Facebook’s Free Lunch with Trimmings

We’ve all heard the expression, “There’s no such thing as a free lunch,” but do you know where it originated? During the mid-19th century, saloonkeepers would offer free food for the price of a drink, based on the gamble that folks wouldn’t stop at one. Today’s watering hole lies at the intersection of curiosity and compulsion. It’s a destination called Facebook, and its patrons will soon number half a billion–legions with an insatiable thirst for triple shots of creative expression, kinship and validation. But just like yesterday’s barkeep, the man behind Facebook’s counter, CEO Mark Zuckerberg, wants something in return for access to his social networking smorgasbord: the ability to use another kind of counter–one that adds up your likes and dislikes to serve up targeted ads.

Zuckerberg’s definition of quid pro quo has gotten the company into hot water with privacy advocates, one of the many topics explored in the fascinating new book “The Facebook Effect: The Inside Story of the Company That Is Connecting the World” by David Kirkpatrick. As Kirkpatrick points out, Zuckerberg’s vision has been to relentlessly pursue growth through dominance and worry about profitability later.

The proof of Facebook’s success lies in a cursory review of some of its astonishing statistics: users spend 500 billion minutes per month using the site with the average user posting 70 pieces of content. They add up to 25 billion per month. And while Nielsen reports that 125 million Americans spend roughly seven hours a month sharing the likes of political rants on Zuckerberg’s brainchild, over 70 percent of its users are outside the U.S. The Private Equity Data Center speculates that the breadth and depth of such devotion may be worth as much as a staggering $35 billion.

Clearly, the future profitability of Facebook lies in its ability to navigate the delicate balance between personal expression and the lifeblood of marketers’ commercial interests. Although Facebook execs admit that past efforts to alter privacy settings have created confusion and consternation, they vow to do better. In a June interview in The New York Times, Eliot Schrage, vice president for public policy at Facebook, admitted that the privacy implications of their ads are widely misunderstood, “People assume we’re sharing or even selling data to advertisers. We’re not. We have no intention of doing so. If an advertiser targets someone interested in boats, we’ll serve ad impressions to people with ‘boats’ on their profile somewhere.” Schrage explains that the site relies on “anonymized demographically targeted ads.” Specific names and personal information of users aren’t disclosed to advertisers.

What Facebook is doing is no different than what television broadcasters have done for decades: pushing ads aimed at appealing to the targeted demography of a show. The key difference is that with Facebook, the content is user generated and personal. But with statistics suggesting that the average consumer is bombarded by thousands of ads a day, it’s not too cynical to suggest that such relevancy is one more positive aspect of Facebook. And with its user base, regulators and management working in concert, perhaps such wry wish fulfillment can take an optimistic turn; one that will benefit the marketers who pick up the lunch tab for this ultimate soapbox, as well as those who shout atop it.

Rick Petry is a freelance writer who specializes in direct marketing. Contact Petry at (503) 740-9065, at rickpetry.com, or on Twitter at http://twitter.com/thepetrydish.

Social Media and SEM: Friends or Foes?

The explosion of social media and the steep growth trajectories of sites such as Twitter, Facebook and, more recently, FourSquare, have created huge opportunities and challenges for marketers in equal measure. According to the SEMPO “State of Search Report 2010,” based on a global survey of nearly 1,500 digital marketers, 59 percent of client-side respondents said social media budgets will increase over the next year compared to only 4 percent who said budgets will be less. Agencies are even more bullish, with 85 percent saying they expect increased client-spend this year.

Although social media marketing budgets are still modest compared to those for search engine optimization and paid search, many companies are starting to take this relatively new channel very seriously.

Social Media’s Impact
Effective social media marketing can help drive website visitors by giving companies and brands more visibility on search engines and social media sites. A good social media strategy can have SEOs licking their lips at the prospect of new links and opportunities for visibility on social media-friendly search engines. Three quarters of agencies surveyed (74 percent) for the SEMPO survey, carried out by Econsultancy, say the rise of social media has had an impact on their clients’ search engine marketing activity.

It should be noted that while social media marketing can help search efforts, the main objectives of social media marketing, and the skill-sets required, are often very different from search.

Although the research found that the primary objectives for search marketing are most likely to be “selling products” (for paid search – see Figure 1) and “generating leads” (for SEO – see Figure 2), the primary objective for social media marketing is most commonly increasing brand awareness and enhancing reputation (see Figure 3).

The skills required for social media marketing, where creativity is paramount, are not the same for paid search marketing, which generally speaking, requires deeper analysis and left-brain thinking. Similarly, the metrics used to measure success are very different.

The primary skills required for a staff member managing SEM, search advertising campaigns include: the ability to stay on top of the latest campaign management and analytics tools, the ability to convert campaign performance data into action plans and the ability to execute exact and different campaign best practices based on the advertising channel.

By contrast, the core skills required for a new staff member to develop and execute effective social media campaigns include: be adept at listening and understanding what your target audience is saying about your company’s product; be able to work with the appropriate social media tracking tools to effectively monitor dialogue and answer questions; know how to drive community conversation; and recognize that successful social media marketing takes time as you work to expand your customer base.

Where SEO and paid search success can be worked out on a more tangible return-on-investment basis, measuring the success of social media campaigns often requires more intricate analysis. The metrics will likely vary based on the objectives.

These differences don’t mean that the same agencies and same people cannot be well equipped to help a company with both search engine and social media marketing. But what should be clear is that social media marketing should be seen as something more than just a search-marketing tactic.

Linus Gregoriadis is research director at Econsultancy, which carried out and published the SEMPO “State of Search Report 2010.” Contact Gregoriadis at linus.gregoriadis@econsultancy.com.

Blah, Blah, Blog!

