The Case for Twitter Premium Accounts

It would make a lot of sense for companies to be able to have premium accounts on Twitter.

Consider the following use case:

Many companies have multiple users interacting with their customers on Twitter. For example, Southwest Airlines ( @SouthwestAir) has several customer service folks tweeting to users and addressing user questions (eg: @SouthwestWhit). Similarly Whole Foods (@WholeFoods) has dozens of tweeters including for Cheese (@WFMCheese ), Wines (@WFMWineGuys ) and for individual locations (@WFMMetroDetroit). All of these are individual accounts, even though they work for the same company.

A better approach would be to let companies have premium ‘umbrella’ accounts with multiple handles under the umbrella account. For example, Southwest Airlines would have a master umbrella account and individual reps have ‘official’ Southwest handles under this account. This will help companies streamline their Twitter communication.

Another big benefit of such an approach is that it would address questions of whether an employee’s Twitter handle belongs to them or their company.  With corporate accounts, the handle would clearly belong to the company. Of course, employees could have their own personal handles as well separately.

An extension of the premium account concept is to let companies have their own pages/ mini-portals on Twitter, where they can engage with users in a structured manner. These mini-portals can also offer enhanced functionality such as Buy buttons, Coupon downloads or Customer Service ‘conversations  ‘.

Here’s how:

(1) Product Catalogs:

Allow companies to offer product information or product catalogs on their mini-portals/ pages.

(2) Buy/ Action button:

Having a ‘Buy’ or Action button on their premium account page will enable companies to promote products/ services to interested users and enable their users to complete transactions right away. They can also directly track user response to their messaging.

For example, companies can drive greater engagement in the following sequence:

Promoted Tweets —————> Premium pages,—————-> Product catalogs ————–>Call to Action (Buy Button/ Download coupon).

If a user clicks on “Buy” or performs the action such as say, downloading a coupon from the page, the company can measure the value of the Promoted Tweet and ultimately, the ROI on their spend.

(3) Enhanced User Engagement with Company:

Users can visit the company’s page and ask questions about the product or engage in discussions. For example on a page for Acer’s laptops, users could go and ask the Acer reps questions about the laptop specs, via 140 word tweets, of course. The Acer representatives would address user questions and concerns by tweeting back to users.

Premium accounts would also be a useful vehicle for Monetization for Twitter.

The Value of a Facebook Fan: Some Insightful Readings

In the course of doing research on Facebook’s valuation, I found some great articles and posts on the Value of a Facebook Like or Fan:

1. From the Brandbuilder blog, some of the best analysis I have seen on this subject.

Assigning an arbitrary (one might say “cookie-cutter”) value to Facebook fans in general, averaged out over the ENTIRE breadth of the business spectrum, is complete and utter bullshit.

2. Here is an argument (from Millward Brown) for how social media is not a means to building brands, but rather an end.

Social media can’t help build brands without the other ingredients that make brands strong: an effective business model, a great brand experience, clarity of positioning, and the ability to disrupt the status quo in a product category.

3. And this, a comparison between the value of Facebook and Twitter sharing from Eventbrite.

Sharing activity on Facebook equaled almost 4 times the amount of sharing on Twitter.  We attribute this to Facebook’s reach (right now there are simply more people that use Facebook than Twitter) and the fact that connections on Facebook more closely mirror real-world, personal relationships.

4. Finally, a video on calculating the ROI of a Facebook ‘Like’ by Adobe. Note that this is a promotion for Adobe’s offerings, but I found the methodology interesting.

 

Update: Here is an infographic from Minter Dial’s blog.

The short story is that there is no way to place a single value on a fan. The answer is that “it depends.” Not only are some fans worth more than others, but the way you build up engagement on your page makes the value of a fan more or less potent.

I plan to follow up with a post distilling my readings and my own ideas on assigning a value to social media ‘Fans’ or ‘Followers’.  Stay tuned!

How Can Facebook Monetize Mobile?

Facebook’s S-1 states that users are increasingly accessing it through mobile devices but the company does not yet monetize mobile. “Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;” There are 425 million monthly active users (MAUs) accessing Facebook through mobile devices. See link here. 

Even though the S-1 presents this as a risk factor, this is a huge opportunity that the company must certainly be planning to address.

