Isn’t $16 billion just a teeny bit expensive for WhatsApp?

$16 billion. Not even Facebook can call that small change: by some estimates it is equivalent to 13% of the company’s value. So why did Facebook spend such a lot of money on WhatsApp?

Revenue? Well so far WhatsApp are claiming they won’t be putting advertising on the platform. It’s purely a subscription play.  At $1 per year per user, WhatsApp’s 450 million users have the potential to generate half a billion dollars a year. But that means Facebook paid roughly a 30x multiple on revenues.

And that’s only the potential. Users get WhatsApp free for a year. If conversion rates after the initial free period are low, or if churn after the second year is high, then that half a billion dollars may look optimistic.

Of course WhatsApp’s user base is growing – at around 1 million a day. But even at that rate it will be 3 years before they reach 1.5 billion users and the potential for a more reasonable 10x multiple can be achieved. And 3 years can be a long time in digital technology.

So if it’s not about the money, it must be about something else. There are a couple of possibilities: developing markets and teenagers.

The first is the growth potential in emerging markets. WhatsApp is growing strongly in markets like India. Crucially, it works well on the feature phones and simpler smart phones that are popular in emerging markets. At the moment WhatsApp is a very separate brand from Facebook. But who knows whether the two services won’t be more closely integrated in the future. If that happens then WhatsApp could be a springboard for Facebook (and its ad revenues) into markets in the developing world.

The second possibility is the teenage market. While Facebook is still extremely strong in this market there are signs that it is growing weaker – as mums and grannies join up and make it less fashionable. So if Facebook feels it is loosing the teenage market could WhatsApp be a way of retaining them?

Both of those theories depend on WhatsApp and Facebook becoming better integrated in the future. That might happen. But if that isn’t the plan, then surely the intention must be to strengthen revenues in some way, either by increasing the subscription rate or by selling advertising. Well, Google didn’t know what their business model was going to be when they started!

Measuring engagement

Many years ago, the on-line marketing industry shot itself in the foot by proclaiming that the web was the only truly measurable medium. It demonstrated this by showing how it was possible to track the viewing of an on-line advert through to a sale.

Great. But marketing has always been a bit more complex than that.

For a start not all media activity needs to end up with a sale in the same medium. And indeed, not all marketing activity needs to end up with an immediate sale (although mostly it will want to deliver a sale at some point).

But the claim had been made. And so a lot of people still expect digital campaigns to lead directly to a measurable increase in on-line sales.

In fact we need a more sophisticated way of measuring the effectiveness of on-line campaigns.

Even the “simple” business of sales attribution isn’t so simple. Many companies still count the last click as being responsible for a sale. And yet the sales journey might have started offline with a TV ad, moved on-line via some video ads, progressed with a search of an advertising strap-line that led to a website, and then ended with a search for a brand that led to the same website and an on-line sale.

Companies like MC&C are experts in attributing sales value across different media. But there is an opportunity to go further. We can also look at measures of effectiveness that are “softer” than sales.

I am talking about brand “engagement”. Measuring this is important for many marketing activities.

For a direct response campaign it is useful to measure engagement as a proxy for value created elsewhere – off line sales or sales at some point in the future.

For TV, press and on-line video ads, effectiveness can show the value of campaigns that aren’t designed to lead to immediate sales. And the same is true of PR and event marketing.

So how can we measure engagement? Well it depends on what we want to measure: brand awareness, brand perceptions, intentions, behaviour? And it depends on the medium.

For offline media it can be difficult to go beyond established methods of pre-and post surveys and surveys looking at brand recall and favourability. There are potentially ways of going beyond this though:

  • social media analysis can give clues about audience reactions, although this can be time-consuming to do properly
  • website analytics may disclose search terms that seem to be related to an offline campaign
  • eye-tracking could be used to identify the degree to which press ads or brand names and logos in TV ads hold the viewer’s attention.

It’s easier with on-line media. Where web display ads, or other marketing activity, generate a click but not a sale there are opportunities to examine a combination of page depth and/or dwell time with return rates: this is because people who stay a long time and return several times are likely to be more engaged with a brand.

More complex measures involving the measurement of accumulated indications of engagement are also possible. These indicators might include:

  • Use of search box for product searches
  • Visits to product pages
  • Downloads of product PDFs or vouchers
  • Abandoned baskets
  • Use of store locator tools

Image a visitor who clicks on two product pages, downloads a product PDFs, and then uses a store locator. They could be assigned a value of 6, derived as 2 (a score of 1 for each product pages) plus 2 (for a pdf download), plus 2 (for using the store locator). In contrast a “busier” visitor who visited five product pages but didn’t download anything and didn’t use the store locator might only be awarded a value of 5.

