Your questions, our answers, and general Q4 thoughts
Revisiting some of One’s earlier topics and our now quarterly mail bag
|Oct 9, 2020||5|
[Programming note: When we started One some 20 issues ago in early May, we were looking for ways to include more of you in our regular banter and industry discussions that our clients and partners enjoy so much. We’ve covered a lot of ground and different topics to date; we’ve also received many great responses to our ‘One Question’ segment and follow-ups that led to dynamic, albeit mostly offline discussion. So today we thought we’d try a different format and share some of our favorite questions that led to the most interesting discussions at Sparrow HQ, over Zooms, emails, chats, etc with you as a Q&A].
[Question 1]: It’s Q4 - traditionally a high-spend quarter, but nothing is really traditional this year. What should I be doing revenue-wise?
[Maja]: There’s really no easy answer here. What I find works typically well in times of crisis/challenges is a bit counterintuitive than most: instead of trying to be reactive and solve for tactical short-term issues, use the unprecedented time to look at your business, operations, team and think through what do you want to achieve coming out of the crisis. We see companies with strong and well thought out long-term strategies doing really well especially compared to their peers (looking at you DotDash). Now, I’m not saying drop everything and pay no attention to the momentary drop - but rather use this opportunity to rethink what your stack, team, product, customer relationships and go-to-market look like. And be prepared to make some tough decisions.
[Ana]: This Q4 will be bumpy at best - we see two types of companies: ones that are embracing the change and dictating new behaviors (i.e. Prime Day coming next week), and ones that are trying to stick to their targets and pre-planned schedules even though the rest of the world and consumer behavior has changed more drastically in the past few months than over the past decade. Since the pandemic affects every business globally, I think this is the best time to experiment with anything you wanted to try out - the potential upside is so much greater than any negative side effects and if it fails you can blame it on the pandemic.
[Question 2]: Your Quibi deep dive surfaced so many opportunities to improve. Have they called you for help yet?
[Maja]: Hahaha. No - and this is one of the really interesting things we see, how to help companies understand when they need to reach out for external help, what does that help look like and what to expect. A lot of times we encounter a mismatch of a company’s needs and the capabilities of the consultants or staff they bring on board. Most companies don’t have a process to manage external help and requirements. Bringing on consultants is more than just placing a person who sounds like they know what they’re doing in a temporary role - it has to come with frameworks, clear processes and deliverables, and for any complex challenge, ability to access and execute cross team. A lot of it is also couched within understanding where you’ll get the most value for your investment: we see companies readily investing tens of millions annually in marketing spend, but are reluctant to invest a few hundred grand for technology, strategy and talent that will help them understand how to lower CAC, increase LTV and be overall more efficient in their operations. Going back to Quibi, investing in actual user acquisition (perhaps trying sign-on bonuses and partnerships with advertisers along the lines off: watch a full Quibi show, get a meal at Taco Bell) would’ve fared much better than the focus on flashy content developed in a vacuum and courting investors.
[Ana]: Quibi, you say?
[Question 3]: Rumors are Quibi is on the sales block already - who would buy them?
[Maja]: We love doing Fantasy M&A analysis, but with Quibi we don’t really see a happy ending/good fit - mainly because of the large amount of money they’ve raised and their go-to-market shortcomings. Any potential buyer would need to be willing to take a substantial financial risk, further invest in possibly retooling the whole team and the product with questionable IP and little audience traction to boost. We speculated that some of the potential buyers could include PE funds or potential telcos (like Singtel or T-mobile) but the price tag is still very steep.
[Ana]: Whenever we get questions around strategic fit or who should buy whom, we like to start with understanding who can even afford to be a potential buyer. In Quibi’s case that pool is relatively small from the get-go because of the amount of money they’ve raised to date. I don’t like to be all doom and gloom but there’s very little here that I’d consider a unique advantage - not on the content side, certainly not on the tech side, and definitely not on the advertiser side. But enough about them!
[Ones that tackle this: The Quibi that could have been]
[Question 4]: What impact do you expect the TikTok takeover to have on the attractiveness of their platform?
[Maja]: I’m just going to drop Ana’s Twitter thread here and commend her on the use of the word ‘nothingburger’ which can now be heard approx. 100 times per week on our Zooms.
