The Web Wars

Our ongoing qualitative survey of marketing budgets and policy among our 400 registered marketers is not statistically perfect. Responses are personal and mostly from the bigger publishers. But they reveal an underlying marketing problem – you can hear a whiff of desperation in the words.

We ask our readers: “Let us know what you think about budgets and policy etc. and how you think it should be run”.

Answers tend to be repetitive and follow a pattern. Here are summaries of answers to date:

• Our budgets do not look far enough ahead to cover ‘lifetime value’.

• Budgets are run on a single year basis rather than payback in year 2, 3 or 4

• Lifetime value of a sub is not accounted for, e.g. ancillary sales, upgrades etc
• We include the cost of producing and fulfilling copies in our costs

• No, we do not reinvest – it’s booked as revenue and taken away

• Cost of production and fulfilment feature as service/ marketing costs of a campaign.

• Profits are not invested

The quotes above reveal the problems publishers and marketers face in their work to build subscribers and market share. The marketers’ job is to find where the money is and bring it in. Budgeting policy, however, seems to work against this.

‘Go where the money is.’
That ‘money’ rule is used in cost-based management accounting, following the principle:

‘The highest potential for overall cost reduction is found where the highest costs are incurred.’

During a recession, cost reduction becomes more important than creativity and investment. And nowhere is pressure stronger than on a publisher’s websites. So many are losing money that radical changes are afoot – mostly changes in strategy that will involve getting users to pay their way.

The days of the free website are numbered.

But cost cutting and creative development can work together: you can reduce costs while increasing efficiency and market penetration. In a street market a man running a stall losing 40 per cent of sales year-on-year opens a website selling the most popular items and nullifies the loss.

The first rule is to go where the money is. And the money has moved from traditional media – advertising pages are dropping by up to 40 per cent year on year.

This isn’t just because of the recession – it’s a future trend. That is clear when you find out the money is going to the Internet.

In the first six months of 2009, Internet advertising spend was £1.7 billion in the UK and rising. On TV it was £1.6 billion and dropping. Most of the Internet spend was on search engine ads, and classified ads account for 22 per cent of the total.

What do we learn from the above figures? First, it’s that companies are advertising on the Internet because people are spending their money there. And the media pundits simply haven’t worked out these four things:

1. Money is moving from display to classified advertising

2. Money is moving into direct marketing

3. No major publishing MD has worked in classified

4. No major publishing MD has worked in direct marketing

That explains why the publishing industry is in trouble.

The current issue of the Subscriptions Strategy newsletter (Issue 76) shows how some publishers small and large have pulled out of danger with successful paid-content website business models.

The casualties of the Web Wars
As for most big publishers – they are fighting for survival on the Internet battlefields and hiding their web losses within their overall company publishing figures.

The crazy thing is that one of the first cost-cutting exercises these publishers make is to cut back on marketing budgets and personnel, the front line troops.

The Web Wars are being fought by business leaders who are out of touch with today’s customers.

The Web Wars will see plenty of casualties, but not through the rough and tumble of competition: it’s because of leadership problems and ignorance.

A quote from The Times newspaper about the Afghan war gives the problem and solution (the one in 1854, that is. Different war, same problem – leadership):

“No excuse will be admitted against immediately superseding in their commands those who have proved themselves to be incapable of performing the duties to which favour, seniority or mistake has advanced them. Let every officer be sent home who is not thoroughly up to his work”.

Interestingly, out of the 50,000 British soldiers in that Afghan war, 16,000 died of sickness not related to fighting, mostly due to poor hygiene. That was the war Florence Nightingale introduced her methods. She nearly didn’t go because the doctors tried to stop her.

Even though the solution is clear, someone will always try to stop you.

It’s a marketing problem, stupid
Stephen Hawking defined intelligence as ‘the capacity to adapt to a changing environment’.

And he was adapting Darwin’s theory of evolution.

But it’s important for publishers to differentiate between the effects of:

1. A global economic downturn 2. Radical change in the marketplace because of the wider use of the Internet

What money there is, is moving away from traditional media.

Marketing is, after all, a simple case of following people to see where they go and then selling them what they want.

Changes in where the money is going call for all-out creativity and risk-taking to reinvent ourselves, to take maximum advantage of developing technological and market-driven forces. A recession calls for a company-wide focus on effectiveness of expenditure.

Change means not letting up on new product development. In tough times, existing products seem to move from ‘launch’ to ‘mature’ to ‘dying’ faster. That old revenue has to be replaced, as Darwin would say if he was reading this.

Publishers, accountants, doctors and bank robbers
The saying ‘Go where the money is’ was invented by a famous American bank robber, Willie Sutton. It’s known as Sutton’s Law.

Sutton’s Law is also used in medicine: ‘First do the experiment that can confirm the most likely diagnosis.’

It’s all to do with being effective. But what Sutton actually said was:

‘Go where the money is – and go there often.’

Sutton recognised the need to go back for more. But, following the principle laid down by the accountants, if they ran a farm they would cut the cost of feeding the chickens – it’s by far the biggest cost. Then the chickens would grow thin and stop laying eggs. Then the accountants would have to set a ‘future charge’ against disposal and burial costs and ‘outsource’ egg production to another farm.

Unfortunately, in real life, like down on the farm, once the accountants and doctors make their cuts, the damage has been done and there is no going back.

Marketing, thankfully, is a much more able discipline. In marketing, the equivalent, more useful law is: ‘First send out your strongest promotion to your best prospects.’ That way it’s got the best chance of working. You then have a ‘control’ and can track and compare the effect of your later promotions. You can keep going back for more.

In that respect, publishing is similar to bank robbery: we must keep going back to the source of the money. We must build a good, profitable customer base, renewing and selling to them as often as possible.

But many don’t. And many publishers who treat their subscribers as one-off or annual purchasers are now losing money.

These days we focus on direct marketing through the Internet, because that is where people are spending. Publishers must go where the money is, and that’s coming in through websites. The examples in the current issue of Subscriptions Strategy show how it’s done – and if your web operation isn’t profitable, then it’s getting a bit late.

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