How Much Interactivity Does Online Marketing Need?

We hear it all the time: Online marketing gives us "interactivity" with our clients.  It provides a chance to not only tell our story, but to listen to the stories of our customers.  Via various e-marketing applications, we can open up "a dialogue" with current and potential buyers.

But is interactivity in online marketing being oversold?  How much interactivity actually takes place?  And how much interactivity does your online marketing need to reap the benefits of various e-marketing tools such as social media, mobile apps, smart devices, behavioral advertising, and even just "old-fashioned" websites?

The Selling Points of Interactivity

Ever since the early days of the internet, marketers were excited that instead of just sitting in front of a television, potential customers would be surfing, searching, and socializing in a manner that allowed consumers the ability to self-select advertising messages, thus increasing the effectiveness of each particular ad that a consumer encountered.  As more interactive communication tools were developed, marketers dreamed of a world where every consumer would be their "friend" and billions of conversations would lead to more connectivity, positive affect, and brand loyalty.

Marketers built websites that did more than just present information.  They allowed visitors to play games, build potential products, and visualize products in various environments.  They invited consumers to interact through email, chat, discussion boards, feedback forums, and wall postings.  And they begged these same consumers to tell their friends of their excitement for the brand via votes, rankings, shares, likes, diggs, tweets, etc.

Marketers based their excitement for interactivity on the idea that more interaction or engagement would bring consumers psychologically closer to the brands that were being marketed, and that consumers would start to have some degree of loyalty toward the brand akin to one's loyalty toward friends.  But that's not always how it worked.

The Problems with Interactivity

There were five main problems with the dream of online interactivity:

1. Interacting with consumers takes a lot of time, and time means money.
2. Interaction is not always positive.
3. As more companies interact, your particular brand isn't so special anymore.
4. Once you start a consumer "friendship," it's hard to stop.
5. Consumer interactions with each other may damage your brand image.

1. Interacting with consumers takes a lot of time, and time means money.  The first problem with interactivity, that it takes much more time than first thought, is a deal-breaker for a great many firms these days.  In the earlier days of online interactivity, marketers sent out an email or two in response to an online consumer inquiry.  As interactive methods were developed, the scope and intensity of interaction grew as well.  Now, with thousands (or millions) of consumers following a particular brand on Twitter, YouTube, Facebook, and elsewhere, it's nearly impossible to respond to all posts much less read what is said about the brand.  Quite often, firms use algorithms to sort through comments or tweets to determine trends (whether positive or negative) without having to read each post.  Regardless, the promise of interaction has come to represent a fairly heavy financial burden on brands that truly want to interact on a one-to-one basis.

2. Interaction is not always positive.  When a customer sends a letter or an email complaining about a particular aspect of your brand, you have the opportunity to reply (if you have the time and labor force) in an attempt to resolve the complaint.  Fortunately, whether or not the complaint is resolved, the communication typically remains between the brand and the individual consumer.  The use of social media as an interaction tool, however, has opened up negative communications to other customers and, quite often, to the general public.  When marketers are slow to address negative comments, there is the risk that such comments will snowball and pull in consumers who may have similar tendencies toward negativity, but who were not prone to act upon that negativity in a manner that hurts the brand.  Although many optimistic marketers will suggest that any such avalanches of public complaining behavior provide an opportunity to improve the product offering and resolve the complaints, quite often the damage of a slew of negative commentary is hard to overcome.

3. As more companies interact, your particular brand isn't so special anymore. When you're the first in your market to respond to a consumer's desire for interaction, the effect is likely quite positive.  But the current state of the marketplace allows companies both large and small to interact with individual consumers at a relatively high frequency.  In other words, those consumer friends you were trying to bring to your lunch table are being wooed by a number of other suitors who may be having something better for lunch.

