Where is the Online Advertising Innovation?

Online advertising models are far from optimal.  Improvements would benefit everyone – from online media properties, to advertisers and even website visitors.  Improvements can only be achieved with the commitment of leading web properties and advertisers to work together to continuously test innovative new online advertising models.

Unfortunately the same standards groups that drove the initial success of online advertising may now be holding it back.  IAB standards transformed a highly fragmented online media landscape into something that large advertisers could purchase efficiently.  Rather than dealing with hundreds of ad specs, advertisers could limit their creatives to a handful of standard banner sizes. While this was critical for catalyzing initial online advertising growth, things were optimized on a less than perfect model.

For proof of potential advertising model improvements, just consider the leading search engines of 1999. Three of four are basically dead, while Google moved from obscurity to a $160 billion market cap.  This growth was largely on the back of an innovative advertising model.  Google didn’t follow the recommendations of the IAB, but the other search engines did.  Google’s new model delivered fantastic results to advertisers and provided a better experience for users.  At my current venture, we largely built our business through Google Adwords.

I believe there is similar potential for dramatic improvement in advertising on destination websites.  Again, pushing the envelop will require close cooperation between media properties and advertisers.

I first became fascinated with the potential of online advertising in 1995, when a friend showed me his business plan for an online advertising supported game site, Uproar.com.  His concept was that people would register to play free online games for a chance to win cash prizes.  Accurate registration information would let advertisers perfectly target their messages.  I had been selling print advertising so was eager to move beyond the static, untargeted world of print advertising.  In fact I took an interest bearing loan just to make an angel investment in the company.

When I later joined Uproar full time, we faced the daunting challenge of balancing advertisers’ needs for results with visitors’ desires for an entertaining experience. We launched with integrated animated advertisements targeted by demographics.  However, since our audience was so small, we couldn’t even give the ads away.  We were faced with the challenge of building a large audience and making it simple to buy advertising.  Eventually we settled on the standard IAB banners, but integrated them into the game flow to drive better results for advertisers.

There has been very little evolution in the 10 years since these standards were put in place. The primary difference today is that advertisers have become a lot more sophisticated at tracking results and media properties have added rich media.  Surely it is time for savvy publishers and advertisers to join forces to discover a much more effective way to leverage the potential of internet advertising.

What Makes an Effective Startup Marketer?

Should startups seek a seasoned large company marketing executive to give them credibility with VCs and drive their company to greatness?  Not necessarily.

Startup marketing leaders must be hands-on and dynamic.  A marketing executive from a large company is likely accustomed to relying on functional experts from across a big marketing department.  Their role is much more of a conductor than someone who actually executes marketing.

Additionally, the financial targets at a startup are initially much smaller than those at a large company.  Startups must manage many micro campaigns while they struggle for traction, but large companies must evaluate every marketing campaign for its potential impact against enormous marketing targets.  Small but profitable campaigns generally aren’t worth the time they take to manage.

Finally, startup marketers must approach their job with much more urgency than their counterparts at big companies. There is no momentum to carry them from quarter to quarter. While they are trying to discover marketing programs with a positive ROI, their company is burning precious cash on salaries and other fixed costs.

Finding a dynamic marketing leader for a startup is more difficult than it may seem.  Startup marketers must have strengths in both the creative and analytical sides of their brain.  They should possess the creative skills to know what to throw against the wall and the analytical skills to figure out what actually sticks.  And they can’t just be thinkers.  They must also be scrappy disciplined executers.

It is also important for startup marketers to be both conservative and aggressive.  Initially they trickle in customers to optimize their business model and hone their value proposition.  Once the business model has been refined and proven economically viable the marketer must switch into an aggressive mode to capture market share and quickly scale the business to cash-flow positive performance.  Despite the need for aggressive growth, effective startup marketers must retain the discipline to follow a systematic testing process of measurable programs.

With the right startup marketer, a new venture dramatically improves its chances of success.  Marketers coming from enterprises succeed despite their large company experience, not because of it.