One big challenge withMobileis that only one ad can be shown per page. On PC based interfaces, Facebook shows several ads per page (as many as 7 ads). So the monetization potential for that single mobile ad has to be equivalent to all the 7 web based ads combined.

This means that mobile ads have to be extremely targeted and relevant to induce users to take action. Regular display or banner ads or even generic sponsored stories will not cut it. Mobile ads should be sharply targeted, and the right ad delivered at the right time.

What monetization options does Facebook have?

(1) Location based offers and ads:

Facebook can let users check-in to receive coupons and offers based on their locations. Similarly users can also receive ads and offers as they drive by a particular area. For example, if a user is on a particular street inSunnyvale, she could receive offers or ads from Coldstone Creamery in the vicinity.

(2) App usage:

Mobile devices are used extensively to reduce boredom and to pass time. Facebook can encourage users to access apps and games via its mobile device. If a user is bored they may be more open to purchasing digital goods for entertainment, or purchasing movies for view, for example, via the Warner Brothers page on Facebook.

The challenge is that users could access games and apps directly via their mobile device’s app marketplace instead of via Facebook’s app marketplace. For example a user may prefer to access the Angry Birds mobile app directly rather than Farmville through Facebook. There has to be a compelling value proposition (for eg, interaction with one’s Facebook network or apps’ unique availability only on Facebook). The user interface for accessing Facebook apps via mobile also needs to be seamless.

Twitter Monetization: Combining Offers with Advertising Would Be a Good Approach

Make User interests Explicit

Twitter’s monetization has focused on Promoted Tweets and Promoted Accounts. Promoted Tweets show up in users’ timelines as well as when users perform a Search on Twitter. But unlike regular Search, user intent is typically not readily identifiable on Twitter. For example, on Google/ Yahoo/ Bing, user intent is very explicit when the user searches on “laptop deals” or “car insurance”. But on Twitter, users often do not make commercial searches. And when users are not explicitly searching, it is hard to make guesses about their intent or interests.

On the other hand, Twitter is a natural medium for Offers and Deals. Several companies such as Walmart already use Twitter to tweet specials to their followers. But instead of waiting for users to follow specific accounts, a better approach would be to ask users themselves to state their interests and then tweet to them based on their stated interests. This combines the Advertising model with the Offers model.

 

This is how it can work:

Bottomline:

• This approach makes users’ interests and intent explicit, providing greater value to advertisers as well as a good user experience. Since users have specified what sort of offer categories they are interested in, advertisers get ‘pre-qualified’ users.

Analyzing Groupon’s Customer Base: Can Repeat Purchasers Compensate for Customer Attrition?

Groupon’s long term viability is dependant on being able to reduce marketing expense while keeping on selling to the acquired subscriber base.

So the big question is: Will the subscriber base keep on purchasing?  

In Q3 the number of groupons purchased was almost the same as in the previous quarter (a mere 1.5% growth). The number of cumulative customers increased by 28%. And interestingly enough repeat purchase has grown by 33%.

What does this indicate?

1. Lost customers: Since there are many new customers even though the number of groupons has not grown much, this indicates that there is a section of previous customers who did not purchase in Q3. This might be because of deal fatigue or the novelty wearing off. Or it might be that the deal mix did not suit them.

2. New Repeat Buyers: There is a smaller section of customers who have become repeat buyers in Q3. They bought once (either in Q3 or previously) and came back for more. This is precisely the sort of customer base that will help Groupon attain profitability in the longer term without requiring marketing.

3. Continuous repeat buyers: There is no data on the number of customers who were repeat customers in previous quarters and continued to buy. This again is a crucial segment to drive future profitability. If this number is large enough it makes a huge difference to Groupon’s economics.

4. New Customers: There is a section of Q3 customers who had previously not purchased anything. Now these customers could come from older subscribers who never purchased anything previously, or from the latest subscribers acquired in Q3. If the deal mix did not change a whole lot in Q3, it is reasonable to guess that a lot of new customers might have come from the latest Q3 subscribers, because if the older subscribers were not interested in previous quarters’ deals, why would they suddenly get interested now? The good thing is that a healthy number of new subscribers are converting to customers. But the question is whether these customers will continue to purchase in the longer term without being marketed to – this is what will contribute to Groupon’s profitability.

