Valitics Blog

The Alchemy of Web Analytics

Sat, 01 Jan 2011 03:42:00 GMT

Alchemists tried in vain to turn common metals into gold. They failed because we human beings cannot change the laws of physics. In modern day, we can turn common metals into gold with a particle accelerator, but it’s not economical to do so and we are simply using, rather than changing, the laws of physics.

Contemplating the alchemists‘ dream, we find a deeper purpose. Their goal was not just to turn common metals into gold: it was to turn common materials into wealth. If this could be done, untold of prosperity would be within reach. Their struggle has not been lost by time; in fact, their dream has been partially realized in financial marketing. There is a very real “alchemy of web analytics”.

The Psychology of Environmental Manipulation

B.F. Skinner discovered that behavior is largely a function of environment. Change environment, and you change behavior. A website is an environment, and the symbols used on websites shape behavior in powerful and surprising ways. By changing web symbols, we were recently able to increase a client’s sales by 67% in just a few weeks. With the client’s consent, we hope to publish a case study soon and share what we learned.

Cupo Dei Capi 

This post is inspired by George Soros’ book, “The Alchemy of Finance”. Soros made a billion dollars in just 24 hours by collapsing the value of the British Pound in 1992. Some economists may call this an extreme example of “price discovery”. Whether or not such gains are ethical is something you, and everyone else, need to decide. In “The Open Society” and other works, Soros himself calls for reform while continuing to exploit our flawed global economy.

When I discovered that a single man could so dramatically affect the fate of millions of citizens in a first world country, I was stunned. Finance became a hobby of mine that soon turned into an obsession. In the last couple years, I’ve invested uncounted hours trying to comprehend the occult (Latin for “secret”) knowledge of finance.

Before moving on, it’s important to see what gains of a billion dollars in 24 hours really mean. For that end, gaze upon this graphic: Here, you see a silhouette of the average American male (5’ 9.5”). You also see the Great Pyramid of Giza. The man’s height represents forty years of median family income. The Pyramid represents 13% of Soros’ single day profit.

When I tried to actually show the man and pyramid to proper scale, the man became invisible. Our computers are better than ever, but fall well short of being able to display the true proportions of this historical financial event. If you aren’t astounded, you aren’t paying attention.

The Alchemy of Finance

In “The Alchemy of Finance”, Soros refutes the foundation of neoclassical economic theory and shows how a new science can be used to transfer wealth. When Soros actively ran his Quantum Fund, he achieved legendary gains: 35% annually. If you had invested $100K in 1969 and reinvested all the dividends, you would have $130MM by 1994.

Compound interest is one of the most powerful and misunderstood forces on our planet.

 Keys to Soros’ Kingdom

“The Alchemy of Finance” explores two central theories to Soros’ massive gains.

Reflexivity
Markets as a mechanism for hypothesis testing

Both of these theories transfer directly to The Alchemy of Web Analytics.

Reflexivity in a nutshell

This is the theory of reflexivity:

Cognition creates reality via a feedback loop.

Take the housing crisis as an example.

For the bankers:

Perception:
Alan Greenspan thought we needed low interest rates to support the economy after 9/11.

Reality:
He set historically low interest rates. Banks pushed cheap money into the economy as loans. Bankers were incentivized at all levels to sell as much debt as possible.

For the people:

Perception:
Consumers could take on more debt, and used their homes as speculative ATMs

Reality:
Housing prices massively inflated, and as people perceived rising prices they took out even larger loans. Yet very little real wealth (distinct from paper values) was created. Debts that can’t be paid, won’t be paid, and the economy collapsed as a result.

How does all this apply to web analytics? Well, the web is a two way feedback system by its very nature. In old media, like newspapers and TVs, interaction was one way. Messages were pushed onto the masses with limited feedback mechanisms.

On the web, we know every click, every keystroke, every impression, every purchase, every demographic, etc. From this wealth of data, a skilled observer can understand patterns, adjust the symbolic nature of web pages, and incite a desired response.

Markets as a mechanism for hypothesis testing

The other key to Soros’ success was his perceptual framework. He saw market places as a mechanism for testing hypothesis. In other words, he applied the scientific method to investment strategies.

Here’s how it works.

Ask a question:

“What should I invest in to maximize the gains of my dollars?”

Do research:

“Hmm, well it looks like I should get out of dollars. China’s selling off Treasuries. China and Brazil are trading off the dollar system. The IMF’s chief economist has called for an end to the dollar as a reserve currency. The US has record levels of debt and will need to double taxes or inflate.”

Construct a hypothesis:

“The dollar will dramatically fall in value relative to foreign assets and hard currencies.”

Do an experiment:

“Ok, I’ve converted my dollars to yuan and purchased stocks. I expect to benefit from currency appreciation, asset appreciation, and dividend payments.”

Analyze your data:

“My hypothesis was confirmed. I sold my bonds and bought back into dollars.”

Report your results:

“I made ___% over 12 months.”

This same process is used for web analytics. There’s a slight difference, as you’re investing in influencing human behavior, but this difference is only a linguistic confusion.

Benjamin Franklin said “time is money”. Behavior occurs over time and determines the flow of money: behavior is also money. Web analytics is a powerful way to influence behavior: web analytics is money. If you don't believe it, watch this and learn how Obama was elected through the use of web analytics data.

In Conclusion

To address the global financial collapse, Soros has created and funded the Institute for New Economic Thinking. The Institute’s website states:

“The Institute firmly believes in empowering the next generation, providing the proper guidance as we challenge outdated approaches with innovative and ethical economic strategy.

The Institute’s objective is to expand the conversation to create an open discussion for a wider range of people. Some would say that present day dialogue is closed and polarizing. We recognize the need for an environment that is nourished and supported by discourse, a discussion that spans a much wider spectrum of thinking and incorporates the insights of other intellectual disciplines in both the natural and social sciences.”

Well, it’s about damn time. For now, here’s my 2 cents.

