Monday, January 12, 2015

USAA, Uber and Colorado Embrace the Collaborative Economy

It is no secret that today's revolutionary collaborative economy companies present many challenges to established business models and laws, not the least of which are those pertaining to risk. Luckily, new forms of protection--including laws and innovative insurance options--are being developed to cover ridesharing participants.

USAA, Uber and the state of Colorado have all taken actions that not only protect consumers but also facilitate the continued growth of sharing economy firms. Their actions demonstrate how Transportation Network Companies (TNCs, such as Uber and Lyft), states (including lawmakers and regulators) and insurance companies can innovate and collaborate to resolve the issues of risk and protection that hinder growth, acceptance and adoption of ridesharing. Accidents are unavoidable, and all three of these parties play important roles in safeguarding drivers, riders and others when they occur.

Uber Covers (Some) of UberX Drivers' Risks

UberX presents a special risk challenge for both Uber and drivers. While UberBLACK, UberSUV and uberTAXI rides are provided by commercially licensed drivers covered by commercial insurance policies, UberX is a true peer-to-peer business model, with private drivers offering rides in their private cars. Personal auto insurance is not priced for the additional risks that come from commercial transportation, and as a result, auto policies exclude these sorts of commercial activities.

Uber protects UberX drivers with a variety of coverage while transporting customers. From the moment a driver accepts a trip to its conclusion, drivers are covered with $1 million of liability coverage, $1 million of uninsured/underinsured motorist coverage and $50,000 of contingent comprehensive and collision insurance (with a $1,000 deductible).

During the "gap time" or "unmatched phase," when drivers are logged into the app but do not have a fare, there is a different set of coverage offered. This includes protection for bodily injury up to $50,000 per individual (and $100,000 per accident) and up to $25,000 for property damage. This policy is contingent to a driver’s personal insurance policy, meaning it will only pay if the personal auto insurance completely declines or pays zero.

While questions remain and some argue coverage must improve, Uber has taken steps to clarify the insurance and protection situation with its drivers.

Colorado Becomes First State to Authorize Ridesharing

Auto insurance and livery services are regulated at the state and local levels, so TNCs have been working (or battling) for acceptance on many fronts. Last June, Colorado became the first state to pass a law that clarifies issues of protection and risk, permitting TNCs like Uber and Lyft to legally operate.

Under the legislation, ridesharing companies will have to obtain permits from the Colorado Public Utilities Commission and carry at least $1 million in liability insurance. In addition, either the companies or their drivers will also have to carry primary insurance coverage during the gap period between when the app is turned on and a rider enters the vehicle.

This gap (or unmatched) period continues to cause questions, even in Colorado (much less states without their own similar legislation). For example, Uber has stated in a blog post that "the vast majority of personal insurance policies cover this period either by the plain terms of the insurance policy, or due to the insurance requirements set by state." The insurance industry feels otherwise. Dave Jones, California Insurance Commissioner, notes that "TNC's are under the mistaken impression that personal automobile insurers cover now, planned to cover, or will cover the risk of TNC-related for-hire transportation," The Insurance Information Institute states that "a standard personal auto insurance policy stops providing coverage from the moment a driver logs onto a TNC ride-sharing app." And Esurance agrees, noting that "if a TNC driver is available through the app, they’re driving as a livery service and therefore won’t be covered" by personal insurance coverage.

Because of the confusion, some ridesharing drivers try to hide their association with TNCs from their insurance companies. This is risky behavior that places their insurance at risk, and in fact, there have been sporadic reports of insurance companies canceling coverage for ridesharing drivers. The threat of losing insurance is so real that cab drivers in one city, in an effort to buy leverage against the growth of ridesharing, claim to be compiling a database of thousands of TNC vehicle license plate numbers to make available to insurers.

USAA Offers Innovative Ridesharing Coverage

Even with the coverage offered by the TNCs and the new law in Colorado, there is a need for insurance companies to step in to help educate and protect their customers. USAA, which has a reputation for innovation, is piloting a program to do just that.

USAA is launching a pilot in Colorado that will protect TNC drivers from the moment their ridesharing mobile apps are turned on until they are matched with a passenger. The pilot program, which will begin in February, extends a member’s existing auto policy coverages and deductibles, and costs about $6 to $8 more per month.

