The Software Abstractions Blog

The Online Marketing Funnel

I've been reading a lot about Online Marketing lately, and there seems to be a clear pattern: it's the standard Marketing sales funnel, specialized for the Internet - turning the sea of unqualified online users into prospects, qualifying them for your particular niche, and then focusing on converting those highly qualified prospects into customers.

One area that most of these online marketing books do not seem to address is the recent emergence of community behavior: blogs, social networks, social bookmarks and the wisdom of crowds. Updating the standard funnel by adding these elements into it gives  the following diagram.

As new technical and business models come up, they fit naturally into the various parts of the funnel; the core sales funnel model is truly timeless!

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Marketing 2.0: The Zen of Email Marketing

A few days ago, a leading software company sent me one of their regular marketing emails. This missive is full of information about them: news about their latest triumphs, a message from the company, new product features, support information and so on, interspersed with a few special discounts and items for sale. After a quick glance to look for deals that interested me, I deleted the email and moved on. As I surveyed my overflowing email Inbox, I briefly wondered whether to unsubscribe from their mailing list; perhaps next time.

This got me thinking. Like most other Americans, I now suffer from "E-newsletter fatigue". Email marketing has come a long way since Marketing guru Seth Godin first popularized it circa 1999 in a landmark book, Permission Marketing , and is far from dead, even in the face of competing new technologies like blogs and RSS feeds. Today, the MarCom department of practically every reasonable-sized business spends a significant amount of effort churning out these electronic messages, most of which are virtually indistinguishable from those of their competitors.

Perhaps the time has come to take Email Marketing to the next level!

Engaging the Reader

Ideally, a multi-email campaign is like a good blog; each communication must engage the reader. There is no reason the reader has to read your email, any more than there's a reason that the reader must read a blog post; you must attract readers with interesting and valuable content.

A good example of engaging users, albeit in the offline world, is the Trader Joe's newsletter that shows up regularly in mailboxes around the country. Although hardly cutting-edge technology, the printed version is quite entertaining - it's full of fun facts, bits of history, useful recipes and nutrition information, and of course, references to Trader Joe's offerings. The online version is authored in the same vein: the example below highlights a single product in a fun and interesting way, and provides some additional tidbits that change the whole tone far away from "hard sell".

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Another example is the Hitwise Intelligence blog, which comments on interesting meta-trends observed in Hitwise data - such as whether the McCain web site appeals to Independents, or if Heely's are making a comeback. The media, industry observers and customers watch these reports closely and then immediately start discussing them, in public forums, conferences, blogs and around the water cooler.

Of course, trend data is Hitwise's business. But anyone can do the same thing. You can highlight information and trends of customer interest, from data that you already have. What are the latest trends in Spring fashion? Is the rising price of gas going to affect the cost of groceries? If you're a grocery chain, how do you plan to react and help keep prices down?

Or you can provide useful information that, even if it doesn't directly sell your product, helps your customers and users. But it has to be specialized information, that only you can provide; for example, informing readers that daylight-savings time starts this weekend is useful, but not particularly compelling.

If your Marketing emails are full of the cool new features you've recently implemented in your product or awards won by your company, then that's only mildly interesting to readers. For most products, only a small fraction of customers care about all the bells and whistles anyway. Let's take Microsoft Office - assuming that you use it, do you know all its features? Do you even care? What about the "advanced" features of your TV?

Most progressive companies have recognized the significance of blog marketing, which sets a new, higher standard for engaging customers in a two-way conversation. This new standard applies equally well to Email Marketing - only the transport mechanism is different. Similar to a blog, most readers will tolerate some level of self-promotion (yes, "special discounts" count as self-promotion) and even some off-topic content; but overall, the signal-to-noise ratio must be very high from the perspective of the reader, not the email sender.

The reality is that most readers are perusing the email thinking - How does this help me? What can I get out of this?

Compelling Content

So imagine the mother of three, logging in for ten minutes early in the morning, before the kids wake up; the hotshot lawyer checking her emails between appointments; the harried Executive at his son's baseball game; the teenager checking his mobile phone on-the-go; or whatever your target demographic is. In the 5 seconds that it takes the reader to scan your email: is your content compelling enough to make them want to remember it, to go back and learn more when they do have time, when they get back to the office or at home?

To take it one step further, is it an email that they're eagerly waiting for? Why not?

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Responding to Disruptive Innovation: Threat or Opportunity?

Scott Karp of Publishing 2.0 recently wrote an article about newspapers and the web in general, and about the Washington Post in particular: What Newspapers Still Don't Understand About the Web. Karp feels that the Post doesn't really get the Web - the web site is essentially a reflection of the Print newspaper, rather than leveraging the unique possibilities offered online.