“Everybody wants to live the life of kings and queens  But nobody wants to stay and plow the fields  Everybody wants to tell their neighbors how to live  But nobody wants to listen to how they feel
And it goes on and on and on and on and on.  For a thousand years, a thousand years I say.  And it goes on and on and on and on and on . What language are your tears, are your tears
But what I got to say right now.  Is love enough yeah, love enough yeah, love enough.. Or can you love some more
A revolution never come with a warning. A revolution never sends you an omen. A revolution just arrived like the morning. Ring the alarm, we come to wake up the snoring”

-Michael Franti

Thank you for reading. I hope you have an inspired and prosperous 2011.

Simply. Brilliant. Advertising.

Thu, 30 Dec 2010 18:21:00 GMT

How much can your business learn from just 10 simple words? An astonishing amount! Why? Because these 10 words are crafted from some of the brightest minds in media.

We're going to dig into one of Google's many ads and mine valuable insights for our own uses. Oh, and before we get started -- there's no borring tech jargon in this post. I promise. Now, let's look at Google's ad and their 10 magic words.

Simple enough, right? Sure seems that way, but if you read between the lines, you'll see a lot of powerful psychology and economics at work here.

Spend $100

This is a great headline and call to action combo. As a headline, it gets your attention. "Spend $100? Why should I spend $100?" As a call to action, it's brilliant: Google is telling ad viewers exactly what they want them to do with just 2 words.

Of course, Google will make far more than $100 from most customers -- lifetime customer value of advertisers is what has built Google into the money making machine that it is. Last quarter, Google's average daily revenue exceeded 100 million dollars.

Get $100

This is immediate justification for the headline, and provides ad viewers with instant gratification. Nearly everyone, with the exception of the top few percent of the population, would love the chance to get $100 for doing something easy.

FREE.

Free is one of the most powerful words in the English language. Behavioral economics case studies prove that there's a tremendous difference between asking people to pay even a penny, and offering something for free. Everyone wants something for free. The key here is that nothing is really free; you only get $100 if you spend $100, and in truth, you don't even get $100. You spend $100 of bank credit, and you get $100 of Google credit. Google's credit costs them practically nothing.

From Google's point of view, their ads are almost free. Sure, there's a lot of R&D cost that goes into organizing the world's information, but it scales up beautifully. Displaying an Internet ad costs a tiny fraction of a cent of energy and computing power, yet a single ad click (in a competitive niche) can bring Google upwards of $50. And that's just one click. Google is something like a central bank issuing it's own currency in the form of ad inventory. They could afford to give out $500 for new advertisers spending $100 if they want to, because their credit costs next to nothing.

First one million businesses only

There's more than meets the eye with this closing statement. These 5 simple words play on four powerful psychological principles at the same time:

Artificial scarcity
Social proof
Exclusivity
Immediacy

Artificial scarcity has been widely used to drive up perceptions of value. When people believe something is more valuable, they desire it more and pay more for it. Take De Beers - the diamond empire. They produce 40% of the world's diamonds. In the 80s, they had a problem of chronic over supply. Rather than flooding the market with the extra production, which would drive down prices and profit margins, they simply hoarded the extra diamonds. By strategically releasing a steady trickle of their inventory, they were able to ensure that their customers would continue forking over 3 month's salary for a tiny nugget of compressed carbon.

Social proof is a fancy psychology term for herd mentality. You know, the bandwagon effect. If people see a bunch of other people doing something, they're naturally inclined to follow along. By limiting this offer to the first one million businesses, Google is suggesting to us that one million businesses may take them up on their offer. In fact, we may think to ourselves in a nearly subconscious way, wow, "they had to limit this offer to the first one million businesses." If a million businesses want to sign up for this, it must be really great stuff, right? That's massive social proof, all from three words. It's a heck of a lot of new customers for Google, too!

Exclusivity is an effective tactic because everyone wants to be part of a special group. We all crave attention and status, and getting special treatment, reserved for a limited portion of the population, strokes our ego. This offer is for the first one million businesses only. You do want to be part of that special group that can spend $100 and get $100, don't you? Which brings us to the last point...

Immediacy in advertising is a tactic that compels people to take action right now. As an advertiser, you put a lot of creative effort, time, energy, and money into getting in front of your target audience. If you don't compel them to take action when they see your ad, the odds are that they won't. Capitalize on your advertising investments with limited time offers and effective calls to action.

Summing it all up

So what's the easiest way for you to apply all of these powerful psychological principles to make your own business more profitable? Well, we have more than a few ideas. But whatever you do, and wherever your ad campaigns take you, just remember this:

Don't call Valitics today. We're on vacation.

We hope you have a great new years, and much deserved success in 2011.

Why Marketing Is The New Finance - And Why You Should Care

Sat, 20 Nov 2010 20:46:00 GMT

The secret is out -- marketing is the new finance. This simple fact is dramatically changing decades-old approaches to marketing. The biggest single change is the rigorous application of quantitative and statistical techniques to improve return on investment. Exciting huh? Ok don't fall asleep just yet, you need to know what this means to your job. Even if this topic is kind of dry, bear with me because in this post you will learn how to make a 6 figure bonus. Don't believe me? Stop reading at your own loss.

Let's start with this idea of marketing as the new finance. What does it mean to you? It depends on what you do:

Marketers

You can no longer simply hope that marketing campaigns work. You must learn how to make data driven decisions.

Executives and Owners

You need to align organizational resources now. Forrester Research says, "companies that use web analytics will gain competitive advantage."

Everyone else

Jobs. Unemployment and debt levels remain dismally high and will ensure the economy remains dreary for some time to come. But even in this climate, there will be new opportunities. Many of the new businesses that break out of this slump will do so through the clever application of online marketing.

Why will this happen? Because demand creates supply. Increasing demand for your company's goods and services creates new jobs. Those new jobs can lower unemployment (but don't always).

Until recently, demand was more or less limited by geographic boundaries. Now anyone with an ad budget of even a few hundred dollars per month can reach a nationwide or even global audience. By profitably and efficiently connecting buyers and sellers, online marketing stimulates economic growth.

Marketing Is The New Finance - But What Does That Really Mean?!

Now that you have an idea of how online marketing will affect your life, let's drill down into "marketing as the new finance" and unravel what that really means. First and foremost, we need to understand what finance is. In broad terms, finance is the "the science of funds management."