Colorado provides the perfect proving ground for this inventive insurance product. Not only is it the first state to authorize ridesharing, but Colorado also has a high concentration of USAA members (not to mention a Financial Center and Regional Office in Colorado Springs.) “Ridesharing is a growing industry, and it’s important that our members have the right coverage,” said Alan Krapf, president, USAA Property and Casualty Insurance Group.

USAA is not alone in offering novel products for ridesharing participants. Erie Insurance has  a new insurance offering that covers ridesharing drivers "before, during and after the hired ride" in Illinois and Indiana. And last May, MetLife announced a partnership with Lyft to develop new insurance solutions to protect rideshare passengers and drivers, although details on those products are still outstanding. Watch for many other insurance companies to follow the leads of USAA, Erie and MetLife with new products aimed at TNC drivers.

The collaborative economy still has a lot of maturing to do, and TNCs like Uber are a long way from working out their legal and regulatory issues across the country and globe. Still, the fact that Colorado, USAA and Uber have come so far so quickly is quite impressive, considering Uber was available in only a handful of cities four years ago. This sort of prompt and innovative action is required elsewhere so that riders, drivers, insurance companies, states and TNCs can understand their roles, responsibilities, risks and costs in the nascent ridesharing marketplace.

Friday, January 2, 2015

What 2014's Ugly Social Media Stock Performance Means for the Future

With all the buzz around sky-high valuations for collaborative economy and messaging startups, you may have missed that publicly held social media stocks had a pretty terrible year in 2014. The 11 U.S. stocks in the social media industry--including those in categories such as social networks, ratings and reviews, community platforms, relationship and content management and collaborative economy--lost 19.2% compared to a NASDAQ increase of 14.31%. Of the eleven stocks, just one outperformed the market, only three gained in 2014 and half lost more than a quarter of their value.

Chart from Yahoo Finance

What does it mean that social media companies are sagging? The problem certainly is not stagnating adoption. Despite the negative press about teens and Facebook, the social network continued to add active users at a steady pace in 2014. Same with Twitter and LinkedIn. And a study by Localytics found that time spent with social media apps rose almost 50% between 2013 and 2014.

So if consumers are continuing to integrate social media behaviors into their lives, why are stock prices falling? The same reasons any stock falls:
  • Investors were over-optimistic: Being too optimistic too quickly within a new category is what investors do. They did in the Web 1.0 era and now they are repeating the mistake in the Web 2.0 era. People seem to forget the past; for example, in the two years following the dot-com bubble burst in April 1999, Ebay lost over 60% of its value and Amazon fell over 90%, while at the same time, hundreds of other Internet firms failed outright. The decline in social media stock value was completely foreseeable--in fact, back in December 2011, I predicted a "slow motion social media valuation bubble burst" (although, to be fair, I also predicted Facebook's stock price would fall in 2014, and I didn't get that right.)
  • Financial performance disappointed the market: Considering the amount of time people spend with social networking, you'd think making money would be easy. Turns out it is not. Just three of these 11 companies have a P/E ratio, because only three of them have any E. (That means, only three have earnings in the trailing twelve months--Facebook, HomeAway and Yelp.) Almost three-quarters of these companies are still trying to consistently remain profitable; for example, on a GAAP (Generally Accepted Accounting Principles) basis, Twitter continues to see consistent quarterly losses (although on a non-GAAP basis they have reported quarterly profits). While Groupon, LinkedIn, HomeAway and Yelp flirt with their break-even points, many social companies are nowhere near profitability--at the current rate, Jive may get into the black before the end of 2015, but the same cannot be said for Zynga, Bazaarvoice and Marketo, based on their recent quarterly earnings trends. Facebook is the only social media stock that has been able to demonstrate consistent and growing profitability as of yet. 