4. Once you start a consumer "friendship," it's hard to stop.  For many early entrants to the consumer interactivity game, the significant increase in employee or contractor time to interact with clients became unwieldy.  As new marketing metrics were developed, brand managers often found negative returns on the interactivity investments.  This resulted in decreased funding for interactive marketing.  It wasn't that brands wanted to say "goodbye" to their new consumer friends, but just that they didn't have so much time to talk anymore.  Unfortunately, many clients had become accustomed to the high levels of interaction and when interactivity declined, the potential for consumer disappointment became greater. 

5. Consumer interactions with each other may damage your brand image.  Positive word-of-mouth has always been appreciated by savvy marketers.  The advent of interactive e-marketing brought with it the potential not only for interactivity between the brand and the consumers, but between consumers as well.  While this meant a greater potential for positive word-of-mouth (or in its ultimate form, positive viral marketing), it also meant that negative talk could also be propagated.  In its innocent forms, this meant that disgruntled consumers could spread the word quite easily to other consumers about a particular negative aspect of the brand.  In its more sinister forms, it meant that competitors could infiltrate your brand's consumer base and make trouble like never before.

How much interactivity is needed?

Clearly, the answer to the question of how much interactivity is needed depends on the firm, the industry, the market segments to be served and their expectations, the competitive environment, the available technology, and the costs to interact.  Time and time again, marketers are quick to promote the idea that interactivity is the holy grail that will elevate a brand to highly profitable levels.  However, most marketers are slow to embrace the need for clear metrics to measure costs and benefits of interactivity.  But that's a topic for another day.

In the meantime, let's follow the premise that interactivity, at least to some degree, is sensible.

Be sensible,
Anthony


A few more things to peruse:

Kim, Ryan (2011), “Badgeville Turns Any Website into a Social Network,” Gigaom (September 12), http://gigaom.com/2011/09/12/badgeville-turns-any-website-into-a-social-network/.

Napoletano, Erika (2011), “How Two Small Companies Are Driving Revenue Using Social Media,” Entrepreneur (September 26), http://www.entrepreneur.com/article/220354.


Stead, Sylvia (2012), “As Online News Changes, Interactivity Becomes Important,” The Globe and Mail (April 2), http://www.theglobeandmail.com/community/inside-the-globe/as-online-news-changes-interactivity-becomes-more-important/article2389762/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=Home&utm_content=2389762.

Zooppa.com, Inc. (2012), “Traditional Advertising Lacks 'Creative Interactivity' According to Online Creative Community Survey,” GlobeNewsWire (March 13), http://www.globenewswire.com/newsroom/news.html?d=248899.

E-Marketing and Politics: How True Is Online Truth?

Election time is upon us.  And with it comes a barrage of ads for and against the candidates in various races.  This election will no doubt have the highest amount of online ads than any election before.

Whether following the latest polls or scouring the Internet for the latest video clips of your most (or least) favorite candidate, there is no doubt that the online world has opened up a Pandora’s box of information regarding U.S. and world politics.

In the early days of political communication, voters either had to be at a presidential speech or debate, or else read about it in the newspaper, sometimes days or weeks after the actual event.  Then came television and the opportunity to reach millions of viewers at once.  In fact, it was 52 years ago, on September 26, 1960, that approximately 70 million U.S. viewers watched the first televised presidential debate – between John F. Kennedy and Richard M. Nixon.

Fast forward to 2008 and for the first time in history, YouTube became a significant information source for U.S. presidential politics, with almost 40% of voters saying that they had seen some type of campaign-related video online.

So what’s in store for 2012?  Both Twitter and Facebook have joined the fray and seem essential to any presidential candidate who hopes to sway online voters.  (And who's to say whether politics will invade the less popular, but growing, sites like Tumblr and Pinterest as well?)

Is Online Truth Less Truthful?

A larger concern for political candidates from any party is the nature of the information that is available online.  In years past, newspapers, although perhaps in support of a particular candidate or set of philosophies, typically were cautious in reporting “truth” as filtered through reporters, editors, and publishers.  Television had similar checks to verify the accuracy of information.

