Posts filed under marketing

Hungry for online deals

Written by: Madhur

On Jan 19th, 2007

One of the most prevalent business models in Internet companies is advertising. Here is a look at different types of business models that exist on the Internet around advertisements. The basic aim of advertisements is to generate leads for the advertiser. The beauty of CPC (cost per click) advertising on the Internet is that the vendors (advertisers) need to pay only when they actually get the traffic, which makes their marketing costs much more accountable compared to traditional banner advertising. Realizing the ROI that this promises to the advertisers, in the US, people have set up companies that solely do this – generate leads for online vendors. Of course any website that has google ads already does that. But let’s talk about sites that are dedicated to generating leads without focusing on any other content at all. One of the categories of sites that is quite popular in the US markets is the “deals” sites. These sites publish the latest and the greatest deals and discounts regularly, some updated throughout the day. People hungry for deals keep coming back to the site to check out the latest deals. Because of the timely nature of these deals, the daily traffic volume is high and since these sites publish hot deals that tend to expire soon, the clickthrough ratio is also very high. FatWallet is the big daddy of all such deal sites. There are dime a dozen other deals sites like, and more.

Naturally the trend is already beginning to catch on in the Indian markets. If you look at the google trends data for “online deals” India is not too low down on the list. So we had a chat with a couple of players – (publishes deals in online shopping space), (publishes deals in online travel space) – to get insights into what they are doing to get the latest deals on their sites and to drive the hungry for deals traffic on their sites:

Sources of data
: Both of these sites use a combination of feeds from vendors and handpicked deals from variety of websites.

Freshness of data: allindiadeals updates the site once a day while tripmela does that 2-3 times a week.

Business model
: The source of revenue for both of these sites comes from a mix of CPC based listings plus google ads on the site.

Marketing: Both the sites realize the power of SEO and are doing things to promote their site high up in the organic search results. allindiadeals uses the power of social networks like orkut and other online communities to spread the word. tripmela has used techniques like press releases and Search Engine Marketing to buy sponsored listings in search engines. tripmela also delivers weekly newsletters to the inboxes of the registered users and a lot of customers seem to like this feature. (Tip: Doing RSS based subscription could also be quite useful)

Problems they are facing
: This is probably the most interesting data that we got:
1. allindiadeals says initially people were not really familiar with the concept of online deals, although with the competition increasing among the online merchants, people are starting to get it now.
2. Both players mentioned that a lot of the online vendors do not understand the power of CPC based advertisement, as a result of which they are not willing to give data feeds. This is starting to change as well, with the increasing competition and increasing advertising budgets for online companies.

It’s clear from our conversation that a lot of merchants still do not understand the concept of lead generation and CPC advertising. We think as the market evolves, lead generation phenomenon will pick up steam – online vendors will realize the importance of CPC based advertising and they will start providing feeds of their data. As a result, we will start seeing more players who will get into lead generating business in the form of comparison shopping, vertical searches, affiliates and deals publishing sites.

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Online DVD Rental: Behind the curtains with Madhouse

Written by: Vivek Garg

On Jan 9th, 2007

[Update: Madhouse has given a special discount code for our readers. Details at the end of the post]

A lot has been written about online DVD rental business in India and Madhouse being one of the earliest player in the sector, it’s getting buzz everywhere. Seventymm is the poster child of the sector with a funding of $7 million dollars. Madhouse recently closed an angel round of $228000 and looking for more. We sat down with Nandini Hirianniah and Ankur Agrawal, the cofounders of Madhouse to learn the tricks of the trade. Instead of writing directly about Madhouse which already has been discussed several times, we will try to learn the challenges, business process and state of the sector taking Madhouse as our case study.

Start of DVD rental business in India: Most widespread means of watching movies at home is either VCDs or tapes. Consumer appetite for free and cheap content and lack of attention to quality makes it hard to get good quality DVD movies at local rental stores. Also limited shelf space makes it hard to cater to the consumer looking outside of popular bollywood flicks. Success of players like Netflix in USA makes it a known business model. These are precisely the reasons why Madhouse entered this business and I won’t be surprised if others did for the same reason too. Madhouse started this service in May 2005 and they supported this business without funding for almost 1.5 year.