Blog, that portmanteau of web + log, has evolved into a powerful marketing tool, yet it is often misunderstood or even dismissed. Maintaining a blog with solid, original content is hard work and let’s face it, a lot of folks would rather take a number at the DMV than stare down a blank page on their computer screen. That’s why more direct marketers need to take advantage of the Electronic Retailer (ER) blog, (www.electronicretailerblog.com), a valuable–yet grossly underutilized–blogging platform available to the entire community. The ER blog is a single-destination site where the totality of the industry’s thought leadership can be aggregated to create an authoritative body of content that will benefit product inventors, marketers, supply chain partners and students of direct marketing.

However, since the beginning of the year, the ER blog has averaged about one contribution per week when, frankly, someone should be weighing in every day. For that reason, it’s probably worthwhile to review some of the key reasons why blogging is so important to the overall marketing mix. First and foremost is the fact that blogging–especially guest blogging on a site such as the ER one–helps with search engine optimization (SEO) in significant ways:

Blogging increases long-tail exposure. In January, Scott Richards, CEO of Dial800, posted a video-log on the site discussing the relative effectiveness of repeater toll-free numbers versus random ones. Now, if someone Googles “repeater toll free numbers,” that blog entry as Dial800’s site ranks very high for unpaid search. So just by posting one blog entry, a slew of phrases have been picked up that searchers can then easily find and link to, what are known as “long tails.”

Link building creates credibility. Once you’ve posted content on a topic that readers are interested in, others may link to your original blog post, a phenomenon known as “link baiting.” Every additional link tells Google that the community has found your content valuable and imbues it with credibility that then translates into link authority. As a result, the rank of your original post rises and the ER blog enjoys strong ranking authority. That linking authority then funnels into your site.

Instant links. Guest blogging on the ER blog can provide direct links back to your website. Therefore, instead of writing a blog on your own site and hoping you get linked, you get connected to the posting from the outset with content that is relevant to your business. This tells Google that you are a thought leader on the given topic.

The ER blog allows the industry to enjoy the benefits of blogging without the attendant pressure for continually generating fresh content being borne by one individual. But in order for it to maximize its potential dividends, it needs us all to step up and leverage our substantial wealth of knowledge.

Rick Petry is a freelance writer who specializes in direct marketing and is a past chairman of ERA. He can be reached at (503) 740-9065 or online at rickpetry.com. On Twitter at http://twitter.com/thepetrydish.

iPad: The Shape of Things to Come

Apple’s ability to create yummy objects of affection is unparalleled, which explains why I found myself standing in line one recent Saturday morning before dawn in near-freezing conditions so that I could be among the first to get an iPad. You know…for my wife. Though some initially dismissed it as an oversized iPod Touch, the iPad is really so much more: call it the ultimate boogie board for surfing the Internet. Its content engine is fueled by three major e-commerce stores: iTunes, with its digital music marketshare now solidly ensconced at 90 percent, the result of over 10 billion downloads; a bookstore with ready access to Project Gutenberg’s 30,000 free titles that will soon offer every release of magnitude; and an app store with tens of thousands of gizmos that allow you to do cool things like browse more than 28,000 recipes that can be effortlessly translated into virtual shopping lists with the press of an index finger (epicurious).

While the iPad can be oriented horizontally to take advantage of its letterbox shape for watching downloaded movies, flicks streamed from Netflix or YouTube videos, it is really the tablet-like orientation that many sites are now being optimized for that makes the iPad the breakthrough that e-tailers should take notice of. At 9.7 inches, the iPad is like having access to one endless, environmental impact-friendly catalog with unlimited variety and choice. It renders the weekly barrage of direct mail from Frontgate, L.L. Bean, Nordstrom, et al obsolete. Call it green meets ka-ching.

While one might observe that the Internet has failed to realize its supposed catalog-killing potential, I have noticed a fundamental change that has occurred in the focus group of one who lies next to me at night. The sundry clothing catalogs she used to persistently peruse while some hapless couple on cable television vacillated on a real estate purchase decision have been thrown over for the iPad. She can’t keep her hands off it.

Given my wife’s persistent complaints about my iPhone texting/television watching/web surfing multi-tasking, there’s a certain delicious irony in this. Since I can’t get my hands on the darn thing, I’ve rationalized that alone has made the icy temperatures I endured that first morning well worth it. For those few who still cling to the notion that Apple’s computers are for cultish and pretentious beret-wearing intelligentsia, I have a humble suggestion: Get over it. Apple has succeeded unlike its competitors for perhaps the most basic of reasons–its stuff works. It works intuitively and elegantly and explains why–on most days when I wander into one of Apple’s retail stores to be greeted by one of the cheery help who hasn’t seen a comb or razor in a while, I find myself surrounded by customers with hair as stark white as the décor.

Add it all up and you get the feeling that there’s something happening out there: something that could change the face of computing as we know it, something that could revolutionize the assimilation of content–and shopping–yet again. Call it the Mac Daddy of e-tailing opportunities. The iPad may be from Apple, but it’s a peach.

Rick Petry is a freelance writer who specializes in direct marketing and is a past chairman of ERA. Contact Petry at (503) 740-9065 or online at rickpetry.com or www.twitter.com/thepetrydish.

Accelerate Your Online Sales Using Digital Marketing Innovation

By Joel Book

Marketing dollars are going where the customers and prospects are. And that place is online. Online channels are lower cost and more measurable, and as a result, online continues to take sales revenue from traditional direct marketing channels. In increasing numbers, marketers are finding it’s important for their organization to shift their marketing focus to more online.

E-commerce Sales Forecasted to Top $152 Billion in 2010
The eMarketer prediction follows the U.S. Census Bureau’s release showing online sales in Q4 2009 grew by 14.6 percent over a year earlier–the biggest gain in eight quarters.

“In 2011, growth will go on at the same pace, as the economy continues to recover and consumers loosen their purse strings,” says Jeffrey Grau, eMarketer senior analyst and author of the new report, “U.S. Retail E-commerce Forecast: Room to Grow.”

“But by 2012, e-commerce will resume its pre-recessionary downward growth path because of the inevitable maturation of the online sales channel,” he says. “Still, there is plenty of energy driving e-commerce.”

eMarketer reports that this year, 162 million people in the United States will research products online. Much of this research will lead to in-store purchases. Over 82 percent of online researchers, or 133 million people, will be online buyers. The percent of online buyers will rise as young Internet users, predisposed to e-commerce, replace older users.

