Lessons from One of the Most Competitive Markets on the Internet

One of the most competitive markets on the Internet for a low cost, general interest product is the government grants information market. It’s filled with people looking for free money from the government, and the level of marketing is limited only by the FTC. This is an offer that performs incredibly well and generates very high ECPM’s across a large amount of Internet traffic. “Free money from the government” is a strong pitch, and since most people are aware that the government does give a lot of money away in grants, basing the sale in an element of realism, its even more compelling.

I don’t like this market, since selling into it generally does much more harm than good – but it can be instructive for how other markets develop. Since the grant market has such a high ECPM the most competitive marketing methods are used to make the offers work. If your market is not using some of these techniques currently, they will be in the future, so this is your chance to implement them first and profit!

Stage 1: $19.99 ebook, 50% rev share for affiliates.

In the beginning there was little competition and the Internet had not seen an offer like this, so it performed extremely well. Publishers were happy making $10/sale, and everyone made good money.

Stage 2: $19.99 ebook, $19 monthly continuity program.

As the market became more competitive, the payouts were forced to increase to continue to drive traffic. A monthly continuity program was implemented, which was “forced” continuity, meaning the customers were signed up when they purchased the ebook. This allowed payouts of $25 – $30/sale. Obviously the level of risk in this model is much higher, since the model has now gone negative at the point of sale. The typical retention for this program was 3-4 months.

Stage 3: $2.95 trial offer?

Notice how we don’t have a low price trial to low price continuity program (eg $19/month). This is because the ECPM payout to publishers will not support it, and will force the advertiser to lose money too early.

Stage 3: $2.95 trial, $199 one time billing.

This was an extremely aggressive offer put where users were charged a cheap trial, then sent a package they were billed $199 for. This offer didn’t last long since the market was not able to afford a $199 package for grants information, causing a high level of charge backs and refunds. However while it worked, it was extremely competitive.

Stage 4: $2.95 trial (free + shipping for a CD), plus multiple continuity programs.

This is where the market is today. The user pays for a free+shipping program and then is enrolled in several ongoing continuity programs. The consumer is excited because they are receiving a CD perceived to have a very high value. Then one continuity program will start initially, and another one, or more, start several weeks later, without the consumer realizing they are being billed, sometimes using different credit card descriptors.

Lead generation

In the grants market, people generally have not been successfully reselling the leads to phonerooms. This may be partially due to legal regulations, but also because the market simply cannot afford to pay for high priced coaching programs. Most leads from a grant offer don’t command a very high resale value.

What are the lessons from this?

1. If your market is undeveloped you can gain a huge advantage over others by adopting these techniques.

2. If your market is relatively poor, a high price won’t work no matter how you do it.

3. In direct response marketing, we are always going to see extremely aggressive offers implemented. So someone in your market may try to implement aggressive multiple continuity programs. This type of advertising is unfortunate because it makes it extremely difficult for everyone else to compete since the competitor can purchase more advertising. But it may well happen, enabling your competitor to buy more media than you.

Many successful offers today receiving a lot of volume don’t follow all the points above. Making some fairly simple changes will see your ECPM’s increase dramatically. Watch and learn from the most sophisticated markets!

Does Small Business Rule?

In the mid 1800’s John D Rockefeller founded Standard Oil, which later became the foundation for almost the entire oil industry.  He created the first real national corporation, and later, the first international corporation.  There were no laws for setting this up back then, so they had to deal with a lot of complexity and resistance.  Before Standard Oil was created in the 1800’s, all business was local small business.   There was no real nationwide business.

Since that time we have become used to large corporations in every part of our lives, for example, Microsoft, Citicorp, Hewlett Packard, Disney and Wal-Mart.

Is it changing?

The internet is changing some of this, and is flattening how we work.  Instead of requiring hugely human intensive businesses, online, we’re now working with small, highly leveraged teams.  And instead of large corporations, on the internet the teams are relatively small.  Look at what Markus Frind has done with PlentyOfFish.com, or the HotOrNot.com guys, or Drew Curtis with Fark.  All these guys control as much traffic as a television station with few to no employees.  Even Google, one of the very largest online corporations only has 11,000 employees, compared to Wal-Mart, which has 1,800,000.

The ease of working remotely and connecting with and working with people in new ways is driving this on the internet, and some of the freelancer sites are leading the way.  For example, Odesk, with its outsourcing model, is a company that can allow individuals to organize themselves into teams and work remotely together as an entire company.  This model doesn’t scale particularly well – it is hard to have people working from different locations and have them collaborate as effectively as a team based in a single office.

The few cases where this works is when the collaboration is very simple.  A prime example is a company named LiveOps.  LiveOps provides phone support for large companies.  So if you’re Dominos, and you want to shorten the time it takes to answer the phones, you route all your calls to LiveOps.  LiveOps in turn recruits work from home people to answer the phones.  Their workers like this because they can work on a flexible schedule. Because LiveOps has so many people, and the concept is simple, the model works incredibly well for both sides and can scale.  LiveOps ends up with a huge team of work from home phone operators based around the country and can shift volume according to demand, and companies needing phone support can easily route it all via LiveOps.

So while LiveOps can work as a mega corporation because it has a very simple model, I think we’re going to see more growth of small businesses interfacing with each other in the future not less, where fewer people control more of the information that is passed around the world.  A successful website is incredibly high leverage and that doesn’t require a lot of people.

So my question to you is, for the internet, are we heading back to the early 1800’s where small business ruled?