Science is dependent on data and math. Nerdy, right? Sure! A lot of people find the products of science a wonderful and necessary part of life. The knowledge of science, on the other hand, usually induces yawning and boredom. In other words, we love our smart phones, cars, and medicine but we hate to do all the work required to actually understand exactly how these marvels work. Of course that's unfortunate outcome of our culture and education, but that's a topic for another day.

So is marketing really the new finance? Don't take my word for it. Here's Google's Chief Economist explaining it in just 40 seconds.

Abundant, Real-Time Data with Direct ROI

The first thing that any "science of funds management" needs is abundant, real-time data that's directly connected to return on investment. With online marketing, we have exactly that.

Web Traffic as a Portfolio

A portfolio is a "grouping of assets". Finance is the "science of funds management". A third definition will be useful, but hasn't been created yet. I propose that "financial marketing" is an emerging discipline that maximizes return on ads and traffic through the rigorous use of statistical modeling and data driven decision making.

Financial marketing already exists in surprisingly sophisticated forms. eFrontier, for example, applies modern portfolio theory to online ad management. With a billion dollars of assets under management (aggregate annual ad budget), eFrontier makes $50M annual revenues through automated financial marketing.

Wait, let's go back a step. What the heck is modern portfolio theory? Put simply, modern portfolio theory is the idea that you can both:

Reduce portfolio risk (and risk is really just cost)
...and increase returns

Sweet, right? In practical terms, this means that if you manage your money with portfolio theory you will retire sooner and live better. It's basically a statistical approach to the efficient allocation of funds. Wait, that sounds a lot like finance -- or "the science of funds management"!

So how does this all tie in to online marketing? We'll dive into that in just a moment, but first let's set up a real-life scenario to make all of this less theoretical and more like... oh I dunno... more like, "I've always wanted a nice house in the hills, and now I actually have a plan to get it!". Read on to learn how to get a 6 figure bonus.

The Scenario

You were just hired as the CMO for a company that sells snowboards online. Your bonuses are tied to profits. Let's put some real numbers to this...

Last year, you sold $2M of snowboard equipment from November through January (your busiest months).
Of that $2M total snowboard revenue, ads brought in $1.2M of business.
Your current ROI on ads is 300%. Not bad, but not great. This means that for your $1.2M sales, you spend $300K on ads.
Cost of goods sold was $700K, leaving just $200K for profit :-(

Now let's say your company is especially generous, and pays out 50% of profits as a bonus if you obliterate sales goals. You get 1/4 of the total payout, since you're the CMO. You still with me? Lots of numbers, I know, but it's all to get that house in the hills and you're about to learn how.

As a smart CMO, you're going to apply "financial marketing" to grow your company and increase your bonus. While financial marketing has dozens of strategies, an always-effective approach is the efficient frontier.

In this example, let's say your company only sells high end snowboards. The "burton custom snowboard" keyword is costing you $2.15 per click, higher than most of your ads, but you know it brings in prospects that have real money to spend. As a result, the ROI on that keyword (Y Axis), is very high. Nice!

What about your other keywords? Let's say that although you don't sell cheap snowboards, cheap snowboard boots are your loss leader. People come for the cheap boots, but by the time they get through checkout they usually add more profitable items to their cart.

Now, you map out all your keywords on an efficient frontier. You instantly see that "cheap snowboards", even at the low cost of $0.79/click, is a real dog in terms of return on investment. Cheap snowboard boots, even though it's slightly higher cost at $0.84/click, has a much higher ROI. You don't have cheap snowboards, but you do have cheap boots, and those cheap boots usually walk out of your store with attachments (aka additional items per order).

So what do you do? As a smart CMO, you re-allocate your ad spend by shifting budget from "cheap snowboards" to "cheap snowboard boots". This is exactly like portfolio rebalancing in the financial world.

Great - you just helped your company grow a little by increasing ROI. Feels good, doesn't it? So why stop there! You build Facebook, Bing, and banner ad campaigns into your efficient frontier diagram. Finally, you reallocate all your budget in the most efficient manner possible. Here are the results (and how you get that house in the hills).

Overall ROI increases from 300% to 500%.
You show your CEO what you've done. He's so impressed, he doubles your ad budget.
You grow your ad budget from $300K to $600K
On that $600K, you make $3.6M in sales.
Your profit margins stay the same. COGS on $3.6M sales is $2.1M.
Profit is now $900K. You went from $200K profit to $900K profit. That's some seriously sick risk free operating leverage.
Your bonus payout on $1.5M is $101,250. Not bad for 3 months of work!

That house on the hills is getting closer every day. Thanks financial marketing - you're really swell! :-D

So to recap:

Marketing is the new finance
"Financial marketing" is an emerging field and needs to be recognized
Financial marketing is built on the tried and true techniques used in finance, aka "the science of funds management"
Ad campaigns can be managed using modern portfolio theory
Each keyword in your portfolio is an asset that can generate income or loss, exactly like a stock or bond in your financial portfolio

We'll explore more amazing strategies for applying Financial Marketing to your business in future posts (so stay tuned!). For now, know that there are dozens of strategies and you need to pay attention to them if you care about online revenue.

You Need to be Creative and Scientific

Great profits never come easily. In the New World of Financial Marketing, even the brightest marketers and CMOs will need to constantly hone their skill set. Even if you know everything there is to know, you still have to keep up with emerging technologies because Financial Marketing is a hot, new discipline that's rapidly evolving. Let's have Chris Maloney, CMO of Scottrade, take it away.

Kaizen, Samurai, and Quantum Electrodynamics

Sat, 20 Nov 2010 05:13:00 GMT

"Kaizen." Simply put, it's the philosophy and action of seeking gradual and continual improvement. It's what made companies like Toyota great. Sure, the idea has its critics, but what idea doesn't? One thing is certain: if you choose to apply Kaizen to your life, and really commit to it, then the chances of your life improving go up dramatically. Same goes for business.

Lessons From Samurai

One book that really left an impression on me in high school was The Hagakure - The Code of the Samurai. I was one of the weird kids that mostly ignored assigned reading and ended up reading way more on my own. Anyway, there was some ridiculous stuff in this book because, well, we're always in some state of ignorance we can't yet detect. Still, it's fun to laugh at our mistakes from down the road.

One of the sage nuggets of hilariously bad wisdom from this book was that you should always have some dung on your person. If you mix it with water and drink it, you'll be protected from injury when you're thrown from a horse. Right, I'll get right on that.

