Last week I wrote a short piece on the demise of WebVisible. Since then I’ve spoken to people with considerable knowledge of the history and internal workings of the company. As a result, here’s some additional color and opinion on why WebVisible failed:
- There was no organic/SEO strategy to complement the paid approach
- There was no real technology for a very long time; just bodies which negatively impacted the capacity to optimize campaigns and get traffic cost-effectively
- My sources reported customer churn that was “over 300%” per year
- SMB customer service was apparently “terrible”
- Like others the company took a large chunk of the SMB ad spend off the top, leaving much less for the media buy
- The direct sales strategy “probably accelerated” WebVisible’s decline (and burn rate) but wasn’t chiefly responsible for the failure
I was shocked by the statement that churn was 300%. If that’s accurate than it’s no wonder that the company foundered.
One source believed that an independent channel could work and be profitable with a churn rate as high as 10% per month (or 120% per year). This still seems difficult to believe. By contrast YP publishers and incumbent local media companies see churn rates that are lower than 30% per year generally (in some cases, much less).
While I’m not out there selling to SMBs, it’s clear that a diversified product suite is necessary to meet demand and create sustainability:
- SEM (paid search) is just one piece of a larger product portfolio
- Presence is a key piece of the product mix (e.g., websites, mobile, social)
- A diversified organic strategy (overlaps with the above)
- Review/reputation management tools/services (this could be lumped under “social”)
- Services or products that address both customer acquisition and loyalty
Arguably paid search is the least important product to SMBs (rightly or wrongly). Generally they would rather have organic than paid traffic. They also want better websites, reputation management and some strategy for social.
Update: Another person from WebVisible contacted me lamenting the demise of the firm and saying it didn’t need to happen. This individual cites the hiring of six new VP level employees following the $20M round as an unnecessary drain on cash and destructive of organizational cohesion.
January 3rd, 2012 at 4:40 am
I thought the 90% churn rate quoted in the original article was high, but 300% that is outrageous!
It does bring the question, however, as to whether “churn rate” is really a relevant metric when it comes to businesses offering internet marketing to local businesses.
I totally agree that Churn Rate is a very important metric for the Yellow Pages industry that is it selling annual registrations to their print products, and even those seeking to lock in pay by the month registrations for their online directories (i.e. maintain your listing by paying each month, or you will lose your spot). However, I think that Churn Rate might be an irrelevant metric for internet marketing businesses (particularly, those dealing with SMB’s).
My biggest concern is the casual nature with which SMB’s use internet marketing. Unlike traditional Yellow Pages advertising, internet marketing provides businesses with flexibility to scale up and scale down their marketing in line with their business demands. It gives them the ability to use internet marketing to “fill the gaps” or equally to “stop it when I’m too busy”. As a result, if you use the traditional metric of Churn Rate then these SMB’s that are using the flexibility offered in Internet Marketing are seen to be “Churning”. The reality, however, is that they are not churning whatsoever and in fact when they do enjoy the experience they come back when they need more leads for their business.
Would anyone agree with this theory? What is the best way to articulate it?
One example might be the use of Group Buying sites to advertise SMB’s. As the SMB’s are only using these sites for a single day to sell their special deal, are they seen to be “Churning” after that single day? Actually, when are they seen to have not churned? Are they loyal if they do 1 a year, 2 a year, 3 …. ?
I really think the analysts need to rethink the key metrics that internet marketing companies are judged by. Does anyone have any suggestions on a better metric than purely “Churn Rate”?
January 3rd, 2012 at 12:59 pm
I think you’re right about seasonality or ocassional use. In this particular case the “churn rate” illustrated severe retention problems and the fact that SMBs weren’t seeing value.
More traditional metrics would be revenues and profits. If you’ve got a revolving door but your net profits continue to rise — nobody’s really going to question things.
Net promoter score is another more vague metric or customer satisfaction/advertiser satisfaction.
January 3rd, 2012 at 8:49 pm
What formula do you believe was used to determine the 300% churn rate?
What formula do you believe is standard to measure churn?
January 3rd, 2012 at 9:47 pm
Jeff: I’m just hearing people report figures and estimates based on their experience. But I believe the 300% figure was based on monthly churn numbers. Monthly churn or the “churn standard” would probably just have been % of existing customers leaving the service in a given month. From what I understand there were no annualized contracts so customers were free to leave. And, as one comment above argues, it may not be fair to speak about digital in terms of “annualized churn.”
However what’s being expressed here obviously is a high degree of dissatisfaction with the service, whether it’s 100%, 200% or more.
January 3rd, 2012 at 11:12 pm
Thanks for your response Greg, I always find your insights super valuable.
Another metric that is often used by startups to justify their customer acquisition costs is Customer Lifetime Value (i.e. How much is a customer going to be worth to you over the years that they remain with you). If the CLV is greater than the acquisition and servicing costs then you can justify rapidly ramping up your model.
