DM CONFIDENTIAL – We are admittedly reflective, perhaps because looking back is easier than forward. Whatever the reason, we like to start off the new year by highlighting some of the trends and news that played out over the past year. As with many stories, living the day-to-day often makes it harder to discern how the pieces come together. Even a year is not a lot of time, but we still found this to be an enlightening one.
The Rise of the Connected Consumer
I wish we could remember from whom we heard the term “connected consumer.” While they probably did not invent the term, hearing it from them changed the way we think of the web. The connected consumer has existed for some time, but 2011 was a true breakout year. Like many mega trends, there are probably statistics that will emerge to explain what we feel. It might be the percentage of users with smartphones or that number compared to certain usage statistics. Whatever the numbers, the connected consumer is ushering in a new version of the web. It is social and mobile intertwining to form a new internet. The connectivity AND the consumer usage patterns have reached a point where any new business, even if it doesn’t touch mobile or social must be cognizant of their potential impact. Equally important, the friend of a friend network has reached a point where it can truly influence purchases and enable models that couldn’t exist before, like Airbnb.
Zillow, Bankrate, Groupon, Angie’s List, Zynga, and LinkedIn — there are definitely more, but we had no problem rattling off at least six tech IPOs that happened last year. That does not include the non-stop chatter about those who have yet to come, most notably Facebook. Unlike the first tech bubble, most of these companies have real businesses. Like the first bubble, most of these IPOs experienced a wild ride. LinkedIn – priced at $40, started trading above $90. Hit well above $100, but ended the year down 32 percent. Groupon – priced at $12, started trading around $16 and closed in the $20s that first week. Flirted with the low $30’s before dropping to a low of $14. Trading just under $20 after another run in the mid $20’s. Down 26% since it began trading. Zillow down 35 percent for the year. Zynga – flat. Angie’s List – down 7 percent. The winner? Bankrate, up 45 percent.
The Tech Bubble… or what tech bubble?
Were we in a bubble or weren’t we? No matter what, something big happened last year. Call it the year of the investor, a return to the days of free-flowing angel investing, where almost everyone, it seemed, wanted in on the action. Everyone, though, wanted in on the action, and we saw some of the largest deals and most prolific deal-making we can recall, regardless of what the stats say. It was a year that cemented names like Andressen Horowitz, DST and Reid Hoffman. Just as 2011 was a mix of old internet money and new, it also was the year of the incubator – YCombinator, Tech Stars, Dream It Ventures and the tens of other official and unofficial money-plus-mentor-for-equity models. The two even came together in the form of DST offering any graduate of YCombinator $150,000 in additional funding with virtually no restrictions. As we said, time will tell if it was a true bubble, but it was something.
Change in Media Buying
Arbitrage is not dead, but it has changed dramatically. Some of the factors come from external changes in policy from the major platforms, namely Google and Facebook. The biggest change is a technological one, the shift towards audience buying and the amount of media driven through ad exchanges instead of the more traditional remnant ad networks. Email is still vital, and incentivized traffic, co-reg and other more enduring channels haven’t gone away, but display is not going to be the same again. It is partially more accessible, but the pockets of untapped inventory are not. It’s more math and science, less art.
Do Not Call My Ass
For all the talk of the connected consumer, or perhaps because of it, old-school direct marketing ruled the performance marketing world for 2011. It was the year of the phone, especially in the world of lead generation where call verified leads became, if not the majority of lead flow, pretty darn near close. For all of the old-school calling that occurred, with businesses built entirely on ramming data not on the do-not-call list through call centers to see if they could be turned into mainly education leads, we also started to see the emergence of telephony in innovative ways through platforms like Twilio and companies like Datalot and RingRevenue.
Year of Groupon… For a Little While, Anyway
Not many company’s years include raising almost a billion dollars, refusing to sell for six billion more, worrying about a cash crunch, going from the absolute darling to vilified, and a still being a successful IPO despite all sorts of dot-com-one accounting questions. The IPO was successful if judged by the fact that it trades today higher than it was initially priced with a value more than double the amount the company turned down. While still a darling, the company inspired many similar businesses — hundreds, in fact, many of them coming from the performance marketing industry. Yet, in the same year, you had seemingly hundreds more, if not going out of business, trying to create as much distance between themselves and their spiritual predecessor.
End of a Rebill Era
Flogs aren’t completely dead, and acai isn’t completely dead, but they are both really close. The market has not only adjusted but punished many who played in the game. Collection issues put an enormous cash crunch on once-healthy networks with more than a few players, even one of the large old-timer firms going completely bust. It took a few years, but as one litigator chimed, the FTC might take a while to catch on, but once they do, they are quick learners. That is what happened here — another major rebill category shut down because the industry chose not to police itself. Nothing new there, but this time around, the impact was much greater, so much so that I’m not sure we can survive another catastrophe of this magnitude.
The Birth of Rebill
Despite the hardship and loss from this year, if there is one thing that we can count on in the performance marketing space, it’s the survivability of the rebill campaign. Sometimes, though it’s just not what we might expect, and that is exactly what happened in 2011. The rebill campaigns were more like 2004 in that they resulted from true rebill businesses, ones that don’t make it hard to unsubscribe, who actively check up on their users every time they must pay and even offer the ability to skip a given month’s charge. These aren’t breakage businesses, but sustainability businesses. Their high lifetime value comes from people wanting to stay not discovering that they have been signed up for something or often two things they didn’t expect. The only problem is that these new rebills won’t run or work in flogs. Marketers will have to earn their money without being misleading.
Major World Changes
It’s one thing to talk about how the consumer world has changed. It has. The connected world has transformed not just business, but life. It has enabled transparency and organization and toppled barriers. It may have hastened bigger changes, but it cannot cause it. Last year saw the type of major world changes that will play out in the years and decades to come, some of which will not be pleasant. We saw dictatorships overthrown, totalitarian regimes upended, and oppressive monarchs pass away. From Africa to North Korea, the world’s power structure has changed, a vacuum created that will not fill the way we hope. This is the trend that will override anything else, but it’s also the one that is least clear.