What does this mean for the future? I have several predictions: 
  • Facebook's stock price will fall in 2015: I am nothing if not consistent--I was wrong with this prediction in the past year, but I think my error has more to do with timing than eventual outcome. My analysis of Facebook's strengths and weaknesses has not changed from twelve months ago. Facebook is reliant on a single revenue stream--ad dollars--and while ad revenue has been easy to grow in recent years as consumer time and marketer interest rose, both will hit their limits soon. This will likely cause Facebook's income growth to slow, which is a serious problem for a stock trading at a generous 74 P/E ratio. Facebook desperately needs diversified income sources, and it seems company leaders recognize this as an issue, as its last quarterly earnings report included a warning of rising costs as the social network strives to expand its business. To be clear, I remain bullish on Facebook's long-term opportunities, but just as Amazon and Ebay had to suffer through years of diminished stock prices as they built stable and diversified business models, so to will Facebook, I predict. (And if and when Facebook stock gets dented, watch for a domino effect to ripple through other social media stocks.)
  • Don't expect a major turnaround in social media stock prices in 2015: I do not expect a significant bottom in social media stock prices this year, although some individual company shares may rise. I'm not alone in this forecast, of course; in July Oracle Chairman Jeffrey Henley said that the social and cloud markets felt "like the bubble 10 years, 15 years ago," that same month Federal Reserve Chair Janet Yellen shared that "some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries," successful market guru Doug Kass recently noted that "There are bubbles in social media stocks," and investment manager Rich Pzena, speaking about social media stocks three months ago, noted "We're getting out of the realm that makes any sense for a value investor... There's going to be more losers than winners." What will it take to cause social stocks to rise? More than a handful of quarters of consistent, rising revenue, increasing profitability, and stock prices that are sane multiples of earnings--and this may take years to accomplish.This probably means that...
  • Some social media companies will fail: was not a horrible idea--just ask PetSmart, which is aggressively growing its online presence and capabilities.  Neither were Flooz, Webvan or many other dot-com companies that flamed out because they were a bit too ahead of the curve. I don't expect all 11 of the companies in my social media portfolio to survive through the next two or three years. Airbnb is well on its way to pushing HomeAway to the curb, and Angie's List may find it difficult to survive in an age of free ratings-and-review sites. Some entire subcategories within the social media industry may simply not be sustainable--given declining organic engagement rates, low acquisition/conversion and the cost of creating content, it is possible marketers may ease or even reverse their trend toward social media marketing investment in the coming years, and that could decimate entire subcategories within the social vertical.
  • Collaborative economy companies will do well in the long run, but the intermediate term will be rocky: The Internet era was won not by companies that relied on advertising (so long Excite, Prodigy, Alta Vista, etc.) but by companies that found new ways to empower digital consumers and companies (hello Amazon, Ebay, iTunes, Oracle, Salesforce, etc.) For this reason, I remain more bullish on companies that leverage consumers' newfound social and sharing behaviors more for commerce than for advertising. But, while collaborative transportation, lending and place-sharing have a rosy future, this year's valuations strike me as wildly optimistic. Uber, Airbnb and others face a host of challenges in the coming year, from improving safety to gaining consumer trust to serious legal and regulatory hurdles. Right now Uber's valuation stands at $40B, which is three to six times greater than Hertz and Avis and approaching that of Ford and General Motors. As we saw with Ebay and Amazon, innovative companies can win in the long run, but we should be cautious in expecting too much too quickly in terms of retention of customers, growth, stable expenses and consistent bottom-line performance.  

What do you think? Will 2015 be the year that social media stocks turn around, or do you agree that we may be years away from finding the right values for publicly held social media companies? 

Here is the data on the eleven companies in my social media stock portfolio. If you think I missed any, please let me know. I omitted companies that do not make all or most of their revenues from social business models (hence Google's omission) and any company that wasn't publicly held at the start of 2014 (HubSpot, which went public three months ago, will be added to the portfolio in 2015.)

2014 Social Media Stock Portfolio

Facebook FB 54.71 78.02 42.6%
LinkedIn LNKD 207.64 229.71 10.6%
Bazaarvoice BV 7.77 8.04 3.5%
Marketo MKTO 38.03 32.72 -14.0%
Yelp YELP 67.92 54.73 -19.4%
HomeAway AWAY 40.14 29.78 -25.8%
Groupon GRPN 11.85 8.26 -30.3%
Zynga ZNGA 3.95 2.66 -32.7%
Jive JIVE 10.92 6.03 -44.8%
Twitter TWTR 67.5 35.87 -46.9%
Angie's List ANGI 13.58 6.23 -54.1%

Mean -19.2%

Median -25.8%

Tuesday, December 23, 2014

Five Tips To Help CMOs Improve Social Media ROI in 2015

The coming year will be a watershed one for social media marketing, I predict, and not in a positive way. A topic that was only whispered about in private conversations early in the year is now being openly discussed: For many brands, earned media and content marketing are not delivering results in line with the investments. Some claim our metrics and strategies must mature, but it is getting harder to ignore the limitations of marketing in the social channel. So unavoidable is this discussion that even at the Social Media Today Social Shake-Up, a confab of social elite, a speaker asked from the main stage, "In a year, will any of you produce a deck with 'social' in its title?"

