Benefits of Online Media

Online media professionals love talking about how wonderful online advertising is because of the 2 T’s:

- trackability
- targetability.

We also like to make up words, as you can see.  Anyway, combined, these two benefits give marketers the opportunity to have positive ROI (return on investment) campaigns when advertising on the Web.

Campaign Efficiency vs. Effectiveness

Personally, I agree that online advertising has what it takes to create more efficient campaigns, (though I need to give it some more thought as to whether the Web can make a message and campaign more effective).  We still talk about Apple’s 1984 TV ad during the Superbowl, but I doubt anyone talks about the Orbitz pop up, at least not in the same vein.

However, I don’t buy the notion that any campaign - on any medium - returns a positive ROI immediately.  I think in the very short term and over the very long term, yes, campaigns can be positive ROI, but most marketing is a form of investment, and as the recent crash reminds us: sometimes investments pay off, sometimes they do not.

Marketing Builds Brands, Brands Build Empires

As sales people, don’t tell would-be clients what they want to hear, tell them the truth: expect to lose money, maybe.  But if you play our cards right, then through marketing you can build an empire.  Think of Red Bull, or Grey Goose.  Some of these brands were literally built on marketing and today they are multi-billion dollar behemoths.  Do you think Mr. Bull or Mrs. Goose ran away scared after their first dollars on marketing didn’t gain market share or garner sales?  Puh-lease.

Dark Cloud on the Horizon for Investors of VC-Backed Firms

I think what the economic crisis will do is make it all but impossible for 99% of VC-backed companies to have meaningful exits (positive ROE, or return on equity, let alone homeruns).  The only way for most of these companies to do multiple-returns (2x, let alone 10x) would be for founders, management, existing investors to be wiped out when they raise additional funding down the road, which never helps morale or results.

Facebook’s $15B paper valuation is but one example, and that despite Facebook’s massive growth… in eyeballs.

Advertising and marketing are but one facet of all of the expenditures a company makes.  But marketing and advertising come after a product has been conceived, designed, built and shipped out.  To do all of that, it takes a lot of time, and money.  Yesterday I came across this story:

Hammerhead, which shut down on March 19, could be a case study of how even startups with talented teams, proven technology and lots of venture funding — about $110 million over seven years for Hammerhead — can be thwarted by circumstances beyond their control, including industry turmoil and the current global recession. 

$110M in funding?  I cannot even imagine what that’s like.  Of course, I am not building a would-be Cisco killer, so I could not even tell you if $110M made sense, even in pre-crash boom times.

Only Jokers Burn Money

Ultimately,

- it’s not enough to build a successful company,
- you have to do and provide a positive return on equity.

Back in the day when VCs still invested, they’d ask me: “how much money do you need to grow WatchMojo.com?”

Clueless about the VC’s desire to spend all of the money they’d raise from hapless investors, I’d say “not much, we can be very efficient.”  I could not fathom spending tens of millions of dollars; always trying to do more with less, in the process I would turn off free-wheeling, mass-spending, world-changing VCs with the suggestion that we could do more with less.

I don’t want to sound like a hypocrite, either.  If someone actually gave me a check for $10M and said “go spend this, we have more for you”, I am not sure I’d be so cavalier about this, either.

But entering our fourth year of operation, showing an aversion to spending other people’s money recklessly has inadvertently allowed us to

- retain a simple capital structure table, without the hassles that come with draconian term sheets,
- build a massive library of evergreen content,
- overcome the challenges that online video content producers face,
- benefit from pricing power to win guaranteed revenue business,
- build a successful syndication business.

That gives us the chance to add muscle as others scramble to cut off fat.  In today’s climate, that is the best currency of them all.

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