The same trends are visible in Groupon’s older markets of Chicago and Boston. The number of groupons sold has actually decreased in those markets, At the same time there is a segment of new customers. This indicates that a segment of older customers has stopped purchasing. This is of concern because for the Groupon model to be viable in the future, Groupon will have to cut marketing expense which drives new customer acquisition. At that stage profitability would be dependant on continuous purchase by older subscribers and customers.

Takeaway: There is growth in repeat purchases in Q3, but there is also a loss in the customer base. The signals are therefore mixed and the S-1 doe not provide enough data with which to determine whether revenue from repeat purchasers can overcome customer attrition.

Is Groupon’s Daily Deals Business Model Viable?

Groupon’s innovative daily deals model has evoked extreme responses. Either it is regarded as the model that will unlock the potential of local businesses online, or else it has been reviled as a ponzi scheme.

Here is an attempt to take a more measured view of Groupon’s business model based on their SEC filings.

1. Groupon’s daily deals business model involves both a high Marketing expense and a high SG&A expense. This is a big barrier to profitability. Marketing expense was 55% of revenue and SG&A was 51% of revenue in the first 9 months of 2011.

Revenue numbers are lower than the Cost Structure (SG&A, Cost of Sales, Marketing cost)

2. Q3 was a comparatively low growth quarter. Major metrics such as revenues, gross billings, featured merchants and # of groupons showed lower growth rates. However given the very high growth rates in previous quarters, Q3 had to grow on a higher base.

Note that these are growth rates and not actual values. All the metrics grew in Q3, but at lower rates than before.

3. SG&A expense is a necessity for the daily deals business. Self serve has been the holy grail of the local space but a having a salesforce is important in order to locate and negotiate quality deals with the right level of discounting. Groupon mentions in its filing that it tries not to repeat merchants, and this adds to the sales cost. In Q3, Groupon has done larger deals which probably reduces the SG&A per deal, still, this expense is unlikely to reduce greatly. Additionally, Technology expense, which has not been very high (only 4% of Groupon’s employees are in technology) will have to increase in the future, because Groupon has to invest in targeting and other technology to support both subscribers and sales teams/ merchants.

4. Marketing expense has significant correlation to growth. In Q3 2011, marketing expenses were reduced to 181 M from 432 M in previous quarters (Q1+Q2 combined), presumably to get closer to break-even ahead of the IPO. Revenue growth slowed from 33% in Q2 2011 to 10% for Q3 2011. That is still a decent growth rate but a lot of growth was also driven by International segment where marketing expense was higher than in the US.

5. Groupon’s 2011 operating loss is 3% for the more ‘mature’ North America segment, compared to 22.5% for the fast growing International segment.

Takeaways:

• Post IPO, in the immediate future, I would expect Groupon to see high growth rates, as they once again turn up marketing expense and expand internationally. This will impact profitability.
• In the longer term, Groupon’s daily deals business has the potential to be profitable but with moderate to low growth. This makes for a decent but not terribly sexy business model.

Twitter Features I’d Love to See

(1) Preview & Open Links:

One of the primary ways people use Twitter is to share and read links. It would be useful to be able to preview links on Twitter. It would be even cooler if links could open from the same page, say in a frame on the right side of the page.

 

(2) Power Tweeters Crowd Out Others on the Timeline

Some people are extremely active tweeters while others are less frequent. Often the frequent tweeters tend to swamp one’s Timeline crowding out less frequent tweeters.

Here are 2 ways this could be handled:

• Provide the ability to put frequent tweeters on a separate tab so that the less frequent tweeters have the opportunity to show up on the main Timeline prominently.

• Let users temporarily filter out specific tweeters on the Timeline – and be able to add them back on the Timeline once they’ve viewed others as well.

(3) Support conversations in Timeline:

Often there’s an interesting conversation going on in Twitter but it’s hard to keep track of it because the Timeline shows tweets ‘discretely’. Of course, clicking on a tweet will show related tweets on the right frame, but it would be useful to have conversations bunched together on the main timeline. If anyone wants to follow the entire discussion, they can expand it.