Discovering Effective Marketing Tactics for Your Startup

Great startup marketers generally make excellent resource allocation decisions. We are all faced with the temptation to gravitate toward marketing tactics that have worked in previous companies. Unfortunately, an old marketing mix is almost never a perfect fit for a new marketing situation. For example, when I ran marketing at Uproar.com we relied heavily on banner advertising, even running the most viewed banner on the entire Internet for a period of time. We also had a large affiliate program with over 30,000 partners. Leveraging these key elements of the marketing mix we achieved the lowest registered user acquisition cost of any publicly traded company for a free online service.

Naturally I tried to replicate these marketing tactics at my next early stage company. Unfortunately they didn’t deliver the desired results. Though I still used a very online centric marketing approach, the marketing mix contained very different elements. For example, banners made up less than 10% of our marketing spend (compared to 90%+ at Uproar) and we didn’t even have an affiliate program.

So what is the key to discovering the right mix of marketing tactics for your particular situation? It helps to have a relentless drive to try lots of programs until you find some that are successful. But assembling an effective marketing mix goes beyond simply effort. Before even considering the marketing mix, you need to have a handle on some marketing basics like a proven value proposition. You also need the tools and processes in place to determine the effectiveness of each tested marketing program. The rest is really an art of knowing what to test and combining effective tactics in an optimal marketing mix. Like any other art form, creativity is a key advantage in building winning marketing programs.

Best Marketing Podcasts

Listening to marketing podcasts is a good way to make a long commute productive.  Occasionally they stimulate a great marketing idea, but at the very least they keep me informed about new marketing tools. I’ve only found one consistently good marketing podcast – Jenerous (formerly Marketing Monger).  Eric Mattson interviews several marketing leaders and entrepreneurs.  Many of his guests have a unique marketing focus (such as web analytics, branding, etc) so I learn something new from almost every podcast.  Unfortunately they don’t come out frequently enough to give me a good backlog of podcasts.  I’d love to get recommendations from anyone who has found other good marketing webcasts.  Please add suggestions to the comments.  

Beyond marketing podcasts, I also find a couple of tech podcasts to be informative.  I recommend TWIT (weekly) and CNet Buzz Outloud (daily).

What is Metrics Driven Marketing?


Metrics Driven Marketing drives strong overall marketing performance by improving predictability of returns on marketing investments.  With a metrics driven marketing approach the majority of marketing funds are invested into proven programs.  Still, 10-20% percent of the monthly marketing budget should be allocated to testing to stimulate progress. Tests should be large enough to give accurate performance insight, but small enough not to burn though a significant portion of the testing budget.  The majority of the marketing team’s time should be spent executing tests.  Proven marketing activities can largely run on autopilot with periodic reviews of the performance reporting.

In an early stage startup it is relatively easy to apply the principles of Metrics Driven Marketing.  That is because the purest form of Metrics Driven Marketing is direct response marketing – which should be a core part of every startups’ marketing arsenal.   Direct response marketing is a low risk approach.  It favors the small budgets available to most startups.  It also supports a startup’s discovery process of identifying the right target customers and developing a powerful value proposition.  Additionally, it allows a marketing team to focus on refining the brand experience and if applicable helps them optimize website conversion rates.  As customer acquisition conversion rates improve, the ROI from the direct response marketing initiatives also improves. 

Eventually a successful startups company will have to complement their direct marketing initiatives with more scalable branding campaigns.  That’s where Metrics Driven Marketing gets really tough.  Fortunately earlier efforts to refine the value proposition, brand experience and conversion metrics will pay dividends in broader reaching campaigns.  To track the effectiveness of these campaigns most savvy marketers use test markets and trend analysis.  Metrics Driven Marketing is not always about perfect ROI tracking – it’s about continuously pushing the tracking envelope and directing marketing funds to the most effective and accountable initiatives.  Rex Brigg’s book “What Sticks” provides excellent guidance for executing a Metrics Driven Marketing approach at scale. 