Yet there are no such filters when it comes to posting information online.  The widespread capacity of creating not just static text, but also professional-grade video, has also given political advocates the opportunity to spin tales that are biased at best and drastically untrue at worst.  When combined with the massive growth of user-generated content and the popularity of social media sites, the validity of political information is at risk perhaps as never before.

So what do you think?  Is online information to be trusted, particularly when it involves politics?  And if it there is truth in online political messages, how can one separate it from the lies?

Truth is sensible, even in politics.

Be sensible.
Anthony

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A little more reading...

Allen, Erika Tyner (2012), “The Kennedy-Nixon Presidential Debates, 1960” The Museum of Broadcast Communications <http://www.museum.tv/eotvsection.php?entrycode=kennedy-nixon>.

Schwab, Nikki (2008), “In Obama-McCain Race, YouTube Became a Serious Battleground for Presidential Politics,” U.S. News & World Report (November 7), <http://www.usnews.com/news/campaign-2008/articles/2008/11/07/in-obama-mccain-race-youtube-became-a-serious-battleground-for-presidential-politics>.

Behavioral Advertising and Your Privacy: Facebook and Google Push Forward

Long before the days when snake oil salespeople would deftly select their marks from a crowd of curious onlookers, sellers have been using market segmentation to determine which customers, or more generally which types of customers, are more likely to succumb to a particular set of marketing efforts and which are presumably a waste of time.  (Or in the latter case, which segment would benefit from a different set of marketing efforts.)

Fast forward to the world of e-marketing where electronic data collection and detailed information on potential customers allow marketers to divide markets into subsets more easily and more accurately than ever.  Rather than use only state-of-being characteristics (such as demographics, socioeconomics, and geographic features) and state-of-mind characteristics (such as attitudes, interests, and opinions), online marketers can now use behavioral characteristics such as which websites are visited, which hotlinks are clicked, the pattern of online web surfing, and the timing of each visit.  This behavioral data provides additional information that allows marketers to target consumers with advertisements or product offers that are more likely to be received favorably.  This is the essence of online behavioral advertising (also called behavioral targeting).

What does this mean to consumers?  The good part of behavioral advertising is that consumers are likely to receive more advertising that is relevant to them and less that is irrelevant.  Behavioral advertising also should increase marketer efficiency, which should allow marketers to offer products at lower prices if the marketing cost savings are passed on to the consumers.  The downside, however, is that consumers may feel that their privacy is violated by the intense monitoring and data sharing that occurs due to behavioral advertising.

What’s New?

The issue of privacy has been discussed numerous times in the past (in this blog several times – click here, here, or here for some examples).  But now Facebook and Google have been accused of pushing the data collection portion of their behavioral advertising efforts even further.

Facebook recently announced that it would require its subscribers to use their new Timeline format for their profiles.  Although technically, this would not provide any additional personal information than what a user has provided in the past, privacy advocates are concerned that the new format would make information, particularly older postings, more easily accessible.  (Rather than having to press “older posts” continually and purposefully, the information could be acquired with just a little scrolling and a simple click.)

As for Google, the recent announcement that it will combine information from various sources to create better search results also has irked consumer advocates who feel that building detailed profiles from online behavior is an invasion of one’s privacy.

So What?

Although many online consumers express concerns about the privacy of personal information, they continue to make purchases, provide information on Facebook and other social media platforms, and/or surf the internet non-anonymously (e.g., while logged into one of Google’s properties such as YouTube or Gmail).  Thus, the push by consumer advocates to have new laws created that limit the data collection and consolidation capabilities of Facebook, Google, and the other large online forces will not carry much weight.  (Not to mention that both Facebook and Google have increased their political lobbying spending greatly over the past few years.)

What do you think?

Will Google and Facebook continue to squeeze more information out of online consumers and use it to microsegment the internet population, providing even more targeted marketing offers?  If so, is this good or is it bad?  Better yet, is there anything online consumers can do about it?