The New York Times, on the other hand, definitely gets it, and is only moving further ahead in  leveraging the web. For example, in technology, the Bits blog regularly shows up on Techmeme, and the NYT is already on twitter.

How does this happen? How can two direct competitors in the same field react so differently to the same change in their industry?

According to Clayton Christensen and Michael Raynor, a large part of the answer lies in the way companies react to a disruptive innovation in their field. In their latest book,     The Innovator's Solution, a sequel to the highly popular book detailing the Innovator's Dilemma, they handle exactly the issue described by Karp's post, in a more general way.

What Christensen and Raynor found is that the way a successful incumbent company responds to a disruptive change in their domain depends on the part of the organization that is tasked with responding to that change.

There are two primary ways in which the company can respond: the disruptive change can be viewed as a threat, so that the company pumps resources into trying to harness the new process, technology or idea as an evolutionary improvement to its existing business model; or the disruptive change can be viewed as an opportunity, in which case the company tries to find the appropriate market or business model that naturally fits the new paradigm.

Obviously, if the existing operational part of the organization - one that is already very successful - tries to respond to the change, the main interest is in preserving the status quo, and the big change is seen as a threat to be neutralized; if instead, the company forms a small, semi-autonomous entity tasked with responding to the change, unhampered by the existing business model, then the big change is likely to be seen as an opportunity to be exploited.

There are many other fields where this type of change is taking place. One example is the iPhone, which is clearly proving to be a major disruptive innovation for handheld computers, causing existing market leaders such as Palm, Microsoft and RIM to scramble.

Are there others? How are they responding to the disruption? Leave a comment below and let us know!

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Does Web Advertising Work?

Do Web Ads work? Does the vaunted Freemium model actually produce meaningful revenues for anyone but the largest services and content sites? How should Web 2.0 be monetized?

Many Perspectives

There has been a lot of discussion about these and related questions in the past few days among the Techmeme crowd. Here is a cross-section of perspectives from some of the thought leaders in this discussion:

• Unsurprisingly, this discussion was kicked off by Tim O'Reilly, the same ultra-smart observer, blogger and publisher, who originally coined (or at least, evangelized) the term "Web 2.0".
• The Financial Times ran an article provocatively titled: Web 2.0 fails to produce cash , in which the authors question whether popular Web 2.0 companies have actually produced any revenue, and predict a big shake-out in the next year or two.
• The always-interesting Robert Scoble led a widespread discussion, referring to posts by Om Malik and Dare Obsanjo, on whether Twitter (that highly popular micro-blogging service, and train-crash-currently-under-way) should be charging super-users like him, while continuing to keep the core service free for most casual users
• Alexander van Elsas has a wonderful post, referring to an earlier post by Scott Karp of Publishing 2.0, explaining how advertising does not usually provide the user with any value; van Elsas feels that the real value should be created outside the network.
• Coming up on May 30th is a discussion on this topic at TiECON East: "Web 2.0: Viable Business Model or Bursting Bubble?". The discussion includes two prolific and highly popular bloggers among its participants, both of whom have (inevitably) blogged about it - Fred Wilson (Discussing Web 2.0 ) and Don Dodge (Web 2.0 = Bubble 2.0? ).

When Ads Attack!

Clearly, web ads do work under certain circumstances. The poster child, of course, is Google - in addition to ads on its own search results page, Google commands revenues from millions of long-tail publishers via AdSense. Although most of the small publishers in this group actually make very little money, the total revenue in the aggregate for Google is very high.

Web Ads work better in certain situations than in others. At a VLAB event last week, Bill Reichert, Managing Director of Garage Technology Ventures, summed up perfectly the virtuous cycle of content and advertising:
    "If the paid content enhances the product, as in the case of Google, then that attracts more users to the site, which in turn enables more income, which allows the site to further enhance its content. Thus, the ad content should fit the users' actions to be effective; otherwise, as is the case with Facebook, the ads just get in the way."

Monetization Options

Once a web site or service gains traction and gets a sizeable following, there are potentially many creative models for monetization. In a much older post, Fred Wilson wrote about the The Long Tail Of Business Models , working off an initial post on Media Business Models by Chris Anderson (and I've added my take ).

Web 2.0 monetization works especially well in specific situations, and it's likely that totally new models will emerge in the future. One such model is advertisers who create meaningful content for web users, a by-product of which is to drive sales; this type of content can include informative articles, useful services or immersive experiences. Examples of this type of model are:

• Pharmaceutical companies that educate doctors on how to utilize new types of medical devices
• Lawyers who explain the law or provide status updates on government activities
• Home improvement stores that sponsor how-to seminars and then provide discounts on materials

Clearly, the web is a different medium, and simply transposing print ads to the web will not work; the big winners of the future will be those companies that can take some of these radical new models for monetization and make those work for their own use cases.