The book was still awesome. Life is rarely black and white, and even the most backwards people can have an occasional moment of brilliance. There were two parts that I remember especially well:

"The man who thinks the present and the future are different is a fool and will never achieve anything."

Dung-drinkers or not, samurai didn't mess around when they had something to say. Samuel L Jackson would be proud.

So what's the takeaway from the whole "importance of the present" concept? If you have the time and ability to do something good today but don't (because of laziness or lack of willpower), what makes you think the future will be any different? This was an especially powerful insight because of an 8th grade teacher that told our class, "If you want to know what your life will be like when you grow up, just look at your life now." Ok, I just have to throw in one more story while we're on the topic.

A British admirer of Gandhi once asked Gandhi how he could stop smoking. Gandhi's reply? "If you can't even change your self, then how do you hope to achieve anything in life?" Ka-zing! Ok, moving on...

The second insight from The Hagakure: "The person who isn't afraid of death can achieve anything"

Scary to contemplate death? Maybe, but just remember that...

We're living in a universe with 125 billion galaxies
Each of those has 100 billion stars (more or less)

Still scared? At the end of the day, all you can do is work to improve the world a little and pass knowledge to the next generation. Life is largely out of your hands, so unless you're turning fear into something constructive then... drop it. Why wouldn't you?

Get To The Point Already

Really this is just an idea for a loosely knit philosophy that works as well in life as it does in business. Commit to constant improvement, savor the present, and fear nothing. Try it for a month, and leave a comment to let us know how it goes!

Is This Really A Company Blog? I Just Want To Know How To Make More Profit?!

First, Kaizen is a prerequisite to greater profits for the vast majority of businesses.

Second, savoring the present is key to being productive. We even have scientific evidence showing that people who escape the present by daydreaming are unhappy! As far as we know, we can only act in this - present - moment - right - now - so - do - something - useful!

Third, fear nothing. There are limits to knowledge that you can do nothing about. If an ad campaign flops because you used a bad keyword, it's not your fault if everyone thought it would work and had no evidence to the contrary. Does that mean you're not accountable? Absolutely not! Your mistake is in seeing a mistake in progress, knowing that you could change it, doing nothing about it, and then costing yourself and your company time, money, and energy.

We can never be perfect, but proper application of analytics ensures that we profit from our mistakes and strive for a better tomorrow.

And finally, Richard Feynman shares his findings on discovering new things. Yup, same guy that invented Quantum Electrodynamics, and bested Newton and Einstein.

Web Analytics That Rock Your World

Sat, 20 Nov 2010 20:54:00 GMT

Brace Yourself

A tidal wave of change is here: the Internet is rapidly becoming the dominant media channel. It will eclipse all other media channels in terms of ad revenue, and already has in the U.K. Every day there's a new startup bringing us a step closer to a world resembling Minority Report.

You can see the change happening around you: in smart phones, in TVs, in newspaper revenue, in the growth of the tech industry, and in social change. Facebook posts get people fired, while a brilliant Facebook campaign results in promotions. We're standing in the dawn of a Brave New World: a world where computer driven analysis trumps the best executive opinions... A world where we can target a nearly infinite array of interests and demographics... A world where marketing is the new finance...

In this New World, the availability of information has intensified competitive pressures. Consumers can find competitors and company reviews in seconds, and local retail is threatened by global competition. To excel in this New World, it's more important than ever to kick ass online.

And that's what this post is really about. Having an online presence is becoming easier every day, but truly kicking ass will never be easy. If you're content with where you're at, save yourself and stop reading now. A mind once expanded by a new idea never regains its original shape.

Now, for those that have the vision, resources, and drive to excel, Valitics' Online Revenue Model is key to success. If you consistently execute at every level of this model, you will find yourself knee deep in wealth sooner or later.

Valitics Online Revenue Model

click image for full size

The Pyramid

The pyramid goes back to a 1925 book, "Theories of Selling". Every sale, at every time, in every country, for every person, has followed this fundamental model.

A lively (and explicit) study of AIDA

Modern marketing technology can do some incredibly cool and mind-blowing things. But if it doesn't move people up the pyramid, or expand the size of the pyramid, then there's no business value.

Explanation of the Axes

The X Axis
The width of the pyramid tapers off because people drop out. You will never convert 100% of people who see ads into clients. You'll never convert 100% of website visitors into revenue. At each step in the sales process, there is dropout. Reducing dropout is awesome, but your pyramid will never be a rectangle.

The theoretical maximum width of the pyramid is also constrained by your market share and market size.

The Y Axis
As your prospective customers "climb the pyramid" they exert effort, invest time and attention, and endure opportunity costs (i.e. they could be doing something else entirely -- like grocery shopping). You need to be mindful of this, and ensure there are clearly communicated rewards for your visitors at every step in the process.

A website is a Skinner Box for people. If you're serious about influencing behavior to expand revenue flows, use reward schedules.

KPI's

Key Performance Indicators are measurements of success. All performance improvements boil down to one fundamental.

Increase the yield of inputs

To expand on this:

Increase efficiency of output (more visitors, more revenue, more revenue per visitor, etc.)
Increase efficiency of inputs (more sales per marketing dollar, increased revenue per employee cost)

Measuring is essential to achieve these two goals. You can improve something if you don't measure it, but how would you ever prove that an improvement was made? Without proof, how would you argue for increased budget or influence decision making? Luckily, computers make measurement and recording easy. Businesses can automatically collect millions of data points per month (or day!), with no ongoing cost, by using Google Analytics.

Even if you don't have clearly defined KPI's today, make sure you're collecting data. Data is a commodity that rivals the scale and value of old world resources like oil, cotton, and diamonds. Start gathering it now; it's one of the best investments you can make.