It is also challenging to analyze the marketing effectiveness of Blogs, viral marketing and word-of-mouth initiatives.  Fortunately most of these activities require relatively small financial investments, though the time investment can be quite large.  These activities require more creativity to determine appropriate measurable ROI targets than others.  For an example on tracking blogs see my post on measuring the loyalty impact of social media.  

What about marketing activities that provide important benefits that can’t be tracked?  I discuss this in another recent article.

Metrics Driven Marketing is surprisingly underused by many experienced marketers.  The marketing leaders who do use it (and succeed with it) generally have a good balance of analytical skills, discipline and a deep reservoir of creativity.  Not just the kind of creativity needed to come up with clever slogans, but rather business creativity to invent new marketing methods and tweak existing methods for cost-effectively reaching their target customers.  If this creativity runs dry, the testing halts and marketing results stop improving (and often start declining).

Of course, Metrics Driven Marketing is just the foundation of a strong integrated marketing approach.  Market research, particularly in depth customer research, is essential.  As is customer segmentation strategies, enhancing the brand experience, PR, mapping marketing objectives/strategies to overall company objectives/strategies…  But, these can all be strengthened by a foundation in Metrics Driven Marketing.

Metrics Driven Marketing can trace it roots to Claude C. Hopkins (1866-1932).   His book, Scientific Advertising, was published in 1923 and was a major breakthrough in testing the effectiveness of advertising (Read it free at http://www.scientific-advertising.co.uk/ ).  Lester Wunderman was also a key driver of Metrics Driven Marketing, primarily through his advancement of direct marketing (a phrase he was believed to have coined in the early 1960s).  More recently Rex Briggs has carried the torch of better marketing accountability to broader reaching brand advertising.  His book “What Sticks” is a must read. 

The uniting goal of all these pioneers is a desire to push the tracking envelope in all marketing activities and drive better, more predictable results.

I am a big believer in the power of Metrics Driven Marketing.  At my most recent venture, my first marketing hire was trained as an actuary (actuaries are the math wizards at insurance companies who calculate premiums based on risks).  This helped create a highly analytical marketing culture from the outset.


Effective Marketing in the Earliest Stage Startups

A few weeks ago Prism Ventures, one of my current VC investors, asked me to present to some of the newest startups in their investment portfolio.  The presentation was on how a new company should try to gain market traction.
Here is a quick overview of what I presented.  Initial success requires combining an urgent quest to discover profitable customer acquisition methods with a fear of wasting marketing dollars.  Ensuring that every dollar counts requires a very disciplined approach to testing.  It is essential that the right measurement and reporting systems are in place before testing begins.  In the earliest stages of a company, you don’t have the luxury to try to develop much brand equity – it’s all about identifying a sustainable high growth business model.  Once you’ve found profitable customer acquisition sources, building brand equity is a critical next step for building momentum.
This is the process that I used to kickstart my current venture.   In my earlier startup, Uproar Inc., we really hadn’t refined the process yet.

Pushing the Marketing Metrics Envelope

This time of year everyone is busy planning for 2007 so the Blog entries are few and far between.

A couple weeks ago I spoke at the emetrics conference in Washington DC. It was definitely interesting to interact with data driven marketers from arround the world.  Companies like Dell and AOL have some very smart people using data to make decisions that can instantly increase sales by millions of dollars in a single day.  I found that most of the data driven marketers were using similar marketing processes to the one we’ve implemented at my current venture.

I also met Rex Briggs at the conference.  He’s just completed an interesting research study where he worked with many forture 500 companies over the last five years and used cutting edge methods to track the effectiveness of their advertising across all media.  He then identified those marketing teams that had the most efficient advertising spend and looked at what they were doing differently.  All of his findings are published in a book called What Sticks.  I highly recommend it.  Again his ultimate findings are that the most effective marketers use a similar approach to us.