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Cooperation of Alternate Search Engines: A Manifesto

( This post is inspired by my discussions with my friend, Charles Knight of AltSearchEngines )

Background

I'll be at the Alternative Search Engines Day tomorrow, a unique event in San Francisco put together by Charles and the AltSearchEngines team. The event is sponsored by SeeqPod, UpTake, Matchpoint, HealthPricer, GoPubMed and Blogdimension. (Unfortunately, it's not open to the general public.) If you're part of an Alternative Search Engine, I hope to see you there!

As I was getting ready for the event, it got me thinking about ASEs and how they can work together.

The Case for the Alts

I love the ASEs - Alts rock! Without them, there would be little innovation in Search, no new frontiers to be explored.

The Alts are the ones that keep pushing the envelope with new directions in search technology, whether it's algorithms, user interface, social search or something else.  Although Google has some fine technology and is synonymous with search, I firmly believe that we're still at Search 1.0, and have a long way to go. Because of all this competition from the Alts, and the resulting innovation, web search continues to improve.

Web 2.0: The Real Opportunity Lies Ahead of Us

JP Rangaswami wrote an amazing post on his blog a little while ago: Interesting, but of no commercial value , in which he cites a series of examples of new technologies - like email and spreadsheets - that were initially considered simply interesting, rather than useful; now we cannot imagine living or working without those very same technologies. It seems likely that this will happen with today's emerging technologies, like RSS feeds, popular voting, social networking, micro-blogging, crowdsourcing and so on.

History Repeats Itself

We have already seen this happen with Web 1.0. A series of tiny, well-capitalized startups (remember Webvan? ) gained early traction online in a variety of market segments, from books to furniture to pet food to groceries. The large, established brick-and-mortar players were slow to respond.

As a result, a few Web 1.0 companies - but only a handful - did grow into large, successful companies within their domain: Amazon, EBay, Blue Nile, Expedia, Google, and so on, along with a host of second-tier players. Over the long run, though, pre-existing market leaders like Barnes & Noble, WalMart and Petsmart, were able to rebound, leveraging their strong brands and deep pockets to exert influence online and re-assert their dominance of the various segments.

There is no reason to believe that the outcome will be any different with Web 2.0 . The big established companies must enter the field for competitive reasons, either by acquiring, partnering with or replicating the smaller cutting-edge thought leaders. The game is still in the early stages; once the big brands get moving, they will be hard to stop.

Dave McClure addressed this topic in his recent incomparable blog post Web 3.0 isn't the Semantic Web, it's Hailstorm 2.0 . Of course, Dave's thought process is far ahead of mine, but he makes a similar point: the most likely winners of the Web 3.0 revolution - which he defines as an environment in which the user is always logged in even while navigating around the web -  will be vendor groups composed primarily of today's large companies like Microsoft, Google, Yahoo!, AOL, Facebook, Amazon et al.

Users - Now and In the Future

Who are the heaviest users of Web 2.0 "connectivity" tools like blogs, wikis, twitter, social networks, and so on? There are three major demographics:

• Young people in their 20s and 30s (and possibly even younger)
• Users who work in technology, or play in it (such as gamers)
• Users who live in high-tech hubs, such as Silicon Valley, Boston, New York, etc.

Taken together, these demographics represent only a fraction of the online population at large. The migration of the mainstream users is yet to come. And therein lies a major opportunity ...

As Web 2.0 technologies start to trickle outside of the core Early Adopter demographics - as they "cross the chasm" - we should see a massive increase in adoption for these technologies in both the Consumer and Enterprise space. This will lead to an increase in their value due to network effects, which are particularly meaningful for these social connectivity tools.

Companies that provide products and services to help the transition of mainstream users and facilitate their adoption in these two areas can profit handsomely from these technologies.

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Enterprise 2.0: The Engineering of Marketing Online

When I was talking with my friend Shreesha Ramdas (from OuterJoin ) last week, he shared a perspective that really resonated with me. In a nutshell, he believes that the Marketing of online products and sites is rapidly becoming an Engineering function, both in terms of operational activities and measurement.

The more I think about it, the more I'm convinced that he's on to something. Marketing of online products and sites is inherently different from classical marketing. Unlike regular marketing channels, online campaigns allow marketers to proceed systematically step-by-step along a predetermined course. The results of each distinct campaign can be measured precisely, even when multiple campaigns are going on simultaneously. Most important, the market can be broken up into thousands of micro-segments, with targeted campaigns aimed at each one.

