5 Most Valuable Services Most Entrepreneurs Can’t Afford

I was very fortunate to be involved from the beginning of Ancestry.com: an internet startup that achieved positive cash flow (by July 1998) before raising outside capital. This required some self-funding, bootstrapping, and using all the online marketing tactics that we could discover. It also helped that we sold annual subscriptions to our online databases. We would collect the money up front, but recognize the revenue over a full twelve months. So we achieved positive cash flow well before we reached profitability.

The learning our small team gained when our funding was limited was invaluable. We had to be very guerilla and very creative. My favorite book in those days was “Guerilla Marketing Online: 100 Low-Cost, High-Impact Weapons for Online Profits and Prosperity.” Net.Gain was another classic title that shaped my views about how community would lead to content and commerce.

From 1998 to 2000 the company raised $75 million in venture capital, opened an office in San Francisco, hired several hundred new employees, including a new CEO and CFO who were going to prepare the company for an IPO. I moved from CEO to VP Marketing to General Manager of Ancestry.com to VP Interactive Marketing to VP Strategy, VP Corporate Development and finally GM of the MyFamily.com business unit. Wherever I felt I was needed, I would jump in and try to make things happen. As a company founder and director, and being very close to our CEO(s), I had the benefits of knowing everything that was going on in the company, and formed opinions on the employees, partners, tools and strategies that had the greatest positive impact on our business goals.

Like other dot coms, we spent money freely in order to build traffic to our web site. Eyeballs were our most important metric, revenue was second, and profits were a distant third. Wall Street was rewarding sites with huge numbers of visitors, betting that advertising revenues would follow, so spending money to bring traffic to the site was the main imperative.

When we could afford virtually any technology or service, I found a number of ultra-valuable resources that very few entrepreneurs that I know have ever had the benefit of even trying, let alone using day after day.

I decided today to list and describe the five most valuable services that I absolutely loved that most entreprenuers can’t afford. But as your internet company grows, you should plan to invest in some or all of these services in order to improve your intellectual capital, your efficiency, and maximize your business potential. Used appropriately, these services can generate an incredible ROI and give a company a tremendous competitive advantage over companies that aren’t using them.

1. Jupiter Research. I have to start with Jupiter. The idea for Ancestry.com was born at a Jupiter conference in September 1995 in San Francisco. Jupiter held conferences and published analyst reports on everything related to internet business: e-commerce, internet marketing, consumer content, technology and infrastructure, and more. More than any other company, they fanned the flames of the internet revolution. They served up the koolaid, and I drank as much as I could get my hands on. Their projections about internet and broadband adoption, and their reports about consumer and business usage patterns told dot com executives what to plan for and what to build. I attended probably 6-8 Jupiter conferences, and we subscribed to several analyst tracks, paying probably tens of thousands of dollars per year for all their advice. We even hired Patrick Keane (now with Google) to consult with us for a day about our internet subscription business model. He was the subscription expert. Today, while most of the original Jupiter folks are gone, and the company was acquired by Internet Media Group (run by industry veteran Alan Meckler), they still hold conferences and they still have research you can subscribe to. Fortunately, they often issue press releases and all their analysts blog, so you can pick up a good deal of market intelligence for free until you can afford to become a full-fledged customer.

2. Audience Measurement Service. I remember running into the Media Metrix booth at Fall Internet World ’97 in New York City. They were publishing a free list of the Media Metrix 500–the 500 highest trafficked web sites in the U.S. It was in alphabetical order. I was so happy to see Ancestry.com on the list. Over the next few years we were active subscribers to Media Metrix, Nielsen Netratings, and later Comscore’s audience measurement services. Today I would probably choose either Comscore’s MediaMetrix 2.0 or Hitwise, a recent entrant into the U.S. market, but the one with the largest panel of internet users. All these companies have panels of from 50,000 to 25 million internet users who have given them permission to record their internet usage patterns: which sites they visit, how long they stay, etc. Based on these samples, the companies project overall internet usage. Comscore customers have access to a database of the top 10,000 most popular websites in the U.S. Hitwise customers have access to thousands of top sites in hundreds of categories. If I had to choose one service today, it would be Hitwise.

Why is audience measurement so important? First, if you want to dominate your industry, you need to know exactly how well all your competitors and potential partners are doing. The fastest way to find them all and to know how they are trending it from audience measurement. Alexa is a free resource, but it’s not very accurate and the search interface is lame. Second, telling your story is a big part of the key in attracting investors, partners and even customers. When your audience measurement numbers look good, you can use them to prove that your company story is playing out well. There’s nothing like a press release that says in effect, “Media Metrix reports that Ancestry.com is now the #1 genealogy site in the world.” These services provide credible data to help you tell your story. Third, by querying the audience measurement services intelligently, you can find all the fastest growing web sites, and then spend time figuring out how they are building such momentum. I used to spend hours locating all the fast-growing sites, visiting them, signing up, and figuring out which internet marketing tactics and web development tactics they were using to acquire millions of users–sometimes almost overnight. By learning from the successful companies, I could come up with dozens of new ideas for my own web sites. Netratings had a feature where I could see which web sites were sending traffic to my competitors. Fourth, you can use these sites to find partners, advertising venues, and affiliates. We recruited hundreds of affiliates and found dozens of high traffic places to test advertising campaigns on by using audience measurement services. Fifth, you can find companies and web sites to acquire using these audience measurement services. One of my greatest regrets at Ancestry.com was a missed opportunity. Using Media Metrix I came across a hot genealogy property called Genforum.com, the leading message board service for genealogists. We contacted the developer and offered to buy his company. But three weeks earlier he had signed a binding term sheet with our leading competitor. Our competitors acquisition of Genforum.com gave them a huge boost in the marketplace, adding hundreds of thousands of monthly visitors to their traffic. We had to build our own message boards on www.familyhistory.com, and it took us about 2-3 years to surpass them in message board traffic. If only I had used Media Metrix a month earlier to find this super valuable property!