While social circles are buzzing with increasingly sober discussions of the channel's difficulties delivering marketing results, that conversation seems not to have reached the ears of the CMO quite yet. Mainstream marketing media, which was late to recognize the growing investment in social media marketing, is now tardy in covering the growing body of data demonstrating social's challenges as a marketing channel.

Adweek, continuing its trend of being impressed with engagement rather than results, recently featured an article on the "top Tumblr posts of 2014." These posts were not selected as "top" because they delivered any marketing ROI but because lots of people liked them, and thus Adweek has once again uncovered that deep marketing insight that people love inspirational quotes, hot models, animated GIFs and pets. (Shocking!) This is representative of the coverage that social media continues to receive from the marketing media--big numbers lead while investments bleed.

Since your CMO does not seem to be getting good advice to guide decisions on social investments, I'd like to offer up five tips to help him or her consider how to manage social media budgets and efforts in 2015:

  • Stop trying to make your brand interesting with tweets and posts; instead, give people a reason to talk about your brand in meaningful ways. The organic reach of brand content on Facebook is dying. Not dwindling; dying. The story is little different on other social networks. Brand engagement on Twitter is minuscule and, although engagement on Instagram is fine today, it is only a matter of time before Instagram goes the way of other social networks before it.

    By the end of 2015, the talk will be about zero reach in brands' organic social media marketing efforts, and it will become impossible to ignore that brand publishing is not and never was going to be the way to succeed in social media. The real social media strategy that has worked from the beginning is to get people talking with each other, not about brand content but about actual products and services. The reason is that people trust each other far more than they trust you and your brand.

    There are several ways to leverage peer-to-peer brand communications. Bring trusted consumer ratings and observations into your site, integrated on the pages where prospects consider your products and services, as USAA has done on product pages. Leverage trusted relationships to create connections between your brand and prospects, as Ameriprise does with its LinkedIn "Find an Advisor" feature. Encourage positive comments, not on Twitter where tweets are quickly lost in the void, but on the rating and review sites that people trust to help them make purchase decisions. In 2015, CMOs will be forced to realize that the key to social media success is not publishing content but getting people talking with each other about brands' products and services.
  • Stop trying to go viral; instead, use social media to solve consumer problems:  Viral posts get a lot of attention because everyone loves big numbers, but there is little evidence they drive brand value. KMart had the most viral brand video in 2013, but it didn't stop the retailer's continued slide. The same thing happened in 2014: This year's most viral brand campaign was the Ellen Oscar selfie, but despite Publicis CEO Maurice Levy's claim it delivered Samsung a billion dollars of value, Samsung's smartphone market share slipped 25% from Q3 2013 to Q3 2014. (Where viral campaigns tend to help is not with established brands but with up and comers such as HelloFlo and Wren, but even then, the one-in-a-million shot of achieving "viral' scale is so remote, the few success stories hardly suggest that viral marketing is a smart strategy.)

    Your marketing goal is not to go viral; it's not even to get engagement. Your marketing goal is to deliver demonstrable business results, and that means changing consumer behaviors and attitudes. Viral videos too often sacrifice brand impact for entertainment value, and that is a lousy trade to make.

    Rather than try to be funny, instead focus on solving consumer problems. Fifth Third Bank didn't make the waves that Samsung did, but its Reemploy campaign got unemployed mortgage borrowers back to work and delivered the brand the sort of "buzz" that encourages consideration. USAA partnered with the NFL for a Salute to Service campaign that increased appreciation for military service members, raised over $400,000 for military support organizations and generated considerable social media buzz with on-field events.
  • Stop saying "Content is King." Start focusing brand-building energies on the Customer Experience. First exercise: Other than brands whose product actually is content, name a brand you purchase regularly because of content it produces. Now list the brands to which you are loyal because their products or services furnish a great and consistent experience. How do those numbers compare?