Attractors

Attractors create psychological momentum that pulls your prospect up to the next level of the pyramid. Effective attractors require:

Data, to measure and record on a regular basis. Every business has a lot of this already!
Software, to reduce labor costs through automation. If we could only do web analytics by hand written logs, it would be so expensive it would hardly make sense.
Analysts, to make sense of all that data and make it actionable. As Avinash says, invest 10% in software and 90% in people. Data doesn't make decisions or profits by itself. The temptation is to get cheap/free software and keep your costs low, but the opportunity cost of doing that is giving up double-digit revenue increases. Think about it.
Designers, to visually message your web prospects in a compelling way.
Copy writers, to capture the attention, imagination, and desire of your audience through words.
Programmers, to implement data collection, code web pages, and build features.
Knowledge, of business and psychology.
Communication skills, to navigate a slew of political, IT, personal feelings, and internal business issues that all stand in the way of improvement

It really does take all of these things to kick ass on the web. Having a few of these resources will still help tremendously. If you can't afford this investment now, work on it a piece at a time.

Detractors

Detractors create psychological momentum that causes visitors to regress to a lower level of the pyramid, or worse, dropout entirely.

What's good about detractors? Well they don't take any of the skills listed above, and they don't take smarts or hard work either.

A new Industrial Revolution?

In the industrial revolution, we had Spinning Jennies and trains. We created capital machines to increase production. In the process, we reduced people to inputs that we hadn't automated yet. That's why production jobs don't pay well, and continue to be replaced by machines.

In the information revolution, we have new capital machines to increase demand. The new capital machines are information properties (websites, Facebook pages, iPhone apps), and data driven marketing. The new capital machines convince people to buy, connect buyers and sellers, and provide a mechanism (payment processing) to transfer revenue. They don't make any tangible goods or services, but breathe life into production by providing previously unavailable demand. Case in point: this blog has readers from all over the world. Some of those readers will be future clients.

The Fallacy of Conflation

Often times, we think "yeah, I have a website/Facebook page/email campaign" -- so I'm covered. Right? Wrong. The barriers to entry have come down (it's cheap to build a basic website), but viewing all sites as the same is a very unprofitable mindset. Would you ever compare an amateur YouTube movie to a George Lucas film? Of course not. So don't confuse a small business retail site with Amazon. It's almost a certainty that your site can create more revenue, but before it can do that you have to accept that it isn't perfect and needs to change.

Parting Shots

The new demand generation capital machines are changing the world every bit as much as the Industrial Revolution. You might be lucky enough to see more technological, economic, and social improvements in your lifetime than generations before you did.

Narrow the focus and intensify the experience

Sun, 07 Nov 2010 03:17:00 GMT

These days, with all the big-bang, razzle-dazzle special effects eye candy and CGI capabilities that film makers have in their arsenal to take viewers practically anywhere in the world (or beyond), it’s easy for filmmakers to “go big” with the size and scope of their movies. Sure, every once in a while we’ll get something special like Avatar, but if there isn’t a compelling and substantive storyline beneath that big sugary shell, you get Battlefield Earth. Many a director has fallen prey to the siren call of CGI and pyrotechnics. I am looking at you Michael Bay.

Good filmmakers manage to resist the urge to lean too much on the numerous technological crutches they have available to them. Instead, they narrow down their fims and focus instead on delivering powerful messages in compelling, human ways.

12 Angry Men

This movie is set almost entirely in a cramped, sweltering jury room. You can almost feel the sweat dripping down your back as you watch the jurors pace back and forth and argue about the guilt or innocence of the 18 year old boy who is accused of first-degree murder. You want out of that jury room.

Psycho

Hitchcock was a master of narrowing the camera’s focus and taking full advantage of a small, cramped space to intensify the experience – count the number of cuts (sorry – pun intended) and angles he gets from within a single shower scene in Psycho.

Kill Bill Vol. 2

In between much more expansive (dare I say indulgent?) scenes from Kill Bill Vol. 2, Quentin Tarantino buries us, along with “the Bride,” six feet under - alive. It’s intense and terrifying, even if for only a couple minutes, and even from the comfort of the couch.

THE INEVITABLE ANALOGY TO THE WEB

In many of the same ways, web designers have a similar bevy of tools at their disposal to make flashy, audacious, immersive experiences that will “wow” you visually. But, that feeling will be fleeting if there isn’t a purpose or message to buttress all of those visuals. If the experience on the site doesn’t resonate with the user on a deeper level (evoking thoughts like “They’re right, I need this product!” or “That’s exactly my problem. I am glad I have found someone who understands my problem and can help me”), it’s not going to produce any real results for that website’s owner.

SITES THAT FOCUS AND GET IT RIGHT

APPLE

No surprise here; I am an apologetic Apple Fanboy. Seriously though, can you find a cleaner, attractive and usable website? I don’t think so. Apple does a great job placing the focus squarely on their products. The scope of the site has grown a bit over the years as they’ve expanded their product offerings, but it’s safe to say they’ve been very restrained in their design philosophy. The single goal on this site is to deliver just what’s needed for the user to have the best web experience possible (in order to buy their products of course). Heck, look at their URL structure – compare the URL for the iMac (http://www.apple.com/imac) versus the URL for the Internet Explorer 8 browser (http://windows.microsoft.com/en-US/windows/products/internet-explorer) - which one are you more likely to remember?

KALEIDOSCOPE

Beautiful and professional design. Crystal-clear and friendly voice throughout the content. Compelling calls to action throughout – all on a single page. Perfection.

EVEN MORE REASONS FOR NARROWING THE FOCUS

There are some practical reasons for narrowing down the focus of your website to only the most compelling and essential elements too:

Save money – less elaborate and smaller websites (in terms of pages) are generally going to cost less, so spend that hard-earned money on the stuff that matters most
Save time - focus your time and energy on building a new website by creating content for only the most important pages on your site. Users aren’t really going to care too much about your “Company History” page if you haven’t impressed them on the pages they visited before getting to it, so don’t kill yourself trying to write page content for millions of pages
Do it different – Be remarkable by standing out from the crowd. If your industry is full of big flashy websites, keep yours small and tight. Users will remember "that one different site"

RECAP

Whether it’s on the big screen or on the web, it takes courage to put down all of the cutting-edge tools and capabilities that are available. Focus not on eye candy, but instead on delivering a powerful, meaningful, relatable experience. When you can strip away everything but what matters to the viewer, you’ve accomplished something significant – and people will notice.