Business Goal: Since movie rental is a subscription business, growth in number of subscribers in one area + growth in numbers of areas served would bring success provided the subscriber acquisition cost (SAC) + cost of keeping the subscriber (churn) + cost of serving the subscriber (COGS) < revenue generated per subscriber (ARPU). This is a greatly simplified picture but I like looking at it with this basic goal. Madhouse wouldn’t give us these numbers but they did mention that they are keeping an eye on their churn. They could keep it constant and even managed to reduce it over time after learning from the customer feedback and by introducing new schemes. I think there is a real lesson here. Understand why your customers are leaving you and act on it.

VCs waiting on the sidelines: We have said this before in earlier post that VCs in India are sitting at the sidelines with their money waiting for the traction in various markets. Madhouse also gave us a similar picture. According to them VCs are going to wait to see how they use their angel money. Some of the VCs think that Seventymm has already got a huge amount of money and this is a winner takes all market. Madhouse also told us that they are looking to increase the depth in the existing markets they serve instead of spreading too thin by expanding immediately. This will mean that they have to go beyond the early adopters of DVD rental business. I think this is a really good way to show to a VC that they are capable of gaining majority share but this also means that they lose the early movers advantage in other areas. What would you do in this case? Madhouse also suggested that VCs typically want to invest into businesses with 10X returns in 5-7 years and some of them don’t see the DVD rental as one. Other concerns raised were logistics and piracy and investors are still skeptical about the licensing and revenue deals with production houses.

Crossing the chasm: Everett Rogers theorized that innovations would spread through society in an S curve, as the early adopters select the technology first, followed by the majority, until a technology or innovation is common. We can think of the current DVD rental business at early adopter stage and it is yet to be seen if we can reach majority. According to Moore, the marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries (early adopters) and pragmatists (early majority). This is the chasm that he refers to and it will be interesting to see how it applies in this scenario. Madhouse agreed that most of their customers are early adopters and they are not doing any mass marketing as yet.

Customer, Customer, Customer: Educating customers is tough. Madhouse is not trying to educate customers rather they are trying to gobble up as many customers as possible before they hit the chasm. Their existing markets are Delhi and Chandigarh and they are taking these markets as good learning experience. They have learnt about the consumer habits about watching their movies as soon as they get it. They think 1 on 1 communication works best instead of mass advertising. They cannot stress enough about the quality of movies but they experience tough time explaining to average Joe why DVDs are better than VCDs. Madhouse says it is too soon to say what percentage of customers is with which company. In fact they are working together with some of their competitors to establish this business in the minds of people. When asked about their biggest challenge, Madhouse rightly noted that it is acquiring customers.

Moat and Barrier to entry: What are the differentiating factors for a DVD rental business? What would prevent your competitor from stealing your customers?
-I think exclusive licensing or innovative licensing methods with the publishers and production houses are certainly one of them. Madhouse licensing structure with various publishers includes flat payment per title for unlimited rental for the entire year. They also mention free licensing if they buy the DVD. To reduce this cost they are also thinking about revenue sharing deals. Primary goal here is to reduce capital cost with increased availability of titles.
-Low cost and a large scale distribution network. This can become a true moat once companies go national. Madhouse is trying to build their own.
-Technology for online recommendation and title queuing algorithm. Getting this system right is very important. Madhouse has tied up with NetKode, the company that manages technology for, biggest DVD retailer in Singapore.
Offline presence: madhouse is trying to position itself as movie rental service in their users mind instead of web company. This is why they put emphasis on interacting one to one with their customers. They will also try to achieve this by increasing their offline presence. I would like to remind our readers that one of our predictions for 2007 was that DVD rental companies will come up with offline presence and Madhouse is the first company that is doing this. They have introduced a concept of Movie point. These are existing retail stores that will agree to become DVD return outlets. Slowly they can expand these channels as pickup points. This will create indirect channels at reduced or fixed SAC targeting customers who are not going online. This is important as reverse logistic (returning DVDs) makes a big chunk of operating cost for Madhouse.

Milking the cow: Kishore Biyani of Pantaloon recently said “The money is in the peripheral activities; it’s never in the retail itself. It’s the power of retail that gets you the money; it’s never the transaction that gets you the money.” We think that once a transaction based system is set up, one can do different things to milk their setup. What can DVD rental business do? Some of the ideas we could think of
-Use DVD packaging/labels for ad distribution
-Sell merchandising related to the movies being rented like posters, shirts and coffee mugs.
-Outsource their distribution network for delivering other internet purchases.
Can you give us more ideas how Madhouse can make money?

