Monday, February 24, 2014

Facebook, WhatsApp and the Social Bubble Bandwagon

I do not have a crystal ball, but I know the difference between irrational exuberance and levelheaded, sound business analysis. In the wake of the news of Facebook's acquisition of WhatsApp, I have seen a lot of the former and very little of the latter. The flood of articles and blog posts containing weak arguments and wishful thinking has, once again, confirmed my fears that a social and tech bubble continues to grow and prop up social media stock prices and valuations. My concern runs deeper than just stock prices, however; I am deeply concerned about what this all means to the social media industry and those who work within it.

Some folks seem to think the bubble has burst and we have already recovered; in the three months after Facebook's IPO, the stock lost half of its value, but in the roughly 18 months since, Facebook's stock has risen 280%. While some see the rise as evidence the bubble burst and recovered, I look at Facebook's Price Earnings (P/E) Ratio of 100+ and wonder when the piper will show up for his payment. By comparison, Google, Apple and Yahoo have P/Es of 33 or less.

The only real comparison to Facebook's generous P/E is Amazon, which has a P/E ratio north of 500, but in this case investors are paying for a company that has strong growth, multiple revenue streams, a significant share of the cloud computing market, 20 million paying Amazon Prime members and more than 15% of total US ecommerce sales. More to the point, investors continue to buy Amazon at a premium because it will own a significant share of the $5 trillion US retail sector long after the JCPenney and Sears in your neighborhood have been converted into condos or indoor mini-golf courses.

My point is not to convince you that Facebook is in for rough times since 1) I am not a financial advisor, and 2) unfounded optimism may continue to trump financial fundamentals for some time (although it never lasts forever). Instead, I want to encourage a reasonable examination of the WhatsApp acquisition and explore what it means to Facebook and the social media industry.

Remember when charts just like this were being used
to justify claims Google+ was going to swamp Facebook?
How'd that work out again?
Here is what Facebook purchased for $18 billion: 450 million users (which is honestly quite impressive) and an estimated $20 million of revenue.  Wait, hold up there a moment--only $20 million? This is a company that supposedly charges users a 99-cent annual fee after the first year and, according to that widely circulated "hockey stick" chart, had 200 million users one year ago. Why is the revenue of this company not ten times higher? Either WhatsApp has a business model that charges people 99 cents a year starting in their second year or WhatsApp had 200 million users a year ago--both cannot be true. 

So, what else could Facebook have bought for $18 billion? (A lot of articles claim Facebook could have bought the entire global music industry, but this is weak logic from writers who cited not the value of the music industry but the annual sales of records and songs.) For the same amount Facebook paid for WhatsApp, it could have acquired 50% of Yahoo, giving the social network a half stake in Yahoo's billion-dollar annual income and 800 million active users. Or better yet, Facebook could have acquired several sharing economy startups, such as TaskRabbit or Airbnb, allowing Facebook to introduce peer-to-peer business into its network and giving the social network a new revenue stream tied to its core business.

I have a hard time seeing what the $18 billion WhatsApp acquisition has bought Facebook. Even if WhatsApp monetizes every one of its 450 million users at its current annual subscription fee, the company will earn revenue of $446 million; of course, its net income would be much less than this after paying for people and infrastructure expenses. If WhatsApp earns a net margin of 25% (which is greater than Google's, Apple's or eBay's), it would clear $112 million of net income, leaving Facebook with a 160-year break-even time frame.

Even if WhatsApp triples in size and becomes larger than Facebook itself is today (and that is a big "if"), it is likely to contribute less than $350 million to Facebook's bottom line. That means even with remarkable record-setting growth, Facebook will still not break even on its WhatsApp investment until 2065, barring a considerable change in the messaging app's business model. (I do not think many of us would take a bet that Facebook will still be around in 2065, would we?)

Note written by WhatsApp
founder Brian Acton. 
Of course, WhatsApp could try to collect more than 99 cents a year from each user, but considering the service has yet to charge anything to even 5% of its customers, it is fair to ask how much more the service can ask before users flee to one of the other free options. Or WhatsApp could start serving ads, but there is no telling how much ad revenue the service could generate or how many users, who were very clearly promised no advertising, would abandon.

A lot of articles and blog posts have been written about why the WhatsApp acquisition was a good move for Facebook; in fact, too many were written on this topic, which seems very telling. The more people feel a need to defend something, the more it is reasonable for us to question it. A lot of tech, VC and social media professionals with an interest in keeping the social bubble bandwagon rolling have been awfully quick to offer justifications as to why this deal was not another sign of a growing social media and tech bubble.  Their arguments include:

  • "Facebook is buying new users!"  Many suggest that Facebook is getting value by acquiring customers who do not already use the social network, including younger and overseas users. This may be true, but in the long term, companies are not rewarded for having customers but for earning revenue and profit from them. Unless Facebook can find a way to convert these new users into a stream of revenue and income to match the enormous investment (and we just explored its challenge in doing so), then paying this much for those new users makes little sense. Besides, with Viber, WeChat, Snapchat, iLine, BBM and others accumulating their own sizable user bases, there is no evidence that Facebook may not have to chase these same users to other platforms in the future.
  • "There's value in the data!"  Others argue there is value in Facebook collecting data about WhatsApp users. First off, it remains to be seen if WhatsApp users will allow Facebook to harvest data from their personal communications; in Germany, WhatsApp users are already fleeing following the Facebook announcement after a German data protection commissioner urged citizens to seek more secure messaging options. Secondly, we have to ask how Facebook will use this data to drive revenue. For that portion of  the WhatsApp user base that currently uses Facebook, the social network already possesses huge amounts of data and is not likely to secure any additional and meaningful insights. As for those WhatsApp users who are not on Facebook, how can the social network convert this data into revenue if WhatsApp does not serve ads? Where is the potential to monetize this data sufficient to justify an $18 billion investment?
  • "Facebook will own the address book." Analysis by The Register claims Facebook paid so much for WhatsApp in order to get access to our "phone book." I'm not sure I understand of what value it is to access consumers' digital phone books. How did Outlook generate revenue for Microsoft by being the application people used to store their contact list? How have Google and Apple profited by furnishing Gmail Contacts or the iPhone address book? "Owning" the address book has not historically been a means to generate revenue, and this is not likely to change in the future.
  • "Google wanted it."  Just seven months ago, WhatsApp was valued at a mere $1.5 billion. What suddenly made the company worth 1200% more? Google wanted it, and many argue that the price Facebook paid was worthwhile in order to prevent Google from snatching WhatsApp. Overpaying for an asset just because a competitor wants it may work in an art auction, but it is hardly an appropriate business justification for a multi-billion-dollar business deal. The fact Google was willing to pay so much does not mean WhatsApp was necessarily worth it; although Google has made a lot of smart acquisitions (such as YouTube), the company has a far from perfect record. In 2006, Google paid $102 million for radio ad platform dMarc but shuttered it 2009 after it failed to take flight. And Google purchase Motorola Mobility for $12.5 billion only to unload it two years later for less than $3 billion.
  • "It's a strike against the telcos." No doubt about it, mobile service providers (particularly overseas) are seeing a decrease in text messaging fees as a result of free and low-cost messaging apps such as WhatsApp. Of course, users of Facebook and WhatsApp still need to rely on the telcos to furnish the data services those apps require, so while WhatsApp may force telcos to shift fee structures, it hardly threatens the relationship between the mobile companies and their subscribers. Moreover, Facebook and WhatsApp do not win by interrupting the revenue stream of telcos but by replacing it, and given WhatsApp's buck-a-year model, there is little indication they can do so.
  • "Facebook is buying the competition." Some bloggers and armchair analysts argue that buying the competition is a great idea. Sometimes it is, but most acquisitions fail. (Estimates for what percentage of M&As fail run from 50% to as high as 90%.) Merely eliminating the competition is not enough--the acquisition still has to furnish value appropriate to the cost. Facebook cannot afford to continue chasing every messaging application that arises. First it was Instagram, then it failed to capture SnapChat, and now it's snagged WhatsApp, but with each acquisition, the costs rise--Facebook got Instagram for $28 per user, but less than two years later, the price for WhatsApp was 50% greater per user. With other messaging platforms growing and given the way users adopt and abandon communication platforms, Facebook cannot keep chasing users; at some point, Facebook has to build a better mousetrap rather than overpaying to acquire the mice.
  • "It's just funny money." Or, "It's about users and network effect, not money." With every discussion I have had about this acquisition, the dialog tends to devolve to this: The supporters accuse those asking how Facebook will earn a return of being small minded and failing to understand the new economics at work. If you want evidence of the existence of a bubble, look for people claiming that profits and returns do not matter and that billions of dollars of cash and stock of publicly traded companies is "funny money." There is no better sign that an industry has lost its business sense than this. For a while, investors may reward innovative companies for something other than income such as growth and potential, but eventually it becomes about profit and value. It always becomes about profit and value in the end. Today, I'm hearing the same arguments about social acquisitions and valuations that I heard during the dot-com bubble. I have seen this movie before and I know how it ends. 
To be clear, I think Mark Zuckerberg, Sheryl Sandberg and crew are very bright, but even the brightest get caught up in market euphoria and make mistakes. It was not dumb people at NewsCorp who made the $580 million deal for Myspace (which was sold six years later for $35 million.) Idiots were not responsible for the disastrous AOL/Time Warner merger. Nor were ignorant executives responsible for Yahoo's $3.6 billion acquisition of Geocities. Smart people make mistakes all the time--and never more often than in the midst of a market bubble. 

I'll be happy to eat crow years from now if the value of WhatsApp becomes apparent, but given its user base, potential growth and business model, it seems much easier to ask troubling questions than it does to justify the $18 billion price tag. So why aren't more people asking the easy troubling questions? Why do so many people feel the need to offer so much justification with so much passion so quickly after each ever-larger acquisition?

Social media has become more religion than business--something to be felt and believed rather than analyzed and questioned. This sort of (il)logic is not limited to M&A activity but is also present in the dialog about social media marketing strategies. People praise every expensive social marketing program, Vine video or viral post that accumulates useless fans, followers, likes and views without regard for the impact on consumer attitudes or business results.

The lack of simple, critical, business-oriented thinking in the social media space should be a blinking red light for anyone whose job and career depends on the continued success of social media. Now is the time for drinking water, not Kool-Aid. We have been to this picnic before, and we have no one to blame but ourselves if we again discover that the Kool-Aid leaves us with a bad taste in our mouths.  

Sunday, February 16, 2014

The Stock Performance of the 50 Public Companies With the Most Popular Twitter Accounts

I thought it would be interesting to examine the top 50 brands on Twitter and compare their financial performance with that of the broader stock market. I hoped to demonstrate that follower counts do not matter, but the exercise of tabulating these top Twitter accounts proved even more interesting and challenging than expected.

For this exercise, I started with Socialbakers' list of the top brands on Twitter as ranked by their follower counts. I eliminated any Twitter accounts associated with privately held or nonprofit organizations. (You'll find a list of the accounts eliminated at the end of the chart below.)