Lauren Johnson @LaurenJohnsonOracle's proposed TikTok deal signals how marketing cloud giants' battle for ad dollars is getting harder: https://t.co/ExndGUV65L
What we find interesting is the shift we’re seeing from mostly US centric platforms to valid and valuable alternatives from other regions. We’ve seen many companies operating in Asia take tremendous market share (WeChat), but until TikTok, the global expansion of said companies was mostly limited to expats and their families. We have a very diverse and global client base and for years we’ve been seeing true innovation and solving of tough challenges led by non-US first companies - I’m bullish on ‘the rest of the world’ innovation and hope that the US focused businesses will be able to look at the innovation and technologies built elsewhere as inspiration, and making us rethink some of our now woefully outdated systems. That’s still slightly more long-term; in the immediate term, I think this general uncertainty around the platform’s future has given TikTok starts the nudge to pursue other commercial opportunities while the iron is hot: for example, the D’Amelio sisters hopped on over to Triller in exchange for a pile of money.
[Ana]: The legal challenge hasn’t been resolved so there’s still a fair amount of uncertainty to contend with, but if I’m a brand now I’m looking at Ocean Spray with dreamy eyes. What I really like about TikTok’s platform is how much it encourages remixing: I think that’s a really compelling format for creators and advertisers that takes us outside of our tried and true video models. I can feel the brand safety people about to explode here but that’s just the thing: there’s a certain air of authenticity on TikTok that reminds of the early days of Instagram: you see a new format emerge right in front of your eyes and applying the same considerations you would in other channels just doesn’t work. That one ~20s video is a mini economy: it drove Fleetwood Mac back to the charts, generated countless earned media for Ocean Spray (and countless industry speculation on why they didn’t jump in on this more immediately), a truck and various opportunities for its author Nathan Apodaca, etc. I’ll just drop this here to prove my point in video, song, and ad (for TikTok -- how very meta!):
[Question 5]: It’s Q4 - traditionally the biggest retail quarter. With the increased volume of orders, the challenges posed to the supply chain, the trade war with China, and longer delivery times, how can retailers ensure a successful quarter? What are the implications for Christmas and holiday shopping?
[Ana]: Well, that’s all the time we have today… Just kidding - but talk about a loaded question. 2020 is proving to be a terrible year for crystal balls of any kind of generalized advice so I’d say focus on experience. That may mean streamlining your website so it’s easier to order directly from you (we’ve seen quite a bit of success with traditional retailers essentially booting up a parallel DTC stack rather than trying to retrofit their existing systems), creating holiday-specific offers or packages that don’t need to be available in physical stores, and really throttling up activities that reduce the cost of customer acquisition (whether that’s partnering with other retail brands who target similar audiences or pacing your ad buys differently).
[Maja]: The macro side here is pretty dreary in the US, too, which for most companies will be the largest market especially if stimulus talks fall through.
[Question 6]: Are companies who’ve in-housed their advertising operations better equipped to make it through the pandemic than those who haven’t?
[Maja]: It depends -- if you follow our logic around in-housing as one of the metrics of agility then likely yes. With so many companies needing to tighten the belt and make cuts though, it can be particularly perilous to be on a team that doesn’t fit the core focus of what your company does (e.g. being a programmatic buyer in a financial services company might put you ahead on the chopping block if/when downsizing happens).
[Ana]: To Maja’s point it can often be the first team to go when times get tougher but it’s not like it’s roses in other parts of the industry either. I think this is very individual: if a company’s sole motivation for in-housing was cost-cutting, they’re likely looking at any work that team does as a cost rather than an investment and that’s a tough mindset to get out of. Certainly one angle to consider here is range: if you need to change direction with your advertising, does your in-house team have the knowledge to shift to a different channel or even know what is worth exploring?
[Ones that tackle this: Behind the buzzword: In-housing]
[Question 7]: Other platforms have now joined in on Fortnite v Apple & Google. How do you see this playing out? Let the lawsuit run its course and strike individual side-deals in the meantime?
