Milestone Group Quarterly: January 2007
Articles
Milestone Group PoV:
Monetizing Web 2.0 by Johannes Hoech, Managing Partner
A CEO or head of marketing at a small to mid-size company have this in common: they both want less expensive, online lead generation techniques than their sales force or traditional marketing approach have, thus far, been able to offer.Well, there is good news and bad news. The good news is that with the arrival of Web 2.0 (for more information about Web 2.0, please review a selection of links at the bottom), the breadth of available online marketing techniques has proliferated. For example, a recent survey by Zoomerang (November 2006) indicated that of those using Web 2.0 online marketing techniques, the tactics the respondents used included “corporate or employee blogs (57%), social networking (50%), podcasting (39%), peer services (32%), video sharing (29%) and advertainment (25%).” Just a few years ago, such a breadth of online marketing techniques was unavailable, and online marketing pretty much consisted of banner ads or direct email campaigns.
The bad news is that many marketers do not feel they have effective models available to help them decide whether or not they can benefit from Web 2.0-based marketing. While on one side "more than half of firms are planning to adopt Web 2.0 technologies" in 2007 (Source: E-consultancy, Nov 2006), less than a quarter of respondents in the Zoomerang survey were familiar with the term "Web 2.0." And about a third of those - or 7 percent overall - said that, “they were employing the tactics.” This knowledge gap can be especially severe for those trying to reach a young demographic when there also is generation gap between the marketer and the audience he or she is trying to reach.
Web 2.0 has more to do with marketing tactics than with strategy. Despite the proliferation of Web 2.0 strategies and techniques to reach a target demographic, Web 2.0 does not change the principles underlying marketing on the Web. While the banner ads of old have long been complemented by more effective advertising models such as search engine ads, the use of e-zines, webinars and, of course, the growth of blogs and podcasts. But again, despite their proliferation, these methods follow the same principles:
- Ad revenue = CPM x Volume (e.g., hit rates, numbers of visitors)
- CPM is a function of click-through-rates (“CTR”) times demographic relevance
- Demographic relevance correlates with how well an ad is targeted to the viewing demographic given the advertiser’s and publisher’s knowledge about the user base
So, the more clearly a demographic can be targeted, the more expensive the ads become. As well, when more people end up clicking through (given the relevance of a particular ad), the more will need to be drawn from the total online advertising budget. Thus, it all begins with clearly identifying and characterizing a targeted buyer population.
Let’s take the example of MIS professionals that are willing to use Open Source software.
By simply advertising on one of Yahoo’s popular pages the CPM paid will be moderate (due to a low ability to target a specific user population, but moderated by the fact that Yahoo is more expensive site on which to advertise). Multiplying their huge volume by a moderate CPM, however, can still spell a large consumed advertising budget, much of it potentially wasted since it is not aiming at the precise demographic we want in this example.
On the other hand, with the benefit of research on Open Source-friendly MIS professionals and the blogs they frequent then certain blogs or community sites such as SourceForge.net can be used to assemble a portfolio of online venues that are visited by the target population. This will require detective work combined with much trial and error, but eventually the search for these venues will pay off.
In this case, the required ad budget will be small to moderate since it stands to reason that a high CPM (we are now targeting a highly characterized, thus more valuable user population) multiplied by small to medium volumes requires less investment. Remember, the whole world doesn’t have to know about your product, just your targeted buyers. And so, the initial effort of finding the little known, undervalued venues on the Web will more than pay off in saved advertising dollars later.
Once the target demographic is defined and located online, the third challenge of Web 2.0 advertising comes into play. This has to do with creating ad content and formats that engage them while matching the norms and conventions of the targeted advertising venue. Web 2.0 is, among other things, all about user participation and active involvement through widespread community features. (The growth of social networking via MySpace or FaceBook or professional networking services like LinkedIn and user supplied ranking and rating, as evidenced by indel.icio.us or StumbleUpon are cases in point).
A key issue to be aware of when “advertising” using these new, Web 2.0 techniques and venues is that overly aggressive advertising is often viewed as excessively self indulgent. Instead, advertisers are well served by “Web 2.0-izing” their advertisings (i.e., providing content to a venue that matches that venue’s direction and flavoring, and that is also informative). The Web 2.0 user community is highly participative and wants to be informed, not sold to. Thus, it may make sense to develop a small editorial staff to monitor the high priority venues, to engage in the blogging, as well the rating and ranking activities going on there. This, in addition to providing new and relevant content to the venues that will in turn continue to drive traffic to one’s own on-line presence.
Last but not least, the way to make money on the Internet is, of course, to sell things there, and when done by intermediaries such as Amazon, eBay, or the large number of travel sites, publishers can receive commissions from the services or merchandise being sold through their online properties. To maximize their own revenues, these sites increasingly rely on Web 2.0 type features to move their offerings, the most common being user generated product or service rankings and ratings, or blogs discussing products and services. Thus, those who both advertise and sell online, need to keep a watchful eye on the user-generated content that can either accelerate or slow down on-line sales and complement Web 2.0 advertising tactics as well.
Here are a few sources of information about the Web 2.0 phenomenon:
- The Best Web 2.0 Software of 2006:http://web2.wsj2.com
- What is Web 2.0:http://www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what-is-web-20.html
- Web 2.0 Impact:http://www.b-eye-network.com/view/3131
- 2007 Web 2.0 Conferences: http://www.somewhatfrank.com/2007/01/the_2007_web_te.html
- User Generated Content:http://www.wikipedia.org
Johannes Hoech is managing partner at Milestone Group. Johannes has a broad background as an entrepreneurial Product Management and Marketing Executive with broad functional and technology industry expertise, a proven track record of not only conceiving new ideas but also executing to plan, and a strong ability to motivate and lead teams effectively and efficiently. Unique combination of deep analytical and strategic skill sets with creativity and innovation. Johannes has experience within both Fortune 500 and startup companies focusing in security, messaging, web consumer applications as well as enterprise software. Clients have included AOL, ArcSight, Brightmail, Mitsui, NetIQ, Palm, Postini, PeopleSoft, SEVEN, Symantec, Toshiba, Wipro, Wireless Services. Johannes received his M. Eng. & B.S. from the University of California, Berkeley and his MBA from MIT Sloan School of Management. |