I quickly ran into questions of the best way to compile this list, because the top accounts do not necessarily correlate to corporations. While Twitter accounts like Starbucks and Dior are straightforward (since both are public corporations), what about Duck Commander, the account for both the reality TV show and the company run by the Robertson clan? Should this account be associated with A&E (the network that broadcasts the show), Gurney Productions (the show's production company) or the LLC that sells duck calls? (I decided the latter and eliminated it from the list as a privately held company.)

There also seems to be some issues with Socialbakers' rankings. For example, the @Google, @Instagram and @Samsung accounts are missing from Socialbakers' list of top brands on Twitter. It turns out they are all included in the "Media" and not the "Brand" category (a distinction I do not understand and cannot defend.)

Eventually I decided to use Socialbakers' top brand list (warts and all) and include any company with a top Twitter account. So, even though @Dell only has 290,000 followers, which would not be sufficient for inclusion in the top 50 list, Dell appears on the list because the @DellOutlet account has 1.45 million followers. Two other examples are Time Warner, included not because its corporate @TWC account has 59,000 followers but because @CNNMoney has 663,000 followers, and Walgreens, which is on the list because Duane Reade, which Walgreens acquired in 2010, has 1.8 million followers.

As a result, my list is not the top 50 brands on Twitter but the 50 public companies that have the most popular Twitter accounts based on followers, as defined by the Socialbakers' list.

Looking at the list below, I drew a couple of conclusions:
  • The companies and brands that have the most followers do not necessarily outperform the market:  I have often repeated that Twitter followers and Facebook fans are a lagging indicator and not a leading indicator of success--they represent past success and not future prospects. Depending upon your interpretation of the data, this theory seems validated by the numbers.

    While the average performance of these companies in both the one- and five-year timeframe is much better than the S&P 500, these companies' performance is remarkably similar to the broader NASDAQ market index. And when you consider the median performance (which eliminates the effect from a couple of very high performing stocks and considers the more typical companies in the list), the performance is significantly below the NASDAQ index. It is hard to make the case that more fans are a predictor of future performance, based on this list; if anything, once one considers both average and median performance against both the broad and narrow stock market indices, it seems companies with lots of fans are quite average performers.
  • The world is, indeed, flat: If you expected this list to be dominated by US companies, you would be only partially correct; the list of companies is far from universally American. Of the 50 companies on the list, 36% are traded on the NYSE, 34% on NASDAQ and the rest are found on overseas exchanges or over the counter. Roughly a third of the firms are headquartered overseas, including Sony, Samsung, Dior, Burberry, KLM, Louis Vuitton, Kering, STC and Etihad Etisalat. (On the other hand, when brands have different accounts dedicated to English and other languages, the English accounts tend to attract a great deal more followers.)
  • The playing field is (more) level: It is clear that size matters in some industries, such as CPG, dining and retail, with larger firms such as Coke, Pepsi, Target, McDonald's, Yum Brands, Starbucks, Victoria's Secret and H&M scoring many fans. In other categories, however, size is far less important; for instance, while the expected tech giants can be found on this list, so are several small game developers. In addition, if you glance at the popular Twitter accounts excluded because they are not associated with public companies, you will find that nonprofits and privately held style brands possess a significant portion of the most popular Twitter accounts.
  • Twitter is for geeks and fasionistas: It isn't surprising that tech brands (Apple, Microsoft, Google) and digital games (EA, Activision Blizzard) would amass many followers on Twitter. What was more surprising to me (which may speak more to my fashion sense than my Twitter awareness) is that high-end style brands--the kind not common in most closets--are so popular. All told, technology, gaming and style companies represent roughly half of this list. 
When you scan this list, what do you see?  Any insights about Twitter followers and financial performance?

5-Year Stock
(2/20/09 - 2/14/2014)
1-Year Stock performance
(2/19/13 - 2/14/2014)
Samsung Electronics:
- Samsung Mobile
- Samsung Mobile US
- Samsung Camera


154.60% -13.15% KRX: 005930
- Starbucks Japan
640.67% 38.08% NASDAQ: SBUX
- iTunes
- App Store


448.60% 18.22% NASDAQ: AAPL
- Android
- Google Chrome
- Gmail
- Google Play
- Google Maps
- Android Dev
- Google Dev
- Google Drive
- Google Nexus


236.28% 51.70% NASDAQ: GOOG
Dior 4316848 232.51% 12.61% EPA: CDI
- Windows
- Skype
- Xbox
- Windows Phone
- Office
97.07% 34.31% NASDAQ: MSFT
- Blackberry Help
- AyudaBlackBerry
-81.49% -36.56% NASDAQ: BBRY
Whole Foods 3626975 949.20% 18.59% NASDAQ: WFM
- Playstation
- Sony
- Playstation Latam


-7.78% 18.97% NYSE: SNE
L Brands
- Victoria's Secret

576.04% 24.90% NYSE: LB
H&M 3170449 76.96% 27.17% STO: HM-B
- Nike Football
- Nike Basketball
- Nike Soccer
245.71% 36.62% NYSE: NKE
Intel 2741156 78.35% 17.24% NASDAQ: INTC
Burberry 2654293 451.74% 10.78% LON: BRBY
- Louis Vuitton
- Louis Vuitton US


177.45% 1.35% EPA: MC
Pepsi 2477044 48.54% 5.99% NYSE: PEP
Coca-Cola 2313833 77.60% 4.04% NYSE: KO
Take-Two Interactive:
- Rockstar Games

145.63% 26.72% NASDAQ: TTWO
McDonald's 2200076 68.60% 2.00% NYSE: MCD
Electronic Arts
- EA Sports
62.91% 62.52% NASDAQ: EA
- Duane Reade