[Maja]: Old monetization models that work for nascent ecosystems are simply not suited for mature ecosystems in the long run, sticking to what got you from 0 to 60 in hopes to take you from 60 to 100 is part of what fuels antitrust inquiries and gathering of power within the select few companies, ensuring monopolized positions. Similarly to scaling companies, the strategies and team required to take you to initial success will have to be adjusted should you continue to scale and grow. So we either wait for the lawyers to battle it out, and await subsequent lawsuits from other partners, or we look at the now mature app ecosystem and come up with fair and sustainable ways to monetize.
[Ana]: One of my favorite things to challenge product teams with is what would your product look like today if you were building it from scratch and had no legacy infrastructure (technical, commercial, or otherwise). The answers are often quite liberating. I’d like to ask Apple & Google how different their app store monetization levels would be if they were launching them today. I bet there’d be much more talk of security, data safety, and similar topics in their go-to-market that really weren’t a consideration back in 2008. I’d like to see more options here: perhaps the rise of independent app stores so developers have more commercial options at their disposal. Apple and Google have an upper hand here -- they can always settle the suit, or strike preferred deals with everyone but Epic and squeeze their position. It’s one of those things that could have a quick, quiet resolution or drag on through the courts for ~12 months. Whatever happens it doesn’t change the underlying fact that an adjustment of where the value lies in the app ecosystem is needed.
[Ones that tackle this: The Fortnite app store rebellion]
[Question 8]: What happened to the AT&T/xandr divestment rumors?
[Maja]: Since the initial news broke, we haven’t picked up on much chatter on that front. We still maintain that the largest questions to answer are - what exactly would be for sale? And how they’d think of decoupling the assets. Should they proceed, I’d like to see the spin-off of AppNexus international business - and truly attempting to mount a competitor to Google stack. The other option is really doubling down, investing in the asset and building an ATT walled garden centered around OTT & Telco data. This would require a lot of change and likely strong external help plus new team structure and incentives. An interesting shift is happening recently with Infosum - with the company taking funding from Xandr, as well as some senior execs. Maybe this is the spinoff show we should be talking about?
[Ana]: Whenever a rumor like this starts to circulate you have to wonder about the level of commitment and investment that will be made in the product/service. If AT&T is seriously thinking of divesting, will they essentially kneecap the development of this business line? As a customer I’d be nervous and likely starting to look into the viability of other options. If you know how to read BigCompany (esp. BigTelco) tea leaves this is about as clear a signal as one can get.
[Ones that tackle this: Will AT&T sell off Xandr/AppNexus?]
[Question 9]: Which emerging channels or models do you find the most interesting?
[Maja]: We’ve been seeing a slow uptick in DOOH even before the pandemic, and it’s really ramped up in the past 6 months or so. One of the most important things DOOH is solving for is what we call the Advertising Paradox 2020: It has seemingly never been easier to (technically) reach a consumer because we’re all online all the time; but it has also never been harder to really reach a consumer when consumers are actively tuning out. Take someone who drives a luxury car and has shifted all media consumption to SVOD/on-demand: how does a luxury car maker really reach that person? Many look at this as a technology-first challenge; it’s not. It’s an audience-building one. And with channels like DOOH, users are already outside, looking at other things - the ads are not as intrusive as when you’re trying to access a piece of content and have to ‘endure’ an ad to reach your goal.
[Ana]: I’m a big fan of DOOH, too, and would like to see more mirroring of the type of stuff that already exists in APAC (e.g. scan a code to unlock an offer at a specific location via your phone and similar activities that gamify location and make ads worth interacting with). It might not be a great fit during pandemic lockdowns but hopefully we won’t be in that mode for too much longer. It’s definitely an area of advertising where simplifying buying will go a long way. The other format I’m really bullish on can best be described as micro-sponsorship: instead of bombarding me with ad impressions, can an advertiser bring value to day to day interactions? Hulu has a great model where advertisers can ‘sponsor’ and unlock content for particular audiences; ‘I can watch this for free thanks to <brand>’ certainly has more recall than ‘here’s <brand> retargeting me everywhere again for weeks on end’. I’m also really intrigued by sequential storytelling especially across multiple screens but haven’t seen many actual campaigns beyond prototypes and award fodder go this route yet.
[Question 10]: So what’s your favorite Quibi show?
[Ana] and [Maja]:
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