The pulse of Alexander Interactive

I was struck this weekend by the positioning of a question in the New York Times Magazine’s Ethicist column. A person was referred by her doctor to a lab partially owned by said doctor. The doctor didn’t disclose his stake, and much hand-wringing about the omission ensued.

Based on the phrasing of the question, Randy Cohen’s ethical guidance was firm: “That’s why a physician should not send patients to facilities in which he has a financial interest. It is neither prudent health policy nor good medical ethics to put a doctor or a patient in such a position.”

But the inverse is also true. Patients should want to go to facilities in which the physicians have a financial interest. The doctors have a vested interest in providing their customers with the same professionalism and quality of care that they give in their own offices.

This is true in any industry. Think about hair salon that opens a spa, the deli with a catering business, the ad agency with a media buying arm. Businesses create corollary interests for financial purposes, yes, but the implied message is one of consistent performance. Indeed, that’s often the hook behind the sale.
The error in the Ethicist column is therefore about the omission, not the referral. How might the answer have been different if the question were phrased this way (my edit in bold):

“A specialist recommended that my wife get a CT scan and suggested that she use a lab in which, the physician clarified, he had an interest. She wasn’t required to use that lab, and there was no reason to question its quality or his calling for a scan. I’m O.K. with this lab — I say you either trust the specialist or you don’t — but my wife is not so sure. What do you say?”

Suddenly the question shifts from cagey profiteering back to trust. As the questioner remarks, if the patient (client, party-thrower, CPG marketing manager) trusts the adviser, the recommendation of a related business can be more trustworthy, not less.

All businesses can benefit from this transparency, ecommerce sites among them. A strong parent company or sub-site can give added validity and confidence to customers. Don’t hide facts when they’re not worth hiding; empower people to make well informed decisions. Providing knowledge can build trust and boost the bottom line.

The news that Twitter is getting into the advertising business has exciting implications for companies ready to harness real-time conversations for ecommerce activity.

Companies with products and services to sell will be able to tap into the immediacy of conversations on Twitter and provide targeted offers in real time. Frustrated with a travel booking? Post a tweet and watch as a travel agent enters your tweet stream. Bouncing around ideas on which shoes to buy? Watch an ad for Zappo’s appear at the perfect moment.

If executed well, it’s the kind of advertising that consumers might admit to enjoying. More relevant than display ads and less intrusive than mobile, Promoted Tweets–once the kinks are smoothed out–could be downright useful.

Consider: C.C. Sabathia of the New York Yankees pitches another great game and completes his no-hitter. People (including, probably, this author) are tweeting rapidly about the feat, starting in the middle innings and hitting a crescendo around the end of the game. As the volume hits its max, Steiner Sports (an Ai client) inserts ads into the chatter: “Buy Sabathia’s game-worn jersey from his no-hitter! Get details now.” Instantly thousands of people are tuned into an item that might appeal to them at the moment of its maximum appeal. It’s search marketing for conversations.

Twitter’s conversations are essential, of course, and Promoted Tweets will have to be obvious without being intrusive. With the right execution, though, they will be huge.

Ai is pushing live the latest version of the Continental Airlines International Restaurant Week website today. Its rollout (the third annual campaign we’ve done for them) is a reminder of the impact an integrated marketing plan can have on an online project.
For Continental, the website is the home base of an annual promotional campaign. International Restaurant Week leverages the cuisines of twelve of New York’s finest restaurants as the airline “takes you to even more places.” This year, the website showcases a signature dish contest, judged by Tom Colicchio, as well as user-generated ratings and reviews.
But what will make this campaign successful is the steady flow of traffic generated by Continental’s marketing efforts. This year’s promotion included prominent, handsome advertising in magazines and newspapers in New York, where the promotion is taking place. Targeted emails were sent to Continental OnePass list members, and a promo tile is in place on the Continental Airlines home page.
All this is creating strong traffic to the site. Continental’s Restaurant Week is a short-term promotion; it can’t wait for natural search results or rely on the press release to pull people in. So Continental worked proactively, and the result is a steady flow of users that will stay engaged for the duration of the promotion.
With targeted emails, print ads and online messaging, Continental is reaching a defined market effectively. It’s a powerful combination that should be considered for any marketing initiative with well defined goals.