(4) Allow commenting/ annotating when Retweeting.

Because:

• Users would like to add their own opinions to RTs.
• Sometimes people RT tweets they disagree with, and would like to indicate that they’re not endorsing the tweet.

Netflix’s Calculated Bet on Streaming

Update:

A few days after this post, Netflix decided to abandon its recently announced streaming-only strategy and instead retain its original combined Streaming + DVD business. All I can say is that correlation is not causation.

The following analysis is my opinion only and contains a set of assumptions which may or may not be accurate. Do not use this for investments or financial decision-making. All the analysis is based on public information only, as stated in my Policy.

Netflix Cost Structure Analysis

• What is the impact of Netflix’s decision to focus on Streaming–Only on their cost structure?
• Will the decrease in the cost structure offset any loss in subscriptions of customers who wanted DVD as an option?

I have attempted to estimate the Netflix cost structure 2 scenarios: (1) If Netflix had continued the blended (combined streaming + DVD) options, and (2) Streaming-only Option. Netflix has provided guidance that they expect 24 million subscribers in Q3 2011 with 12 M subscribers for both DVD & streaming, 9.8M for streaming only and 2.2 M for DVD only.

Assuming the same ratio Blended, Streaming-Only and DVD -Only users, I have estimated the Cost/ Subscription/ Month at different r user subscription numbers for the Blended scenario. In addition, I have also made estimates for the cost structure for the Streaming-Only scenario.

Key Takeaways:

• Looking at the above graph, the blended business will have the same Cost/ Subscription/ Month at 24M users as the Streaming-Only business at 17M users  –  $11.8 per subscription per month). So of the 12 M users who are subscribing to both streaming and DVD, at least 7.2M will need to convert to Streaming-only in order to retain the same Cost/ Subscription/ Month.

• However, Netflix has mentioned that they will maintain the same operating margins. Therefore, for the pricing of the Streaming- Only business to be at $8, the number of subscribers has to be close to 30M, which means they have to acquire an additional 6 M customers over and above their current base. Alternatively, they will have to either increase prices or come up with premium pricing tiers.

Below is the cost breakdown estimates for the scenario with 24M subscribers as forecast by Netflix for Q3.

Assumptions

NOTE: I have made many assumptions since the 10-K does not break out costs very granularly. These assumptions may or may not be accurate enough. If readers can come up with better assumptions, do let me know in the Comments section and I will rework the numbers.

1. I have used the 2010 Netflix 10-K as the basis for many cost items, since the 2011 Netflix 10-K will only be available at year end.
2. It is expected that streaming content acquisition is going to cost a lot more going forward.  Assumption:Content acquisition costs = $1.6 B / year. Source: http://www.trefis.com/stock/nflx/articles/73421/the-failed-netflix-starz-deal-highlights-the-rising-costs-of-netflixs-growth/2011-09-06
3. I’ve assumed that DVD content acquisition cost in the blended scenario is one-tenth of the Streaming content acquisition costs. This is under the assumption that Netflix is not going to invest much in DVD content acquisition.
4. DVD operational costs: I used the 2010 Netflix 10-K as the basis, in which I assumed that DVD operational cost is 55% of total subscription costs. This comes to $ 634 million total or $ 3.58 per subscriber per month. Assumed the same cost per subscriber per month for DVD operations going forward as well. .
5. Streaming operational costs: Assumed 50 cents per user per month to cover credit card and cost of streaming.
6. Fulfillment cost: based on 2010 10-K, fulfillment cost = $1.15 per subscription per month. The same value is assumed.
7. Assumed 10% increase in Technology, Marketing,  G&A over 2010.

I’d appreciate reader feedback on the following:

• Has streaming hit the mainstream for family viewing or is it still the domain of singles watching movies/ shows on their laptops and iPads?
• Following Netflix’s announcement that it is abandoning the Streaming-Only strategy, I am guessing that they may have determined that they cannot retain the requisite number of subscribers to make Streaming-Only a viable option.What do you think?

Email as the Ultimate Deal Aggregator

Almost everyone has an email id that receives deals, mailers, discount coupons, and ‘mass’ emails. Wouldn’t it be useful if email could aggregate deals, recommend related products, filter out deals that do not meet requirements and even unsubscribe to less relevant deals?