147.91% 57.42% NYSE: WAG
- Yves Saint Laurent
- Gucci


257.97% -11.45% EPA: KER
JetBlue 1791023 46.23% 41.63% NASDAQ: JBLU
- Woot
- Amazon MP3
- Amazon


464.89% 34.80% NASDAQ: AMZN
- Safety
- Mobile Support
- Feedack by Tweet
- Twitter Design
- Ayuda y Soporte
- Verified Accounts
- Twitter for News
- Translator
- Twitter Nonprofits
- Twitter TV


27.93% 27.93% NYSE: TWTR *
Southwest Airlines 1614523 192.18% 83.62% NYSE: LUV
- Adidas Originals
- Adidas Football
- Adidas


219.69% 23.68% ETR: ADS
- Dell Outlet

51.97% 0.36% NASDAQ: DELL **
Nokia 1234404 -40.80% 78.95% NYSE: NOK
Ubisoft 1213302 -4.78% 46.09% EPA: UBI
Verizon Wireless 1098115 57.34% 4.75% NYSE: VZ
- Monster Energy

305.84% 40.15% NASDAQ: MNST
Target 1060610 86.37% -9.16% NYSE: TGT
Yum Brands:
- Taco Bell
- Pizza Hut


151.96% 14.74% NYSE: YUM
HTC 980663 -65.98% -52.85% TPE: 2498
Activision Blizzard:
- Infinity Ward
- Treyarch Studios


104.12% 37.79% NASDAQ: ATVI
Sega 875179 129.55% 47.70% TYO: 6460
Tiffany & Co. 866026 336.87% 36.09% NYSE: TIF
Urban Outfitters 829082 117.27% -13.18% NASDAQ: URBN
Air France - KLM:

17.46% 6.74% OTCMKTS: AFLYY
- ThinkGeek

84.74% 16.23% NASDAQ: GKNT

57.93% 53.23% Tadawul: 7010
American Airlines 739106 116.95% 348.43% OTCMKTS: AAMRQ
CBOE 727238 81.59% 56.59% NASDAQ: CBOE
American Express 698949 465.44% 44.27% NYSE: AXP
Etihad Etisalat Co
- Mobily

195.53% 24.16% Tadawul: 7020
Foot Locker 692426 416.58% 16.23% NYSE: FL
CNN Money 662131 151.06% 22.01% NYSE: TWX
Audi 645323 2.73% 10.99% FRA: NSU
Ralph Lauren 636793 324.98% -10.04% NYSE: RL
AVERAGE 183.61% 28.80%
MEDIAN 123.41% 22.85%
NASDAQ 176.60% 32.96%
S&P 500 122.37% 20.98%
Not publicly traded: Vine, Hootsuite, Chanel, ClaroRonaldo, Dropbox, UNICEF, Firefox, TOMS, Nimbuzz, Dolce & Gabbana, Twitter Movies, YouTube Creators, Subway, EMANSANGELS, Calvin Klein, Jumpman23/Jordan, Marc Jacobs, Charity Water, Forver 21, Nando's, Cines Unidos, WWF, Sephora, Verace, Armani, Christian Louboutin, American Red Cross, Travel Bargains, Gates Foundation, ABF Foundation, Red, Human Rights Watch, Aluminaid, JustUnfollow, Greenpeace, Amnestry International, Gibson Guitar, DMedicalinfo, AirAsia/Tune Group, CERN, Ike's/IkesLove, UnfollowTT, GoPro, Save the Children,  Roberto Cavalli, TwitBird/Nibirutech, Kickstarter, Topshop, OneCampaign,  Gearbox Software, Mayo Clinic, Mojang Team, Non-Violence Project Mexico, Beautylish, Duck Commander, Odontosalud, Hotel Deals Weekly, Spotify, Chak89,  Stella McCartney, Do Something,, Global Network for Rights and Development, Klout, Greenpeace Brasil, Estetica y Salud, Harvard Health, Hollister Incorporated, Diane von Furstenberg, Valentino
* Twitter since 11/8/2013
** Dell: 2/20/09 to 10/29/13 (when it went private)

Sunday, February 9, 2014

The Mind-Boggling Lunacy of People Impressed with Esurance's Super Bowl Campaign

I am deeply disappointed to see Esurance's Super Bowl sweepstakes results widely celebrated. Six years into the social era, I thought we had reached a certain point of social media maturity where we realize that fans and followers are not leads and that relationships are built through shared values and meaningful interactions. I naively thought that we had turned a corner, with widespread understanding that winning in social media occurs by providing great experiences that build long-term relationships and not with campaigns that yield short-term spikes of activity. I was wrong.

You no doubt already know about the Esurance program (which some of you perhaps think is evidence of its success). Esurance bought the first post-Super Bowl ad spot and ran an ad featuring John Krasinski promoting a twitter sweepstakes. Since Esurance "saved" $1.5 million by buying the $2.5 million spot after the game rather than during the Super Bowl, one lucky winner who tweeted #EsuranceSave30 won that $1.5 million.

On Thursday, the brand released campaign figures, and at a glance they looked impressive. Esurance claims to have garnered 5.4 million uses of the #EsuranceSave30 hashtag and 2.6 billion social impressions on Twitter. I have some doubts as to the validity and interpretation of this data, but I will save those for an appendix at the end of this post, because my bigger concern is not about the accuracy of the data but whether this data ought to be celebrated as evidence of marketing or business success.