Segmentation is sensible, but so is a bit of privacy.

Be sensible.
Anthony
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A little more reading...

Acohido, Byron, Scott Martin, and Jon Swartz (2012), “Consumers in the Middle of Google-Facebook Battle,” USA TODAY (January 26), <http://www.usatoday.com/tech/news/story/2012-01-25/google-facebook-competition/52796502/1>.

Hart, Anne (2012), “Google Plans to Follow Online Activities of Users,” Allvoices (January 25), <http://www.allvoices.com/contributed-news/11378223-google-plans-to-follow-online-activities-of-users>.

 Kupka, Anna (2012), “Facebook Timeline Now Mandatory For Everyone,” Forbes (January 24), <http://www.forbes.com/sites/annakupka/2012/01/24/facebook-timeline-now-mandatory-for-everyone/>.

Killing SOPA and PIPA: Did "the people" (or you?) really make a difference?

A mere few weeks ago (mid-January 2012), we were told by the press that the online world witnessed the formidable power of internet protesting as two new anti-piracy bills were shut down before they were able to have serious debate by the United States Congress.  As online users all over the U.S. and beyond became aware that the bills in question were being "postponed indefinitely," any significant reading of blogs, comments, and other online chatter made it clear that the general populace had become convinced that the collective "power of the people" was responsible for this legislative outcome.

But were they really?  Was it really the collective power of the people, or some other less organic influence that altered the future of internet legislation?  Before answering this question, let's briefly consider what this fight was all about.

PIPA, SOPA, and Online Piracy
The Protect IP Act (PIPA) and the Stop Online Piracy Act (SOPA) were originally developed to combat the ever-growing online piracy dilemma.  Online piracy has grown to epic proportions, with almost an entire generation of youth now regularly downloading copyrighted music, movies, pictures, and books without providing any compensation to the creators and distributors of such works.  These activities generate a number of concerns, among them the potential that the drastic reduction in revenue for information and entertainment sources ultimately will result in lower quality content and production.

Although laws already exist in the United States to protect the intellectual property of various creative endeavors, a great deal of the online piracy unfortunately is derived from foreign sources beyond the scope of U.S. law.  The intent of PIPA and SOPA was not to punish foreign piracy sources directly, but to limit their reach and scope by punishing U.S. companies that facilitate the digital data transfer or assist web users in finding the illicit websites.

Who Was For and Who Was Against?
Although there is much agreement that online piracy is rampant and that it is harmful to the creative processes (i.e., stolen compensation demotivates artists to produce complicated and costly work), several large organizations were at the forefront of either supporting or opposing PIPA and SOPA.

On the supporting side were what blog site Boing Boing said were “five Hollywood studios, four multinational record labels, and six global publishers” that were trying “to maximize their profits.”  There is compelling evidence of their assertions: organizations such as the Motion Picture Association of America and the Recording Industry Association of America expressed early support for these bills.  They were joined by media behemoths such as Time Warner and News Corp.  These firms generally argue (and rightfully so) that online piracy steals revenue, reduces the funding for quality content, and creates a culture of theft rather than fair exchange.

Wikipedia's Homepage on SOPA Protest Day

So with such good ideas for supporting SOPA and PIPA, who was against them?  On the opposing side was, in essence, the Internet.  Or at least the big players who would have been forced to police the massive user-generated content that increasingly dominates the online world.  Google, Facebook, Wikipedia, Reddit, AOL, LinkedIn, Mozilla, Twitter, Yahoo, Zynga (and the list goes on) all expressed support for limiting piracy, but also expressed concern over SOPA and PIPA's methods of achieving that goal.

Why Did the Protest Work?
The online protest, which took place January 18, 2012, was proposed as a way to show politicians that the online community was united in its opposition to SOPA and PIPA as written.  For the most part, it meant that homepages either “went dark” with a message opposing the legislation or at least included some reference to the concerns.  The results were impressive.  Not only did Congress table the bills and postpone their discussion indefinitely, but key supporters, such as the Entertainment Software Association, reversed their stances and dropped their support.