 

How would this work?

This would work by integrating email with a deal aggregation engine in the backend.

• First, a separate tab is provided for deals. This tab will contain functionality built specifically for deals. Putting deals in a separate tab will also reduce Inbox clutter.

• Users are asked for their preferences and targeting information such as Categories of interest, Gender, Location, Favorite merchants, Price preferences (by product category) and so on. Based on this, the deal aggregation engine would find all deals that match the user’s criteria. For example, if  the user provides “Spa Services” as an area of interest, the deal aggregation engine would fetch Spa related deals from Groupon, Living Social and other daily deal services.

• Apart from daily deals, the email aggregator would find coupons for the user’s areas of interest. For example, if I indicated “Babies/ Children” as a category of interest, it would sign me up for Babies R Us or Target’s Baby coupons. For “Books”, it would sign me up for Barnes & Noble or Amazon coupons. I could also specify individual retailers that I like to shop at, say New York & Company, and the deal finder would crawl for their coupons and push them into my Inbox.

Here is why email is the ideal deal aggregation platform:

• Most deal notifications happen via email subscriptions. By integrating email with deal aggregation, users do not have to take the trouble to subscribe to individual deals. They would have to indicate their preferences just one time and their email based aggregator will do the rest.
• Email can help reduce user deal fatigue. Even though email tends to get cluttered with mass mailers, deals and coupons, it is the right medium to organize deals in such a way as to get users only the deals they want.

Google+ vs Facebook: Initial Thoughts

After taking the tour and going over the demo, here is an initial take on whether Google+ is a threat to Facebook.

Google+ addresses some key gaps in Facebook very elegantly and intuitively.

Circles is an excellent concept and addresses a key issue that people face on Facebook.  My Facebook network is an amalgam of all the other networks in my life – casual friends, close friends, family, cousins, work colleagues and acquaintances. Most people interact differently with the various networks in their lives, but Facebook does not do a very good job of facilitating this online. I have to say that Facebook’s “Friends Lists” is somewhat clunky and not very well implemented.

Google Circles is a very elegant approach to segmenting my friends and interacting differently with them, just like in real life. Its implementation intuitively makes sense.

Hangouts addresses another Facebook gap. Many a time have I felt that I’d like to interact with some of my friends more closely instead of only responding to their status updates or watching their photos. Many of my friends are scattered all over the world and I’d like to have the opportunity to hang out with them again. And Google’s Hangout, with its excellent video service seems like a great way to do this.

But there are switching costs in moving from Facebook to Google+

By itself, it does not seem likely that people will move over to Google+ from Facebook, even though Circles and Hangouts are excellent features. The big factor that will prevent switching is the Network effect. Many people have at least 100 friends on Facebook and it is going to be hard to move with all one’s friends to Google Plus.

Another major switching cost is that people have a lot of photos on Facebook. Of course, if Google were to introduce a photo transfer feature to enable people to port their photos over from Facebook it will make it easier. People also belong to many groups on Facebook but I am not sure that this is a major blocker, because people are usually passive members of groups and tend to forget about their groups soon after joining.

It would also be interesting to see whether Google+ has a feature to let people port over their friends and content such as photos or wall posts. This might reduce some switching costs.

Facebook can (and likely will) replicate Circles and Hangouts:

Even though Circles and Hangouts are intuitive features that address key gaps in Facebook, Facebook ought to be able to replicate these so that people do not have an incentive to switch. I expect that they will come up with a way to let people do what Circles enables them to, which is to segment their friends and present different updates, photos and views of themselves to their different friends’ circles. Similarly, I expect Facebook will provide sophisticated video chat capabilities to match Hangouts.

Fundamentally, Facebook is a great product and more importantly, has a hard-to-replicate ecosystem. It only has to address its gaps and make sure there are not many incentives to switch.

Integration with Google products could be the Game-changer

However, there is one factor that could get people to start using Google+ at scale. How well Google+ is integrated with popular products such as Gmail, Search or Android could be the game changer.

And this is where I’d like to actually get an invite and check out for myself how well Google Plus is integrated with Search, Gmail and Android. I plan to have an updated post after I tinker with Google Plus. Watch this space.