Still, the web’s main contribution to retailing is as a research tool.

“The Internet’s 7.7 percent share of total retail sales pales in comparison to its influence on store sales,” says Grau. “During the recession, online consumers honed their web research skills, searching for coupons, comparing prices and finding just the right product to fill a particular need. It appears these lessons are staying with them even as their personal finances begin to improve.”

Separating Online Marketing Contenders from Pretenders
A website’s ability to convert a visitor to a customer is a measurement of its effectiveness, and it’s no small task. You can drive the most targeted visitor to a website only to lose the opportunity to engage and convert that visitor. Research from Webtrends shows that on average, less than 5 percent of website visitors leave the site without converting. That’s why website conversion effectiveness is one of the most important metrics that impact your ROI.

It’s no coincidence that the best performing online marketing websites are engineered to drive conversion. They employ landing page optimization and abandoned shopper re-engagement strategies, along with multivariate testing to optimize performance. They are all optimized for repeat purchases, have excellent internal search engines to make navigation and research easier, and they focus on driving visitors back to their site.

Demand generation strategies such as paid search, SEO, display advertising, e-mail marketing and social media bring visitors to your website. But once you get them to your site, how do you convert them to buyers?

Maximizing online marketing performance requires alignment between the tactics used to drive traffic to your site and the tactics used to drive conversion. Whether your conversion environment is a single landing page, microsite, shopping cart or registration form, conversion optimization requires a balance of strategy, process and technology.

To gain a better understanding of the advantages of integrating e-mail with social media, let’s take a look at online marketers who do it right.

Johnston & Murphy
When you hear the name, Johnston & Murphy, you may assume this is an old company with products–with strategy and tactics to match. And you would be very, very wrong. This is definitely not your father’s Johnston & Murphy!

Johnston & Murphy (J&M), which boasts close to 200 stores, a catalog and an e-commerce site, is taking advantage of marketing tools and technology–anchored by e-mail marketing and web analytics–to convert shoppers into buyers and create relationships that keep customers connected to the J&M brand.

While many retailers are struggling in today’s challenging economy, J&M is proving that you can build and retain your best customers if you know how to leverage digital marketing.

The company uses e-mail marketing software and web analytics technology to execute automated e-mail campaigns that deliver personalized offers based on the consumer’s demographic profile, product interest or purchase behavior.

With e-mail serving as the backbone of J&M’s personalized one-to-one marketing strategy, the company has achieved some impressive results:

• E-mail open rates have increased 44 percent.
• Response rates increased 139 percent.
• Sales have increased 145 percent.

In addition, J&M has seen an increase in sales from both its catalog and retail store channels.

eMarketer forecasts that after two years of subpar growth, 2010 U.S. retail e-commerce sales (excluding travel) will climb to more than $152 billion, up 12.7 percent year over year.Source: eMarketer

Dreamfield’s Pasta
Dreamfield’s Pasta is a marketer of 100-percent organic pasta products. The company is a great example of a CPG (consumer packaged goods) marketer who has successfully made the move to online marketing in response to consumer preference to buy through that channel. The company has moved away from a traditional print and broadcast advertising strategy to attract customers, to a multichannel digital marketing strategy that relies on e-mail and social media to drive retail sales and create “brand fans.”

Dreamfield’s uses SEO, PPC and word-of-mouth to attract consumers to trydreamfields.com. Once on the site, consumers are invited to register for Dreamfield’s e-mail newsletter and receive a $1 coupon as a “thank you.” In less than two years, Dreamfield’s has built an opt-in database of 500,000 consumer e-mail subscribers. In addition, 15,000 healthcare professionals are Dreamfield’s “brand fans” and e-mail subscribers.

The company utilizes e-mail to deliver offers, recipes and coupons to subscribers; invites them to visit the Dreamfield’s page on Facebook where they can become a Dreamfield’s fan and exchange recipes with other consumers.

For FY 2009, the company sold 8.3 million pounds of pasta, a 13-percent increase over FY 2009. In addition, Dreamfield’s has reduced its advertising budget by 95 percent since converting to its digital marketing strategy.

Cable Shopping Network
Cable Shopping Network’s e-mail marketing strategy accounted for 8 percent of total online revenue in 2008 and 17 percent of total online revenue in 2009.

One of the keys to success for this $40 million marketer of coins and other collectibles is its automated system for re-engaging shoppers who have abandoned their shopping cart. The automated system–which uses e-commerce software in combination with e-mail marketing and web analytics software–sends customized e-mails to online shoppers who have placed an item in their shopping cart, but have not completed the purchase. The e-mails ask the shopper if he or she encountered difficulties in the checkout process and offer a discount for completing the purchase. The system provides Cable Shopping Network a single interface to measure the performance of its web and e-mail marketing efforts, giving the company actionable insight to help allocate marketing dollars and resources on the highest value campaigns.

According to Steve Harris, VP marketing for Cable Shopping Network, CSN’s e-mail remarketing strategy accounted for more than $500,000 in sales in 2009.

5 Ways to Maximize Online Marketing Effectiveness
To accelerate online marketing effectiveness in 2010, marketers should focus on the following:

1 Design your websites(s) to engage the visitor and make the shopping experience as pleasant and hassle-free as possible. Use internal search to make navigation easier, make the checkout process easy and provide multiple opportunities to subscribe to e-mail.

2 Use SEO and paid search to attract prospective e-mail subscribers to your site. Search continues to deliver the highest ROI for attracting new customers. As more shoppers begin their product research process on the Internet, marketers must ensure that their websites are optimized to attract prospective customers.

3 Use e-mail to aid the customer’s decision-making process. Forrester research reports that consumers who buy products marketed through e-mail, spend 138 percent more than non-e-mail subscribers. To maximize e-mail performance, create a Subscriber Preference Center and use it to identify customer information including needs and interests. Then, use that information–in combination with shopper behavioral data–to deliver offers that are relevant to the shopper’s profile.