    Here's another exercise: List brands you know that have achieved significant success in the past two decades years with content. Then, list the brands that came out of nowhere with little advertising or content but built World of Mouth based on their product or service experience. (Here's a list to get you started on the latter: Ebay, Amazon, Uber, Nest, Square, Flip Video, Google, Krispy Kreme, Zappos, Tesla, Facebook, Apple Store, Jawbone, Angry Birds, PayPal, Evernote, Dropbox and Warby Parker.)

    There you go--I have cured you of the need to ever again say "Content is king" in just two paragraphs. Content is not king--customer experience is king. Why do marketers keep repeating that tired and untrue phrase? Probably because content seems easy to do (just a hire a "brand journalist," whatever that is), is in their wheelhouse (they have been producing ads for decades, after all), and marketers generally control content but not the product and service experience. Well, it is long past time for that to change.

    Advertising and content are important, but nothing is more powerful than Customer Experience. This has always been the case, but in an age of transparency where media is splintering, mass media is slipping and consumers have greater control over communication channels, it is not content but Customer Experience that fills the top of the funnel. Marketers can no longer afford to ignore the high-impact product and service experiences being fashioned by others in the organization while they worry about less powerful ad impressions and social engagement. Smart marketers must turn inward and ensure that the brand experience is crafted end-to-end--not just what happens leading up to purchase but what happens afterwards--because that is where true brand building occurs.
  • Stop being lied to and start demanding better information. Who do you expect will tell the CMO the truth that social media marketing is widely failing to meet expectations? The professionals getting paychecks to produce content for social channels? The agency trying to maximize utilization of its storytellers and community managers? The authors whose books extolling the value of earned media launched their careers? A social media industry has been built to separate the CMO from his or her budget, which is why marketing leaders must seek out the real, unadulterated and unbiased data and insight about social media marketing.

    There is a lot of bad data and analysis out there, and even data from reliable sources can be twisted and misrepresented. For example, dozens of blog posts have mentioned that IBM's recent Black Friday white paper reported that Facebook traffic delivered an average of $109.94 per order over Thanksgiving weekend. That sounds important, but is it really without knowing the scale of orders delivered? IBM is suspiciously silent on that topic considering its 2013 study found that social media drove a mere 1% of purchases. While IBM may not be divulging social network traffic's share of purchases, Custora is. The company evaluated data from 100 US online retailers, 100 million online shoppers and over $40 billion in transaction revenue in the first two weeks of December. It found that social media (including Facebook, Twitter, Instagram, and Pinterest) drove just 2% of orders (down from 2.5% during the same period in 2013).

    The time has come for marketers to get more critical about the data and analysis they receive. If marketing leaders rely on incomplete, unreliable or misrepresented data to drive social media decisions, they have no one to blame but themselves for disappointing outcomes.
  • Your social media metrics suck, so change them. Social media has been Goodhart's Law in action: "When a measure becomes a target, it ceases to be a good measure."

    Likes, retweets and shares were briefly meaningful in the early days of social, when brands earned them solely by offering great products and services, but the second those social engagement metrics became goals rather than measures of success, everything changed. Brands started buying fans with contests, sweepstakes and giveaways. Community managers started gaming engagement with posts of puppies and "like-bait" images. Fan counts soared and engagement rose, but since these tactics were designed to yield positive social media metrics and not valuable business results, it all amounted to little for brands. Is it any wonder that the vast majority of CMOs have no quantitative idea if their social investments are paying off or not? (They're not.)

    If you have a social media scorecard with counts of likes, fans, retweets and pins, throw it out and demand better. Those metrics are easily manipulated and are not measures of business success. Marketing leaders need to focus on more important measures in 2015: Improvements in preference and purchase intent, enhanced share of wallet, beneficial social behaviors such as recommendations, and financial measures including repurchase, clicks and conversions. Those are not as easy to measure as likes and retweets, but the most valuable marketing metrics are rarely the easiest of obtain.
By the end of 2015, I believe we will be having a much different conversation about social media with substantially less focus on brand content and more about social products, social services and social good. If your CMO uses the five tips mentioned above, he or she can be ahead of the game and ensure the company is aligning its marketing budgets to the strategies most likely to deliver results that matter. Or, brands can keep running social sweepstakes, doing funny videos and begging for likes and shares, but I can promise those tactics will not get the job done for the Marketing department, and by the end of 2015, that will be impossible to hide.