This week, more than 200 executives from the online subscriptions industry gathered at the Museum of Jewish Heritage on the New York City waterfront for MarketingSherpa’s eighth annual Selling Online Subscriptions Summit. For two days, speakers and attendees from companies like Amazon.com, Consumers Union, Citrix Online and Weight Watchers networked and listened to Case Studies, new research data and panel discussions on the latest trends in the industry.

Despite challenges, such as a softening economy and the pressure to maintain subscription revenues in the face of online advertising growth, speakers shared test results and best practices that have boosted visitor traffic, increased conversions, and maximized the lifetime value of subscriptions.

Attendees also saw a prime example of the power of social media from Sherpa’s 2008 Online Subscriptions Entrepreneur of the Year: Paul Allen, founder of World Vital Records. Allen recounted his company’s success and preliminary conversion results from a custom Facebook application installed by millions of users.

Here are the top six takeaways from the event:

-> Takeaway #1. Ad sales versus subscriptions: Not a zero-sum game

The past 12 months have been rough for subscription marketers. Strong growth in online advertising and high-profile moves, such as the cancellation of The New York Times’ TimesSelect model, created a perception that subscription businesses are dying.

Based on a pre-summit survey and examples from our event panelists, however, it’s clear that many sites are finding success with a hybrid business model that incorporates ads and subscriptions.

Of course, some businesses face so much competition from free sites that a premium model doesn’t make sense. Likewise, some publishers say that selling advertising isn’t an option because it would harm their reputation as an unbiased source of information, or they participate in a market where there is little advertiser interest in online channels.

For many sites, however, a hybrid model presents what John Boris, VP Marketing, Zagat.com, called the best of both worlds: Strong growth potential from free, ad-supported content, with the annuity that a subscription base provides.

Striking that balance requires continual reassessment and retooling of all aspects of your content and marketing. Here are a few ways Summit presenters have approached the process:

- Boris noted that his team debates the business model question almost monthly, using stacks of financial models to project scenarios for increasing ad-supported content or doing away with subscriptions entirely.

Although they see online advertising revenues growing faster, he said, “It’s difficult to give up a guaranteed annuity of tens of millions of dollars” that their subscriptions represent.

- A strong subscriber base can present an attractive audience for advertisers. Business information site Hoover’s began supplementing its subscription revenues with advertising sales because potential advertisers were asking to reach that highly-qualified, B-to-B audience.

“We’re never going to refuse money if we can take it in a way that doesn’t disrupt the user experience,” said MaryBeth Gavin, Senior Manager, Acquisition Marketing, Hoover’s.

- Operating a hybrid business model requires paying lots of attention to new metrics and performance indicators. Joe Miller, Senior VP, Consumer Sales & Marketing, Britannica.com, shared a test in which his team included a relevant text-link ad on the article barrier page that also asks visitors to accept a free trial offer.

The additional link away resulted in a drop in clicks and free trial signups. But the combined revenue from that page was 70% higher than they were able to achieve through subscription sales alone. “That’s been a nice thing for us,” said Miller.

-> Takeaway #2. Plan Web 2.0 strategies to achieve specific goals

Interest in Web 2.0 technology and social media is high among subscription marketers. But plenty of questions remain about adopting the right strategies. Oz Sultan, formerly of The Economist, pointed out that marketers shouldn’t let that confusion drive them into just any Web 2.0 channel.

Instead, he recommends choosing specific Web 2.0 strategies or channels that match your own business goals, level of technical expertise, and audience demographics. “Some of the questions you have to ask yourself are: ‘What am I trying to do? Or what am I trying to combat here?’” said Sultan.

Here are a few goals that speakers are targeting with their Web 2.0 strategies:

o Growing audience and traffic
Paul Allen of World Vital Records described seeing a huge boost in site traffic after creating a Facebook application for families. He sees the growth and momentum of social networks as an incredible opportunity to reach Web users with innovative campaigns and online tools. “We decided to piggyback on the social networks.”

o PR and branding
Jamie Steven, Senior Marketing Manager, Rhapsody, uses a company blog, viral tools such as user playlists, and an embeddable music player that can be installed on third-party blogs to help raise awareness. “I think the number one thing you can do around a Web 2.0 strategy is the simple, PR-related work, where you’re getting your content out on these sites.”

o Lowering your customer acquisition costs
Adding social networking components to a site can turn your users into a valuable marketing channel. Andrew Erlichson, CEO, Phanfare, described how he developed a social network model for his photo- and video-hosting service.

He got customers to help them prospect for new users by inviting friends and family to join the network. His customer acquisition cost dropped from $45 to $30. “Marketing is just so expensive,” said Erlichson. “We need some way to prospect to these people that doesn’t involve buying keywords on Google.”

-> Takeaway #3. Refine your marketing messages for clarity

Dr. Flint McGlaughlin, Director, MarketingExperiments, delivered a presentation on landing page optimization and live critiques of attendees’ own landing pages. During his sessions, he stressed an important maxim for marketing messages: “Clarity trumps persuasion.”

Rather than creating landing-page copy that attempts to sell prospects on perceived benefits of your site or service, he said, you first need to answer two simple questions for them: What is the offer? Why should they participate?

Aaric Eisenstein, Senior VP Publishing, Stratfor, described how he used a reader survey to make his email marketing messages more relevant to his prospects. For example, newsletter readers expressed a strong opinion that most news organizations presented biased geopolitical information.

