Rethinking “Marketing Is For Sucky Products”

Fred Wilson wrote the marketing blog post about two years ago.  In that post, he said something very provocative: (for consumer Internet companies) marketing is what you do when your product or service sucks.  Subsequently he wrote a follow up blog post that fixed a few bugs.  Other than that, the post stands as written.  And it was funny (and still funny) to see Fred’s anger spilled out into the post.

I’m angry at the marketing profession for these transgressions over the years and it spilled out into my post. I’m not proud of that but it is what it is. The post stands as written with all of its bugs and an awesome comment thread at the end.

The blog post was written before Union Square Ventures invested in Wattpad.  But Wattpad has always been approaching marketing very much like Fred described, before or after the investment.  Since inception till now, Wattpad has never spent a single penny on advertising (not saying advertising = marketing, more on this later).  The only exception was the $100 or so we spent on Google AdWords and AdMob as an experiment (which failed miserably).  We also have a small marketing team with Amy and Danielle.  We occasionally get some external PR help but only when we have a special project that needs some extra horsepower.  But other than payroll, our marketing spend is very small.

Although my background was mainly on the product and engineering side, I did work for a marketing company for about 2 years (through the FeedM8 acquisition).  I was involved in quite a few marketing projects during that time.  I have seen marketing works beautifully.  After all, advertising (which is a subset of marketing) is a trillion dollar industry globally.  Hard to believe people are stupid enough to collectively spend a trillion dollars without any return (the government may, but that’s another story for another day).  

So, why “marketing spend” works for a lot of companies but not consumer Internet companies?  Note that Fred also shared this:

In truth not one of our top performing companies had a marketing budget in their initial business plan.

Two years later, does Fred’s view point still hold true?  When should a consumer Internet company start spending more on marketing?  

Here is my take:

1) The scale is very different - Most consumer Internet companies have a very high “number of users to company size” ratio.  Wattpad has 40 employees (no more than a mid-sized restaurant when you think about this) and yet we are supporting 13 million monthly unique visitors.  Enterprise, e-commerce or enterprise business requires far fewer users to make it a breakout success (say 50 employees to support 10,000 paying users).  For comparison’s sake, BMW sold 1.5 million cars per year and yet they have 100,000 employees.  To use a marketing campaign to move the needle of a consumer Internet company, the campaign needs to reach a huge number of potential users.  Typically it is very hard to pull off and very expensive. 

2) The math does not work for direct ad campaign such as Google AdWords - Nowadays, the minimum bid on Google or Facebook is around $0.5.  Say you can retain 2% of the clicks (quite optimistic), the acquisition cost per user will be at least $25.  For low or zero Average Revenue Per User (ARPU) products, it is simply financially infeasible.

3) The math does not work for mass media marketing campaign either - For illustration purpose, let me use Super Bowl Commercials as an example.  A 30-second spot will set you back by $3.5 million + production cost (say $500K to $1 million).  This will give you a reach of 100 million people.  Say 1% of the viewers will check out your website or mobile app afterwards (almost unrealistically optimistic) and you can retain 5% of these users (also pretty optimistic), at the end you only recruit 50,000 users.  The per user acquisition cost is close to $100.  Even for Groupon that has a higher ARPU than most consumer Internet companies, I couldn’t hardly see it work when they aired their commercial in 2011 (note: they were planning for IPO at that time so the purpose of the commercial was different).  However, if it is a car commercial and the campaign can drive 50,000 people to the dealership, the campaign will certainly pay for itself.  

4) Only companies at really significant scale can afford the risk of failed indirect marketing campaign - In 2010,  Zynga blew up an armored car to promote its new game Mafia War.  The stunt “only” drew 2 million views on YouTube (hardly acquired enough users to pay off as even good conversion rate is like 1-2%).  A “failed” campaign like this would make a big dent on smaller companies but Zynga was big enough to absorb this type of losses.  Like Fred said, perhaps at that time they made so much profit on every marginal customer that it would be crazy to not spend a bit of that profit acquiring more of them.  

5) Word of month is much more powerful for consumer Internet companies - Again, most consumer Internet companies in the growth stage have millions if not tens of millions of monthly unique visitors (remember, even BMW only sold 100,000 cars globally each month).  It is an order of magnitude easier for consumer Internet companies to leverage its user base to advocate its own product.  That’s why built-in viral growth (whether through sharing features or offline word of mouth) is so powerful: the percentage growth is built in and works “perpetually” regardless of the size of the user base size (to some extent).  On the other hand, most marketing efforts are very transient.  So you have to keep doing it everyday!

My conclusion - unless your consumer Internet company has started to monetize with a significant ARPU, the most logical way to acquire users is through built in virality or word of mouth.  Other cheap / free marketing efforts like the few ideas that Fred mentioned will also work at launch, but when your product starts getting into big numbers (say a few million users), just posting more on Twitter or hosting live events won’t move the needle anymore.  

Don’t get me wrong, I believe marketing is super important.  But for consumer Internet companies we have to do it in a very different way.  Traditional marketing simply won’t work.  Marketing is not necessarily about having a big budget.  It is about telling your own story (and hence can’t outsource) over and over again consistently so that the word of mouth effect can be amplified.  So, make sure you build a kick ass product and equip your users to advocate your product for you.  Treating them really well is a great first step.  

Don’t expect to see Wattpad’s Super Bowl commercial this year!  :-)