The attention heaped on Esurance's campaign data is just another instance of bloggers, marketing media and social media professionals celebrating questionable programs based on inconsequential numbers. This has been going on for years; for example, four years ago, Einstein Bagels gave every new Facebook fan a free bagel, and thousands of blog posts and headlines were launched when the brand saw a 7,000% increase in Facebook fans in just three days; six months after the Facebook stunt, Einstein reported disappointing revenue with same-store sales down more than a percent, and two years later, the company had the lowest earnings growth in its industry. The lesson from this (and a thousand other sweepstakes and giveaway programs that "bought" fans) is that fans and followers are not a business metric.

Those who do not learn from the past are doomed to repeat it, and once again, there has been an onslaught of articles and blog posts lauding Esurance's short-term metrics. Adweek embarrassingly called the Esurance outcome "mind-boggling," as if it is surprising that a $1.5 million prize would result in millions of tweets. (It would have been more "mind boggling" if the program hadn't!)  The Wall Street Journal breathlessly declared Esurance "won" the Super Bowl. And one agency called this campaign a "master class in expanding your audience."

A $5 million campaign that yields 250,000 new Twitter followers is a "master class" in expanding audience? That represents a very pricey $20 per follower, not even considering that in the week since the Super Bowl, Esurance lost 15% of the new followers it gained. Besides, if fans and followers amounted to some sort of marketing or business asset, Blackberry, with 3.9 million followers, would be flying instead of knocking on death's door; Dippin' Dots would have announced record profits rather than declaring bankruptcy mere days after collecting its 5 millionth Facebook fan; and Pepsi, one of the top 30 brands in terms of Twitter followers, would be blowing away the market rather than under-performing the S&P500 by 50% since the brand joined Twitter in December 2008.

Why must the marketing industry continually relearn that fans and followers are not prospects, nor are they a reliable leading business indicator? The fans that are worth earning--the ones that follow or friend your brand not because of a freebie or sweeps but because they have experienced and loved your product or service--are lagging indicators.

No matter how many millions or billions of eyeballs or impressions were delivered, the Esurance campaign was flawed from the start. It encountered some of the typical issues we have seen with hashtag campaigns in the past, including offensive tweets people posted to enter, spammers and scammers jumping all over the Esurance hashtag and people now convinced the entire thing was rigged. But even aside from the inevitable mixed reaction that greets these sorts of campaigns, there are several issues that must be considered to critically evaluate the results from this and similar social sweepstakes:

Awareness is the right goal--for brands in a different place than Esurance

In most cases, awareness is a lousy goal. Kodak. Borders Books. Woolworth's. Washington Mutual. Oldsmobile. Stop me when I get to a brand that did not enjoy near universal awareness and yet failed anyway. Saab. Pan Am. Palm. Tower Records. Plymouth. Have I gotten to a brand that you do not know yet? Blockbuster. Betamax. Circuit City. Hostess. Pontiac. Sharper Image. All are in the brand graveyard (although a few have risen from the ashes as a shadow of their former selves.)

Awareness can be a legitimate marketing goal under certain circumstances, such as for new products, upstart brands or brands that need to alter brand associations, but why would a brand with a nine-figure marketing budget that has been advertising in national media for a decade still need to invest in awareness? Esurance's VP of Marketing is saying this program was all about awareness, but the brand already has strong awareness. According to JD Power, in 2009 it was the fifth most shopped auto insurance brand; in 2011 it had the sixth highest brand awareness among auto insurers; and Compete reported in 2011 that Esurance had the fourth-highest prospect and application shares among auto insurers. 

Esurance has some brand problems, but awareness is not one of them. For instance, it offers a full line of insurance products but is too frequently associated only with auto. The brand also has perception issues to address; a 2012 Millward Brown tracking study found that the perception of Esurance's quality and value significantly lags that of its competitors. The brand is among the most recognized insurance brands but sits in the lowest quadrant in terms of both quality and value perception, so why is it investing in awareness campaigns?

I do not know the answer to that question, nor will you find an answer in the hundreds of blog posts and articles written in the past week about the Esurance campaign. No one thought to explore if this brand ought to be investing in multi-million-dollar campaigns to drive awareness. Bloggers and marketing writers merely gave knee-jerk praise to the #EsuranceSave30 numbers without considering Esurance's unique marketing challenges or business needs.

Awareness can't lead to trial and purchase without depth and breadth

Setting aside the question of whether Esurance should have been investing in awareness as a marketing goal, let's instead consider if big-dollar sweepstakes actually deliver awareness that matters. The lack of understanding of awareness among marketers has been one of my pet peeves for two decades. Awareness isn't unidimensional; brands cannot simply count impressions or measure whether or not people recognize its name.

For awareness to matter, it has to have depth and breadth. Depth is how deeply the awareness is held and whether the consumer can recall it aided or unaided. Breadth is about context--when does the brand come to mind, how positive are the associations, and what does the consumer recognize about the brand. Most social sweepstakes and giveaways are good for garnering narrow, shallow awareness--impressive-sounding numbers with no impact to the vital aspects of brand awareness.

What depth of awareness has Esurance created with this campaign? The brand utilized Twitter not to create dialog or engagement but as a means of entering a sweepstakes. Claiming that these impressions are meaningful to the brand would be akin to saying that someone photocopying their paper entry form and mailing it to friends creates valuable brand impressions.

And what breadth was created? The buzz today, if you look at Twitter, is focused on three topics--the success of the social campaign, that people are disappointed they did not win, and that some think the contest was rigged. What you do not see is a discussion of the value of insurance or why anyone should consider Esurance. There is no dialog about Esurance products or services. There is no breadth. It is not good enough to get people talking; you have to get them talking about something that changes brand perception or behaviors.

