Why Online / Offline Mobile Integration Is Going To Be A Huge Business


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“People still want calls.”When I first got into VC I decided I better have some investment themes. My macro theme was “great entrepreneurs” who mapped to my belief system about the kind of entrepreneurs I wanted to work with. My background was 8 years of telecoms & mobile and 8 years of cloud computing & SaaS – so these two themes were a given.

But then I had to overlay another filter – what kind of deals could I get proprietary access to?

Digital Media was an obvious theme because it’s one in which LA (where I’m based) and NY (where I spend a lot of time) have strong assets, companies and management teams.

While the media industry is driven by a combination of subscriptions and advertising – it’s clear that the latter plays a unique role in media. So my strategy was to focus on technology heavy companies who could bring measurability and performance to inefficient parts of the digital media landscape. Of the $300 billion spent annually on advertising, 90% of it ($270bn) is still offline and not measurable. (1)

That strikes me as an attractive market for disruption over time. Certain parts of it seem ripe for disruption sooner rather than later.

Every generation of new technology and new media starts out by emulating those that came before them without realising that things are fundamentally different when you change media types. Early TV programs featured people sitting in chairs and reading scripts as though they were on the radio. Early online newspapers and magazines were merely digital versions of their physical self.

We now know that the medium has changed the news industry leading to blogs, real-time reporting, integration of text and video, two-way discussions, stories surfaced based on what your friends are reading, etc.

Two big themes have emerged in my head in the past 3 years: offline / online integration and mobile computing.

1. Offline / Online Integration: Think about it, when you shop at Nordstrom they should know as much about you as Amazon does when you’re shopping online. The online world uses cookies and link-tracking to know who you are and where you’ve come from. They know what you bought the last time you were shopping. They recommend up-sells and cross-sells of products. Nordstrom sales reps are trained to do this too, but of course they can’t know every customer that walks around the store.

Or can they? I believe that’s what we’re seeing with the emergence of applications like FourSquare (bars, restaurants, hotels, etc.) and Pose (apparel, fashion, jewelry and furnishings).

I believe that offline / online integration is one of the major computing trends that you will witness over the next 5-10 years as computing experiences truly become pervasive.

2. Mobile: When I think about the current generation of mobile monetization it reminds me of people reading radio programs on TV. Banner ads were never very effective on web pages so it baffles me that it’s the preferred method of advertising today on mobile devices. As mobile applications know where you are, who you are and what your preferences are advertising will become a lot more focused.

Stating the obvious – why should I get daily deals to my email box for stuff I never want or buy? It’s clear I ought to get incentivized for stuff I’m doing in the physical world by applications with whom I’ve build trust & rapport. I’d take an offer from FourSquare. They’ve earned a relationship with me. Many of my daily email offers get auto-sorted in Gmail and I never see them.

It’s why I’ve argued that the future of advertising will be integrated. What’s more integrated than offering me ads at the point of need based on location, preferences, time-of-day, past behaviour, etc.

And while I’m on the topic of mobile, what’s also strange to me is that more mobile apps haven’t realised that they’re building for a device called a telephone. In the Internet era somehow as an industry we’ve subscribed to the folklore that every interaction is best computerized. They’re not. Purchasing high-value or complex products is still way more effective person-to-person.

Study after study shows that for most high-value products, close rates are higher and order sizes are higher when you get a customer on the phone.

So here’s my news for you: People still want telephone calls!

There are currently 20 billion inbound telephone inquiries in the US alone every year with the overwhelming majority generated offline but many savvy application companies have realised the potential to drive calls from mobile devices.  As we increasingly walk around with our computers in our front pockets the distance between impulse to learn more about a product and my likelihood of purchasing it is greatly shortened.

The first investment I ever made as a VC, RingRevenue, was an easy one for me because it combined three key areas for me: it combined telephony / Internet, performance-based marketing & a perfect team construct. Their last company was in the telephony meets Internet infrastructure space and the three RR founders were there through the IPO.

Why Pay-Per-Call?

If you’re less familiar with this market please check out this short video RingRevenue made on the market. It’s just a couple of minutes and done in a humorous way.

Affiliate marketing is a several billion dollar / year industry yet the average value of goods sold on affiliate networks is less than $75. Why? Because you can’t do three clicks and buy an insurance policy, a home alarm system, a mortgage or many other high-value products. eCommerce companies that don’t recognise this are turning away business. 77% of online shoppers want live assistance available with their purchases so it’s not surprising that 52% of shoppers re-evaluate or abandon shopping carts because of the lack of live assistance. (2)

Publishers have been reluctant to put phone numbers on Internet ads because then they lose the ability to track the fact that they drove the sale in the first place. Yet every advertiser of a high-value sale wants calls to drive up-sells into higher-value SKUs and for cross-sells of related items at the time of purchase. Call centres provide conversion rates of 10x to 20x that of online shopping and also 1.5x to 2x the average order value.

When you listen to Tony Hsieh talk about his Zappos customer reps in “Delivering Happiness” you get a sense of the effectiveness of call centre relationships.

Financial services is an interesting case: 63% of all consumers looking to buy financial services now research online but only 33% actually buy online. (3) Publishers (media companies) are missing out on this revenue by not bridging the offline / online component.

The Impact of Mobile Phones on Advertising

The explosion in smart phones and mobile apps has created the perfect storm for generated inbound telephone calls because you’ve literally combined your computing device with your phone so the journey from impulse to phone call is very short indeed.

And don’t just take my word for it. Google now has more than 500,000 advertisers with click-to-call mobile campaigns lit up. This is becoming a huge business. It’s why Commission Junction, LinkShare, Google, PepperJam & many more now all use RingRevenue to power their click-to-call strategies.

Mobile advertising is now a $1 billion market or 0.33% of the total ad market. How do you think this is going to play out in the world of more smart phones, tablets and future mobile devices? And which do you think is more likely to be effective on a small telephone-based screen – a tiny banner ad or a phone number that you click-to-call? Obviously depends on the type of product / advertiser – I’m not sure Coca Cola is looking for you to dial in. But the local restaurant, car mechanic or spa? Cha-ching.

The Power of the Phone Number in Authenticity

One of the fascinating things I’ve learned in the past 2+ years is just how important phone numbers are to the psychology of consumers. It drives up their belief in the authenticity of the vendor. By simply putting a phone number in an online ad you can increase the click-through rate of the ad by 5-30%! (see here for more details)

To be clear, that is excluding the sales uplift from the calls. It is strictly the phenomenon that when users see phone numbers on ads they’re more likely to click on them. Who knew?

The Future

It’s unclear who will win the battle to serve us up local, authentic ads on our phone and how privacy concerns will play out. My bet is that the applications that win and become huge are the ones that build an authentic relationship with their users by getting you to open up the application for some form of entertainment or utility other than ads. I have never believed in generic coupon applications (gawd knows I’ve seen 50 of them).

And I’m also willing to bet that the mobile applications that become big will find unique ways of reaching you to get relevant offer in front of you that are unobtrusive, authentic, location-aware and specific to your current needs. And I’m obviously betting that telephones will act as telephones. And that people will still want calls.

(1) eMarketer
(2)  Harris Interactive IMShopping Poll (August 2009)
(3) Credit Union Times
(4) eMarketer

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