Regardless of what happens in the ongoing drama that is fakevertising, we will forever remember this past year as one of the most unique and perhaps one of the most defining we've seen. In a classic example of performance marketing, this year showed both good and bad, what makes this space so fun. This bubble produced some instant millionaires, people who went from spending little to tens of thousands per day, nor was it confined to just those who have run online businesses before. That has happened before, but it happens very rarely. It happened when Google first opened up Adwords, but the magnitude of success we see today arguably hasn't happened since another medium first came into its own, email. Its rise happened during a similar economic state, when display inventory went through expansion of users but not in price. So, why hasn't email seen a rise to prominence again?
When email started taking off, display drove the majority of new registrations. It was the most counter-intuitive notion but one that worked. Get a user to click on a banner, enter their email address, and you could almost make enough just off the future revenue from sending email that you didn't need a fancy registration path. Instead of email being just the incremental earner, for a while it was the sole earner. So powerful an opportunity, that you could have made a great living if you were in the first generation of affiliates who knew were to buy names via co-registration, you didn't have to do anything but buy the name and email. You didn't have to be the one who figured out how to generate them in the first place. Talking about that though is yearning for days not to be seen again, not in that exact form at least. Since then, companies became adept at generating names (still via display) but as with any channel that becomes saturated, it became harder and harder to get clicks on ads which only helped contribute to a vicious cycle of declining value yet with increased mailing.
Email experienced a slight renaissance in an unlikely time - that of the mortgage meltdown. This was the period in 2006 until August 2007 when the housing market started looking shaky but hadn't imploded into a full bore credit crunch. During that time, a confluence of positive factors came together with the world of payday loans doing especially well. Payday has always done rather well, but it does especially well during difficult times. In the payday period from 2006 to 2007, the majority of acquisitions came from email, and when users would sign up for an offer, whether they completed the payday transaction or not they became signed-up for another email list. Subprime offers fed more subprime users, until you had a huge concentration of offers and users in that sector. Then, the rug was pulled out from under them. It's one thing to do well during tough times and another to have no money to lend, and that is what happened when the brunt of the credit crisis hit. The biggest funders of payday loans had no money to lend if they wanted to. Combine that with an increasing default rate which only shook money supplier's confidence further.
The credit crunch didn't do in payday or email, but it showed some serious weaknesses and highlighted the dependency between email and subprime offers. It also showed how slight changes in offer performance could create even larger drops in revenue. If during the peak, a company might see 100,000 sign-ups on a given offer, with the credit crisis in play, those same numbers want to convert but can't because of repayment issues. So now, they see 80,000 signups. But those 80,000 signups pay them a little less too because the average consumer still doesn't make as much now for a borrower as they did. Instead of $1mm before, they now make $700k. The more difficult part is that that the 100,000 signups used to translate to somewhere around 500,000 email addresses. Those email addresses used to earn around $1mm over their lifetime. Now, they earn $700k at the most because each running to the names earns them 30% less. Combined, they once earned $2mm, but now they earn $1.4mm, and that doesn't take into account the ever increasing deliverability challenges.
For many who relied on email, the 30% drop above has happened more than once, and it's less about emails getting through than it is that the combination of subprime offer degradation feeding further subprime degradation. Instead of 1 + 1, it is 0.9 * 0.9 month over month. No longer does one offer lead to three more with each having a high degree of success. It is one offer leading to others that don't work that well either. The good news is that it means a wide world of opportunity in email while the subprime offers regroup. Deliverability will always be an uphill battle, but the real battle now is offer emptiness. There isn't the diversity needed to support the number of players trying to make money off the names. We're seeing an unexpected shakeout as the industry tries to ween itself off what was once an easy formula for success.
Editor
DM Confidential
www.dmconfidential.com
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