People will claim that perhaps this is the next step in the campaign--after collecting a bunch of new followers, the brand will shift the conversation. That argument ignores the way social media works and how consumers use it. The brand is already shedding many of its new followers, and the ones that remain are no more likely to pay attention to tweets about insurance products than the average consumer. We have seen it time and again with brands that collect fans and followers with cheap stunts and free stuff: the path through the marketing funnel from Twitter follower to customer is extremely weak.

To be fair, it is possible to run a sweepstakes that creates awareness with depth and breadth. My friend Ken Hittel shared a New York Life example. The brand ran a contest to give away 60 financial versions of The Game Of Life board game. By keeping the reward small and focusing not on distributing money but on a relevant promotional item, New York Life created deeper, broader awareness and kept the dialog going (for a tiny fraction of the cost of Esurance program).

If it's too easy, that tells you something

Another one of the hints that there may be less to this story than the data indicates is this: The program was easy. Since the beginning of the social era, marketers have been trying to find simple ways to exploit social media for their advantage, but success in social media is not straightforward, nor should it be. If brands could honestly build interest, purchase intent and sales merely by dumping a bunch of cash into a hashtag sweeps, Twitter would be full of these sorts of promotions. Nothing worth doing comes easy, and any social program this shockingly easy to execute and repeat ought to raise doubts.

The funny thing is how easy it is to see this program for what it is if you remove the dazzle of the post-Super Bowl ad spot and the reflexive excitement over the big numbers. For example, what if tomorrow I offer to give away $500 to someone who posts #AugieRayRocks and follows my Twitter handle? You would not advise this tactic to me or anyone else, would you? This hypothetical program is obviously spammy and impractical, more inclined to collect useless followers who want to win cash than worthwhile followers interested in my content. So what makes Esurance's campaign different? If anything, the huge wad of dough offered by Esurance only made their effort more interesting to less valuable prospects, the kind who haunt sweepstakes sites and spend hours every week entering random contests.

Esurance isn't the first brand to buy fans with a giveaway or sweepstakes. Marketers have been trying this for years. Five years ago, in the early days of Twitter, UK hosting company Moonfruit launched what may be the first hashtag sweeps on Twitter, but traffic and engagement dropped like a stone the moment the program ended, and the company did not repeat it. Einstein gave away free bagels to increment Facebook friends; as we have previously noted, it did not drive demonstrable success and the brand never repeated the program. If brand success were as easy as giving away stuff on Twitter, we would all be doing it already.


Social media is not new any longer. We have seen enough brands fold with strong awareness and lots of fans to know that there are far more important metrics than awareness and follower count. We have observed enough sweeps and giveaways to know that the brands that ran them did not get the sort of results that encouraged them to continue using those tactics (or they would do so). It is long past time to stop shoveling shallow praise at shallow programs yielding shallow results.

I believe the social media marketing business is in for a rough couple of years as the value of branded content changes and marketers gain further understanding of how social does and does not fit for marketing goals. On Facebook, marketers face collapsing engagement and even greater challenges this year as the opportunity for earned media dwindles. Twitter is struggling to demonstrate it can deliver the goods both to marketers and investors. New social networks are being promoted as the next big thing, but thus far scale has been truly problematic. (Many marketers praised Tide for its creative use of Vine during the Super Bowl, but just one of the brand's 19 videos earned more than 500 shares and most did not get shared even 100 times on Vine--an outcome that may thrill the corner boutique but not marketing leaders for a massive P&G brand.)

To have so much attention heaped on Esurance with so little care given to whether Twitter sweeps fit the brand's needs, if Esurance can convert followers into customers at any reasonable scale and efficiency, or if the program will or can contribute to the bottom line is, in my opinion, an embarrassment to the industry. The amazing level of buzz demonstrates how quickly social media professionals grab onto any hint of success and how unwilling they are to deeply explore and challenge the ways social fits (or doesn't) with marketing objectives.

I thought our industry was maturing, but once again I am reminded that too many marketers believe social is a medium to be exploited by brands and not a new way of thinking and acting that happens to brands.

Postscript: The validity and interpretation of the reported data:

I know this blog post is more than long enough already, but I wanted to explore the data and whether it jibes with what we know about Twitter. I would have included this analysis earlier, but I thought it would detract from the primary point I wanted to make; nonetheless, I think if we fire up our calculators and apply our experience, we can begin to uncover questions about the data shared for this program.

The figures imply each tweet was seen 481 times (2.6 billion social impressions divided by 5.4 million uses of the #EsuranceSave30 hashtag).  I've seen some data indicating the average Twitter user has 208 followers, but a recent and thorough analysis revealed that active Twitter accounts (those that have posted in the last 30 days) have a median of just 61 followers. Moreover, since many folks created new Twitter accounts just to enter, it is safe to assume the typical account tweeting #EsuranceSave30 had fewer than the median. As a result, it is very difficult to square the number of hashtag uses with the number of impressions reported.

Moreover, even if we set aside questions about the accuracy of the 2.6 billion figure, it is important to understand that Esurance is playing loose by calling these "impressions" and not "potential impressions." No Twitter user can know how many of their followers see a given tweet--at any moment, most people are not signed on to Twitter and watching their tweet stream, so any single tweet is actually seen by a fraction of an account's followers. No accurate data exists as to the percent of followers that read each tweet, but I have seen estimates in the five to ten percent range. If this program had 2.6 million potential impressions (computed with the assumption every follower of every account that tweeted saw every tweet) and if just 10% of those accounts' followers actually saw the tweets, then actual impressions were closer to 260 million.

