Hulu announced it will be raising the price of its Hulu + Live TV plan this month by 18% from $54.99/month to $64.99/month. Even with this higher subscription revenue, plus its advertising revenue, it's struggling to be profitable. One can't help but to wonder how the heck can Disney make money on its $6.99/month Disney+ streaming service???
And how can the best deal in town afford to spend so much money to produce theatrical motion picture quality hit shows like The Mandalorian?
The answer is they do not have to make money on its streaming business because it can be a loss leader. Disney has long made money on its theme parks and product licensing deals based on its characters and movies.
To see the power of this Disney money-making juggernaut, look what just happened since yesterday with The Mandalorian.
Lego and Disney released the Razor Crest set #75292 this past summer. It's the main character's signature space ship. At $129.99 MSRP, this is not a cheap toy and has probably sold briskly.
On yesterday's episode, the Razor Crest was surprisingly destroyed into smithereens by the Empire (sadly it had just been repaired 2 episodes prior)!
By yesterday afternoon, stores sold out and prices soared on Amazon, eBay and other 3rd party sellers to over $170! If it was a stock, that's a 30%+ price jump!
LegoShop.com Sold Out
Razor Crest Price Tracker
Also appearing on The Mandalorian yesterday was Boba Fett, who many believed was killed 27 years ago in Return of the Jedi. Searches for "Boba Fett" immediately shot to #3 on Google Trends yesterday.
Google Trends: Boba Fett #3
And even Boba Fett's Slave I space ship (released over a year ago) experienced an overnight price spike of 33%, rising from $120 to $160.
Lego Slave I Price Tracker
Not only will Disney and others prosper from the sale of the Razor Crest (and Slave I), but now there is an opportunity for Disney to sell even more Star Wars merchandise when Jon Favreau and Dave Filoni outfit The Mandalorian with a replacement ship that I'm sure is already in the works.
And YouTube says they've fast tracked a new tool to identify inappropriate comments automatically.
I don't think this is solved by technology alone.
If a person or company wants to have a YouTube channel, it implies they want to connect with users. And with that should come a serious level of responsibility to monitor what happens on your channel and one can't expect technology to do it for you.
I also feel like the broader user community can't be expected to flag issues for YouTube. That could help be part of a larger solution.
YouTube can't put the burden on advertisers either to flag inappropriate comments because that's not an advertiser's core competency. Advertisers just want to make a media buy and trust their ad will be shown in a brand-safe environment.
Instead, what if YouTube put the responsibility on YouTube channel owners who wish to monetize their channel to actively moderate their comments? If you choose to sign up with YouTube to make your channel eligible for showing ads, YouTube should set all comments to require moderation by the channel owner and not post comments automatically. This would force the channel owner to ensure a brand safe environment. Otherwise, YouTube should not allow a channel to run ads. This has the benefit of aligning incentives for all parties because both Google and the channel owner want to make money from advertisers and advertisers want to invest in online video advertising.
Some owners of popular YouTube channels may balk at this idea, saying they get too many comments or views to moderate them all. If that's true, they must be making lots of money from ads! So guess what? You have to invest some of that money on moderators or community managers to continue to make money and maintain your brand-safe advertising environment!
Not long ago, in-app purchases in games, usually "freemium" games, helped players advance in a game, such as accessing new levels or getting special weapons or abilities. For example, in Madden NFL, you can buy packs that include highly ranked football players to enhance your team. In Asphalt Nitro, you can buy a new or upgrade your existing race car. In Pixel Gun, you buy coins to buy weapons. You get the picture.
Madden NFL Store
We are now witnessing a massive shift in the marketplace from paying for something that offers functional, rationale benefitsthat give the player an advantage to more self-expressive, emotional benefits, such as how your player looks that offer no competitive advantage really.
It is taking personalization or customizing one's avatar to a whole new level and developers are making $$$!
Fremium games Roblox and Fortnite are 2 great case studies of this gaming trend.
Roblox
Roblox is a massive, multi-player online gaming platform where anyone can develop 3D games on it. The company has been around for about 10 years, but has picked up steam in recent years and supposedly has over 50 million active monthly players.
The Roblox Catalog is the main e-store that sells all kinds of things to "dress up" your character. You can mix and match different clothes, faces, heads, accessories, animations, and even shoulder pets. There are millions of items in the Catalog (237 million at the time of this post), so it's extremely rare for 2 customized players to look the same, which is cool. Roblox and 3rd-party players can offer items for sale in the Catalog.