Monday’s news from Major League Baseball’s online team reminds us how far the digital world has to go to replicate offline revenue streams.
The news, on its face, was good: MLB has made nearly $1 million on its iPhone app since launching it early this month. It actually grossed $1.3 million, which puts it just shy of the seven-figure mark after Apple’s 30 percent cut. Silicon Alley Insider says MLB’s repurposed content makes this a profitable enterprise.
And yet. A million dollars sounds good until one considers that MLB makes tens of millions of dollars per year on its national TV contracts, and hundreds of millions more locally. The YES Network alone brought in $360 million last year.
MLB’s approximate $910,000 net revenue on the MLB app barely buys a decent TV campaign on one of its local affiliates. Heck, it wouldn’t even pay Pedro Feliciano’s salary.
With all the doom and gloom about old media floating around, it’s no surprise that media outlets are looking for good-news stories. But it will take a lot more than a million bucks from the iTunes store to make up for the potential lost revenue as people move from radio and TV to webcasts.

The news that Yahoo is shutting down Geocities got me curious about how Yahoo did on the deal. A decade later, was Yahoo right to make the acqusition in the first place?
I did some research, some math, and a bunch of IM brainstorming with Tristan Louis and came up with the following.
The basics: Yahoopaid $2.87 billion in stock for Geocities in May 1999 after announcing a deal that January at $3.57 billion. Adjusted for splits and inflation, that’s the equivalent of $1.54 billion in Yahoo stock today, or $1.2 billion in 1999 dollars–a far more reasonable figure than the dot-com-inflated sums that Yahoo and Geocities swapped. Considering that the transactions were all on paper, the deal already makes some sense. (Tristan’s initial calculation put the value of the 1999 stock at $155 million–a steal!–but that may have been done without factoring in Yahoo’s three stock splits.)
But did those billions pay off?
First, consider direct revenue. Geocities had $7.82 million in revenue the final quarter before the acquisition. Taking into account traffic trends for the years following, and estimating revenue based on industry flows, the total revenue from Geocities display advertising–for 10 years–comes to around $320 million (not inflation-adjusted). Not a lot compared to the $2.87 billion purchase price, but at least Yahoo got back 10% of its stock swap in cash.
Yahoo Geocities also had a premium model, with Plus members paying $4.95 a month and Advantage members $19.95. Yahoo never released membership specifics, but we can generously estimate that 1% of Geocities’ 14 million members signed up for a larger model, with a small segment going to Advantage. That program still exists, which means there’s some incremental revenue even now. Geocities Plus probably pulled in more than $8 million in its peak year, which extrapolates to roughly $60 million total since its introduction.
We can assume Yahoo Geocities had all sorts of marketing partnerships, each of which generated as much as $250,000 per initiative above and beyond basic ad revenue. Let’s generously peg this value at $20 million total, mostly during Geocities’ peak usage years.
So that comes to $400 million in revenue. Decent money, but far from profitable on its own.
Then let’s consider the traffic implications. In today’s world, the traffic figures from the 1990s are laughable: Geocities was the fifth busiest site on the Internet in June 1997… and four months after that they signed up their millionth user. Then again, in the era of rapid growth, though, paying for traffic made sense. By the time the sale closed, Geocities was up to 3.5 million user sites and 19 million unique users.
From that angle, the sale paid some robust early dividends. Yahoo’s traffic increased by nearly two-thirds following the acquisiton. That’s a lot of new eyeballs seeing the Y! and becoming familiar with Yahoo’s name and, ultimately, its other services.
Yet Geocities peaked in 2002 and has been in slow decline ever since. After hitting 27.7 million in March 2002, the numbers kept dwindling: to18.9 million in October 2006, then 15.1 million in March 2008, down to 11.5 million unique users last month. So the long term didn’t play out perfectly, thanks to more robust social networks superseding Geocities’ early style.
With all this hindsight, it is doubtful that Geocities can be called a profitable acquisition. It probably can be considered a break-even, though, given the number of different revenue streams and added Yahoo network traffic the site brought.
Geocities is also notable for what it did for Yahoo off the balance sheet. The bold acquisition of a social site, and its subsequent integration with Yahoo, paved the way for future site aggregations. Yahoo’s purchases of Flickr and del.icio.us show Yahoo’s continued commitment to community, and its willingness to assimilate other networks with its own (albeit with varying degrees of success).
Indeed, Geocities can be considered a hallmark of Yahoo’s style and a bellwether in its corporate history. For better or worse, that alone makes the acquisition a solid one.