4 Design, test and deploy an Abandoned Shopper Re-Engagement process. Research from online marketing consulting firm, SeeWhy, reveals that 69 percent of shopping processes are abandoned before completion. Charles Nicholls, founder and CEO of SeeWhy, says that mid-sized online property ($200 million in revenues per year) loses $1.2 million every day due to abandonment. A properly designed abandoned shopper remarketing system can recover up to 50 percent of shopping from those who had abandoned.

5 Leverage social media–particularly Facebook and Twitter–to attract new customers and serve existing customers better. Zappos is a great example of how online marketers can use Twitter to enhance customer service. The Zappos_Service Twitter account, which has more than 4,450 followers, is managed by a team of 18 in the company’s customer service department. Employees monitor tweets based on keywords related to Zappos and look for opportunities to help shoppers who may be searching for a specific item or have questions related to an order. By “going public” with its customer service, Zappos is earning praise from shoppers for being pro-active.

The Bottom Line for Online Marketing Success
There’s no question that sales from online retailing will continue to grow. And the two media that will be the workhorses in driving online sales are e-mail and social media. A recent market research study of 1,000 marketing professionals conducted by ExactTarget and eConsultancy revealed that 66 percent plan to increase investments in social media, while 54 percent plan to increase budgets for e-mail marketing.

E-mail has firmly established itself as the backbone of customer engagement as well as the #1 medium for direct response. And social media is quickly gaining strength for its ability to influence the buying decisions of consumers. The Razorfish Consumer Experience Report found that 40 percent of online consumers made a purchase as a result of advertising on social media.

The message is clear. Online marketers who embrace and integrate e-mail and social media to attract and engage buyers will be well positioned for success.

Joel Book is principal, market research and education group at ExactTarget Inc. Contact Book at (317) 275-5444 or at jbook@exacttarget.com.

OMG – It’s the Winter eLympics!

Our story begins with a text message: ”Are we road tripping next week?” The message, sent from my buddy Ryan, left me perplexed. “Where, exactly?” I shot back. Apparently, at a Super Bowl party, in the ether of my post-Great Ideas Summit “NOLA zeal” and The Saints’ victory, we had hatched a plan to attend the 2010 Winter Olympics in Vancouver, B.C., some 320 miles north of my Oregon home. Unbeknownst to me. And, I soon discovered, my wife. Well, I reasoned, it wasn’t called “The Great Ideas Summit” for nothing!

Cut to me driving to pick Ryan up, having texted in transit that, no, I will not be there promptly at 6 a.m. as promised–even though he notes, he’s freezing at the curbside–owing to the fact I had procrastinated on a writing project, requiring an all-nighter. As I sent the message, I contemplating my wife’s admonition that a popular new bumper sticker states, “Honk if you love Jesus. Text if you want to meet him.”

However, ill-advised texting was just the tip of how we used smartphones, dumb luck and ready Internet access to navigate the barrage of media and marketing known as the Olympics. These devices became indispensable to our ability to not only communicate, but to bypass bureaucracy and buy what we needed amid the global village. For example, to pass the border, we opted for an indirect route based on time-to-cross estimates accessed via iPhone from the Washington Department of Transportation. Our accommodation for the trip–a loft in trendy Yaletown–was rented online from an owner we never spoke to.

The only tickets we bought prior to arrival were secured through a fan-to-fan online transaction guaranteed by the official Games’ ticketing agency. The seats, for Apolo Anton Ohno’s record-breaking medal haul during the men’s 1000m short track speed skating finals, were so close we thought we might catch ice in our beers. Yet while standing in line to get the tickets, what were we doing? Surfing eBay and Craigslist for admissions to other events; on Craigslist we were even able to discover cheap parking.

The point is, our actions and commerce decisions were dynamic and influenced by easy access to real-time information. And while one could argue that the limited-time sense of urgency created by the Olympics is unique, how we rely on and use these tools to fulfill our desires has become a daily staple. Today’s marketplace is in constant movement, influenced not only by supply and demand and price, but the ebb of opinion and rumor.

Keeping a finger on that pulse and responding to it swiftly is imperative for marketers–countless variables can cause it to quicken–or fade–like a medalist’s fleeting fame that lasts until the snow pack melts. And while Visa may have been the only card accepted at the Games, it is their competitor’s tagline that best describes the ability to catch such lightning in a bottle. Like our indelible Olympic memories now posted on Facebook, it is this: Priceless.

Rick Petry is a freelance writer who specializes in direct marketing and is a past chairman of ERA. You can reach Petry at (503) 740-9065 or online at rickpetry.com or www.twitter.com/thepetrydish.

Over the Top, or Under a Cloud?

Q: What exactly is OTT and what impact does it have on DRTV?

A: Remember Chris Crocker? He found his 15 minutes by whining about media negativity toward then-beleaguered Ms. Spears, imploring the haters to “leave Britney alone!” Why reminisce? Because the relentless tech-driven onslaught threatening DRTV makes me sympathize with his motivation. The latest threat comes courtesy of “Over The Top” (OTT) video–delivering content to TV sets via broadband.

DRTV DANGER AHEAD?
DRTV-specific threats emerge from viewers’ evolving ad expectations. Save for bigger, better screens, broadband TV is like…TV on the web, portending fewer and shorter commercials. And if viewers bring interactive web expectations to the couch potato plantation, channel-hopping could grow even more. That’s actually good news for DRTV. What isn’t good is web-trained viewers’ reluctance to watch any ad longer than 10-15 seconds.

DRTV formats need time to delineate benefits, demonstrate performance and present value-based deals their viewers can’t refuse. OTT models that don’t offer extended commercial lengths hurt our clients. So will the likelihood that many advertisers will want TV results with web tactics–including the popular “cheaper to produce and disseminate because it’s the Internet” bit. The fact that web ads drive fewer sales may matter less than the perception that old school TV is just too costly. Agencies forced to cut scripting and production corners risk making clients’ inexpensive products look cheap.