On-line video provides yet more opportunities. Certain measures are obvious: plays, completed plays, average length of plays, click-through rate. But it is often possible to go further. If a YouTube channel has been set up then you can look at many more indicators such as:

  • Likes
  • Shares
  • Channel subscribers and channel views
  • Feedback and comments
  • Video hotspots

In addition you can gain useful insight from identifying how the video was discovered – embedded in your website, via Google search, via YouTube search etc. And where the source was a visit to your website via Google, tracking the visit back to the search term used may also be valuable.

What would these insights tell you? On their own, perhaps nothing. What does it matter that the average visitor has an engagement score of 7? What does it matter if a video has 9900 “likes” or (beyond a trivial media value) has been shared 136 times?

But if these scores are used as benchmarks then they can indeed be valuable: by comparing data over time it is possible to track back to campaigns and make reasonable assumptions about how particular campaigns have increased engagement; there may also be potential opportunities to relate levels of engagement with sales.

Engagement is a hard thing to measure. But it does have some value. And any attempt to measure this is better that simply saying “I can’t measure it so it must have no value”. To rely solely on media that deliver hard sales data would be to miss out on many valuable opportunities.

Of devices and desires

Attending an early morning session at the bustling AdTech conference and exhibition this week in Olympia I heard Theo Theodorou promoting the Apple iAd format.

His pitch was interesting and persuasive, full of data on how mobile apps generate far more engagement than online rich media or even (so he claimed) TV.

He started by saying that iPads were massively dominant in the world of tablet computers. And to prove this he asked how many people in the room had iPads. Everyone in the room, apart from me, put their hands up. Theo turned to me with a sad smile and admitted that iPad use wasn’t universal yet.

At that point I admitted that I did have a tablet, but that it was a Samsung Galaxy (bought because it fits nicely into my jacket pocket). And therein lies a moral or two, I think.

First of all, don’t assume that because almost all London media types have an iPad it means that everyone has one. While smart phone possession is on the way to becoming ubiquitous in the UK (although even that will take a few years yet), tablet possession is limited to a small minority: 7.5% of the adult population this autumn according to Kantar.

And second don’t assume that all tablets are iPads. While no doubt the iPad is dominant in the UK market with nearly 75% market share, the market is changing fast and Apple may well see a market share nearer 50% within the next year or two.

The marketplace for apps though is different. In the smart phone market, iOS is far less dominant and Android devices lead Apple strongly. That is reflected in app downloads with Ovum predicting that 2011 will see over 8 billion Android app downloads compared with 6 billion iOS app downloads. And that difference is only set to widen.

But back to Theo. His proposition was this. TV is a great medium for driving emotion, but it is a one way medium. Online is a two way medium, but poor at driving emotional story telling. But iPad apps take the best of both worlds being both emotionally engaging and two way.

Because of this, long form ads work well on the iPad – they show a 6% click through rate and indeed time spent on an iPad ad is on average 60 seconds compared with 9 seconds on a web based rich media ad. The examples Theo showed us, ads for a car and a camera, bore out the potential.

Those are powerful data to support using iPad apps (and I suppose apps on any tablet device) as an advertising vehicle. So why is it that tablet apps are so engaging?

Accurate targeting, said Theo. And because the ads are intuitive and fun. And because you can touch the ads.

I’m not convinced that accurate targeting would have such a massive effect although I am sure it has some. It probably does enhance click through rate (although those of us with long memories can remember the (brief) time that online ads had similar CTRs).

But I think perhaps it is the game like nature of the ads that generates that length of engagement. And that is of course helped by the fact that you can touch the screen, and also because you are holding the device in your hands so that it is physically closer to you.

So perhaps it isn’t surprising that game-like ads do work well on a tablet.

But creating good interaction is difficult, risky and expensive. And it is not going to be appropriate for every brand. So much digital advertising (especially as TV advertising isn’t going to disappear any day soon) will remain as long form video.

The question for Theo is, will video ads on a tablet drive engagement, or will advertisers who want to use this format be forced into using “advergaming”. If that is the case then the market for tablet advertising must surely be limited.

Ten Cs of DAB

At the Intellect Consumer Electronic conference yesterday and heard Ed Vaizey speaking.

He is an engaging and amusing speaker – slightly “BoJo lite” perhaps – and he had several interesting things to say about digital radio.

Alongside the news that the switchover to DAB by 2015 is now just an “aspiration”, he made some excellent points about why digital radio hasn’t taken off in the way some predicted. The four Cs, he said: content, coverage, cars and consumers (although he did add a fifth – cell phones).

Always a one for lists I think there are in fact at least 10 Cs!

Content: of course. Radio generates deep engagement with its listeners. Without good content why would anyone listen to a new digital channel. And the furore around the threatened axing of  BBC 6 Music does indicate that digital radio can generate extremely loyal audiences.

Coverage: another no brainer. If DAB coverage is limited then people outside the coverage area, and also people travelling through or to areas that are not covered, will obviously be less than enthusiastic about it. Having said that according to uk-dab.info I should be able to pick up several dozen stations in SW6 – but I cannot pick up any. Coverage needs to be good coverage.