Roblox Catalog
Roblox currency is known as Robux (R$) and conversion is about US$10 = R$800. Lots of Roblox-created items are priced fairly and affordably, including lots of free items. But when 3rd-party players sell items, the price variance can be quite huge. For example, a pair of jeans that look similar can be over-priced. But I guess that's the economics of an open marketplace.
Roblox: R$1 jeans
Roblox: R$999,999,999 jeans
For about US$5-$15, you can actually do a pretty good job customizing your avatar.
Roblox customized avatars
But nothing you buy in the Roblox Catalog actually improves your game play in the games. Within the games, developers can also sell items unique to their game, such as Jail Break, that does enhance game play.
Fortnite
Unless you've been living under a rock without Internet connection for the past 9 months, you've probably heard of Fortnite. Within Fortnite's Item Shop, one can purchase emotes (a.k.a., dance moves) and skins (a.k.a., outfits) with real money where $1 = 100 V-Bucks. Skins usually cost $8-$20, but most users get the $12-15 skins. Emotes normally cost $2-$8. Battle Passes, which are bundles of skins, emotes, and other stuff, usually cost $10. Fortnite also sells different gliders and pick axes, which one might think enhance your skills, but in fact they don't. They all function exactly the same, but look cooler -- like this Dragon Glider for 20 bucks!!! The 3D graphics and animation on Fortnite are significantly better than Roblox, but there is less uniqueness (due to less combinations of mixing and matching different parts) of your avatar than Roblox.
Fortnite Dragon Glider for $20
Fortnite has also perfectly tapped into the vanity of players. No one wants to look like a Noob (what gamers call a Newbie). Fortnite intentionally gives you a basic character that has a default skin to start that everyone recognizes, further motivating players to upgrade.
Fortnite Noob: Don't be this guy!
And then there are the emotes. Kids across the country are doing these immensely popular dances every where. Have you heard of Orange Justice? Check out YouTube for "Fortnite emotes".
Also, we're not talking about 99 cent purchases anymore. Kids (i.e., parents) are spending a month's allowance or gifts from grandma on what I consider very high ticket items. Moreover, from the parents and players I've spoken to, many are repeat purchasers. It's quite easy to spend $100 on Fortnite in a very short amount of time, compared to Roblox. And good luck spending less than $10 a pop on Fortnite! Players (and parents) are emptying their wallets faster than ever. Fortnite supposedly generates $300 million per month now in revenue. With over 40 million monthly active users, that's an average of $7.50 per active player per month. Quite impressive!
Fortnite has also employed a great psychological tactic to drive more sales: scarcity. All items in Fortnite's Item Shop are on sale for 24 to 48 hours, adding to the hype and frenzy. While some items may return later in the future, there is no guarantee.
So as you can see, Roblox and Fortnite are leading the trend towards selling purely superficial, cosmetic items to personalize your avatar, which merely gives you bragging rights among your friends and squad, but, not actually offering any real advantage in game play. And it will cost you a pretty penny to do so!
Spotted a huge picture of Taylor Swift yesterday in the street. Thought it was one of those moving billboard trucks until I realized it was a UPS truck!
First of all, I think it's interesting that UPS is pimping out ad space on its trucks, like a public transit bus. I didn't even realize they had an interest in building out an ad business. Perhaps the fight with FedEx has them looking to expand to other revenue streams. It's not a bad idea for UPS to monetize that huge boring brown space across their fleet of trucks.
Some might say the UPS partnership is a good offline marketing vehicle. It's 100% share of voice. And people don't go to record stores (R.I.P. Tower Records!) anymore and even the Best Buys and Targets of the world aren't really selling many physical albums these days to warrant in-store promotions as users are digitally streaming or downloading music.
But if you're TAYLOR SWIFT, why do you even need to spend money to advertise your new album? She's world famous with reporters, radio DJs, bloggers, and her fans hanging on her every word and ready to buy her latest music!
She's recently released 2 singles, Look What You Made Me Do and Ready For It, from the new Reputation album weeks apart and both are getting lots of air play!
Not only that, but social media was supposed to be the great equalizer for artists to build direct connections to fans. And it certainly has been for Taylor. She has a huge social media fan base:
YouTube (Taylor Swift) - 1.7 MM subscribers
YouTube (Taylor Swift VEVO) - 24 MM subscribers
Twitter - 86 MM followers
Instagram - 103 MM followers All she has to do is post on her own social media channels and call it a day.
In fact, Tay Tay is already doing it. Her YouTube channel is totally promoting her new album's drop date of Nov 10th:
It's also on the comments of her Look What You Made Me Do video on TaylorSwiftVEVO:
Recently I've been meeting with various start-ups, including spending some time mentoring young entrepreneurs at Geek Camp V a few weeks ago.