And, while we're at it, let's also point out the giant difference between reach (the number of unique people who saw the tweets) and impressions (the number of times tweets were seen by non-unqiue individuals). If the average person who saw an Esurance tweet saw three of them, then the reach of this program is one-third the impressions (actual, not potential). Considering all of the above, we can calculate the following based on hypothetical but reasonable assumptions:
  • 5.4 million hashtag uses x
  • 61 median followers x 
  • 10% of a tweeting account's followers that actually seeing the tweet /
  • 3 impressions for each unique individual who saw a tweet = 
  • Reach of 11 million uniques
Still a big number but quite a bit different from 2.6 billion, wouldn't you say?  This is the sort of analysis I would expect from mainstream media outlets like Adweek and Ad Age before they jump on the bandwagon and merely repeat the numbers they are fed by a brand.

Monday, February 3, 2014

The #RTMBowl Post-Game Show: Real-Time Marketing Fumbled Last Night

Joe Duck:  Welcome the #RTMBowl Post-Game Show, where we analyze and review Super Bowl real-time marketing.

Troy Acheman: Yes, Joe, and it could be we've witnessed the last of the #RTMBowls. I mean, brands scored fewer points than the Denver Broncos last night!

Duck: Ouch! But you may be right, Troy. The first #RTMBowl was fought just last year, and most marketers didn't even know it. When Oreo threw that Hail Mary and scored, it caused a lot of other brands to think they could toss the long ball, too.

Acheman: Yes, and this year many #RTMBowl brands were sloppy, shooting bricks and dropping the ball. It has to cause brands to reconsider the wisdom of fielding a team for next years' Super Bowl.

Duck: Perhaps, Troy, but never count out the optimism of marketers. It's easy to forget we get an eagle-eye view from the booth, but on the field, marketers too easily lose perspective and get caught up in the game.

Acheman:  So true, Joe. It seemed when consumers showed little interest and engagement, brands quickly turned to tweeting each other. Newcastle tweeted GoDaddy, Butterfinger tweeted TurboTax, Tide tweeted Heinz, CarMax tweeted Bud, Toyota tweeted DiGiorno, Snickers tweeted JCPenney and on and on--there were so many brands tweeting brands that you had to wonder if they all shared the same agency!

Duck: Speaking of JCPenney, what did you think of their game strategy, Troy?

Acheman: I guess stumbling around like a drunk is one way of getting tweets, but it doesn't seem like a way of earning trust for the struggling retailer. Joe, what did you think when the brand revealed they were joking and tweeting with mittens on?

Duck: It seemed as if JCPenney was admitting it had nothing to say and was desperate for attention. The company claimed this was an effective way to create its own "narrative," but brands are supposed to do more than be talkable--they're supposed to change minds or consumer behaviors!  It may have earned the retailer a few critical and confused tweets (and several thousand new followers), but I can't see any fans heading to the store as a result of that social media miscue. So, Troy, did you see any brands putting points on the #RTMBowl board?

Acheman: Sure, some brands got a little attention. Buffalo Wild Wings telling folks they "Didn't have a button" to reset the awful Super Bowl game was funny and on brand. And DiGiorno Pizza earned 17,000 retweets by mining the same vein of humor, cracking that the game, like their pizza, was "done after twenty minutes."

Duck: Funny, Troy, but did those tweets sell any wings or pizza? Let's find out by going to Spam Oliver in the aisles of a grocery store. Spam?

Spam Oliver: I have with me two consumers purchasing frozen pizza. Sir, I see you're buying a DiGiorno pizza. Was it because of their tweet?

Consumer #1: DiGiorno has a Twitter account? I had no idea.

Oliver: And you, ma'am. You have a competitor's pizza. Did you see the DiGiorno tweet?

Consumer #2: Yes, I saw it. I even retweeted it. But just because a frozen pizza brand made a funny on Twitter doesn't mean I'll change my buying habits. I'm buying the brand I always buy. Maybe if DiGiorno spent a little less effort trying to be funny and a little more telling me why I should try their brand or giving me a promotion to do so, that may have an impact.

Oliver: And there you have it--the difference between engaging with a brand on Twitter and engaging with the brand where it matters--in store aisles. Now, back to you Troy and Joe.

Acheman: So, Joe, do brands score when they get #RTMBowl retweets?

Duck: I think the issue here is that well-known brands are settling for tactics that drive awareness. DiGiorno and BW3 already have high awareness among their target audience, so what they need to do is drive more trial and traffic. For a farm-league brand, awareness can be vital, but these brands are already in the big league and settling for minor-league impact. To me, the bigger story isn't the few brands that succeeded with minor 'viral' success but the many brands that simply were unable to convert on third down.

Acheman: You're right, Joe. An awful lot of brands were essentially ignored by consumers. For example, among marketers self-congratulating each other in the #RTMBowl Twitter stream, a lot of praise was directed toward Tide for its Vine posts, but the attention from consumers was almost non-existent. Tide's Vine about Heinz Ketchup earned fewer than 40 retweets on Twitter and got less than 60 shares to Twitter and Facebook. The brand's witty takeoff on the Pepsi halftime and Janet Jackson did better, but it still was only good for 220 retweets on Twitter and 300 shares off of Vine.

Duck: Oof, that was some hit to Tide. A brand that big is used to buying hundreds of thousands of impressions at a time. It's hardly worth the brand's time to post for a few hundred shares. And of course, while some folks claim that earned media is 'free,' it actually has a cost, doesn't it, Troy?

Acheman: You bet, Troy. Consumers produce Vine videos for nothing, but Tide worked with an agency, developed creative, sought reviews and approvals and staffed a team to see awful little engagement. That's a lot of effort and cost for a mammoth P&G brand to reach a few thousand eyes. I've seen better social media results for mom and pop shops!

