Growing Pains

Hard to believe that more than two years has passed since the first cash for gold offer appeared as an offer on the networks. The economics looked attractive, even before the price wars took place. Users simply completed a short form, basically the address where they would like the free kit sent. For that, publishers earned a base rate around $10. As others in the value chain started to grasp the economics of the business, other offers started to appear on the networks, and that $10 soon approached $20, all for a user giving barely more than their address. And why wouldn’t the user want to? They aren’t signing themselves up for anything, aren’t giving any payment information; instead of giving money, users willingly fill out their information in hopes that they can make money. Today, you will struggle to find many, if any, cash for gold offers in the networks. Yet, the factors behind the offer’s success still remain – a sluggish economy along with a high price of gold.

As to why the offer no longer seems to perform, we assumed that those behind the offer, including the best known, Cash4Gold, had started to struggle. Yet, when we came across someone familiar with the company and asked them about the company’s health, they said quite the opposite. The company is doing beyond well. That gave us pause, considering what we have seen online, and it shifted our thinking from the cash for gold market struggling to one that has presumably consolidated under a market leader. A possible explanation shared with us focused on Cash4Gold becoming the beneficiary of other people’s marketing efforts. With the company’s own offline efforts combined with the relatively non-branded sites marketing online, when users found themselves ready to convert, they simply went to Cash4Gold.

The consolidation in the online pawn shop got us thinking of another market that has undergone a similar transition – the mobile subscription market. Were we to judge based on the number of media outlets that seem to have become less tolerant of mobile offers, or the number of networks promoting them, you might think that mobile’s time has come and gone. Based on the number of impressions promoting mobile offers, though, such assumptions of mobile’s presumptive death are certainly premature. What has changed, though, are the number of players able to make money in mobile directly, mirroring what we see outside of mobile, e.g., in cash for gold.

For us, it was easy to confuse fewer people with no one making money, which can be the case. What we see happening is not something we expected to be saying when talking about something like mobile subscription marketing, and that is maturation. Saying an industry has matured can mean many things, but as we think about the areas that have matured and consolidated in our space, one thing that amazes us is the Barrier to Entry. Spending money is as easy as ever. More and more self-service advertising platforms exist, and most of them require little to no creative ability. It’s not like television where this is still a significant cost to making the ad. In these verticals, it isn’t the cost of the ad so much as it is the ability to make money off it. In mature performance marketing verticals, the barrier is in one’s ability to compete from a monetization perspective. Compare this to the once frothy vertical of nutraceuticals where almost everyone could obtain the highest rate, and what they competed on was the highest converting page. That was a low barrier to entry. Compare that today’s nutraceutrical industry where only a few players still have the ability to do negative option billing.

Those who want to play in the more mature verticals have to invest and they have to innovate. They have to make a real commitment. It’s a very different approach than the typical arbitrage approach where some people might focus on an offer, but outside of time they haven’t really put in any other investment. When markets start to mature, they have a couple of options. They can simply stop because the cost of doing business has increased to a point where it no longer makes sense, i.e., they can go on to the next offer. The second option is to try and keep up or go one step further and build walls around their business. They can look for points of leverage and try to create the consolidation. The hardest part about the latter is the lack of guarantees. You could spend three months on technology, a site, an approach, only to find out that it does absolutely nothing. That just doesn’t work for the average affiliate. Doing that means going from affiliate to company builder. An attitude of building and trying to create barriers for others is what a company does. An affiliate merely looks to exploit those instances when barriers don’t exist. When they do, they move on to an area without the walls.

As we wonder about how certain verticals will continue, we think back again to mobile subscriptions. Given the enormous fines that came as a result of settlements with the Florida Attorney General , the negative press, and overall negative stigma, we felt like writing off mobile subscriptions. But, we’re not as sure now. There was a time, that it seemed as though the carriers had a negative opinion on third-party mobile subscriptions as they continued to introduce new restrictions making it harder and harder for companies to bill their users. But, some interesting things have happened. They carriers have had to cut their costs. Minutes have started to become a commodity; the carriers have entered their own race to the bottom. The fee revenue too will hit an equilibrium, so all of a sudden, the $10/month incremental revenue from a subscription service starts to become significant. When they could make $80 to $100 and have the user for two years, they didn’t want to risk losing them. Those barriers are coming down, though, so they might have increased willingness to embrace incremental revenue. It probably won’t create the free-for-all atmosphere that existed in 2007 with ringtones, but it could spark some innovations and inject the performance marketing space with some fresh offers.