The difficulty, however, with CLV is that startups really struggle to predict the future and that (to contradict an earlier point) it can involve taking into account the customer churn rate. This issue was highlighted with us when we were arguing a $20,000+ CLV with investors back in year two, and the investors were arguing that the number was going to be more like $3,000. As a result the investors decided to take a wait and see approach. 6 years on we have been proven right and have proven the $20,000+ CLV is there, however the wait for the metrics has dramatically slowed down the progress of the business. We’re now seeing a similar debate around the CLV of Groupon Users, where such a young company is unable to prove without doubt that it has a high CLV and many investors (and analysts) are trying to argue that they have a low CLV.
Greg on your point about using Net Profits as a key metric, a company that is investing significantly in Customer Acquisition (such as Groupon) will often have either low profits or no profits at all.
Customer Satisfaction is also a difficult stat to rely upon in the SMB advertising space as SMB’s are traditionally biased towards not liking their advertising suppliers at all. Advertising truly is a grudge purchase, and every day we have clients pay us money whilst simultaneously arguing that they either (a) don’t need us or (b) don’t believe that we’re working at all. One early survey we did found that whilst only 60% of our clients said they would renew with us, over 80% of our clients would recommend us to others. Go figure!
I know I’ve just clouded this issue even further. I think this simply highlights just how difficult it is for new entrants to justify that their business models are working better than the incumbents.
January 3rd, 2012 at 11:56 pm
Fair points all. No rebuttal.
January 4th, 2012 at 10:30 am
[...] to a blog post on Screenwork.com this is what was happening at [...]
January 4th, 2012 at 1:47 pm
Churn rate and CLV are both good metrics to use in-house for an SMB aggregator. The reason why is that it gives you a benchmark on how the services are being sold and positioned as well as helps project clients and revenue.
You have some reps that no matter how much you educate them, they promise more than the product can deliver – and the rep’s churn rate is higher than the average. You have other reps who might make less sales, but their churn rate is less and their CLV is higher.
If you look at quarterly data only, the high churn rep often gets a bigger bonus than the rep with the higher CLV. The way reps bonuses are structured can affect the sales and customer satisfaction in a big way.
One of the spend/revenue issues is that the total spend in offline media (like directories and newspapers) has not been transitioned well to the web. It’s common to see a company spend $60,000 a year in YPs, but when they move online, they might spend $20,000 in YPs but only $20,000 in online making it a net loss for the YP aggregator. Online marketing was often sold as an ‘add-on’ instead of a replacement as that’s really hurt the overall value of some of these companies.
This market is still evolving, but there’s still a lot of room for new players to do well in the SMB game.
January 4th, 2012 at 2:05 pm
Brad:
The points you raise at the end are part of the big problem: traditional media are still getting most of their money from print, etc. rather than digital. That transition has yet to be made and maybe can’t be made by some who are catering to public markets and investors who will punish them for taking big risks and near-term hits to their revenues.
January 5th, 2012 at 12:32 am
Greg that last point is super relevant and the biggest challenge facing the traditional players at the moment. Have you done any blog posts about this challenge and the various strategies that are being applied by the big traditional players around the world? If so, please let us know the link. If not, it would make for a great article.
I do see many articles that you have done outlining the broad strategies of various players (i.e. Yell, Sensis, etc) to move people from print to digital. However, do you have anything that brings these various strategies together and analyses who is successfully making the transition in a way that the public markets and investors are happy with?
January 5th, 2012 at 1:40 pm
I haven’t done anything comprehensive like that, no. It’s also too detailed for a blog post. Pages Jaunes in Fr is doing very well with digital. So is YPG in Canada. Others have strategies and initiatives in various stages of development or implementation. Most, however, are still wedded to the revenues of the print directory for multiple reasons and are still protecting them.
January 6th, 2012 at 12:03 am
Thanks Greg. It really is an innovators dilemma, when are these big YP groups (and their investors) going to learn that they really need to cannibalise some short-term revenues/profits to ensure that they actually do remain in the game in the long term.
I think I read in another blog post that France is now tipped to be greater than 50% revenue from digital already. That’s an impressive effort.
January 6th, 2012 at 12:05 am
The innovators dilemma is “structural” in many cases. There’s no way to back away from a major revenue stream for most of these companies. Re PJ.fr. It’s a bit of a special case because of the history but yes . . . impressive.
January 9th, 2012 at 7:14 am
Greg. email me. i’ll give you some real insight in to the mgt team at WB.
January 9th, 2012 at 1:38 pm
I’ve now talked to several people so I feel like I’ve got a pretty good sense of things and how they played out. Thanks
January 27th, 2012 at 1:33 am
[...] I originally wrote about the demise of WebVisible on December 27. Since then additional detail came out about internal politics, strategic miscalculations and a massive advertiser churn problem. [...]