Duck: And Tide was hardly alone. Arby's scored big a week earlier with a funny Grammy's tweet about Pharrell's hat, but its joke about "turnovers" during the Super Bowl garnered just 100 retweets. Radio Shack tried to extend their 80s-themed ads into social media, but few of their tweets about Cabbage Patch dolls or Star Wars lunchboxes earned more than three dozen retweets. Toyota tried the same strategy with their popular Muppet ads, but their posts generally got fewer than 50 retweets. Think about that--brands spent $4 million to get a single ad in front of 97 million people during the game, and they still couldn't leverage that into social media posts that that engaged more than a few dozen people apiece.

Acheman: You're right, Joe. No brand can economically drive any marketing success with that kind of low response rate. Even with "free" media, national brands can't win games by reaching a hundred people at a time with marketing.

Duck: That's true, which is why the big winners of the night were two brands that stayed home. Oreo, the brand credited with launching the real-time marketing craze, opted out with a tweet encouraging fans to enjoy the game.

Acheman: Classy move, Joe, but I preferred Progressive's trick play, which managed to make the other brands competing in the #RTMBowl look desperate for even trying.  The @ItsFlo account tweeted before kickoff, "What do car insurance and football have in common? Nothing. Talk to you after the game!"

Duck: Yep, while other brands tried to jump into consumer conversations or make themselves talkable, Progressive demonstrated more care for the consumer by what they didn't tweet. The brand let its intent speak louder than its content.

Acheman: And there you have it, marketing fans. This year's #RTMBowl was a bust--very few brands got a lot of tweets and shares with dubious impact; some brands fielded teams with little to show for it; and a few brands opted out in smart fashion. I predict more brands will follow the lead of Progressive and Oreo in the future.

Duck: Well, Troy, we will know soon enough--the Oscars are just a few weeks away, and I can already hear brands American Hustling to get some social media Gravity to appease the Wolfs of Wall Street.

Acheman: Heh heh. And with that, we bid you a good night. Tweet safely, everyone!

Saturday, February 1, 2014

10 Tips For Your Brand's Super Bowl Real-Time Marketing

Yesterday I posted a snarky but honest blog post about the very real threat to brands that set out to do "real-time marketing" (RTM) during events such as the Super Bowl. I predicted that although a few brands will make headlines with some snappy and well-timed Super Bowl tweets, most brands that engage in RTM this Sunday will damage relationships and harm reputation with spammy, self-absorbed tweets more akin to advertising than dialog.

I thought I would devise some tips for brands that intend to launch RTM efforts during the Super Bowl. I realize this blog post is a week or two too late, but perhaps these suggestions can help a few social media marketers to avoid a painful or embarrassing mistake tomorrow night.

While I have a list of ten tips, if I was going to give just one tip, it would be this: Don't do RTM during the Super Bowl. I know, every brand wants to be Oreo (whose "dunk in the dark" post has become the gold standard of RTM) or Arby's (whose Pharrell's hat tweet "won" the Grammys), but the fact is that RTM remains a dangerous tactic. Brands attempting to hijack consumer conversation about the Super Bowl should not be surprised if their customers resent the advertising-like intrusion.

Even if you "succeed," that impact will be modest at best. It can be easy to get swept up into the excitement of retweets and shares, but those are not true measures of business success. With 87,000 retweets and over a million impressions, the Arby's tweet was certainly a social media success, but how many of you have been to Arby's for a sandwich since seeing the brand's tweet? Having a funny tweet retweeted is not the same as creating a meaningful brand impression, increasing purchase intent or acquiring a customer.

If your brand absolutely must tweet and post during the Super Bowl, here are ten tips to help it improve engagement and minimize the risks:

  1. Don't brag that you have a "newsroom" staffed during the event. No one cares that your marketing team is poised to inject themselves into their social conversations.
  2. Don't insert your brand into every post/tweet during the Super Bowl. Let your intent speak louder than your content.
  3. During the Super Bowl, don't robo-tweet identical tweets to numerous different people. That's just annoying.
  4. Don't pathetically ask for retweets. Your brand should earn shares, not beg for them.
  5. During the event, talk with people. Don't just broadcast to them. Listen--really listen. Don't just make "engaging in their conversation" a euphemism for spam; be real about it.
  6. I know you want to get noticed and have your brand appear in the Twitter searches consumers will be using during the game, but avoid inserting consumers' hashtags into your branded posts. Don't be Super spammy during the Super Bowl.
  7. During the event, if you have nothing pertinent to say, shut up. Don't tweet just because you want impressions. Be relevant or be quiet.
  8. If you intend to (or must) stick to a pre-approved library of Super Bowl tweets, considering packing up and heading home. Spontaneity matters, but...
  9. Even though spontaneity matters, have multiple eyes on your Super Bowl tweets. Don't inadvertently embarrass the brand because one community manager fails to realize they are posting something that others may consider offensive or insensitive. Make it a real-time team effort!
  10. Don't tweet both personally and for your brand during Super Bowl. Focus--if you're working, then dedicate your full attention to the professional task at hand. Moreover, avoid the mistake of tweeting to the wrong account, a mistake that has cost more than a handful of social media marketers their jobs. 
All of these tips can be summed up in this way: Remember that consumers' social conversations are not a marketing channel, no matter what your CMO thinks. You wouldn't interrupt two strangers talking on the street to yell, "Hey, our brand is really funny and you should eat our burgers!" Approach your RTM with the same respect for others' conversations that you would in any real-life social situation, and your brand will minimize the risks and avoid mistakes. 

On Monday, I believe we will be talking as much about the RTM failures and embarrassments as the successes. Follow these tips, and your brand is more likely to be among the latter than the former.