Yesterday I followed the Twitter trail to a breaking story over at Business2Community on Direct Mail vs Email Marketing: The Data Driven Numbers. What I discovered was an article whose simple premise was that because sending out an email is a lot less expensive than printing and postage it is obvious that email is better marketing platform than Direct Mail.
Needless to say I was quick to provide a comment pointing out that ROI was the metric the author should be using and not production costs.
The key ingredient missing from your analysis is the ROI.
It is self evident that Direct Mail costs more than Email. The question that needs to answered is the extra investment worth it?
After all even $650 is a complete waste of money if all the emails you send out end up in the spam bucket.
US Advertising Industry stats published by the NAA suggest that Direct Marketing industry has grown more quickly than online advertising over the 10-15 years so one can only assume that the $48K investment must be still delivering a significant ROI in the age of digital otherwise the industry would be heading the same way as the newspapers.
Indeed if you take a closer look at the long term industry trends published by the NAA you’ll quickly discover it isn’t the internet that has eaten the newspapers lunch it’s Direct Marketing.
24 hours on and my comment is still awaiting moderation.
Over the weekend Michael Arrington wrote a piece entitled We’re in the middle of a terrible blubble in which he suggested that this isn’t a bubble. It’s more like a Blubble… Because there is a lot of whining going on. For Michael the big difference between today and 2000 is the HR Model (i.e. Hire Engineers not Sales People) and focus on keeping the costs to a minimum rather than chasing revenues (i.e. embrace Freemium).
Of course what hasn’t changed is the business model and the basic assumption that putting ads on the menu will pay most of the bills.
So the fundamental mistake Michael has made in his analysis is it doesn’t matter how well you manage your costs in the end. If not enough customers are willing to pay for your product with their “hard-earned readies” to cover your operating costs then you’ll crash and burn eventually. The only difference then is how you choose to orchestrate your demise: Will it be a slow and painful death by a thousand cuts or the spaced out delirium of the party that never ends?
I was going to leave a comment with Michael but not having a Facebook account kind of rules me out actively participating in the TechCrunch conversational economy. So I left it with Fred Wilson in response to his take on the subject.
Michael Arrington’s post was a smart piece of journalism on a notoriously slow news day.
However suggesting that things are different this time around simply because the HR model has changed glosses over the fact the economic fundamentals of doing business online haven’t changed over the past decade .
If we scratch away to the data behind Mary Meeker’s Web 2.0 from last year we discover that yes online advertising ARPU has risen from $9 to $46 over the past 15 years but the average revenue per web site from Advertising has fallen from $2750 to just $230. (See Web Economics 101 or why the Long Tail of the web is free)
Take Google’s share out of the revenue pie and you can just about half that number. (See Let’s call it the Google)
So yes the revenue pie has grown considerably ($54 Billion in 2010) but not as quickly as the number of mouths trying to feed off the advertising pie. (See The Good, The Bad and The Ugly of 15 years of online advertising)
This means it is significantly harder today to make money out of online advertising than what it was 10 years ago. (See Facebook 2010 vs Yahoo! 2000: A comparative table)
This lack of growth in the revenue base means the new entrants have to take market share off the incumbents to survive. (See Has the growth in online advertising flat lined since Google’s IPO?)
This is probably why Facebook’s advertising revenue growth is mirrored in the shrinking revenue base of the old dot com mega portals. (See If you think Facebook is disrupting Google you better think again.)
Things are probably even worse in the Mobile space. For all the good things we read about Apple and Android the US’s share of worldwide sale of mobile handsets has fallen from about 20% in 1998 to what is today? 5%? (See Forget Apple and Android. The real mobile growth story of the past decade has been Samsung and LG.)
So apart from one or two exceptions to the rule – Google being the most obvious example – it would be fair to say that 10 years on after the dot com crash Silicon Valley is still struggling to find a sustainable revenue model that unlocks the potential of profiting from doing business online. (See Take a closer look at the US online advertising spend data and you’ll soon discover the only market Google has disrupted is online and Are we really on the verge of the dawn of a new golden era in display advertising?)
After all, given the amount of time American’s spend on the web today and the rapid decline in print revenues, online advertising in the USA today should be at least a $120 Billion business. (See Why online advertising isn’t a $120 Billion industry in the USA today)
The problem of course is it is still only $26 Billion and that’s why the word bubble is hanging in the air.
Regardless of what you think of the current valuations for the So.Me properties (Think Facebook, Twitter, Groupon etc) the word Bubble is valid today simply because much of the online world lives and breathes what can only be described as a Thought Bubble.
A thought bubble that expends all its energies accentuating the positive and eliminating the negative on the potential of the web to change everything. Consequently the idea of the internet’s ability to disrupt industries and create new revenue models is amplified while the market metrics that suggest that the reality is otherwise is either quickly forgotten or conveniently hidden from view.
Of course there is the possibility that this thought bubble, this web wet dream, of the never-ending disruptive and profitable internet could become a self-fulfilling prophesy. If you believe this then by all means dream on.
However there is equally the risk that over the past 10-15 years this dream state has now become such a significant barrier to our thinking about the purpose and potential value of the web that we are no longer capable of generating the kind of innovation and experimentation that has the potential to create the truly disruptive technologies and business models that the web needs if it is to evolve beyond simply trying to survive by putting ads on the menu.
In the end I suspect if the future of doing business on the web is little more than survival by putting ads on the menu then the web of the future will continue to be a relatively small and largely self contain economy. More So.Me slum than the brave new world of the social economy.
So who knows maybe it’s time to pop the freemium thought bubble and go in search of a revolutionary new global web experience that is so disruptive customers will want to pay for it? After all, after 15 years of trying, you would have thought somebody would have discovered one by now.
Posted on April 29, 2011
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