I happen to be talking to more B2B companies lately. And one thing I've noticed is around customer acquisition. I always stress to young entrepreneurs they have to do everything they can to truly understand their target audience. Unlike B2C products or services, it is sometimes difficult for entrepreneurs to fully understand the customer needs, unless they have specific experience in the business.
But first, in order to do that, one needs to narrow down and identity a target or industry vertical. I always share with start-ups my story of a former client -- a global entertainment company that was starting a new music venture. The client told me its target was "everyone in the world because everyone listens to music." While the latter is probably true, not everyone is going to want your product to do so. I also call that the "Microsoft Zune trap" =)
The reality is as a start-up, one has limited time and resources. So one needs to really focus. You can't be chasing everyone in all markets because then you're not addressing anyone's needs very well. And quite frankly, it's like throwing spaghetti on the wall to see what sticks.
So do a little homework, even if you have to do some scrappy market research or talk to lots of smart people in various industries to pick their brains over coffee. Then pick a target or no more than a handful of targets. Do everything you can to understand the target customers' use cases and pain points. Really learn the target's current process for doing things. Better yet -- try to observe them in their "natural habitat." You don't need to be an ethnographer! Talk to as many customers as you can 1:1 or in small focus groups. If you can get in front of a bunch of them at once, buy them lunch. A $20 pizza will get you intel worth way more than that!
Going back to my B2B entrepreneurs...
Armed with this insight, ask yourself: How can I improve the situation? I advise them to quantify the cost benefits or savings. Because B2B deals are usually not an emotional sell, but a cost or efficiency sell. So, it's quite black and white if you make a compelling business case. This is when I usually teach these young entrepreneurs some basic economic modeling skills. VC's like to see these analyses as well!
Once one identifies the primary problem that is being addressed, step back to see the entire value chain and customer journey to see how one can use the customer intel to either enhance the user experience or sell services.
It's really about determining the value exchange. This can help one figure out one's pricing model and sometimes help one figure out who the REAL paying customers are in the value chain. It might end up being a middle man or distributor versus the end user. This is often the case in B2B industries.
Think you got a better mouse trap? Most do. Now think about the switching costs to get a new customer to use your product or service instead of the status quo. It is human nature to not want to make changes. After all, it's never easy. How can you lower this barrier? Can you create a way to import their current data into your platform? Or the cost-benefit analysis you did above shows a clear positive ROI in a short time period. Whatever the case, don't underestimate during the sales cycle how difficult it is to acquire customers, despite how awesome one's mouse trap can be. I've seen this firsthand from a start-up with a great school administration tool to an easy-to-use dental office administration tool.
The entrepreneurs I meet are often super smart and passionate about their businesses and technologies. For a few moments I spend with them, I enjoy having them focus on their customers and try to walk in their customers' shoes, which is my passion.
Last week, I had the pleasure of joining @Marcelodiazb from IncubaUC and @HiroshiWald of Austral Capital again for Geek Camp IV. I last mentored a set of geeks in Geek Camp 3, primarily listening to their business pitch and providing feedback.
This time, I decided to try something different. I decided to hold "office hours" where I didn't want to be pitched by a PowerPoint deck. I had founders stand with me up at a white board (my favorite canvas, followed by PowerPoint) and describe their business model and to share a challenge or decision they were facing.
Explaining how "office hours" will work to the Geeks
The first guinea pig was Daniel from Cloud Intelligence, which developed a business intelligence reporting software for retail and manufacturing industry. We had a great discussion about where he could best create and extract value from the industry: retailers, distributors, or manufacturers. This in turn led us to develop the GTM strategy once we figured out where to fit in within the value chain.
Whiteboarding Go To Market Strategy with Daniel of Cloud Intelligence
I also met with Javier from BeCycling. His company had developed a bicycling app that let people complete challenges to receive rewards for their community. For example, if I completed a bike race, it might go towards a new bike rack at the local library. What was interesting is he had some altruistic and socially responsible ambitions. He wanted to focus on corporations' employee wellness programs and non-profits who would want to sponsor and promote biking challenges to improve the world. But then I had him imagine what if we targeted advertisers instead. For one, marketers spend a lot more money than corporate and non-profit do-gooders. So, we talked about various ad products that could be integrated into the app for brand advertisers or direct marketers. For example, creating a CPL-based lead gen form for a bicycle insurance company he was starting to talk to.
Whiteboarding Business Model with Javier of BeCycling
A few more entrepreneurs went to the front of the class, and by the end of the day, I had a blast! I was fired up to see all these young entrepreneurs with such passion and drive, making me feel more alive as well. So, thank you, Geeks!
