GigaOM » Online marketing

Revenue is the new black

Mon, 17 Dec 2012 14:53:59 +0000

Times are changing in startupland. A few years ago all the focus was on consumer internet companies that were huge and fast successes. Twitter rose to fame for microblogging — a need the world never knew it had. Foursquare’s meteoric growth was based on check-ins, a concept that most people barely understood. Gaining users on a big scale became the stuff that startup dreams were made of.

But the trend for focusing on getting big instead of watching the bottom line appeared to culminate early this year when OMGPOP sold to Zynga for $210m after rising to the top of the download charts in only six weeks, and then Instagram was sold for a billion dollars before ever making a cent. Then it was like something clicked. Perhaps it just became too unreal.

Today, the sentiment has changed. Now revenue triumphs user growth, and startups are shifting to building sales teams and partner channels again after years of investing in online marketing alone.

Investors under pressure

A major factor behind this change lies in the altered outlook of investors. Startups need funding, so they’re affected by the mood of the people with money — and today many investors are struggling to raise new funds themselves. They’re caught in the crossfire between poor returns of venture capital overall, and a delayed correlation to the general economic downturn. This has a natural impact on their confidence level, which causes them to make more conservative investments. It’s a shift is felt very clearly on the receiving end, namely startup founders.

As VCs replace bravado with skepticism, founders are met with a new and different attitude. They’re hearing less about driving growth and more about driving revenue.

This shift means a move towards B2B, subscriptions and affiliate models, rather than ad-based approaches that require huge user bases. Until recently, the goal for many startups was to build a huge independent social network, but as rival platforms grow stronger, it becomes harder and more expensive to break through. Right now the most likely path to success is building on top of social networks rather than trying to out-compete them.

Path is a great example: it was hailed the new black under the old regime, but has struggled to create its own substantial community. Meanwhile Foursquare seems to have stalled at 25 million users. On the other hand, Airbnb is great example of a post-shift company with a crystal clear business model. Similarly, hotelstonight, which sell same-day unsold hotel inventory, has become the newest big success in travel by inserting themselves into the moment of transaction. Evernote and Ancestry, meanwhile, are great examples of successful affiliate models.

Trickle-down economics

It’s interesting to observe the slow but inevitable effect of the economic downturn. The first years of the crisis were still good years for startups, without too much change in sentiment from what had gone before — despite warnings that “the good times were over”. Most founders reported that there were plenty of new money going around. Super angels and micro VCs sprang up everywhere to fill the gaps poorly covered by traditional investment.

Part of the reason for this is the cyclical nature of VC funds. Most funds run over a period of 10 years, so crisis only hits VCs as their funds run out. Should this correlate with a bad economic climate, this can be a serious hindrance to their ability to raise a new fund. So what we’re seeing now is five years of accumulated hard times in raising new funds. Since the crisis kicked in in 2007 more and more funds have run out, many have not be able to raise new ones, and eventually the startups lower down the food chain start to feel the crunch.

At the same time as the trend is shifting towards revenue, we also see a reduced amount of seed stage investments. Only 4% of American venture capital in 2011 went to seed stage companies, around half as much as the year before. This means the environment for seed funding becomes more competitive, driving down valuations. This incentivizes entrepreneurs to raise smaller rounds to minimize early dilution and smaller rounds mean founders need to go further on the dollar. They can do this by staying lean, but many also supplement investment with early revenue — and since early revenue is likely to be vital in securing the next round, we’ve got ourselves a perfect circle. Everything points to revenue.

The consequences for founders are big but, I would argue, healthy. Even if your company isn’t a subscription, affiliate or B2B service, you could probably benefit from shifting closer to the transaction. A good example is Pinterest: it doesn’t sell anything itself, but its affiliate play drives more revenue per click than the alternative social networks.

If you ask me, the change in zeitgeist is a good thing for serious founders, as it channels more money into sensible models which we can build serious businesses on. Founders shouldn’t get carried away with thinking that a startup is a discipline in itself: it’s just a mini business. And business survive by generating substantial revenue. While VCs might be able to afford to write off 8 out of 10 investments, entrepreneurs cannot, since most of us don’t start 10 companies in a lifetime.

This shift is our opportunity — the opportunity to take charge and build stronger companies.

Tine Thygesen is the CEO of Danish travel startup Everplaces and the co-founder of Founders House in Copenhagen.

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LocalVox raises $7.4M for one-stop shop for local marketing

Ki Mae Heussner — Wed, 17 Oct 2012 13:00:22 +0000

Local businesses interested in getting their name out to clients and potential customers have increasing options, between social media, mobile, search and other more traditional channels. But New York-based LocalVox believes that for many small- to medium-sized businesses, navigating all of those options is complicated, overwhelming and expensive.