Cars: people in cars are a big part of the radio market; standards are starting to develop and reasonably cheap car converter kits are now on the market. But until motor manufacturers fit DAB as standard, people are unlikely to take the platform seriously

Cell phones: the same is true with phone. Many phone come with FM radio. Rather fewer with digital radio.

Consumers: well, they need convincing of the benefits. Why fix it if it ain’t broke, they will say. What’s in it for me if I switch? And the benefits aren’t immediately obvious to anyone outside the industry.

Continuity: that’s another consumer issue; in the short term, while FM and DAB are both available, consumers need to be able to switch seamlessly from one to the other, for instance when they move from an area where DAB is available to one where it isn’t.

Carbon: DAB needs to work using low energy – not because we are all told to be carbon conscious, but rather because technologies that use too much energy give out too much heat to be successfully miniaturised.

Cost: now that you can get a very nice Pure portable digital radio for £35, cost is far less of a problem than it was a couple of years ago; but the cost of radios that enable you to do more than listen is still a problem.

Certainty: the industry won’t invest without the certainty that DAB is going to be a success; government has a role to play here in identifying how they will make DAB happen.

And finally Commercial opportunities: what are the marketing opportunities on DAB that match and ideally go beyond standard radio advertising? If advertisers are not convinced of these, it’s hard to see how DAB stations will ever be commercially viable.

That’s 10 Cs I think – you can probably think of some more!

Apple pi?

It’s not often that Apple is out of the news. But recently a couple of quite negative stories about their mobile strategies have been circulating.

First publishing, and Apple are facing accusations of censorship. Apple, in pious pursuit of a moral web, have been upsetting some major and perfectly respectable German publishers. The story goes that not only have Apple refused to allow certain mobile apps they disapprove of to be sold via their apps store, they have also demanded a zero nipple count on content accessible via iPhones.

This, some say, leaves them open to the accusation of trying to censor printed material!

Well maybe. But remember, Apple is an independent corporation and is, surely, quite entitled to sell whatever it likes in its own shops. And if publishers don’t like that, then they need to get their publications distributed elsewhere.

The second story is about advertising. According to Addictive’s excellent weekly Mobile Fix email, Apple have effectively banned Google and Microsoft from serving ads with any iPhone apps. This means that advertisers will need to serve ads via Apple’s own iAds system. 

That is likely to be a pain for advertisers. A new system to design ad formats for; new media and ad serving processes to understand; and perhaps worst of all the danger of yet another stream of data which doesn’t use quite the same assumptions and measurement methods as other data streams.

Not ideal!

And yet does it all really matter? To many Apple is synonymous with mobile apps. But the truth is subtly different. There are other mobile platforms out there. And they are already delivering substantial numbers of apps to mobile users.

After all, while i-phones may have 25% of the Smartphone market, they don’t have 75% of it!

So if other platforms are more flexible than Apple then they have an opportunity to outflank them and attract publishers and advertisers frustrated by the restrictions imposed by Apple. And that could well lead to a mobile content market that is larger and more competitive than it would be if a single retailer has a quasi monopoly. And that would be to everyone’s benefits. Even Apple’s.

Making online media pay

I went to a Westminster eForum meeting yesterday. On the agenda was “The Future of online content” and much of the discussion revolved around business models.

Several contributors seemed to feel that advertising revenues would ride to the rescue of media owners and that other revenue models were not worth bothering with. In particular video advertising was held up as a powerful revenue generator.

Well,  it’s true that you can pay over £20 cpm for some video advertising inventory. But you can also pay £2 cpm! The reality is that the marketplace for video advertising is still forming and value is still being established. OK – online you can click through to a website from an advert – but you can buy TV advertising of £3.50 cpm or less, and even primetime can be bought for well under £20. Is a pre-roll online ad worth so much more than TV?

In addition, does a linear video ad, which by necessity has to be capable of delivering its message without audio, represent the best way of advertising online? Surely more interactive formats are likely to be more engaging.

Given that online display revenue actually declined last year in the UK it seems unwise to rely on video advertising to rescue the online media industry. And while video advertising will no doubt have a part to play, media owners need to examine all other opportunities. These will include:

  • Subscription – possibly along the lines of that being trialled by Johnson Press, or possibly of certain premium elements of a site – which common sense would dictate will be elements that are hard to find elsewhere and which are particularly suited to delivery in an online environment
  • Data - which can be used to help advertisers understand marketplaces, deliver advertising messages that are effective and develop new products and services
  • Syndication – but only where this doesn’t have a major impact on subscription revenues
  • E-commerce share – which can involve specially developed readers offers or simply a share of revenue from sales made by third parties
  • Pay to participate revenues – which might include fees for joining communities (e.g. dating), talking to specialists (e.g. astrologers), competition entry fees, and fees to participate in online games and virtual environments

Of course, advertising will also be an important source of revenue – indeed it may remain the largest source of revenue for many media owners; but on its own it is unlikely to be enough to be enough to deliver a robust online business for most media owners.