King of Traffix
If you attend Affiliate Summit, you should have come across a company called Hot Rocket Marketing and their affiliate network RocketProfit.com. Then again, given their low key demeanor, you might not have. At Affiliate Summit they had a booth and helped sponsor the blockbuster party, but they did that, it seemed, not to gain attention, but to contribute to the fun of others for the success they have had.
Interestingly enough, you couldn’t tell from their affiliate site what has lead to their success. Their site almost blinds visitors with its dominating red hues, and the offers listed on the front look like any other network save for one of their longest running exclusives, Group Lotto, a Web 1.0 throwback operated by parent company Traffix, Inc (NASDAQ: TRFX). Traffix is almost as well known for who came out of there, most notably the founders of Datran, than what the company does. They have been public for almost twelve years, have a stock chart that has more peaks and valleys than a major mountain range, and revenues less than half what some of the bigger private affiliate networks have along with a profit margin percentage more like a department store than Internet company. In other words, they don’t seem like one of the more interesting recent success stories in the direct marketing space, but as we know, appearances can be deceiving.
Shareholders of Traffix found themselves rewarded last week as news broke that New Motion, also publicly traded, but on the OTC.OB ("over the counter" as opposed to Traffix being listed on the NASDAQ with more stringent requirements) will merge with Traffix in a stock deal.
You might expect New Motion to be the smaller company, but from a market cap perspective, New Motion eclipses Traffix by more than one and a half times ($90 million vs. $143 million). From a revenue perspective, though, Traffix comes out ahead with revenues approaching $20 million for the second quarter of this year compared to New Motion’s almost $7 million.
Through the power of merger math, New Motion will end up owning 55% of the new entity. If you don’t follow the mobile marketing space (the subscription service kind not the ads on mobile sites), you might still wonder why these two companies would merge. According to the release, one is "a leading digital entertainment company providing a broad range of online and mobile content services," and the other "a premier interactive media company." Together, they "will allow consumers to experience content where they want it, how they want it, when they want it. The new entity will operate a vertically integrated mobile entertainment network with diverse customer acquisition platforms, an extensive library of proprietary digital content, and a large, growing subscriber base." As to the why, the answer comes down to check box.
In the mobile subscription marketing world, both Traffix’s Rocket Profit and New Motion’s MobileSidewalk.com and Bid4Prizes.com have been overshadowed by the more usual suspects – Dada Mobile, Blinko, Ringtone.com/.net, Mobile Messenger, Thumbplay, Flycell, etc. Log in to an affiliate network, for instance, and you won’t see New Motion’s product as the top performing ones. You might see an offer called Advertiser Rewards Network, offering a promotion of $5k or five free ringtones, but given it’s payout – ten or so dollars less than other ringtone offers – it could easily escape notice. For a hint of its success, you have to turn to a late July lawsuit filed against Traffix by, of all people, rapper 50 Cent. Traffix didn’t pioneer the use of flash game banners, but they did what many others couldn’t or wouldn’t, making MySpace a large, scalable, and profitable source of inventory. They couldn’t do it alone, though. That’s where New Motion comes into play. The economic’s of RocketProfit’s Advertiser Rewards Network offer doesn’t work without New Motion’s participation, and vice versa, hence the checkbox, and what has turned out to be an absolutely brilliant promotion.
Users come to the site with a tempting proposition, "You are Guaranteed* to receive $5,000 or 5 free ringtones." It offers money and taps into the ringtone craze. Traffix has a long history in the giveaway space, so of almost anyone, they had the experience and the processes in place for the $5000 component of the offer, which is an hourly giveaway but not one with a guaranteed winner. The way they do it makes the most of the incentive while having a low-likelihood of frequent payouts. An offer to win $5000 wouldn’t have worked that well. That’s where the five free ringtones comes into play. In this case, Traffix took the steps to have their own ringtone library, an upfront cost that they absorbed before this offer even came together, but it meant that they could truly give away the ringtones without a cost per user. Giving away things doesn’t generally earn people money. Signing people up for a mobile subscription service and/or taking them through a registration path does help a company make money and Traffix does both, and New Motion plays a big role.
Their Bid4Prizes – a mobile reverse auction paid version of Limbo – couldn’t quite work on its own. The conversion rate running Bid4Prizes as a standalone couldn’t compete with ringtones or certain other text services making the rounds. Instead of playing a price war, they got creative and started working with Traffix to fill a major gap in their offer, the initial monetization. Together they had the right pieces – the hook, the monetization, and the traffic, along with the determination and drive of the RocketProfit staff who proved just how well it could do.
Ultimately, without traffic becoming more scarce, it’s not uncommon for an advertiser to want to own and secure traffic. In this case, I’m not sure either expected the phenomenal growth they did, but it worked, and with tighter integration they should compliment each other well. New Motion, you got a great deal and made a wise choice. When you’re just one checkbox away from losing millions per month, sometimes you have no other choice – and when it costs no cash, why not.
