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DigitalMoses: The Performance Marketer’s Value Proposition Dilemma

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Jun 2, 2011 
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DM Confidential  |
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DigitalMoses: The Performance Marketer’s Value Proposition Dilemma

DM CONFIDENTIAL – The outside world seems to love to hate the performance marketing sector. Every time we find ourselves pontificating on this topic, though, we can’t help but think of a preacher trying to find a new way to discuss seemingly never changing story lines such as following the ten commandments.

Should you treat thy neighbors as thyself? Yes, of course, there is merit, but getting people to listen often means telling the story in different ways. The meaning might not change, but the shape of the story sounds just unique enough to hold your attention until the presumably predictable conclusion.

It’s one of the many reasons why, when talking to super smart people outside of our space about performance marketing, we can’t help but ask them that very question. Namely, we want to know why so many find the businesses within performance marketing space not valuable.

Value, of course, is a loaded word. Almost all of the companies or types of companies in question have people, equipment and, not least of all, revenue. Those all have value.

So, what in this case is value? In this love-to-hate scenario, value refers to the likelihood of getting acquired, that all-revered (by some) “exit.” As one notable venture capitalist said, they try to hit home runs. They want to back a Twitter or a Foursquare, because if they can work, they can generate mega returns to those who put in money.

What’s a home run? It’s a moving target, but it’s a company with the potential to reach a billion-plus exit. Skype’s acquisition was a home run. Google buying Doubleclick was a home run.

Almost all of the home runs have raised significant amounts of outside capital; although, not all of them began with that much. Facebook, as the world knows, began in a dorm room not a boardroom.

Performance marketing companies are not like Facebook,Twitter, Skype and/or Foursquare. They can often start the same way — with a small group of people who have an idea. Both don’t need money per se, to start working on the fulfillment of the idea. At some point in their earliest iterations the two start to diverge.

It’s an oversimplification to say that one focuses on product and the other marketing, but the line does hold some truth. As the two types start to push forward, one focuses on a transactional approach while the other more stereotypically focuses on this notion of building scale.

In the performance world, scale tends to refer to an ability to obtain larger spends and preferential pricing. In the broader startup/tech world, that means figuring out a model that will enable tens if not hundreds of millions of users. It’s in the pursuit of the scale that the prototypical then raises money to build out the team, a process that often repeats itself several times in the course of their development.

Not so with the performance marketing companies. If they raise money, it typically goes towards the float.

All of which brings us back to the question that tends to start it all — why are performance marketing companies not seen as exitable?

This entire discussion, though, presupposes that exiting is the natural and desirable outcome for any online business. The question we haven’t asked yet is do we want to build exitable businesses? As an industry, the answer is we haven’t decided, but based on actions, the answer looks like no.

Those that have attracted some outside, generally later-stage money, did so not because they wanted to exit but often because they simply got big enough that money started taking an interest. When faced with the chance to earn money by letting others invest, it’s hard to say no.

It isn’t just about product versus marketing. Building an exitable business is a very different type of beast. Those who do so tend not to own as much of the company, and until they start to achieve scale, they don’t get to pay themselves that well either. They do this all while having another level of management – their investors.

There is a strong argument to not wanting to deal with any of that. The best of the bunch will make more money in the end, but the strongest argument for those in the performance marketing space doing so comes down to the commitment to the performance marketing space.

Exitable companies can often focus on adding value, as adding value can help hit scale. They also have a unique form of social proof. With other money involved, it adds a level of credibility and trust. And, if there is anything that those in our space lack, it’s complete trust by the outside world and by those who would become the next biggest advertisers.

Taking money also means permission to think about something else other than making money. Once you start making money, it’s extremely difficult to put that aside.

That’s where much of the performance space sits today. It’s an industry that makes money. There is nothing wrong with that. Counterintuitive as it sounds, the solution to our legacy could begin with supporting a crop of companies who don’t.





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