To address that, the company last year launched a full-service marketing platform for local businesses and today LocalVox is announcing that it has raised $7.4 million in Series A funding from Talus Holdings, a local media holding company backed by Blackstone affiliate GSO Capital Partners LP.

With the new funding, LocalVox said it plans to expand from New York and Hartford to the top 20 markets nationwide, as well as build out its products and strengthen its network of partners.

“Marketing, we feel, is one of the most misunderstood terms in business for SMBs,” said LocalVox co-founder and CEO David Pachter. “SMBs think about marketing inherently as something that big companies with marketing budgets and marketing directors do and not something that’s important for local businesses. What we’ve built is something that makes marketing an essential tool for local businesses.”

On a mostly subscription basis, LocalVox helps SMBs do everything from updating their own websites and publishing email newsletters to posting on and monitoring Facebook and Twitter to establishing presence on Yelp, Foursquare, Google Places and more. The company also enables clients to market across its network of publisher clients, which include Manhattan Media properties, CT1 Media (a Tribune company) and other local publishers in New York and Hartford.

Local online marketing is certainly a growth area – research firm BIA Kelsey expects it to grow from $27.1 billion in 2011 to $42.5 billion in 2015 and tech giants like Facebook and Google have repeatedly expressed their interest in going after more local dollars. While other companies offer solutions targeting specific channels in local marketing, LocalVox said it’s the most comprehensive platform for SMBs. But particularly with its recent acquisition of social marketing firm Wildfire, you could expect Google to offer a wider range of advertising products to SMBs. Other startups, such as ThriveHive and MarketMeSuite, similarly target SMBs with marketing platforms.

LocalVox said the 50-person company has hundreds of clients, including Whole Foods and Chelsea Piers in New York, and plans to further expand its mobile products in the coming months.

Image from Zinchuk_Oksana via Shutterstock.

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U.S. to top the world in mobile ad spending for the first time

Ki Mae Heussner — Wed, 01 Aug 2012 18:15:34 +0000

Every year, for the past few years, marketers have been insisting that ‘this will be the year of mobile.’ Well, it looks like this year might actually be a high watermark for mobile advertising in the U.S. in some kind of quantifiable way.

For the first time, the U.S. will spend more on mobile advertising than any other country, including Japan, which had been the reigning leader, eMarketer said Wednesday.

According to the research firm’s forecast for worldwide mobile ad spending, advertisers will spend more than $6.43 billion globally in 2012, with the U.S. contributing $2.3 billion and Japan following with $1.7 billion.

“The big underlying reason is that smartphone growth and mobile Internet usage is growing very quickly in the U.S. and you’re starting to see a tipping point where a majority of people are starting to use smartphones… or mobile Internet,” said Clark Fredricksen, vice president of communications for eMarketer. “That’s causing a lot of interest from advertisers.”

Additionally, he said, the increase in mobile spending is stemming from the fact that many advertisers in the U.S. already spend heavily in digital and are moving more money into mobile and from consolidation among U.S. ad publishers (for example, Google’s purchase of AdMob and Apple’s acquisition of Quattro).

The research firm expects the U.S. mobile ad market to grow 96 percent in 2012, which is a decline from the 126 percent growth in 2011, but Frederickson said they expect growth to slow because the market is maturing.

Despite the booming interest in mobile advertising, it’s important to note that mobile advertising still accounts for just one percent of the total ad spend in the U.S. and worldwide.

In terms of global ad spending across all categories, eMarketer projects that total media ad spending will grow 7.4 percent this year to $542.3 billion, with help from a small bump from the Olympics, and decline next year to 6.4 percent. Next year, ad spending in China will reach $53 billion, surpassing spending in Japan for the first time, and placing it behind the U.S. as the country with the second highest amount of ad spending.

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Percolate’s latest brew aims to make brands better social curators, content creators

Ki Mae Heussner — Wed, 18 Jul 2012 12:00:15 +0000

New York-based Percolate is ready to serve up its latest brew. The startup, which helps brands act like savvy curators of the social Web, launched last year with a platform that filters through hundreds of sources of content, bubbles up the most relevant pieces and then lets brands share them on Facebook, Twitter and other social channels.

But the company’s newest version, which it released to clients last week, goes beyond the curation of content from other sources to making it easier for brands to tap into their own reserves of digital content. In addition to indexing and tagging brands’ owned content, a few other updates include enhancing the algorithms that recommend the best content, providing extra monitoring and notifications around the performance of posts, and automatic optimizing for the different social platforms.

“The biggest challenge brands have is, ‘what should I be talking about now?,’” said Percolate co-founder James Gross. “It’s not audience acquisition – you can buy followers – and distribution is also taken care of [with Facebook’s reach generator, for example]… The challenge is what content do I create right now.”