The lead eMarketer story today is How Much Ads Cost. It breaks down offline media CPMs in a handy graph, then makes a separate set of online assessments.
The biggest takeaway? Display advertising doesn’t pay. Online display ads ran at a $2.46 CPM in 2008. That’s less than 10% better than what outdoor advertising charges for billboards and bus stations.
The article goes on to note better returns in video (CPMs anywhere from $7.40 to $35, depending on placement) and search ($75!). But it doesn’t eliminate the big message: online display advertising doesn’t pay. Not well, at least.
Of course, display ads are de rigueur in much website creation, and a buoying component of media sites. But display has become a baseline and not a profit center. This is happening offline as well as online. The New York Times recently reported on evolving revenue channels at magazines, where subscriptions are becoming pricier profit centers–the opposite of the traditional model, where subscriptions covered postage and ad revenue ran the business.
Savvy online publishers are realizing this and similarly evolving their models. Beyond video advertising, sites can offer premium content, exclusive access, tools and other items to entice more value out of individuals. Business-to-business revenue needs to morph into something more profitable as well, whether it’s through partnerships, sponsorships, cobrands, or something else.
Innovation is going to be key in the coming years. Because a simple ad banner unfortunately won’t pay the bills.

Internet Retailer’s lead headline today: Web sales at Macy’s grow 29% in 2008 while total sales sink 7.7%. IR calls this “blow-out online sales growth” in an otherwise dismal year.
The ecommerce industry continues to defy macroeconomic trends. Holiday sales dipped 2.3% industrywide in 2008, but sector sales in goods like apparel and luxury items dropped as much as 30%. Meanwhile, Macy’s managed to boost its online sales by nearly a third.
Macy’s isn’t alone. Ai’s ecommerce clients managed to do decently in 2008. One multichannel client saw 37% sales growth during its busy season; another grew by a whopping 91% for the year versus calendar 2007.
What does this mean for the industry as we press deeper into 2009? We here at Alexander Interactive have some ideas, and suggestions.

• Pressing forward. The down economy means almost every retailer is struggling this year. Budgets are tighter and staffs smaller. But the online sales channel continues to perform, which means it needs to be properly maintained as a profit center. The right balance of promotional activity and site innovation will drive traffic and keep the online sales channel strong.
• Differentiating. This year is going to be remembered for bargain-hunting and price-slashing. How to compete? By creating a user experience that is welcoming and memorable. Repeat customers will reduce acquisition costs and maintain revenues as the economy drifts. Companies willing to invest this year are working on improved usability, better communication and smoother customer service paths–the touches that turn browsers into buyers, and customers into satisfied ones.
• Creating opportunity. With many retailers pulling back, competition should decline this year. Affiliate and search marketing costs are going to dip. Smart companies will press forward, maintaining or increasing market share in the one channel with growth potential.

The business world is awash in bad news right now, and the Internet isn’t immune. But ecommerce is still a channel with tremendous upside potential, visible even during gloomy times. Ai is pleased to be helping smart online retailers innovate and grow. We have high hopes for the road ahead.

