There's a new truism being bandied about by content industry analysts. It usually runs, "Content companies can be profitable online, but only if they are already well-established offline brand names, or if they are in tiny niches."
We're not sure that's true. In fact, we are much more inclined to blame the marketing department, instead of the medium, when Internet content companies are not profitable.
In fact if Web marketers were to carefully measure and refine each marketing investment just as their offline counterparts have for decades, the analysts wouldn't have much to complain about. Trouble is, many of the online media companies haven't had a marketing leader with an old-fashioned, tight-fisted, measure-everything-that-moves, direct response attitude.
My Family Inc was lucky enough to have one. Here's how he and his hardy band of marketers turned the company around....CHALLENGE
As Craig Sherman puts it, "For a couple of years we took advantage of the dot-com bubble and raised a lot of money." The Company spent this money creating "a lot of great content" and on expensive online advertising campaigns. Each month they lost millions. But that was ok -- that was what their backers expected (and even pushed) them to do.
Then when the market shifted last fall, My Family had to shift quickly too. Sherman says, "We had to focus far more on becoming profitable by increasing efficiencies and decreasing the cost of acquiring paid subscribers and keeping them."
In November the Board decided to create a new title to indicate their new bottom-line focus -- Chief Profit Officer. Sherman, who'd been a Senior VP of Marketing, got the job. Now all he had to do was live up to it.CAMPAIGN
Almost immediately, Sherman cut the marketing staff from 30 to 12 positions. He explains, "Less is more sometimes. I got rid of expensive, management-level positions and kept the day-to-day marketing superstars who were actually getting the work done."
Naturally morale took a dive. Sherman says, "We were helped by the fact that the entire industry took a hit. If we had been the only company laying people off, we would have lost our best people. The fact that they didn't have anywhere else to go externally helped." In order to get morale back, the Company became more communicative with employees, sharing detailed financial information in monthly meetings as well as a company newsletter.
Plus, Sherman began making big changes to the Company's marketing tactics that everyone agreed were overdue. He says, "Every person in our organization agreed with the changes, and in fact thought they should have been done sooner. Everybody shared a sense of regret that we didn't manage the business more rigorously last year -- but not regret in how we restructured."
Sherman dug into the numbers to figure out which changes to make. He says, "The first step was to articulate what are the key metrics to our success." He set reality-based goals for conversion, retention and revenues on a per customer basis. Then he and his team created a series of detailed weekly reports to measure every possible related metric. He says, "We rolled our sleeves up and carefully analyzed every type of marketing campaign we'd done, every distribution channel used, what each cost to get subscribers, and how much revenue they generated for us."
The results were shocking. He discovered many marketing channels and media buys cost up to five times more per new subscriber than others. In fact, the team found it cost them $500 to get a new subscriber through their portal deal with Excite and just $11 to get a new subscriber through the Ancestry.com affiliate program.
Ancestry.com immediately renegotiated its co-marketing portal deals, and killed some deals outright. Sherman shifted staff resources to focus more effectively on the portals, such as AOL and Excite, which agreed to more favorable terms. A staffer now works hand-in-hand with these portals to maximize Ancestry.com's traffic and conversion rate.
Sherman also reassigned some of his "best people" to focus 100% on the profitable affiliate program. Unfortunately, other companies' affiliate program mismanagement blunders were causing a great deal of strain between all merchants and affiliates on the Web. So, the team made three key changes to emphasize to affiliates that Ancestry.com was well worth sticking with:
1. Newsletters: The team dramatically increased the Company's communication with affiliates. Sherman says, "Before there was almost nothing. Some intermittent email." Now Ancestry.com affiliates receive regular email newsletters that share best practices tips on how to create more powerful marketing and increase their revenues.
2. Faster Payment: A lot of the bad blood between merchants and affiliates is over payment issues. The team surveyed affiliates and learned that swifter payment was terribly important to keeping and growing them. So they switched from quarterly to monthly payment schedule, and worked the bugs out of the reporting system so affiliates could get reliable daily sales figures online.
3. Extra Devotion to Biggest: For the first time, Ancestry.com worked hard to make its biggest affiliates feel special. The team added contests to reward top sellers. Plus, they began to reach out to those affiliates on a one-to-one basis through personal emails and phone calls. Sherman says, "Before we just took them for granted. Now they feel like they're part of the company. We had a meeting two days ago and they said they feel like employees. That's neat!"
Sherman also reassigned one of his best marketers to focus on email marketing. Ancestry.com had been spending millions on email list rentals and newsletter sponsorships bought on a CPM (cost per thousand) basis. As of January, Sherman laid down the law -- he wasn't going to pay for email marketing by CPM anymore. Every deal had to be for CPA (cost per acquisition.) Publishers and list owners balked. He says, "Virtually all CPM deal partners said no way."
But the lagging economy worked in Sherman's favor. Over the next two months most former partners came back and agreed to at least discuss CPA, because they had too much ad space lying fallow. Ancestry.com made these partners' risk as palatable as possible by helping publishers and list owners conduct small test campaigns. Plus the team made sure their landing pages were tweaked to get the highest possible sales conversion rate.
The small tests proved so successful, that one after another most publishers and list owners were won over. By July more than dozen were running CPA campaigns, and the number continues to gain. However, Sherman was careful to note that he doesn't think this situation will continue forever. When the economy picks back up, CPMs may rule again. "I'm taking advantage of CPA while I can," he says.
Last, but not least, the My Family Inc management team made a critical decision to stop investing marketing and heavy editorial dollars in its other sites, such as MyFamily.com and RootsWeb. Sherman says, "We cut virtually all marketing on ancillary sites." Luckily these sites featured visitor-created content such as message boards and personal family tree tools. So, instead of going down, page views continued to grow steadily.
Why not cut the other sites altogether and focus resources on Ancestry.com? Sherman explains, "Historically they had different positioning and as a result attracted different customers. If we got rid of them we might lose a potentially large customer base." Rahn Rampton, Communications Director, put it another way, "We're not just number one in our space, we're number one and number two. That's sort of nice. It's like being McDonald's and Burger King and part of Wendy's."
So, instead of driving traffic to the ancillaries, marketing focused on making them as efficient feeder operations to Ancestry.com's subscription sales as possible.
My Family Inc. expects to announce profitability by the end of this month. The company has literally gone from losing millions per month to beginning to make them.
The company has not sacrificed growth for profits. In fact almost every month this year has seen record-breaking subscriber acquisitions. Ancestry.com had 200,000 paid subscribers in July 2000. A single year later it doubled in size to 400,000 paid subscribers, while reducing cost per acquisition from a high of $52 to $12.80. Sherman proudly notes, "And CPA is still falling." Customer retention has also risen by about 15%.
Morale, as you might imagine, is high again. Plus, Sherman notes, "The tenor of Board meetings has shifted from figuring out how to control the chaos and cut, to how do we grow and how do we grow faster? It's gone from a tough time to a thrilling time."
CPA-based email marketing, which Sherman had not had high hopes for initially, has become, "an extremely big part of our business." About 8-10% of subscribers come from it. Affiliate marketing sales are also a much bigger slice of the pie now.
The company gained 45,000 new subscribers in June alone, so Sherman predicts this growth will continue. Expect to see Ancestry.com become a highly credible contender for first place in the subscription-site world as it dukes it out with WSJ.com (now number one) and ConsumerReports.org (now number two with 560,000 paid subscribers.)
Sherman says, "We're really, really lucky. We have a great product. People are passionate about it and they are willing to pay."Useful links related to this article:
My Family Inc.
(Ancestry's affiliate system)