BE PREPARED
Some suggest widgets will work over the top, but the advertisers most likely to gain traction are “lifestyle” brands, like Nike or Miller Brewing, whose fans are converted already. DRTV specializes in helping developing brands land new customers. That’s hard to do without time and attention.

More promising are the over-the-top boxes through which programming flows, like Roku and Boxee. If the box–or a component embedded in TV sets–can track location, viewing habits and the demographic information provided in product registrations, we could target more effectively than ever–particularly if the boxes can insert ads themselves.

Then there’s the radical approach: accept what viewer resistance implies…and buckle down and make better commercials. Happily, second only to the :30s shown every Super Bowl Sunday, DRTV is the top destination advertising out there. As long form proves every year, people always stick and click if the ads both engage and inform–qualities quite similar to what they seek in so-called entertainment.

Since OTT may make it more challenging to persuade people to sample long-form programs, we may have to recalibrate, and also become experts in :15s that promote our longer form commercials that elicit the ultimate purchase response. Once consumers are watching, the DRTV formula is as potent as ever. However seemingly illogical, it can be forward thinking to embrace old reliables. Content was, is and will remain king.

So excuse me while I fire up the webcam, and address this OTT group of doomsayers. Leave DRTV alone! We know what we’re doing.

Tim Hawthorne is founder, chairman and executive creative director of Hawthorne Direct, a full-service DRTV and new media ad agency.

The Battle to Shape the Future of Mobile Computing

Apple and Google are engaged in an epic battle to profit from mobile computing, as mobile phones become the computers of the future, according to a recent article in BusinessWeek. These two companies are similar in many ways. Both are admired by consumers, they each have over $20 billion available for research, product development and acquisitions, visionary founders, competing smartphones, web browsers, music and tablet computers, which positions them as major rivals moving forward.

Google became a direct competitor to Apple’s iPhone with the recent introduction of its Nexus One smartphone that utilizes Google’s Android operating system. Apple recently purchased Quattro, which specializes in mobile advertising that targets consumers based on their behavior, after being outbid by Google for mobile ad company AdMob. With the acquisition of Quattro, Apple is aiming to make the current form of mobile search obsolete by developing new types of mobile ads.

MOBILE MARKETSHARE
Steve Jobs is trying to revolutionize mobile advertising the same way he changed music players and phones. One way he could accomplish this is by using Apple’s geo-location technology to deliver ads that are relevant to your location. Apple also has access to valuable consumer information, including which apps, videos and songs mobile users downloaded and detailed customer data such as credit card numbers and home addresses that will allow them to combine advertising and e-commerce in new ways, per BW.

It’s predicted that within five years, more people will access the Internet through mobile devices than through desktop PCs. Mobile advertising today is only $2 billion compared to the $60 billion online ad market. Mobile search is still in its infancy, but it will account for 23 percent of all searches in 2016, up from 5 percent today. So there’s potential for Google and Apple to tap into billions of dollars in revenue through the sales of mobile phones, software, ads, apps and services as the mobile market grows.

The key to success is through Google or Apple figuring out a way to make mobile more profitable by winning the mobile ad battle and sharing the revenue with app developers. “The mobile platform that creates the most ways to make money wins,” noted David Hyman, CEO of MOG, in BusinessWeek. Apple has a big lead over Google with 125,000 apps developed for Apple devices vs. only 18,000 for Android devices.

Google CEO Eric Schmidt believes that mobile ads will become more important than PC advertising because of the personalization and localization, according to BW. Schmidt speculates that mobile phones might one day be free with advertising paying the way. “If Google could do that, they would be untouchable. Apple wouldn’t be able to come up with an answer for that,” commented technology consultant John Metcalfe to BW.

The rivalry between Google and Apple should be fascinating to watch as these two technology titans battle to dominate the mobile computing space in the years to come.

Peter Koeppel is president of Koeppel Direct, a full-service media buying agency based in Dallas. He can be reached at 972-732-6110 or online at pkoeppel@koeppelinc.com or twitter.com/DRTVBUYER.

An Examination Of Recent Legal Developments In Mobile Advertising Along With Practical Considerations For Direct Response Retailing Over The Mobile Channel

By Karen L. Neuman

The accelerated growth of mobile commerce, combined with the acuity of location-based applications makes it possible for direct response retailers to use the mobile channel for locally targeted mass marketing. One estimate, according to Mobile Marketer, puts worldwide mobile phone connections at 4 billion; while another by Neustar and SMS Mobile Marketing predicts that mobile revenue in the United States will reach $3.3 billion by 2013. SMS text messages dominates mobile advertising in markets like the U.S.

Regulators and courts are trying to keep pace, attempting to balance business interests in accessing consumer data and tracking habits for operational and transactional efficiencies against consumers’ interest in protecting privacy and controlling the collection, storage and use of their information.

This article highlights some recent legal developments that could be important as you consider adding the mobile channel to your ad campaigns, and offers some practical tips that can be taken to address potential risks.

FTC PRIVACY ROUNDTABLE DISCUSSIONS
The Federal Trade Commission (FTC) has broad jurisdiction to protect consumers from unfair and deceptive practices and promote fair competition. It has used these powers to protect against fraudulent or deceptive advertising. A familiar example for the direct response industry are the October 5, 2009 amendments to the agency’s long standing guides concerning the use of endorsements and testimonials in advertising. The FTC has also exercised its authority to engage the industry and the public in formulating an appropriate framework for protecting privacy and ensuring data security in online behavioral advertising and the mobile marketplace.

The linchpins of the current approach to privacy in the United States are privacy policies, industry self-regulation and nonbinding fair information principles (FIPs). The FTC is now examining, through a series of “privacy roundtable discussions,” whether this approach is sufficient given perceived new risks to privacy posed by the proliferation of more invasive data collection and tracking technologies.

The FTC seems to be particularly interested in: 1) the convergence of offline data collection technologies–such as biometrics and loyalty card analytics–with online data to create a ubiquitous data environment; 2) technologies such as “flash” or other “super” cookies that override consumer privacy preferences; 3) the sharing of social networking data with third parties, including mobile applications for advertising; and 4) how far down the chain consumer preferences should be honored as between first and third parties.

