Employing Market Leverage + Subsidies

Sep 29th

Are You Employing Leverage?

A few months back I had a chat with ShoeMoney and we talked about a lot of marketing stuff. He always speaks of the importance of being able to leverage success to build other related projects. It is typically worth far more money to be a lead player with projects that build off of each other than it is to be a #10 player in many different markets trying to build disconnected brands that can't feed off each other. Even traditional slow moving publishing organizations like newspapers are aggressively leveraging network effects in their SEO strategy.

Networks Allow You to Come From Behind

When you look at Theme Forest they came late to the market, and yet are many times as large as competing businesses that are twice as old. Envato was launched in 2006, and in spite of coming late to market they were nearly instantly successful. Owning popular blogs helped them create thriving marketplaces, and the marketplaces help them make the blogs more popular. The promotion is circular.

Most Leading Web Companies Use Networks

Larger web networks like IAC, Amazon.com, Yahoo!, Internet Brands, Quinstreet, Expedia, Classified Ventures, BankRate, Monster.com, and Demand Media employ the same tactics. At $170 million Mint was a cheap buy for Intuit just to block out competition. Any additional distribution and cost savings are a bonus. Once you have distribution you have free inventory to promote a new site into a related vertical. And this strategy works with smaller niche sites as well. Publishing this site made it easy for us to get a lot of exposure for my wife's PPC strategy flowchart.

Subsidizing New Channels

Everything that is free is subsidized. And rather than trying to squeeze the maximum returns out of any given project it is often better to look for ways to add more value. The best businesses that are sustainable create more value than they capture. Once you have multiple monetization models and multiple income streams you can be flexible with your approach to growth.

Keep Bolting On Pieces

We originally gave away free SEO tools mainly with the ideas of building links and promotion in mind. But now they also help establish a customer funnel while commoditizing the value of some similar business models. And because many of the tools are decentralized (as Firefox extensions) maintenance costs are much lower than someone who centralizes everything. Our customers on average tend to be toward the more sophisticated end of the spectrum, so giving away useful and extensible tools helps us meet that market. But a lot of our business strategy has been made up as we went along, rather than having an aggressive master plan in place.

Watching Big Companies Develop Strategy

Some companies are driven by big goals and 5 (and 10) year plans. Adobe bought Omniture and plans on offering deep analytics into user interactions with flash widget ads. Out of nowhere Adobe entered the ad market.

Renting vs Building

As Seth Godin highlighted, marketing has moved from renting an audience to building one:

This might be the most subtle yet important shift that marketers face as they deal with the reality of new media. Marketers aren't renters, now they own.

For generations, marketers were trained to buy (actually rent) eyeballs.
...
Suddenly the new media comes along and the rules are different. You're not renting an audience, you're building one.

Google is GOD of the Web

One of the best companies to study from the perspective of using market leverage to enter new markets is Google. Recently they struck a deal with Warner to bring their music back to Youtube. But even while their music was not on Youtube I was still able to listen to it - on Youtube ;)

Want to try Google's newest software in Microsoft's Internet Explorer? Continue at your own Peril!

Google is constantly trying to extend search. And their 4 step process to entering a new market usually consists of...

  • Make the service essentially free to buy marketshare, become the marketplace, and kill the business model for competing start ups in the space.
  • Promote it across search, the AdSense content network, and via a thick public relations program.
  • Use the work of thieves and the blurry parts of copyright law to diminish the value of non-partner content to try to force non-partners into a formal partnership.
  • 12 to 36 months later start charging a fair to normal market rate for the service. Claim the service makes no profits until it is an undeniable cash cow.

One of the more cynical, but perhaps accurate, in depth research reports on Google's use of market leverage is Scott Cleland's Googleopoly [PDF]. You might not be able to apply every idea in there to your projects, but it should help you understand where Google intends to intersect with your market and how you can leverage some of those touch-points to your advantage.

One last tip, from Larry Ellison, "Pick your competitors carefully for you will quickly come to resemble the companies you compete with."

Published: September 29, 2009

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Comments

September 30, 2009 - 4:45pm

"But a lot of our business strategy has been made up as we went along, rather than having an aggressive master plan in place."

I'm glad to know I'm not the only one!

October 2, 2009 - 9:35am

You certainly do benefit from having a central work-horse site. As you have said, this emphasises for people that a good strategy is to get one site done well first, then spread out to other niches. It can take several years to build your core service in the first place.

This brings me back to the question of whether to expand out with shallow sites or to build one or two core sites. It's easy to underestimate the amount of time to keep any website updated.

Personally, I have one core service site, which always had a two smaller sister sites. Afterwards, I created a related niche service that was able to start ranking almost immediately in second position on Google by leveraging the first site. The new one has been live a year already, and I'll need to keep working on it until it has established itself. I have a handful of other blog sites as well, but they never got anywhere.

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