Effective Online Marketing - Part 4

Tue, 26 Oct 2010 23:12:00 GMT

Human decision making is complex and often misunderstood. Unfortunate as that may be, it doesn't seem to affect us too much in day to day life. In this post, we'll explore how the wording next to a checkbox can save (or destroy) millions of lives. Sounds unbelievable, doesn't it?

Source: Dan Ariely

The power of defaults

In Europe, organ donation rates vary widely by country. Looking at this graph, you might be tempted to think that participation rates are strongly influenced by religion, culture, or economics. The truth is far simpler:

Countries with participation rates near 100% had this wording on their forms: "Check this box if you do not want to participate in the organ donation program."
Countries with low participation rates had this wording: "Check this box if you do want to participate in the organ donation program."

Most people just go with the default option, even when it's a matter of life and death! Here are some creative, measurable ways to apply this to your online marketing:

Show add-ons, premium product lines, and product warranties by default
Test an email opt-out checkbox for newsletter signups (only implement if people don't see this as spammy)
Make the next step in any process a "default" through the use of size, color, contrast, and placement. Visitors should never be confused about what to do next

Effective Online Marketing - Part 3

Tue, 26 Oct 2010 00:49:00 GMT

Social proof has powerful implications for economic bubbles, fashion, Christmas gift buying, and online marketing (of course!). Put simply, social proof is herd mentality. When people aren't sure what to do, they look at what other people are doing. If a person sees many other people making a decision, they'll often make a mental shortcut and assume that the decision is a good one. In cases where they know the decision is immoral, the actions of the many seem to make the decision more acceptable.

Applying social proof to online marketing isn't rocket science, but creating substantial sales lift can still put you up for a promotion. Here are some practical applications:

Show testimonials. Emphasize them for new visitors who may have little trust in your company
Add customer reviews to products
Show a list of clients you work with on landing pages
Use techniques to make your product appear in demand. Apple, for instance, has been suspected of deliberately under producing new iPhones so they sell out
Create a best sellers list
Display the number of products sold

Negative social proof is a similar and powerful concept. The tricky thing about negative social proof is that it's counterintuitive; as a result, many people make mistakes in applying it.

By discussing the number of people doing something undesirable, you can unintentionally make that undesirable decision even more popular. Robert Cialdini, Professor Emeritus of Psychology and Marketing at Arizona State, developed an excellent experiment to prove this concept.

Arizona's Petrified Forest had a problem with visitors removing petrified wood. Signs stated "Many past visitors have removed petrified wood from the park, changing the natural state of the Petrified Forest". Unfortunately, these signs only encouraged people to take more wood; when they realized the theft was a popular behavior, it was easier to justify. Cialdini tested a few signs, and no sign at all. The results were shocking. When the original sign was used, three times more wood was stolen than when there was no sign at all!

The implication for negative social proof is that it's probably counter productive to discuss how many people aren't doing what you want them to. For instance, if you're selling life insurance as an investment vehicle, you might be tempted to make a statement like:

Most Americans have less than $10,000 for retirement. Don't be caught unprepared.

Instead, test a statement like:

More than 50,000 Americans trust our company with their retirement

Effective Online Marketing - Part 2

Mon, 25 Oct 2010 23:44:00 GMT

In 2000, a now famous study found that reducing people's choices can increase sales by 900%. In the experiment, two jam stands were set up. One offered 24 flavors of jam, and the other offered only 6. While more people tried a free sample at the 24 flavor booth, people were ten times more likely to make a purchase if they visited the 6 sample booth.

The idea behind the results is known as the "paradox of choice". Put simply, it states that the more choices people have the less likely they are to take action.

This theory has come under fire as follow up studies have failed to produce similar results.

In our own experience, the theory still has some credibility pending measurable results. We have applied the theory to:

Increase views of a B2B's most profitable service by 146%
Increase ad revenue for a newspaper's online content by 278%

Case studies for the above are pending. You can apply the theory by:

Evaluating ads and websites with a focus on simplicity
Removing any elements that aren't necessary for conversion (whether that's a lead, ad click, or purchase)
Creating unique navigation for critical conversion funnels (rather than letting visitors navigate away to other pages)

Effective Online Marketing - Part 1

Mon, 25 Oct 2010 23:25:00 GMT

There's so much data in online marketing that sometimes it's easy to lose sight of the big picture. The big picture is that data points are measurements of human behavior. Understanding the motivations for particular behaviors leads to greater improvement than purely quantitative analysis. To paraphrase a famous physicist, "Analytics without psychology is lame. Psychology without analytics is blind."

In this series of blog posts, we'll explore surprising aspects of human behavior that have measurable and profitable uses.

Decoy Pricing

It turns out that we're terrible at making pricing evaluations in a vacuum. $35,000 for a car may be a bargain or a rip-off. By comparing a $35,000 to a $25,000 car, we're able to make a more informed decision by comparing the features of each. We all love a good deal, and that shared value can be used for economic gain.

The Economist exploited our mutual love for great deals with these subscription options:

Dan Ariely, a behavioral economist, brought attention to the strategy by testing it at MIT's Sloan School of Management. When 100 students were asked which subscription they would choose, 84% selected "Print & web". When the print option was removed entirely, just 32% of students selected the more expensive option. The trick is that customers were never expected to select the print only option. The print only option is just a decoy that makes the Print & web option a comparatively better deal.

Ariely's experimental results showed an average order value increase of 43% by creatively using decoy pricing. How can you use a similar offer to influence purchasing decisions?

What Everyone Needs To Know About The Death of Privacy

Sat, 23 Oct 2010 21:06:00 GMT

The death of privacy isn't anything (too) new. What is new is giving consumers the ability to easily monitor, control, and even profit from how much personal information they give to advertisers.

Web advertisers have a wealth of information to target. Consider just a few examples:

Facebook's innocuous "Like" button. A simple and fun way to build a comprehensive, targetable profile of your interests
Google's consolidated information: searches, emails, YouTube videos, and more
Lotame's content monitoring across a wide array of web properties

A new startup, Bynamite, is taking a fresh approach to privacy. Bynamite offers a simple browser plugin that queries major ad networks for information about your cookie data. The result is as beautifully displayed as it is stunning. Even for me, it was surprising to see how much advertisers had my profile down.

The surprise comes because many sites deploy third party tracking that's essentially invisible to 99.9% of computer users. For instance, a visit to dictionary.com deploys a whopping 223 tracking techniques on behalf of third parties.