Competition: We did an earlier post on various ways of distributing media and how online streaming could be a potential disruption to DVD rental. I would like to add an interesting quote on that. “if you carry a 4.7-gigabyte DVD down a ten-meter-long hallway at one meter per second, you’ve effectively “transmitted” the data on that disc at more than 3,700 megabits per second–a speed home networks won’t be reaching for a long time.”

Madhouse team has agreed to answer any direct questions that you have for them about their business. Feel free to leave them as a comment to this post.

[Update] They also have a special promotion for our readers. Subscribe to any of the Madhouse subscription plans and get a 10% discount when you use the promotion code “ileher”. Have fun renting.

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What are they doing to attract customers?

Written by: Madhur

On Jan 3rd, 2007

One of the most common answers that I get on asking new startups about their marketing plans is that they are focusing on providing the best user experience and then rely on word of mouth. I beg to differ here. Agreed – awesome user experience accompanied with word of mouth is quite effective, but I think that some clever marketing can give a non-trivial boost to the traffic, more so for startups in the consumer Internet space. If you have big budget, the obvious way is to spend tons of money to make regular splashes all over the media or give away freebies to attract customers or even give big ticket lotteries (this is not unreal by the way). But on the other hand, even some low budget clever ideas can be very effective in driving significant traffic to the site. Let’s take a look at some of the Indian Internet companies to see what they are doing to attract customers. Also presented are tips on how other companies can use some of these techniques:

Traditional media marketing: Air commercials on televisions, billboards, etc. This is of course an expensive way to spread the word. While the reach of such media is huge, the problem is that it is difficult to measure how many customers you have acquired directly because of these campaigns. As a result, only big companies with lots of money can use this technique. For example: media portal, travel portals MakeMyTrip, Cleartrip, Yatra and job portals Naurki, Monster, IndiaTimes Jobs have commercials on different TV channels and billboards in big cities.

Referral marketing: This is a scheme where you give additional incentive to already existing customers to do referral for your product/company. This is a proven model and the success comes with a cost – the referral reward. Some of the companies that are using this scheme are:

  • SeventyMM referral program: Get one sixth of your subscription fee waived for every new customer you bring in. So after you get 6 customers, your subscription is effectively free (well, as long as your referrals are active members).
  • MakeMyTrip High5 program: Gives you Rs. 500 coupon for every customer you get who signs up and makes a transaction.
  • Yaari referral program: First few members who get x number of friends to sign up on the site every month get an iPod nano.

Online Social Networks: With the onset of online user communities, lot of teenagers/youth spend quite a bit of time hanging out at these social joints. CEO Prerna Gupta is using an interesting approach to use this as a marketing avenue. She has created a profile on Orkut – a social networking site to promote her own Indian version of social networking community ! This is almost a free publicity medium. The key point here though is that it has to subtle. If you directly spam these places by creating a profile just for advertising, no one is going to pay attention. Other startups can take a cue and use this medium in other interesting ways. Like creating communities to start a conversation to introduce their services, get feedback or just to know the customers better. Other social avenues include popular blogs, which a lot of companies already try to have their presence in.

Sponsoring offline events/parties: Using this technique, the companies make an impression on the users’ mind that they are more than just an online service and are actually a part of the community. For e.g. organizes job fairs,, were seen sponsoring BlogCamps, organizes wine trails, cocktail making sessions etc. The point to note here is that this technique does not always involves big bucks for sponsoring big events/conferences. Events/Parties can be small weekend parties or other relevant small events. Interestingly, MySpace actually built their initial traffic using this medium as well.

Extravagant thoughtless programs: What do you do if you have tons of cash and you do not want to waste any time thinking of effective ways of promoting your site? Lottery! Search engine recently announced a $5 million sweepstakes program for new registrants to their website. I don’t know what others think, but I think this is the most stupid way to use $5 million for promotion of a website.

Simple creative marketing ideas: has recently started using autorickshaws as billboards. What a simple, creative and cost-effective of promoting their site! I think more such creative low-budget ideas need to be innovated/deviced by small startups. One medium that immediately comes to mind that can be effective, yet no one has used for marketing is mobile – more on that later. In the mean time, if you can think of some simple ways of marketing a site/service put it down here and we’ll discuss.

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