In the end, I realized what I was to these young entrepreneurs. I wasn't a marketing guy or digital strategist. I was their THOUGHT BUDDY, someone to bounce ideas off of and build on each other's comments in conversation.
And big thanks to @HannaIsBack for this lovely drawing sketched from her iPad! (If you're wondering who or what's behind me, that's supposedly an entrepreneurial geek she says.)
The Wall Street Journal has always been the best at monetizing its publication online. And they continue to demonstrate their pricing power as the #1 newspaper in the US.
This month, my digital subscription to the WSJ went up yet again! This is my third price increase over 17 months. I previously blogged about my last price increase. While this latest price increase is relatively small, going from $21.62 per month to $21.99, it's the cumulative trend that amazes me.
When you compare the price increase to other benchmarks, it's quite astounding.
From the chart above, I've plotted how much my digital Wall Street Journal monthly subscription has gone up, relative to how much the Dow Jones Industrial Average, the average price of a regular gallon of gas in San Francisco, and the Consumer Price Index - Urban has changed.
As you can see, the WSJ went up 47% from December 2011 to the present day. Meanwhile, the price of gas has gone up as high as 28% and then down to 12%. The Dow had a good 2012 and a strong 2013 start. Yet, even the market has not gone up half as much as the WSJ with 20% growth in the past 17 months. Meanwhile, inflation has been in check while the economy recovers. So it's no surprise its 3% increase was no match for the pricing power of the WSJ.
So does it make me feel better charting how much the WSJ has me locked into their publication paying such high prices? No, not really. As long as they keep putting out an awesome paper, it's worth it.
For the past year, I have been fortunate enough to work with early stage tech start-ups via a "Start-up Geek Camp" put on by IncubaUC and Austral Capital. I have served as a mentor for these young entrepreneurs to run through their investor pitch decks and provide feedback on their business models, customer acquisition, and marketing strategy.
I have started to notice some common themes of my advice to them.
1. Building a mobile app is easy compared to acquiring customers to use it. It is not easy to build a brand or get noticed when you are looking at over 700,000 apps available in the Apple or Google Play app stores. If you build it, they may not come. According to research firm Distimo, only 80 apps generated more than $1 million in revenue during the fourth quarter and only 2% of the top 250 publishers for iPhone apps in the App Store are newcomers.
2. Thinking big is great to put a big market size in front of investors, but it's not how you acquire customers. Many start-ups need to define and focus on target segments upfront to acquire customers to prove out the value of their business to investors. Investors always want to be shown that people actually want to use your product, even if revenue isn't there yet. Here's a common scenario I hear all the time in the music category: "Everyone likes music, so our market is everyone in the world." But not everyone wants your music app and its features. A few weeks ago on Shark Tank, an entrepreneur had invented a "hoodie pillow" (yep, a hoodie sewn on a pillow) and said the market was huge. "There are 300 million Americans this is applicable to. Anybody with a head that sleeps." While she did get an investment from a shark, I'm not so sure 300 million was her target market. For some products or services targeted at the business market, I encourage start-ups to pick a few verticals to focus on that will find your offering the most compelling.
3. Don't underestimate the competition. When I ask start-ups how are they different than Brand X or Brand Y in their space,I often here "yeah, but they're not quite like us because..." But in customers' minds, they may be content with the current solution or don't fully realize the value-add of your offering enough to switch. No one is exactly like you...maybe, but what is the status quo people are using now before you came along? Don't discount substitutes either. It is human nature to be lazy and complacent. People need a compelling reason to switch, and when they do, it better be easy. That brings up a corollary to #3: Make sure you understand any switching costs for customers. On the flip side, start-ups also need to think of how to erect their own barriers to switching once they acquire a customer.
4. Social media is not an acquisition strategy. A lot of consumer start-ups think seeding their app or website on Facebook and getting some buzz and traffic (and downloads, if you're an app) initially will be the key to acquiring consumers. Yeah, you may get a few thousand users to check it out, but it's another thing to get them to continue to use the app or to eventually pay for it! For example, not all photo apps (and there are tons of them) make it big like Instagram. And let's not forget the lesson learned from Zynga who initially hitched its wagon on Facebook for growth.
5. Crack open Excel and build a decent revenue model. Building a well laid out revenue model in Excel that let's you immediately see the impact of various assumptions is a must. For those with a subscription model, you should at least capture monthly fee times number of paying customers. For those with an ad-supported model (God help you!), you should have an estimate for monthly traffic and CPM. And then there's the in vogue "fremium" model. This will require you to make an assumption on percentage of users who convert to a paying customer.
I hope this helps start-ups sharpen their pencils a little more before pitching investors.