For testing purposes, I'm routinely clearing all tracking references on my computer. After just a couple of days of using the web, here are some interests I revealed:

Vacation travel (just bought plane tickets for Chicago)
Hiking, camping, and extreme sports (recently did a summit trip and fell in love with summitpost.org)
Web marketing, analytics, tech news
Fiscal policy news, finance, and insurance (I like this stuff and just did some research for a client in the financial sector)

The brilliant approach that Bynamite plans to bring to privacy is this: you control how much you share, and the more you share the more you get paid. Our personal data is valuable, after all, so why shouldn't we get a cut of advertiser profits?

Ideas For Revolutionizing TV

Tue, 26 Oct 2010 22:29:00 GMT

Revenues from online advertising are growing faster than any other media in history. Check out the (inflation adjusted) ad revenue from each media source in the States over the past 60 years. That yellow line on the bottom right is Internet revenue (shown with Forrester's forecast through 2014).

The printing press, radio, and TV were all great and essential, but their days are numbered. Whether the Internet and digital devices replace all these media in 5 years or 20, the genie is out of the bottle. That's not to say that TV will disappear (we love our shows), but the Internet will become TVs primary distribution channel. There's simply nothing unique to print, radio, or TV that can't be done cheaper and better through the Internet.

As younger generations command greater earning potential, the shift will inevitably happen. What's really astonishing is how thoroughly young people have made technology a core part of their life. Consider this report from Nielsen that shows the average teen sends and receives 3,300 texts per month! If you factor in 8 hours for sleeping, that's more than 1 text every 10 minutes.

The tipping point for the media revolution might just be Google TV. Online revenues are still a small portion of overall ad spending, and Google has much to gain by entering the $85bn TV ad market.

Here are some interesting ideas for consumer applications of the new technology:

Imagine seeing a near-live fact check during a political debate. You watch the debate shortly after it happens, and in that time editors have evaluated the general accuracy of statements made and linked to more info.
Devices like Logitech's Revue offer an optional web cam. Imagine watching a football game with your Dad, even if he's halfway across the country.
When people you follow on Facebook/Twitter are watching the same show, you could see real time chat -- or see comments they made in the past.

Advertisers will benefit greatly by gaining the rich data the web offers:

Adding a payment source to your TV would allow one click ordering of advertised products. Another measurable call to action, coupon redemptions, could greatly benefit from Internet TV. E.g. "Try us out -- here's 25% off. Just click and we'll email or text you a coupon."
Facial recognition is common place even in cheap cameras. Imagine seeing a commercial dropout rate based on monitoring faces in the room. If people leave the room during commercials, it could be detected and reported. Better yet, advertiser data could be anonymized and benchmarked (e.g. against other CPG companies, your dropout rate was 20% lower - congrats!).
This may be too Orwellian for some, but it is already within the realm of technical feasibility. In addition to monitoring faces, webcams can monitor emotional expression. Microsoft's Kinect controller already has this feature. Imagine seeing the quality (humorous, thoughtful, etc.) and intensity of the emotional connection you make with your audience.
Here's a big one: segmentation. Logging in to Google and Facebook accounts through your TV means that your online profile can be reported along with all of the reaction data. E.g. An advertiser thought their commercial would be ideal for 30-40 year old women, but it turns out that women who are into high-end fashion react very poorly.
An ad system could automatically optimize targeting based on ad response. You know you need some percentage of people to respond in a certain way for the ad to meet your profitability goals. If any significant audience segment fails to respond in the desired way, whether it's a gender/age/interest/education/career/etc. segment, that segment is automatically excluded from seeing the ad again. This could bring about huge efficiency increases in advertising budgets -- billions of dollars would be freed up for more productive uses than wasting peoples' time.
As an example of the last point, I'll never eat McDonalds. Nothing against the company, it's just a nutritional thing. If the ad systems sees that I never respond to any of their calls to action, have a high dropout rate, and negative emotional responses... then McDonalds doesn't need to keep wasting money by paying for my attention.

Of course, all of this data would be anonymized and reported only in terms of meaningful segments rather than individuals. Would people ever go for it? When you consider Bynamites new business model... I think it's a safe bet that at least some people would be delighted to be paid to watch TV, even if it meant giving up some privacy.

An extremely helpful web analytics tip

Tue, 26 Oct 2010 22:39:00 GMT

Segment your customers from your prospects. Customers and prospects use your site for completely different reasons, and it’s crucial to track your efforts with each group.

It should be much less costly to generate incremental revenue from existing customers. You have their trust, and you can reach them with email campaigns, direct mail, and phone calls.

Prospects will typically arrive at your site from online ads, TV campaigns, or referral links. Fewer prospects will convert, and you will have to work much harder for their conversions. Seeing steady improvement in prospect traffic and revenue means that you’re growing your market share and/or market size.

Here are a couple eye-opening examples of why it’s so crucial to segment customers and prospects.

Example 1

A Software as a Service client had consistent visits from the keyword “__client_name__ competitors”. Without any clear evidence to the contrary, we assumed these visits were from prospects doing research before making a purchasing decision. After segmentation, we found that most of these searches were from existing clients -- yikes!

It turned out that this traffic represented tens of millions of dollars of revenue that were “on the fence”. By identifying which clients are using competitor related keywords, we can help reduce churn.

Note:

You may not see searches for competitors on your site. This client just happened to have the top 3 organic results for their competitor phrase. Most people will click through to one of the first results without necessarily checking the domain, so this client was able to get some valuable insight.

Example 2

After segmentation, we found prospect traffic represented just 1% of total site traffic. Although traffic had increased over the last year, this was primarily from offline marketing efforts that resulted in online clients. Prospect traffic was such a small portion of traffic that it could easily be doubled with an online ad budget of just a thousand dollars per month.

Implementation details

To segment your web analytics data for prospects and customers, start by identifying the event(s) that separate the two. An ecommerce transaction or a login to your customer portal are perfect places to start.

On the pages, those events occur, add the following Google Analytics code:

_gaq.push(['_setCustomVar', 1, 'Visitor Type', 'Customer', 1]);

This deceptively simple line of code will create a cookie flagging the visitor as a customer. Any repeat visits to your site, even those that don’t result in a purchase or login, will go into your customer bucket.