Thus, the online protest was deemed not only a success, but as a clear illustration of the power of the people.  But is the latter true?

Consider the messages that were delivered to Congress and how they were delivered.  Did numerous politicians just happen upon small blogs (such as this one), or read through a multitude of comments (both pro and con) to a news article, or consider the plight of the millions of people who just don’t feel the need to pay an artist for a song in order to listen to that song?  It’s doubtful. 

More likely, the power of this protest was driven not by “the people,” but by the large organizations who enjoy the bulk of the internet traffic.  Were it not for Google, Facebook, Wikipedia, and the other online powerhouses, the bills likely would have moved forward without many changes to them.

Why Is This Important to Know?
Why do we care if it was the people or if it was a Google/Facebook collaboration that effected change?  Because as much as you may have enjoyed this protest, its drama, its fight against “big corporations,” and eventually, its outcome, you should also know that it wasn’t just big corporations who lost.  Big corporations on the other side of the fight won as well.

But more importantly, it’s important to know why they won.  And the answer is simple.  As much as the firms who fought for SOPA and PIPA control the vast majority of high-priced creative content (think top music performers, popular authors, and blockbuster films with huge special effects), the firms who fought against SOPA and PIPA control, or at least influence, the massive flow of user-promoted information and are seen as the facilitators of the social internet that so many of us embrace.

For this particular battle, the seeming majority of internet users were on the side of the Google/Facebook alliance, but there may come a battle that the majority of us do not support.  Unfortunately, we'll likely find that those who control the flow of information also control the scope, direction, and outcome of the battle.

The Internet is truly powerful.  And those who control the Internet are the ones in power.

Too much control may not be sensible...

Be sensible.
Anthony
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A little more reading for you:

Doctorow, Cory (2012), “Boing Boing Will Go Dark on Jan 18 to Fight SOPA & PIPA,” Boing Boing (January 14), <http://boingboing.net/2012/01/14/boing-boing-will-go-dark-on-ja.html> .

November 15, 2011 letter to Pat Leahy, Chuck Grassley, Lamar Smith, and John Conyers, Jr from AOL Inc., eBay Inc., Facebook Inc., Google Inc., LinkedIn Corporation, Mozilla Corp., Twitter, Inc., Yahoo! Inc., and Zynga Game Network <http://www.protectinnovation.com/downloads/letter.pdf>.

Pepitone, Julianne (2012), “SOPA and PIPA Postponed Indefinitely after Protests,” CNNMoneyTech (January 20) <http://money.cnn.com/2012/01/20/technology/SOPA_PIPA_postponed/index.htm?iid=EL>.

Pepitone, Julianne (2012), “Wikipedia, Reddit Plan Blackout in SOPA Protest,” CNNMoneyTech (January 17) <http://money.cnn.com/2012/01/16/technology/sopa_wikipedia/index.htm>.
 
Schreier, Jason (2012), “Entertainment Software Association Drops SOPA, PIPA Support,” Wired’s GameLife (January 20), <http://www.wired.com/gamelife/2012/01/esa-sopa/>.
 
Simon, Mallory (2012), “Murdoch Launches Twitter Tirade against Obama, Google over Online Piracy,” This Just In (January 16), <http://news.blogs.cnn.com/2012/01/16/murdoch-launches-twitter-tirade-against-obama-google-over-online-piracy/>.
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Advertisers Know What You Do... Is Behavioral Targeting Really That Bad?

When trying to advertise using mass media, advertisers often play a numbers game.  They attempt to provide a convincing message in a convincing manner to receptive consumers by trying to determine what percentage of a particular audience matches the demographic, socioeconomic, and psychological profiles for which the message was designed.  Systems like PRIZM, which combines Census-based demographic and socioeconomic data with behavioral and psychological data, have been helpful in finding which geographic areas have a significant proportion of a particular type of consumer.  (Try looking up your ZIP code here to see the top five segments in your area.  Seriously, do it.  It's actually kind of fun...)