Rupert Murdoch and News Corp made big news themselves this week by announcing a separation of its entertainment and publishing businesses. But another less splashy event occurred today too.
Those of you who read my blog know how much I LOVE the Wall Street Journal. For a little bit longer than half a year, I've enjoyed reading it on my Kindle Fire and my Droid 3 when I'm on the go. I find the Kindle Fire user experience to be quite good. And unlike my mobile app version, the Kindle Fire version downloads my morning paper over wifi in the wee hours of the night so the entire paper can be read offline by the time I wake up. That part is awesome!
Source: WSJ
Good ole Rupert Murdoch is more than happy to extract as much value as possible from this love affair. Everyone knows the WSJ is one of the most successful DIGITAL publications out there who never fell victim to a pure advertising-based revenue model and decided to run a paid subscription for its walled off garden of content FROM DAY ONE. That's one of the reasons why Murdoch bought Dow Jones a few years ago. As a business person, I can respect that.
As a subscriber, the WSJ continues to push my price sensitivity. Here's a great example of their "pushing" recently.
When I signed up for what they call the "Wall Street Journal Kindle and Digital Plus" last winter, it was a great package where you can read the WSJ on any digital device for one rate. At that time, it was $14.99/month, which was actually higher than my print subscription. But the convenience of multi-device consumption and the environmental benefit outweighed the higher cost. Then, on February 17, 2012, I received an email that my subscription was increasing to $18.29/month. For you kids at home, that's a 22% increase!
TODAY, I received an email saying that effective August 29, 2012, my rate is going up to $21.62/month. That's another 18% increase! This is all within the past 6-7 months. I don't know what other industry has that kind of a growth rate, especially in a down economy!!!
Am I going to cancel? NO. The WSJ is my cocaine. I love it. I need it. It's my friend. I gotta have it. So, Murdoch, you got me...again.
I was reading an interesting article by Edmund Lee called Why Facebook Can't Succeed. There has been plenty of speculation and discussion about how Facebook will really make money. Even when we met with some Facebook bus dev and sales folks yesterday, they admitted they were still trying to figure things out and viewed themselves in start-up mode still.
My colleague Alisa Hansen, who blogs constantly about Facebook and how they should make money from their data, thought this author was off-base. Her response to the article:
So, “why Facebook can’t succeed”? Well, it has little to do with advertising....if they don’t succeed it will be because they fail to 1) admit to themselves publicly that they are in fact a database and 2) monetize like a database...i.e., sell data.
She also says: Facebook has never actually bent to their community’s will....they simply have been very good at making it seem as if they have, such as in recent TOS and redesign debates.
But, I found at least one piece of the article interesting.
He compares MySpace and Facebook in terms of their user experience and visibility of ads on their sites. MySpace has always been upfront about the placement of advertising on its site. Facebook started out (and still largely remains) uncluttered with ads. I never liked MySpace's user interface and found it too busy. I thought it was because I was too old. But at least, as a user, you knew what you were signing up for from the very beginning...that includes being exposed to ads, as well as other site features.
This notion of setting clear expectations upfront is also evident when you compare the websites of the Wall Street Journal and NY Times. The WSJ has always charged users for online access to the site, even on top of their print subscriptions. In fact, they are the pinnacle example and exception of a newspaper publisher that has not only survived the recent carnage of newspapers shutting down across the country, but they are making money on online subscriptions. This is part of the reason why Murdoch bought them last year. NY Times has tried to create a similar walled experience but couldn't and must rely on ad sales now for revenue. They may be doing better than other papers due to their loyal customer base, but almost every other paper has not been able to do what WSJ has done. And I attribute that to how WSJ never sought to give away the paper online and in fact tried to create additional value-added content on the web, such as more charts, data, blogs, and other features.
Bottom line is it is hard to charge for something once you give it away, especially if it leads to a major change in the user experience. My former marketing professor used to stress the importance of the "special introductory price" concept for pricing strategy. If you go out with a lower price than what consumers are willing to pay, you can never raise thr price on them easily. Of course, this excludes monopolies or oligopolies.
Look at cable companies, who have made this work. They have great promotions like Triple Play deals for new customers that revert back to a higher standard price in a few months. Along the way, they get you hooked by creating switching costs and creating the perception of a fair value exchange. One could argue that Facebook is exploring both too. It is not outright supporting data portability off Facebook (switching cost to bring your profile and friends elsewhere) and it's trying to increase the value of its network to users and marketers.
Facebook is not alone in this challenge. Look no further than other Web 2.0 rising star Twitter.
In the end, pricing strategy and monetization are 2 sides of the same coin.