One of our designers recently used her new Sony digital camera to take some office photos. As she did not have the USB connector with her, she looked for a device to pop the Memory Stick into, so she could upload her photos onto a computer. Unfortunately, as we found out, the technology of her camera was too new for anything else in this office.
Sony, it seems, is playing hard to get with its devices. This brings up the issue of vendor lock-in, where a consumer must incur the setup costs to adopt a new product that a vendor is offering.
The Sony Memory Stick in our designer’s camera, a proprietary design, is completely different from the one in my own Sony camera. Further investigation shed some light on the matter, in that Sony had created a new kind of Memory Stick, dubbed, “Memory Stick Pro Duo.” Wow.
This is a completely new technology–the new cards can hold a larger amount of data and have more functionality to work with video capturing and file-transfer rates. Awesome! I am at least glad that Sony is keeping up on their game to push advancements in technology. But they are forgetting about many of their loyal consumers, not to mention other electronics manufacturers who have built-in Sony Memory Stick Pro slots in their products.
What Sony has done is separate its consumer base. Older media will still function but are not compatible with their newer ones. Even the USB cable that comes with a newer model of Sony camera is no longer compatible. I can make a reasonable assumption that a year from now, if I needed to purchase an older model Memory Stick Pro card for my personal camera, I would have to buy it used or refurbished, or I’d simply have to buy in to Sony’s new technology.
This is where vendor lock-in comes into play. If I become dependent on a technology, but said technology advances, I am left with little choice but to upgrade if I want to continue using the product. I could switch to another brand, but in the end I would still be spending money to transition to a new product, whether with the same vendor or a new one.
I have seen similar issues arise over time. Technology changes, which I both understand and accept. Advancements must be made to improve the quality and functionality of a growing technological industry. As a result, consumers are almost forced to upgrade their devices and technology in order to keep up with the revisions that electronics developers and manufacturers come up with.

The online-offline impact of user experience is vital in today’s economy, and nowhere is it more apparent than in the travel industry. I experienced the best and worst of it on a recent business trip, and the learnings I encountered were enlightening.

Airlines, like many other businesses, have become accustomed to controlling the information flow. Curious about gates, seats, flight times, or other details? They’ll tell you when they’re ready to tell you. But the Internet has changed that, and continuing improvements in ease-of-use and access have forever changed the game.

Organizations today need to be as aware as their consumers of data streams and information sources. They need to be proactive and accommodating. Consumers want their needs addressed by people who are as informed as they are. The alternative–the old way–can be galling.

My Story

Here’s what happened to me: I had a trip planned from New York to San Francisco, originating at JFK on a 6 p.m. flight. My departure day was filled with weather-related delays. Morning flights were taking off more than three hours late, although they were pushing out from the gate on time, leading to “on time departure” proclamations by the airlines.

When I checked my flight status around 2 p.m. my airline’s website declared my flight was on time. Skeptical, I checked the condition of JFK on faa.gov, which revealed five-hour ground delays due to weather. But the airline’s website begged to differ, so I called the airline directly.

On the phone, the customer service representative repeated the flight’s on-time status. I asked her to investigate the difference between the airline’s estimates and the FAA’s. She put me on an extended hold. While waiting, I checked my flight status on the airline’s website again, and discovered my flight had been canceled!

When the rep returned to the line, I asked for alternate arrangements. She told me the airline was filled to capacity and couldn’t honor my Monday ticket until Wednesday, which would ruin my trip. The rep referred me back to the airline’s website to edit my plans, but the site declared my flight ineligible for a weather-related refund. At the same time, the rep on the phone put me back on hold to look for other options, and wound up disconnecting my call. The airline had stranded me in two different communication paths.

I ultimately booked a flight on another airline for the next day (at more than twice the price). An hour or so later, I was able to get a refund from the original airline’s website.

Nearly two hours after I discovered my flight delay, and 90 minutes after I rebooked my flight, I received an automated message on my home phone advising me of the canceled flight. I almost screamed in frustration.