Unfortunately, even with segmentation tools like PRIZM, you'd be quite lucky to find that a desired one of their 67 designated segments (some with slightly odd labels such as #51 "Shotguns and Pickups" and #37 "Mayberry-ville") constitutes even 5-10% of certain geographic areas.  Even so, for many types of marketing, finding a geographic market that has 10% of a desired population could be incredibly profitable.  But why settle for 10% when you can have even more.  Much more.

Behavioral Targeting
For years, many psychologists (and marketers alike) have argued that the best predictor of future behavior is past behavior (as opposed to attitudes and opinions).  Thus, if marketers could examine your behavior, they could likely tell more about you than if they were to attempt to assess your attitudes.  There are a few reasons for this, but the most convincing is that while you can lie about your attitudes, your behavior often tells much more truth than you'd like.

In the past, marketers had to use survey or limited observation data to make inferences for a larger group of consumers.  Then came retail store scanning devices that allowed for a greater tracking of purchases for consumers who used credit cards and retailer loyalty programs.  Now with e-marketing, online and mobile technology has allowed for marketers to monitor not just what you buy, but how you buy it.  Not only is there a record of your purchases, but also when you purchase (time of day, time of week, etc.), how you came upon a website (e.g., going directly to the website as opposed to clicking through from a link or ad), the time you spent on a page before clicking for more information, the other products you examined prior to deciding, etc.  Much of this is done using cookies, small bits of information your browser stores on your hard drive and accesses at a later time to determine prior surfing behavior.

What's Good about Behavioral Targeting?
The major benefit of behavioral targeting is that we as consumers will be offered products and services that we're likely to desire.  It's like when you log into Amazon and you're presented with a set of book titles that were purchased by other people who bought the last book that you bought.  Amazon is betting that you are similar to the other people who bought the same book.  And more often than not, they're probably right.

Behavioral targeting is also how Facebook offers you advertisements that are mysteriously related to your travels around the internet, your Likes, and your associations with various online organizations.  There's really no mystery at all.  They just take the data and match you up with ads that are more likely to interest you. 

And the Bad?
The bad side of behavioral targeting?  The potential for privacy invasion: the biggest concern for consumers is that behavioral targeting is something akin to marketers stalking your every move.  As much as consumers like the convenience of targeted ads, as well as the avoidance of "junk mail," SPAM, and annoyingly irrelevant advertisements, these same consumers also become concerned that giving away too much information about themselves might make them vulnerable to particularly manipulative marketing efforts. 

What Will the Market Decide?
Advertising industry organizations have already been hard at work trying to put together a self-regulatory system to keep consumers informed about behavioral targeting and to allow those consumers to opt out of advertising that is targeted based on behavioral tracking. As with most self-regulatory efforts, at least part of this effort is likely an attempt to preempt legislation that might be even more restrictive.  In fact, the efforts came largely in response to the U.S. Federal Trade Commission's concerns regarding behavioral targeting.

But now that the self-regulatory effort has come to the implementation stage, consumer groups are demanding that the U.S. government develop formal legislation that will force marketers to have more transparency in behavioral advertising, and to have regulations that are enforceable.  As it stands now, the default mechanism on browsers and websites is that behavioral targeting will occur, unless the consumer takes proactive steps to stop it from happening.  It's kind of like walking into a hotel room that has an activated video monitoring system.  Although it may not be hard to cover up the lens, there's not much you can do unless you know that it's there.

Behavioral targeting.  On the surface, it just looks so sensible, or does it?

Be sensible.
Anthony


Other Resources:

Batten, Julie (2011), “Online Behavioral Advertising - Are You Implementing a Self-Regulatory Program?” ClickZ - Marketing News & Expert Advice (August 29), <http://www.clickz.com/clickz/column/2104581/online-behavioral-advertising-implementing-self-regulatory-program>.