The roundtables are not formal rulemaking proceedings. They do suggest, however, that the FTC is questioning whether the current approach to privacy and data protection goes far enough. It is unclear if there will be immediate regulation. One probable outcome is increased enforcement under the Federal Trade Commission Act. Other plausible scenarios include revisions to the FTC’s FIPs and heightened degrees of protection for sensitive data, such as individual financial or health information. In addition, the record developed from the roundtables could form the basis for an FTC report to Congress in which greater rulemaking authority is sought. This could, in turn, result in proceedings to codify existing guidelines and some of the proposals discussed at the roundtables. These could include regulations aimed at bad actors with safe harbors for other entities that meet specified requirements.

Given this fluid regulatory environment, there are some practical steps that can be taken when planning a mobile ad campaign.

• Comply with industry best practices and be familiar with the FTC’s Online Behavioral Advertising Guidelines.
• Disclose the extent of tracking, retention and uses of data, including your policies for sharing with third parties, and provide opportunity for meaningful notice and consent. Tailor disclosures to mobile device screen size and resolution.
• Undertake a review of your terms of service, privacy policies and data security policies, updating them as necessary to address new technologies or to reflect actual or anticipated changes in the law.
• Refrain from using flash cookies, other super cookies or technologies that override consumer privacy preferences. Refraining from using these tools is a good way to differentiate your company from others. Otherwise, fully disclose their use with clear opt-out directions.
• Collect only as much information as necessary for the specific transaction and retain it only as long as necessary.

SMS TEXT ADVERTISING
SMS text advertising involves sending no more than 160-character messages directly to customers’ mobile phones to deliver information about a brand or product, direct them to websites or call centers, or otherwise engage them with mobile coupons, contests and sweepstakes entries or products like DVDs. SMS enables marketers to target and reach an audience that has elected to receive messages and is seen as more likely to respond with greater immediacy than they would with other media.

The features that make SMS appealing to advertisers also raise red flags for regulators and consumer groups. They include the uniquely personal, location-based nature of mobile phones and the corresponding ability to mine, acquire, retain and share individual data for profiling and targeting. SMS technology increases the potential for the receipt of unsolicited text messages or mobile spam in violation of federal and state consumer protection laws. In addition, multiple parties are typically involved at various stages of creating and sending SMS text ads, increasing the possibility that a customer’s consent to receive content from one party will be improperly shared with third parties. This in turn heightens the risk that a customer’s stated preferences will be ignored and their information misused.

A federal appeals court in California recently addressed these concerns in Satterfield v. Simon & Schuster. In that case, the plaintiff brought suit under the federal Telephone Consumer Protection Act (TCPA) for an unsolicited text ad received by her son after she downloaded a free ringtone for his cell phone. The ringtone was downloaded from a website operated by Nextones. The text ad was sent as part of a book promotion launched by publisher Simon & Schuster. The publisher outsourced the campaign to a marketing firm that obtained lists of cell phone numbers, including the plaintiff’s, purchased by another entity from various websites, including Nextones. During the course of the ad campaign, five companies accessed or acquired the plaintiff’s phone number before the text ad was ultimately received some two years after the ringtone was downloaded.

First, the court had to consider whether the TCPA applied. The court concluded that it did, finding that 1) SMS messages are calls within the meaning of the statute, and 2) equipment with the capacity to store, generate randomly or sequentially dialed numbers and call those numbers is automatic dialing equipment within the meaning of the statute. It returned the case to the lower court to determine whether the equipment used to generate the SMS message met those criteria.

The court went on to examine whether the consent given for the ringtone applied to each of the entities in the campaign chain. The court concluded it did not. The third parties involved in the campaign were not “brands” or “affiliates” to which the original ringtone consent applied because they shared no corporate structure or corporate relationship with Nextones. The fact that Nextones licensed its subscriber list for use in this campaign was found to be an insufficient degree of affiliation for purposes of the reach of the Plaintiff’s consent.

This case offers some practical “dos and don’ts” when planning an SMS campaign in the U.S.:

• Know your privacy policies and TOS agreements and follow them.
• Know which law(s) could apply based on the equipment used to store and disseminate the campaign’s SMS.
• Specifically identify the ad campaign and the entity that will be sending the SMS text. Do not send messages to a consumer who has not given express consent to receive these messages. Confirm that third parties with whom you contract comply with required consent(s).
• Do due diligence on lists of cell numbers used for the campaign to determine the precise nature and extent of provided consents.
• Do due diligence on all companies in the campaign chain that obtain a consumer’s mobile number for compliance with the consumer’s consent, including any stated restrictions.
• Comply with industry best practices governing recommended disclosures.
• Although not an issue in the case, refrain from engaging in practices that could reach or attract children. If you do engage in those practices, make sure you comply with applicable laws and regulations.

This case and the FTC roundtables suggest that the interests of direct response retailers and those of your customers may be more closely aligned than you might assume. While it may seem burdensome to implement some of the practical steps suggested here, doing so could differentiate your company, creating a competitive advantage and building good will for your brand or product.

FCC “NET NEUTRALITY” RULEMAKING
An important proceeding that could affect how direct response retailers use the mobile Internet to reach customers is the Federal Communications Commission’s (FCC) net neutrality rulemaking proceeding.

The FCC has jurisdiction over domestic and international communications involving wireline, wireless, satellite, radio and cable. The D.C. Circuit Court of Appeals is considering a case that could clarify the FCC’s jurisdiction over the Internet and the extent of its authority to regulate mobile and other broadband Internet Service Providers.

In October 2009, the FCC initiated a proceeding to consider draft rules that would require broadband ISPs, including various providers of mobile wireless broadband, to provide Internet access for unaffiliated applications, services, content and devices on a nondiscriminatory basis and subject to “reasonable” and “transparent” network management practices.

There are two aspects of this rulemaking that direct response retailers should be aware of.

