Part of me wants to believe in a quasi-Utopian view of spending money, the rational view, that people spend money wisely, on things they need, some on things they want, not spending it on things they don’t need or don’t want. That just isn’t the case. Someone who does that is the exception to the rule. It’s not that the vast majority have some major deficiency that causes them to spend when they shouldn’t. That description fits a meaningful number of people, a situation only exaggerated during less than globally prosperous times like now, but it doesn’t describe the majority. If there is one deficiency that the majority have, it’s being human, and that explains why the term "being human" gets used most frequently to explain away some mistake.
You’re only human.
Trying to make sense of the sheer scope of human behavior would overload us, so we put aside our own shortcomings and don’t spend too much time thinking about those of others, unless of course you want to market to them. And, if there is one thing that marketers do well, especially performance-based marketers, they know how to tap into that fundamental weakness of being human. It’s always funny to me to listen to one who believes of themselves as unaffected by marketing, the "I would never click on that" attitude. Yet, we all do it to a degree. The difference comes in the complexity of the offering. Regardless, the unifying factor is a product manufacturer’s and/or his marketing partner’s ability to influence a consumer to part with their money.
Despite the wretched economy, some of the biggest innovations have come in the form of companies learning new ways to help us part with our money over the past two to three years. Many of them, the flog included, couldn’t exist, or at the very least couldn’t scale, without the internet. Flash sales are one of the current flavors of the times. In roughly three years Gilt Groupe has gone from hundreds of thousands of dollars in sales per year to hundreds of thousands of dollars per day. Apple is another brilliant example; their products have improved upon those that existed before, but the part of their ongoing genius rests in their ability to tap into our wallet on an ongoing basis. We see the same taking place in the gaming / social gaming space from XBox Live to Zynga. More and more companies continue to find ways to make us comfortable spending money. It’s not just home shopping and infomercials.
Why does the wallet matter?
Our space doesn’t need to predict the future, but we do need to understand the overarching trends. One of those trends is a fundamental shift in the way companies make money, namely a shift from purely ad driven businesses to transaction businesses. Well-known investor, connector, and thought leader Dave McClure wrote a brilliant article talking about just these trends, with a piece whose title would make any performance marketing pay attention, " Subscriptions are the New BLACK. (+ why Facebook, Google, & Apple will own your wallet by 2015.)" Unfortunately, Dave, though, isn’t talking about the return of nutraceuticals. It’s not a blueprint of how to start a subscription service. Call it invaluable insight into why some of the best companies today succeed and the factors that will shape not only the growth of these, but all growth going forward.
Dave writes, "There have been a few interesting examples of startups acquired in the 00’s for large amounts due to amazing growth (eGroups, MySpace, Skype, YouTube) or advertising potential (aQuantive, DoubleClick, AdMob, RightMedia). However, mostly the decade has been an uninterrupted string of uninspiring business models and small-time acquisitions of Web 2.0 startups filled with rainbows & unicorns, rather than those based on simple, transactional revenue models." As performance marketers we know people don’t like to just part with their money, but we have always thought of the challenge in terms of convincing them, and the art of the sale is our focus. I bring up Dave’s piece to hear how one thinks about it from another perspective – payments as a business model not just a revenue model. Here’s Dave, "…aside from the user’s disinclination to pull out their wallet, there’s also the problem of wallet friction itself — payment conversion is shitty for many reasons other than just price. Mainly it’s because we can’t remember our password. I’ll repeat that about a million times….""WE. CAN’T. REMEMBER. PASSWORDS." It matters because as the online world transitions to "a Startup Ecosystem driven by direct payment & subscription business models," it’s all about the credentials. You know this today as a user. From a business owners standpoint though, if users "forget their password, and/or can’t recover it, then guess what MoFo — YOU DON’T GET PAID." Continues Dave,
Now I’m not suggesting PayPal and Amazon are going to disappear overnight — both probably have hundreds of millions of users (well, at least double-digit million *active* users anyway). And in fact, they will likely still have dominant positions in the market. But I will say this: if they rely *purely* on purchase behavior, they are fighting a losing battle against other services with more frequent usage, whose users will be more likely to remember their passwords. Like a Darwinian evolutionary experiment, only the fittest passwords survive — and in this case, the fittest passwords will be the ones used most often.
What’s amazing from this piece, besides its clarity and prescience, is how well it builds a foundation for Facebook’s continued success and how it explains why AOL, Microsoft, and even Yahoo could continue to struggle to remain relevant. Alas, it doesn’t help us figure out the key to subscriptions, but it tells me that as performance marketers, we are probably closer than we think. In other words, we don’t have to necessarily become game developers. We have a solid advantage at understanding human behavior and getting people to reach into their wallets. Our next task is to provide them with a reason to interact with us more frequently so that we can do it again in the future. As performance marketers we don’t have to focus on products with high breakage where we fear connecting with the users again, because we know if we draw attention to their spending money with us they will discontinue.
We won’t be able to stop business as usual, not if we want to maintain our income. Some perspective on how we could make money in the future should get a few people thinking about new ideas and to inspire creativity, not just selling. We can sell our creations, and we can keep performance marketing alive and subscriptions / transactions alive. Or, if you choose not to, you will at least know what not to do.
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