Batten, Julie (2011), “Smart Ads for Smart Advertisers...Are You One of Them?” ClickZ - Marketing News & Expert Advice (July 6), <http://www.clickz.com/clickz/column/2084175/smart-ads-smart-advertisersare>.

McDonald, Greg (2011), “Consumer Group Wants New Internet Privacy Law,” Newsmax (August 30), <http://www.newsmax.com/TheWire/Internet-privacy-law/2011/08/30/id/409139>.

Miyazaki, Anthony (2010), “Would You Click This Icon to Protect Your Privacy?” E-Marketing for Sensible Folk (October 11), <http://e-marketingforsensiblefolk.blogspot.com/2010/10/would-you-click-this-icon-to-protect.html>.

PRIZM Segmentation System: http://mybestsegments.com
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Blockbuster and Borders... Who's Next to Fall Victim to E-Commerce?

By mid-September, Borders Books will have pretty much completed the closing of its physical bookstores as well as auctioned off its intellectual property holdings.  How does a company as large as Borders, with over 500 retail stores and employing almost 20,000 people, come to its demise?  Most fingers point at e-commerce technology in the form of online book sales and electronic books.  In fact, Borders was slow in embracing both: its online sales were initially outsourced to Amazon and it was quite late in offering a competitor (the vastly unknown Kobo) to Amazon's Kindle and Barnes and Noble's Nook.

Blockbuster, Inc.
It's not like Borders is the first to fall to recent technology.  Blockbuster, Inc. went from over 5,000 stores and almost 60,000 employees to a bankruptcy filing and eventual sale to the DISH Network.  The process resulted in the closing of thousands of stores and the down-sizing of many others.  Many analysts feel that it's only a matter of time before all face-to-face movie rentals will be replaced by mail-order and kiosk-based rentals and that ultimate destroyer of physical rentals: online viewing.

The General Music Industry

Of course, how can we talk technology-based demise if we don't mention the general music industry?  Although there are some reports that the death of the music industry is exaggerated, the facts show significant declines in both album sales (where the higher margins reside) and general CD revenues that are not compensated by increases in digital sales (notice how the overall size of the Digital Music News pie chart at the right gets smaller over time even as digital becomes proportionally larger).  This has led to the closing of a number of physical music retailers, from small local stores to entire chains.  The main culprit?  Again, most experts place the blame on technology, from digital downloads to streaming music access.

So Who's Next?
Are Borders and Blockbuster anomalies?  Or are they just the tip of the iceberg when it comes to Death by Technology?  Will the book and movie industry join the music industry and fall victim to technological innovation?  There has already been talk that online ordering, direct shipping, and cloud computing may harm local pharmacies, traveling salespeople, video game console manufacturers, public libraries, and community banks.  We know that the internet has changed the way we shop, from car buying to electronics to even clothing and food.  It's also changed marketing interactions for a number of services in industries such as banking, investing, medicine, and consulting.

So what's your take?  What industries do you predict will be seriously challenged or even be completely obliterated due to the ease and efficiency of e-marketing exchanges?

New technology is nifty, but only when it's sensible.

Be sensible,
Anthony
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More reading:

“Chapter 11 Auction of Borders' Intellectual Property to Be Held on September 14th. Likely Suitors Include Amazon, Barnes & Noble, and Apple.” PR Web, September 6, 2011. <http://www.prweb.com/releases/2011/9/prweb8765897.htm>

DeGusta, Michael (2011), “The REAL Death of the Music Industry,” Business Insider, February 18. <http://www.businessinsider.com/these-charts-explain-the-real-death-of-the-music-industry-2011-2>

Parker, Lyndsey (2011), “July 4-10: Reports Of the Music Industry's Demise Greatly Exaggerated?” July 8. <http://new.music.yahoo.com/blogs/thatsreallyweek/134449/july-4-10-reports-of-the-music-industrys-demise-greatly-exaggerated/>

NOTE: Graphic linked from Digital Music News: http://www.digitalmusicnews.com/stories/081611thirty
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We scoffed at a $6 Billion Groupon. Now $25 Billion?

