of adopting the Freemium business model. It locks you in to the position of a Tactical Make Easy Supplier and it is very hard - and very expensive - when it comes time to move your customers northwards from that position.
As I have said before the winners of the next wave of the MobCon will not be those with the biggest network but those who are profiting from the aggregation of the high value networks.
These will be networks of high quality nodes with high quality connections. Not the mega networks dealing in the low value currency of Faux Friends.
Posted on December 30, 2009
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