First, the FCC is considering whether it will permit ISPs, including mobile broadband providers, to employ certain practices to manage traffic over their networks. Some of these practices include using tools that enable ISPs to distinguish among different classes of traffic for prioritization and scheduling transmission, particularly for high bandwidth use applications like video, gaming, and streaming content. Other proposed network management practices include usage-based mobile data pricing or time of day pricing.

Second, the proposed transparency requirement, if adopted, will require ISPs to disclose their network management practices. It is possible, therefore, that ISPs will compete on the basis of these practices, thus enabling businesses, including direct response retailers, to “comparison shop” as they formulate their mobile advertising plans. With sufficient competition, for example, time of day pricing could be a factor in launching an SMS contest or other campaign. The potential for latency could vary from one carrier to another and should be similarly factored into when a campaign’s SMS messages are sent. Similar consideration should be given, if possible, to terms in agreements among ISPs disclosing the extent to which transmission prioritization determinations will be honored as traffic is handed off from one to another.

In the context of this rulemaking, the FCC is exploring ways to find new spectrum (the range of electromagnetic frequencies allocated for various purposes, including mobile communications), and better use existing, underutilized spectrum (through compression technologies, sharing and other arrangements) to support the rollout of 4G mobile networks. Increased spectrum availability could enhance mobile advertising by adding capacity to mobile networks. In order to add this capacity, the FCC could try to create incentives to encourage existing spectrum holders to relinquish or share their spectrum. For example, the FCC could guarantee broadcasters distribution of their content in exchange for their spectrum. It would be important to know the practical consequences of any such agreements for purposes of planning your campaigns and anticipating the potential for latency as a result of these agreements.

THE TAKEAWAY
This article examines some recent federal regulatory initiatives and legal proceedings that you should be aware of when adding the mobile channel to reach consumers. You should also be familiar with applicable data protection laws, including those intended to guard against identity theft, and pertinent state consumer protection and common law–topics that are beyond the scope of this article. There may also be instances where laws of foreign jurisdictions apply, and you should know when those laws are triggered.

A common theme that connects the proceedings discussed here is a focus on meaningful disclosures of terms and conditions that enable users to make informed decisions about participating in the mobile marketplace, whether the user is a consumer receiving content over their mobile device or a DR retailer seeking optimal circumstances for delivering mobile advertising messages to consumers. Companies that take proactive measures to address these issues will be better positioned with respect to potential enforcement or other legal proceedings. They will also put themselves at a competitive advantage in the mobile marketplace as the mobile channel expands beyond existing technologies and mobile marketing continues to mature.

Karen L. Neuman is a partner in St. Ledger-Roty Neuman & Olson LLP, a Washington, D.C. law firm specializing in technology, media and telecommunications. She can be reached at kneuman@slrno.com.

CEO Keith Stewart Breathes New Life Into What He Calls An “18-Year-Old Startup.” The Industry Veteran Talks About Changing The Company Culture And Restoring Customer Confidence In The Brand.

By Vitisia Paynich

For years, ShopNBC had been struggling to capture market share, while its rivals vied for the No. 1 and 2 spots. To differentiate itself from the competition, this $517-million multichannel retailer, headquartered in Eden Prairie, Minn., focused its energy on more high-end product categories with a high pricepoint to match. The average selling price was around $200. However, this business model proved too challenging, leaving the company with mounting debt and growing customer dissatisfaction. And in the past 18 months, the company has had three CEOs.

ShopNBC, owned and operated by ValueVision Media, was determined to shift the tide and transform itself into a formidable adversary in the electronic retailing space. In 2008, the company coaxed Keith Stewart out of retirement and convinced him to take on the role of COO.

Stewart joined the company with impressive credentials. He spent 20 years in retail, 15 of which were with QVC in merchandising and operations. In 1998, he relocated to Germany where he successfully launched QVC Düsseldorf. Prior to his retirement, Stewart had created the largest international televised retailer outside of the U.S.

Why did this industry veteran come out of retirement? “Because I’m a lousy golfer,” quips ShopNBC’s CEO. Although Stewart was self-effacing when first asked this very pointed question, he insists that he was up for the challenge. In fact, he believes in the company so much that he elected to forego his first year’s salary to prove it.

In addition to jewelry, ShopNBC now concentrates on other product categories like apparel and home goods.

Stewart was named president and CEO one year after coming on board. And in the time he has taken the reins, ShopNBC has turned the corner by not only broadening its customer base to 1 million but also increasing its online business by 38 percent–a number that continues to climb. In addition, he’s aligned himself with other seasoned home shopping experts including fellow QVC alums Randy Ronning, who serves as ShopNBC’s chairman, and Bob Ayd, who was promoted in January to president.

Electronic Retailer caught up with Stewart to learn more about how he’s been able to put ShopNBC on the right path.

Electronic Retailer: When ShopNBC approached you to come on board nearly 18 months ago, how would you describe the company’s financial state at the time?

Stewart: It was tenuous at best. You have to be candid with yourself if you’re going to take a big step like that and you have to take a very objective look. At that point in time when I was interviewing, the balance sheet was OK. They had a very long list of strong assets, but the company had been losing thousands of customers every month. And for almost 18 years, the company did not deliver a profit. So, that’s an immense change to have to make, not only in business results but also in the overall culture of the organization. But there was just an awful lot of opportunity in front of us.

ER: Did this cause you to reconsider joining the company?

Stewart: No. I’ve spent considerable time at a startup in Germany and I viewed this as an 18-year-old startup. They have plenty of opportunity and with the right business decisions, the right direction, and the right team, success is imminent.

ER: During that time, about two-thirds of ShopNBC’s distribution agreements were due to lapse at the end of 2008. How did you turn that around?

ShopNBC crew members prepare the set for the next show.