Finally, set up an advanced segment as follows:

Create another set to “Custom Variable (Value 1)” contains “Customer”.

Custom variables open the door to even more sophisticated segmentation. For instance, you may want to segment your most loyal customers from those who only purchase once. Look for a future post on additional uses.

Insensitivity to pain

Thu, 02 Sep 2010 15:45:00 GMT

Listening to NPR the other day, I heard a story about a person who could not feel pain. The technical term for this condition is “congenital analgesia.” Basically, it’s a rare condition where a person cannot feel (and has never felt) physical pain. At first, it sounds like the thing that superheroes are made of. In reality though, the facts are pretty grim for people who are afflicted with this condition.

Congenital Analgesia

People who have congenital analgesia are very likely to injure themselves in ways that would normally be prevented by being able to feeling pain. Common injuries include biting off the tip of the tongue, multiple broken and fractured bones, extreme blood loss due to cuts and scrapes, severe burns, etc. People who have this condition rarely live past the age of 30 because of the physical toll a life without pain actually takes on the body.

Very interestingly, those with congenital analgesia can still feel touch, sensation, and normal body-to-body contact, which means that the brain can receive some information filtered through the nervous system; however, when it comes to extreme temperature changes, or any bodily damage that signals the body to react in an emergency fashion, the body simply doesn’t respond.

A tenuous analogy to the web?

I couldn’t help but analogize this condition to a condition I think many businesses out there appear to have in regards to their web presence and online marketing activities. I’ve coined this condition – not very creatively - “web analgesia.” My girlfriend scoffed at this analogy between serious bodily injury and the Internet (because I tend to analogize pretty much everything back to what we do at Valitics), but I think there is something to this. Bear with me…

Insensitivity to pain

Being insensitive to pain stimulus means that a person does not perceive pain in the first place. Patients cannot describe the intensity or type of pain; they are simply not aware of it. On the web, lots of businesses are not aware of the “pain” (even if it’s only an opportunity that they are missing) that they are experiencing.

An example of being insensitive to pain in regards to a business’s website could be not knowing how many searches for their business/products/services are being made on a monthly basis by potential customers. Just like a person with congenital analgesia would not be aware that have a five inch gash in their leg, a business with “web analgesia” would not be aware of the big opportunities that they are missing on the web.

Indifference to pain

Being indifferent to pain means that the person can perceive the pain stimulus, but lacks an appropriate response to it: they will not flinch or withdraw when exposed to pain. For website owners, this might be an even worse non-reaction to pain than being insensitive to it.

We meet with businesses all the time who are aware of “pain stimuli” from their web activities, but they don’t have what we would call an appropriate response to it.

For instance, we told a client of ours that we thought they had an opportunity to increase their monthly web revenue substantially (in the neighborhood of $10,000 per month, or more) by decreasing their online shopping cart abandonment rate. They recognized the high cart abandonment rate (i.e. the “pain stimuli”), but months later it has still not been addressed. Their hand is still “pressed against that stove burner,” so to speak.

A cure

Alas, there is no cure for congenital analgesia. Luckily, for businesses suffering from “”web analgesia” there are lots of things they can do to protect themselves. Activities like web analytics, periodic website reporting, and closely-monitored pay-per-click and SEO campaigns will be able to quickly identify and quantify “pain stimuli” that a website is experiencing. Once that business realizes and “feels” that pain stimuli, then these businesses will be able to quickly address the pain immediately and also protect against it in the future.

Case study of websites versus phone book advertising

Tue, 16 Nov 2010 17:21:00 GMT

A couple of years ago, we designed a website for a Boise-area professional services client (think CPA firm). The website design was clean, professional and intuitive to navigate. It had good SEO basics (clean code, keyword-relevant title tags, etc.), and had decent text content (that was provided by the client). Other than that though, it was nothing fancy. The client merely wanted a rebranded website with ten pages or so to feature three or four of their primary service offerings. We delivered, they were happy, and the site basically sat there for two years without being ~~marketed~~ touched by the client.

Cut to two years later - I get a meeting request from the client. He wants to talk about their 2011 advertising budget and possibly doing more with the web. Obviously, I am excited to hear that and we schedule a meeting.

Here are some of the highlights I learned during that meeting:

I couldn't help but smirk. We kept analyzing...

Yep. It cost this client about 2300% more to get a lead from the phone book than from the web.

To this client’s credit, they had been tracking where these leads were finding and contacting them from. They also had a good handle on their lead-to-client conversion rate and their average client value, so we dug a bit deeper.

The client's average conversion rate (from a lead into a paying client) was about 37.5% and the average client value was $1,500.

I don’t throw out the cliché “tip of the iceberg” very often, but when this client asked how they were doing from a web marketing perspective, I couldn’t help but drop it. They had literally done nothing other than have a website. What they had done is akin to getting a phone number and not giving it out to anyone. And yet, their website had produced about half the leads that their $40,000 in phone book advertising had. How?

We, of course, had website traffic data about this client’s site (we install analytics on all the sites we do, even if the client doesn’t care about the data when their site launches; they will eventually!). We noticed that:

The site ranked well for their branded keywords (business name, names of the company principals, location info) but they were getting very few non-branded keyword referrals from search engines
Their site was listed in the top seven listings and prominently displayed on Google Places for their industry and location

Even with these modest credentials, the site was producing results. The client, however, wanted more. We are now actively working with this client to:

Increase their search engine ranking for industry specific non-branded keywords in order to get them more traffic from people who are looking for services they offer, but do not necessarily know about their company
Increasing their ranking on Google Places from 5th to 1st for their geographical area
Targeting online advertisements to local people in their area who are searching for services that they offer
Adjust and test aspects of their website to make sure that, once someone gets to their website, that that person has every opportunity and desire to contact the firm to become a client
Monthly website analytics reports that we create and discuss with the client about their website’s performance, where there are new opportunities, and what we should do about it during the next month

At the end of the day, the goal we now have with this client is to reallocate their advertising dollars from inefficient and hard-to-measure activities (i.e. phone book advertising) to more incremental, affordable and measurable tactics while maintaining or increasing the number of leads they get per year.