To help a brand figure out the kinds of content that it should be sharing, Percolate maps the brand’s “interest graph” against more than six million sources and finds the references, which can include from 500 to 1,500 sources, that are unique to each brand. From there, Percolate’s algorithms consider a number of variables, including recency, popularity, authority and, most recently, keywords, to suggest the different content that a brand’s social editor should share everyday.

The company’s latest update, which more intelligently indexes a brand’s owned content and expands the function to YouTube, Vimeo and Instagram in addition to RSS, Twitter and Facebook, could help brands better adapt to Facebook’s new Timeline-centric pages, which demand more content, including historic content. It could also help brands really take advantage of their collections of videos, ads, images and more (which could go back decades, in the cases of companies like Apple, IBM and GE).

“[This is] a more sophisticated way to allow what people are talking about and the sources they’re talking about to map against content that a brand already owns,” he said.

Social media management platforms like Salesforce’s Buddy Media, Hearsay Social and Wildfire help brands manage their presence on different social media platforms, but Percolate’s big selling point is that it helps brands become better participants in social media by helping them figure out what to say.

In the past year, Percolate, which raised $1.5 million in seed funding, has attracted 25 top-tier clients, including American Express, Samsung and GE, who pay the company’s subscription fee.

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New Facebook ad offerings fill some holes

David Card — Mon, 05 Mar 2012 15:51:37 +0000

Facebook needed to change the way it sold advertising inventory and add some glitzier formats. Last week, at its fMC event for marketers, it made some progress towards addressing those needs. Let’s see what Facebook is doing right and where it still has holes.

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The capex connection: Why we pay for privacy on the Web

Derrick Harris — Thu, 01 Mar 2012 07:55:03 +0000

There is a big connection between Facebook’s large and growing infrastructure budget and advertising, the latter of which is the primary culprit behind many privacy concerns. The gist is that ad-supported web platforms such as Facebook have to spend lots of money on infrastructure in order to maintain adequate performance levels and power new features. However, that means every dollar spent on infrastructure has to add up to even more money brought in by advertising. Simply put, the true costs of building new infrastructure take a huge bite from a company’s bottom line — in more ways than one.

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Law of large numbers: the issue behind Facebook’s IPO

Mathew Ingram — Mon, 27 Feb 2012 17:00:43 +0000

According to some, Facebook’s IPO — which could value the company as high as $100 billion — could be the most popular tech-stock issue since Google went public in 2004. And with close to a billion active users, Facebook is already the world’s largest social network, and it is already generating billions from advertising directed at those users. But the bottom line for investors and analysts is, Can Facebook grow enough to be worth the investment, or is the company nearing its peak?

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Digital won’t “evaporate” ad dollars

David Card — Mon, 27 Feb 2012 14:00:37 +0000

A new survey has revived the fear that digital ad spending will shrink the overall pie. While newspapers have it tough, other big ad markets are still pretty healthy, and technologies like targeting and social media advertising could still increase the value of — and thus spending on — both digital and traditional media.

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Facebook’s IPO filing: ideas and implications

Mon, 06 Feb 2012 19:50:52 +0000

Gentlemen, start your engines. Facebook filed for its initial public offering on Feb. 1. Expectations are that in May it wants to raise $5 billion, which would make it the biggest tech IPO since Google’s in 2004. Valuations and timing may shift, but as Om says, Facebook will be doing the mother of all IPOs, with effects on hiring and acquisitions that will ripple throughout the startup and tech communities and at Facebook itself. This report outlines the myriad issues at play in such a big move, from examining how CEO Mark Zuckerberg wants to rewire the world to understanding the changing implications for the company’s infrastructure dependency. But no matter the angle, one thing is clear: The company’s filing has the potential to change the game for the tech industry. Companies mentioned in this report include Facebook, Zynga and Google. For a full list of companies, and to read the full report, sign up for a free trial.

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NewNet Q4: Platform mania and social commerce shakeout

Thu, 19 Jan 2012 20:39:31 +0000

The fourth quarter may have lacked a dominating big-event product announcement like Q3’s Facebook platform extension or Q2’s unveiling of Google+, but the NewNet world continued to buzz along. In the battle for mind share, everyone wanted to be a platform. Meanwhile, consumer and social technologies continued to gain momentum, and new vehicles for content and service discovery presented both challenges and opportunities for NewNet companies. And it is hard to ignore the overcrowded but growing world of daily deals. This quarterly report analyzes these trends and others, and it also provides a near-term outlook of trends, technologies and companies to watch in 2012. Companies mentioned in the report include Amazon, Facebook and Socialcast. For a full list of companies, and to read the full report, sign up for a free trial.

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