Stewart: I wish it were just the distribution agreements; it would have really simplified everything. Looking at it from an employee’s perspective and vendor’s perspective, there were three CEOs in 18 months. The morale was very low among the organization. As I mentioned, the company was losing thousands of customers every month for quite some time. The business operations itself really drove high return rates and low customer service ratings. We were focused primarily as a jewelry retailer, and we had looming debt of $44 million coming due very soon. On top of that, we had distribution contracts that were set to expire. So, there was an awful lot going on all at once.

Carving out the distribution footprint, what we did was put together an affiliate relations department. Secondly, we knew we had complete control of the negotiations with the MSOs and satellite companies and we approached this very much as a win-win situation. They knew from our requests that we had to lower our costs. They also knew it was important that we continue to provide content for them and for their customers. Fortunately, we did renew 100 percent of those contracts. And not only were we successful in re-upping the distribution, but we also dropped $24 million out of the expense line. In many of the larger markets, we improved our channel positioning.

ER: Part of your new business model includes recruiting what you’ve described as the “Gold Standard” of executives. How does their experience factor into the restructuring process?

Stewart: Their experience complements the larger group of employees at ShopNBC. And that mix is a very powerful one. Many of these people you are referring to have seen the movie. It’s a very competent group of people who are focused on business results and on customer centricity.

ER: When Electronic Retailer interviewed ShopNBC in May 2007, the company was on the path toward becoming more multichannel-oriented. Does this remain part of your current marketing strategy?

Stewart: It’s central to our marketing strategy. We’re going to serve the customer any way he or she wants to be served. So, those portals–as technology grows–go beyond the platform of merely television. It is a dot-com platform. It is a mobile platform. And we were the very first electronic retailer to launch on a mobile platform with the iPhone. While we continue to improve that technology, one needs to bear in mind that the customer is everywhere. If it’s on Facebook, MySpace or Twitter, we need to continue to service them in the many ways that they want to be serviced. So, we’ll continue to broaden the ShopNBC strategy as part of our multichannel distribution efforts.

ER: What is ShopNBC’s unique value proposition?

Stewart: The unique value proposition starts with our positioning in the market as the premium lifestyle brand. At the end of 2008, our average selling price was over $200. And we knew we had to lower that average selling price to open up access to more and more customers. Our stated goal by the end of 2009 was right under $100 and we did hit that goal. However, that is not about lowering quality–it’s about opening pricepoints and broadening our appeal to our customers. We continue to offer big brands like Movado, Sony and Samsung. And we will continue to build new product categories with notable brands and intellectual properties. Recently, we launched Ted Gibson hair care, Vapour color cosmetics and Via Spiga handbags. Ed Hardy is very timely and profitable and we’ve been very successful with that brand. It’s about offering different products that are meaningful and relevant to the customer.

ER: So, with a lowered average pricepoint of $98, you’re not going after a completely different customer but broadening your customer base?

Beauty is just one of the product categories that ShopNBC intends to expand by offering top name brands.

Stewart: That’s exactly the point. We’re broadening our customer base and in fact, our customer base in 2009 grew 36 percent amid some very difficult economic times for retail. Our new customers grew over 520,000–that’s 60-percent growth in 2009. When we hit the milestone of 1 million customers at the end of December, it was an immense change in the overall structure of this organization. So, we’ll continue that torrent customer growth as we continue to successfully turn this company.

ER: The jewelry category was once a mainstay of the company’s overall product mix. Going forward, will this still be the case?

Stewart: Jewelry is still an important part of our business and will continue to be, but it won’t be the only business in which we operate. We’ll be a general merchandise retailer offering many different product categories to our customers. As I mentioned, we’ve gotten very serious in the beauty category with hair care and color cosmetics. We’ll continue to grow our apparel business. We’ll continue to expand our home business with our domestics and textiles. We’ve been very successful in launching gourmet foods. As we continue to launch different product categories and expand our existing ones, it’ll be a complement to jewelry. But we certainly aren’t planning at all on doing anything but growing that business and making it productive.

ER: Prior to you joining the company, ShopNBC was plagued by high return rates on merchandise. What changes have you made to reverse those numbers?

In 2009, Suzanne Somers joined ShopNBC with her full product line and loyal legion of fans.

Stewart: The first thing we had to do was change the culture. We had to say our high return rates were bad because the customer didn’t want to keep the product, and thus, returned the product. Now that may sound over-simplified but it’s something you really have to look at as a culture of an organization. We started with customer centricity. What does he or she want from ShopNBC as it relates to product and services? Second, once we changed and accepted that, we had to install systems that allowed us to measure the business results specific to cancellation and return rates, productivity and the like. We did install those systems and put in place benchmarks for each product category. We also installed rigorous QA and QC standards and systems in our business process. Now we have total transparency as it relates to our overall goals and targets. Again, these goals and targets are not merely financial. This is all to benefit the customer and it’s not only about creating customer centricity, but connectivity to the customer. So, our goal is to offer that customer a meaningful and relevant product that she likes. If she opens the box and we exceed her expectations when the product arrives at her home, then we’ve done our job.

ER: Given your vast experience in the international marketplace, are there plans for global expansion?

Stewart: This is in our future without question. However, we have much to do domestically before we start to lay the plans for global expansion. We are focused on driving shareholder value, growing our customer accounts, improving our customer service metrics, leading connectivity with our customer, and delivering consistent results each quarter. And as this business continues to be more consistent and predictable, we will start to lay the foundation for additional, organic growth opportunities.

ER: What is your personal stake in ShopNBC?

Stewart: I think the more important question is: What is the insiders’ stake? And, that means the management, the employees and the board. Of the total economy, insiders are 12 percent. So, certainly you can see this organization is very much aligned with the shareholders and the stakeholders like our vendors. As it relates to my personal stake, it’s a little less than half of that.

ER: You’ve set a goal of three to five years in which ShopNBC will double its sales. Given that the economy is still struggling to recover, is this a realistic timeframe?

Stewart: The economy does not control our future. This is an 18-year-old startup. If you look at the productivity, we are about $7 in sales per home. That contrasts with others that are $58 in sales per home. So, there is a lot of opportunity with our existing distribution to become more productive. I would say certainly, a three- to five-year time period is more than reasonable.