The game has changed

An airline’s only real differentiator is service. JetBlue stands out for its leather seats and TVs; Virgin for its hip, knowing accoutrements; Southwest for its easygoing, cheeky demeanor. But every airline has the same base concerns: comfortable flights, timely service and good communication.

What does my recent experience say about my first airline’s service orientation? Aside from the obvious–that the airline has some serious internal issues to resolve–I spotted several lessons that can be applied to all businesses, not just the airlines.

• Businesses no longer control information flow. A smart company will accept this and learn to work with it. Whether it’s me looking at faa.gov or consumers Twittering issues amongst themselves, news and facts about a company’s offerings are no longer dictated solely by the public relations staff. Companies that insist on rigid lines of communication will find themselves outsmarted by savvy consumers and disparaged by uninformed ones.
• Nimble trumps rigid. My airline couldn’t put me on an alternate flight within two days of my original plans, and it never considered putting me on another airline and sharing my revenue. My company’s travel service couldn’t find a replacement in its system for under $1000. Yet I booked myself on Virgin Atlantic, via its website, within minutes for far less. The folks looking to me as a customer could not help me spend my money with them, because their basic systems didn’t allow flexible thinking.
• Responsiveness is everything. Two hours to inform me about a canceled flight is unacceptable. Losing my customer service phone call and not calling me back is, in this circumstance, unacceptable. The airline’s website not acknowledging my canceled flight? Unacceptable. Discerning consumers will avoid companies that make these kinds of mistakes. Firms that get communication right–on time, proactive, and helpful–will win.

Commercial airlines are in a unique industry with unique problems, but their customer service concerns are universal. Any business that communicates with its customers–which is every business–can find clever ways to improve by watching the airlines manage a crisis.

I’ve spent the morning fascinated by Swoopo, a new (to the US, at least) online auction site, which is both more and less innovative than its peers–and a great business model case study.

The site turns eBay’s successful auction model on its ear. eBay uses fixed-duration auctions, free bids, and sellers’ fees for revenue. Swoopo, in contrast, sells bids to buyers, who then bid in 15-cent increments on products. If an item gets a bid in the final 15 seconds, the end time is extended, giving other bidders a chance to dive back in.

This is at once radically different–from eBay–yet more similar to the traditional auction business. In the real world, auctions don’t stop short at 10:13:32; they go until the high bidder has outlasted the competition. Swoopo allows this to happen.

Placing the operating-cost burden on buyers is a shift as well. With bids costing 75 cents each, buyer aggressiveness is artifically limited; the multiple bids required to win a typical auction raise the final cost to the winning bidder. Interestingly, competing (losing) bids help subsidize the winning buyer, which may deflate prices.

The open-ended auction timing is what fascinates me most. I watched a Playstation 3 controller auction on the Swoopo home page ratchet up from $23 to nearly $41, all in 15-cent increments, for several minutes before the auction ended. Sniping is eliminated, and in its place is a tense few minutes and frequent page refreshes. And, most likely, a handful of additional bids, each adding 75 cents to Swoopo’s bottom line.

Swoopo has a remarkably clever (or truly wicked) business concept. It’s also beautifully timed. As eBay evolves away from auctions, the market is probably ready for a savvy competitor to nibble away at market share.

Expect several Swoopo (and eBay) competitors to appear in the next year or two, all with new twists on the auction model. And keep a watchful eye on eBay, which may or may not realize that its auctions, while slowing in growth, are the make-or-break business proposition of its flagship.

Update: this write-up of Swoopo is worth reading, as it notes the clever (if insidious) model behind the business, and also exposes some of Swoopo’s questionable business practices, which I hadn’t caught on first observation. “It’s not clear that Swoopo even has the items they auction; they appear to sell first, then use the money they gain from the completed auction to buy and ship the item. Furthermore, they have a clause in their Help under Delivery and Shipping that lets them ship ‘equivalent’ items.” The post later calls Swoopo “pure, distilled evil,” which may be pushing it a bit, but point well taken.