Online Marketing Activities

This technical approach can be applied to all three types of online marketing activities:

I. Site Effectiveness

A key goal is to increase the popularity of a given web destination. The popularity measure can be expressed in a variety of ways: page views, distinct users, time-on-site, user engagement, and so on; all of which must eventually translate into a conversion rate - the effectiveness with which you can get the user to take the desired action on the site, whatever that might be.

These popularization activities can eventually be boiled down to two main approaches, which are complementary: Search Marketing (PPC) and SEO (Organic results).

A large number of technical tools are available to help with both of these approaches, such as keyword tracking and keyword optimization for the long tail. Although good old-fashioned marketing techniques always help (who can resist good linkbait ?), many of the activities that lead to PPC and SEO success can be automated and enhanced using these tools.

II. Joining the Online Conversation

As the revolutionary cluetrain manifesto proclaimed, markets are conversations, and media-savvy companies today want to be a part of that conversation. Online, many of these conversations take place on blogs, social networks and content aggregators. These types of dynamic online properties also provide great SEO benefits and direct user traffic.

Here again, technical skills that enable automated submissions and social media tracking are extremely helpful in gaining traction. The upcoming OpenSocial API (coverage ) will take this to a higher level, allowing a single submission to provide content to multiple social networks.

III. Measurement and Analysis

The two leading tools for online measurement are Omniture and Google Analytics, although many others are available in this fragmented market. The advanced features and sophisticated tracking enabled by these tools can get quite complex and technical - as anyone who follows Avinash Kaushik's blog (Occam's Razor ) knows.

Impact on Traditional Marketing Departments

The level of technical sophistication needed to achieve these goals tends to overwhelm typical Marketing departments. This is likely to have a big impact on traditional marketing organizations in mid-sized and large companies. These organizations have three main options:

• Hire techies directly into Marketing
• Create an Engineering support team answerable directly to Marketing
• Create small Business Units that incorporate both Development+Marketing

Which approach will prevail in a majority of the cases? That remains to be seen ...

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Two Emerging Memes: Freenomics and Crowdsourcing

Silicon Valley has always been fascinated by new technology memes, radical new ideas and business models that take off and capture the popular imagination - often changing the world of technology in the process. Valley memes quickly become the jargon of leading-edge VCs. For example, the phrase "it's a Freemium model, based on UGC and Wisdom of Crowds" requires no explanation in certain circles; it's as meaningful to these players as the phrase "it's a RESTful Web Service based on a 3-tier J2EE architecture" is to a Web Applications Architect.

(For the uninitiated: Freemium is a term popularized by VC Fred Wilson to mean a free service with an upsell to paid premium subscriptions; UGC stands for User-generated content, a relatively new concept in which the audience or readership helps to craft creative or original content; and Wisdom of Crowds is a term popularized by James Surowiecki's book of the same name.)

How does a technology meme start? When does an interesting new idea or concept tip over into a meme?

Rumors of the Death of Indian Outsourcing - Are Greatly Exaggerated

I've long been a fan of Sramana Mitra - she has a terrific blog and has her own deep definition and framework for Web 3.0 . Forbes.com carries a fascinating article by her this morning: The Coming Death Of Indian Outsourcing , in which she talks about the new challenges facing Indian Outsourcing Companies.

As usual, Mitra's basic analysis is spot-on, although one can certainly take issue with her conclusions. There is no question that Indian OCs (Outsourcing Companies)  now face unprecedented challenges, and cannot carry on with a "Business As Usual" approach for much longer.

This should not come as a surprise; competing on the basis of price alone is never a sustainable business strategy. In a price war between brands (or countries!), no supplier wins. And this price advantage is rapidly eroding, with the steep rise in software development labor costs and the deteriorating strength of the dollar.

Semantic Web - What is the Core Problem?

In his latest blog post, Mathew Ingram writes about Paul Miller's interview with Sir Tim Berners-Lee, inventor of the World Wide Web. Miller's interview writeup is very interesting - as Marshall Kirkpatrick notes on the ReadWriteWeb, Sir Tim feels that all the pieces for the Semantic Web are already in place to realize a large part of the dream and to allow us to create applications that leverage the power of structured data and the integration of that data.

[One big problem for the Semantic Web that I've written about recently is the lack of meaning-enabled authoring tools; however, in the interview, Sir Tim indicates that this need is less critical; the structured data we need can come from databases.]

Coming back to Ingram's post, he says that the biggest problem with the Semantic Web is that "it’s as boring as dry toast" - i.e. it's all about the technical side, with discussions about plumbing and widgets and standards, and there's nothing there that will make people sit up and take notice.