All of my research has been in an attempt to discover ways to improve our marketing process.  While I have discovered a few useful minor elements, I’ve also been able to validate that our highly effective marketing approach works for companies of all sizes.  It’s also great to interact with other marketers that are working to push the envelop of effective marketing by using detailed analysis and an continuous improvement testing approach.

Many Roads To Success – But Few Safer than Metrics Driven Marketing

A comment I received on my recent article on measuring the benefits of social media got me thinking.  If I can’t track a positive ROI from the time investment in Social Media, is it still worth doing?  After all, many of the potential benefits, such as word-of-mouth, would be so indirect they would be nearly impossible to tie back to the social media investment.  But clearly they would be valuable even if I can’t measure them.

Since much of my marketing experience has been in venture funded tech companies, I’m very cognizant of where I allocate my team’s time and financial resources.  A few bad decisions can easily cause a company to fold (most startups eventually do fail).  Luckily there is more than one path that leads to success.  Generally I try to stick to a path that consists of activities with very measurable benefits.   Of course many of these activities have additional benefits that can’t be measured, but if I can track a positive ROI then the less tangible benefits are gravy.  If an activity requires little investment risk, then gut feel is enough to keep doing it.  But if there is risk, I want to measure the results.

An investment in social media can be very time consuming.  Can we succeed without a large time investment in social media?  Absolutely.  Can social media be an important tool to help drive success?  Probably.  The only way to know for sure is to test it.  If I can measure a good return from the time investment in social media, then it will definitely be a part of our marketing mix.  If I can’t – it will have a minor role at best.

Software Marketing – The Channel Has Changed

Until recently software was primarily sold through resellers and retail.  Tradeshows were essential for promoting enterprise software.  Established players had the mindshare to be contacted when someone needed their software, and new companies had a hard time breaking into existing categories.

But software marketing is changing quickly.  Retail software companies like Egghead and Software Etc are gone.  Even the software sections at CompUSA and Staples are a fraction of what they used to be.  Comdex and other key tradeshows are history.  And value added resellers are scrambling to come up with more value added services to replace their dwindling software sales.

Why? Customers are now much more empowered then they used to be.  Who needs retail or a reseller when a free software trial is only a few clicks away?  Looking for an FTP program?  Google it and you will find several free, secure, and easy programs – whatever your needs, you are only a few minutes from finding the right solution.  Not sure if you trust the brand, Google the specific brand.  Generally you will find at least one review from a reputable publication.

And it’s not only consumers and small businesses using the web to find software.  Enterprises are also empowered to research and buy solutions online.  For example, at the very early stages of my current company (only a couple years ago) one of the world’s largest technology firms began assessing our solution.  Before the sales team even had a chance to speak with someone from the company, dozens of people were deep in evaluation.  How did they find us?  Google Adwords, of course. We’ve now completed several six figure transactions with this company on a trial that cost only a few dollars to generate.

Smart software marketers are enthusiastically following their customers onto the web.  It is a perfect medium for promoting and distributing software.  The web provides much better measurement than traditional marketing mediums.  Each campaign can be tracked by the cost of generating a trial and a purchase and comparing that to the projected lifetime value of each customer.  Campaigns that don’t yield a positive return on investment can be cut, allowing the marketer to concentrate funds in the most effective marketing campaigns.  Also, VARs no longer stand in between the publisher and customer.  Since the software publisher now fully owns the customer information, they can make a much more effective investment in CRM.  And brands can be built over time through branded customer interaction rather than through risky, less accountable print and trade show investments.   Finally, since packaging and distribution costs have been eliminated, software now really does have virtually zero marginal cost.

Online marketing, particularly search marketing is great for harvesting existing demand, but creating demand for a new category of software can be a bit trickier.  I’ll cover that in a future post.  Also, the software marketing landscape continues to change with the increasing popularity of software as a service (SaaS).  This brings additional challenges, but is even more suited to the web than traditional licensed software.  Again, I’ll cover SaaS in a future article.