Back in November of last year, social coupon firm Groupon made big news when it was reported that it turned down a $6 billion offer from Google.  There were many in the business world (including here at E-Marketing for Sensible Folk) who thought that Groupon management should have taken the cash and ran.  This wasn’t to say that Groupon wasn’t a good company with an admirable business plan.  It was, and it still is: offer coupons to people under the condition that a certain number of people have to buy in before the deal is valid.  This inspires people to use their online social networks to promote the deal so they can get the deal.  The main criticism seemed to be that growth could be limited by both the number of deals the firm could offer and, perhaps more importantly, the ability of the Groupon business model to be imitated by small players in local markets, which is where Groupon ultimately sells its services.

Well, now there's a new development.  Bloomberg is reporting that Groupon is in talks with banks about an IPO of potentially $25 billion, over four times Google’s $6 billion price!  Not a bad increase in valuation in a short four months.

But is Groupon really worth $25 billion? 

First of all, as with all valuations (from lunch at your favorite restaurant, to that high-end sports car you’ve been eyeing, to purchasing stock in “the next big tech firm”), perception will play a key role in the outcome.  If enough people think that Groupon is worth $25 billion, then it will be if they spend their money accordingly.  The real question, then, is to consider (as objectively as possible) what the future of Groupon holds with respect to (1) growth and (2) revenue sustainability.

Why Groupon Will Grow

As mentioned back in November’s blog, Groupon has plenty of room to grow if it starts to microsegment its markets, offering particular Groupons to various market segments in each of the geographic areas that it serves.  Without this segmentation, it will soon saturate the marketplace and then be up against the growing number of competitors fighting for market share in a stagnant industry.

Groupon also can grow because it continues to have the capitalization to buy out formidable competitors faster than they can establish themselves.  (In fact, if you’d like to start a smart business, copy Groupon’s business model for your geographic location, undercutting their pricing by taking a smaller per unit profit, and then let Groupon buy you out when you start to grow.)

Why Groupon Won’t Grow as Fast as They Might Think

One concern put forth in November was the ease with which small competitors could enter the market with a similar business model.  Basically, small competitors only need to:

1. Find local retailers willing to offer steep discounts in exchange for volume (who might like to use Groupon, but have been put on a 3-month Groupon waiting list).
2. Offer to do what Groupon does, but at half of the profit. 
3. Use slick online social marketing skills to build up takers for the offer.
4. Make the retailer happy, collect the cash, and start the process over.

Then there are those big players who are expressing an interest in the social coupon industry.  These are big players like Google, Facebook, and Amazon (with Living Social), who, once fully committed to competing in the industry, will likely dominate it with their current reach and resources.  (See a related Bloomberg video interview with social media analyst Lou Kerner.)

Bloomberg News contributor Paul Kedrosky (see his Infectious Greed blog here) points out in a recent interview another serious concern regarding growth.  True tech companies that are able to rely on automation and technology to grow can at some point reach an inflection point wherein sales revenue and profits start to take off and we see substantial growth.  However, Kedrosky notes that Groupon is quite labor intensive when it comes to making the deals on which the revenue model is based, thus, automation and technology are not as fundamental to how its growth occurs (with the clear exception of their use of online social media).

So, whether you’re worried about small local players, huge internet behemoths, or the labor intensive nature of the Groupon-retailer dealmaking process, you’re likely to harbor doubts about writing your portion of the $25 billion check.  Then again, if the firm were to offer a 90% off Groupon deal on its own stock, maybe you’d become a Groupon Groupie after all.

What do you think?  Will social media marketing continue to push Groupon into the big, or should I say HUGE, bucks?  Or will social media facilitate the information transparency that will allow smaller firms to compete, making Groupon soon to be Groupoff?

An objective valuation of a market opportunity is sensible.

Be sensible.
Anthony
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