They turned that feedback into new messaging that conveyed Stratfor as an unbiased source of geopolitical news and trend analysis. The strategy boosted revenues 13 times in one month. “We found that this message of non-partisanship really resonated with people,” said Eisenstein.

Michael McCurdy, Director, CRM, TheLadders.com, and Leslie Semegran, Director Online Marketing, TheLadders.com, provided their own example of the importance of clear messaging. An aggressive campaign to move subscribers from a one-month subscription to an annual membership involved a test that achieved higher upgrades, but created more confusion.

Many members who chose the annual subscription offer broken out by its lower $15 monthly price didn’t realize they were committing to the annual payment package. After they received several requests to stop billing credit cards, McCurdy and Semegran tweaked their subscription page with a new feature that broke out the total bill for the selected level of service. Their lesson: Spell out all the information and be careful of unintentionally deceiving customers.

Developing a clear understanding of your offer and the reasons why users want to participate in your site can also help with product development. Linda Rigano, Director, Strategic Alliances, and Jerome Shaver, Director, Analytics, ThomasNet, described how they used customer research to highlight exactly what customers and suppliers needed from an online supplier directory. They also outlined opportunities that should be pursued when transitioning from a print publication to an online catalog.

“You don’t build things just to build things, you build things because your users need them,” said Shaver.

-> Takeaway #4. Dig deeper into metrics

Marketers need to look at top-line campaign performance metrics, such as click rates on search ads, email open rates, and free trial conversions. But in some cases, the best insights come by looking deeper into user metrics or campaign results to find the key performance indicator.

Jesse Lipson, President, ShareFile, offered a good example when he presented his modeling tool that helps him run a host of performance variables through a series of “What if?” scenarios. With that projection process, he was able to compare the impact of increasing free trial conversion rates 10% to the impact of reducing existing subscriber churn by 25%.

The model showed that increasing free trial conversions would deliver more than $500,000 in increased customer lifetime value. But the effort to reduce churn would create more than $10 million in increased customer lifetime value. “It’s caused us to refocus a little bit in terms of the programs we’re going to be pursuing over the next few months.”

Jon Eggleton, VP Marketing, AG Interactive, found his own key metric when conducting paid search tests around one of the most important holidays for the e-greetings company. When competition for Valentines Day-related keywords increased, he experimented with additional long-tail keywords that were less expensive, and exposure on second- and third-tier search engines.

By casting a wider net, he saw declines in some top-line metrics, such as clickthrough rates, but an increase in more important downstream metrics, such as a 26% increase in conversion rate. The result convinced him to tie his search marketing campaigns to back-end data that allow him to focus on profits, not just clicks. “We weren’t getting as many clicks, but a lot of those clicks may have been coming previously from ads that weren’t very profitable for us,” he said.

-> Takeaway #5. Pay attention to payments and billing practices

Billing policies may be less sexy than marketing campaigns, but they are just as important for marketers to monitor.

Paul Larsen, an independent credit card processing consultant, outlined a series of trends in the credit card processing industry that are wreaking havoc on subscription companies’ billing practices:
o Re-issued cards because of fraud and industry consolidation
o Consumers maxing out their credit limits
o Consumers making late payments because of tough economic conditions
o Poor processing practices by subscription companies

“This is a war on your bottom line,” said Larsen.

In response, he outlined several steps subscription sites should take to improve their billing practices, including:
o Selecting a processor that specializes in recurring merchants
o Adopting policies for dealing with credit card declines caused by credit limits and expired cards
o Participating in industry-sponsored automatic account updating services

-> Takeaway #6. Design tests to answer key questions

As at every Summit, presenters shared a host of specific tests they’ve used to optimize campaigns or portions of their site.

Kate O’Neill, Director, Customer Experience & Product Development, Magazines.com, shared her advice for planning a high-impact test: Don’t test random elements; create a hypothesis about user behavior to guide your test.

“Without a hypothesis behind the test, it doesn’t lead to a whole lot of insight. It just leads to noise,” said O’Neill.

Useful links related to this article

Past Sherpa articles –
How to Market Subscriptions During a Down Economy: 6 Strategies That Will Bring Double-Digit Growth:
http://www.marketingsherpa.com/article.php?ident=30284

How to Double Subscriptions & New Business - 5 Lead-Gen Strategies:
http://www.marketingsherpa.com/article.php?ident=30223

How to Convert 225% More Trial Subscriptions - Multivariate Test Results:
http://www.marketingsherpa.com/article.php?ident=30276

How Online Video Series Lifted Subscriptions 40%:
http://www.marketingsherpa.com/article.php?ident=30384

AG Interactive:
http://www.aginteractive.com

Britannica.com:
http://www.britannica.com

Hoover’s:
http://www.hoovers.com

Magazines.com:
http://www.magazines.com

MarketingExperiments:
http://www.marketingexperiments.com

Phanfare:
http://www.phanfare.com

Rhapsody:
http://www.rhapsody.com

ShareFile:
http://www.sharefile.com

Stratfor:
http://www.stratfor.com

TheLadders.com:
http://www.theladders.com

ThomasNet:
http://www.thomasnet.com

World Vital Records:
http://www.worldvitalrecords.com

Zagat.com:
http://www.zagat.com