The current audience measurement services cost tens of thousands of dollars per year and are therefore out of the reach of many internet entrepreneurs. Use Alexa as a weak proxy for now, but figure out a way to become a subscriber to one of these supervaluable services.

3. Web Analytics. Before Omniture, Coremetrics, and Websidestory were robust enough, we had to build our own web analytics system. Jeff Brody, programmer extraordinaire at MyFamily.com, created our marketing dashboard and wrote hundreds of custom reports that our marketing team could run daily to measure improve our performance. Today, many web sites use very cheap log file processing tools or very weak web analytics programs. The ROI for investing in a high-end service like Omniture Site Catalyst is phenomenal. When you train your team of web developers and marketers to test and measure all their site design changes, landing pages, and external campaigns, using Site Catalyst, you can eliminate all the mistakes from designers and marketers going with their gut feeling or their subjective opinion about how a page ought to be designed. All the most successful internet companies use these high-end systems (which generally cost at least ten thousand dollars a year) or have their own proprietary systems.

4. MarketingSherpa. MarketingSherpa is my favorite publisher in the world. They interview internet marketers weekly and publish the most valuable case studies on the planet. The get the details on how to build traffic, how to generate online leads, how to increase conversion rate, how to use offline campaigns to generate online visitors, how to improve the retention rate of your customers. I could go on and on and on. If you don’t sign up for all their free email newsletters then you’re missing out on a goldmine. A couple weeks after publishing their free email newsletters, they start charging $9 per case study. I have collected several hundred case studies in my email inbox and in my browser cache, so I’ve basically saved thousands of dollars already. But I have spent thousands of dollars attending MarketingSherpa’s annual subscription summit, buying transcripts, and buying their reports on email and search engine marketing. For entrepreneurs, MarketingSherpa material is the most valuable and least expensive of the tools that I am reviewing today. So make this the first service you plan to become a fanatical user of. Start with the free stuff, work up to the paid reports, and study this material in the way it deserves. They have the highest concentration of online tactics that work (with real world examples) of any publisher in the world. I wish MarketingSherpa would launch a $99 per month subscription service that would give me full-text access to all their material and a search engine and taxonomy that would make it come alive. My own cobbled together system isn’t convenient enough for me, and I have missed a number of valuable email reports.

5. Affiliate Network. Affiliate marketing is my favorite form of internet marketing. Amazon has over a million associates, promoting their products in exchange for a small commission. When I left Ancestry.com we had more than 30,000 affiliates. It was our most profitable and productive internet marketing program at the time. We paid a good deal of money to launch our affiliate program on BeFree.com, one of the three major affiliate networks. Most internet companies try to avoid the expense of a third party service and try to launch their own program. You can use low-cost server software from Kowabunga (acquired today by CGI Holding Company) or DirectTrack. While there are some negatives to belonging to one of the big three networks, Commission Junction, BeFree.com (now owned by the same company), or LinkShare, I’ve always felt that the benefits far outweigh the expense.

The interesting thing today about affiliate marketing, which is usually based on the pay-for-performance model, is that search engines might end up morphing into affiliates. Bill Gross’ latest search engine, Snap.com, has launched a cost-per-action model where Snap only gets a percentage of the revenues that come from its referrals. If click fraud continues to spin out of control, I wonder if Google and Yahoo will someday have to embrace the cost-per-action model as well, which will make them superaffiliates as well. I hope things don’t come to this, but if the $1 billion fraud estimates in the pay-per-click industry are accurate and if this continues to grow, then a cost-per-action model might be the only long term solution.

Honorable Mention

A few other expensive services that most internet entrepreneurs can’t afford come to mind. I’m just not as prepared to write about these off the top of my head as I was about the top 5. But here they are:

  • Robust email marketing solution that offers personalized email to each customer/prospect. (Early on, in 1998, we invested in UnityMail, which was a good solution at the time, but it wasn’t as scalable as what we needed and the price keep skyrocketing.)
  • Ad serving technology. We used Adknowledge in the early days, which I loved, and then we invested in software from Accipiter. We could serve ads and change ads on the fly, and run real-time reports on which of our creatives (ad banners mainly) were generating the most click-throughs and sales. Having this real-time intelligence allowed us to refine our message until we were maximizing the revenue potential of our own banner ad campaigns.
  • Keynote systems is a great tool for monitoring your web site uptime and speed from multiple locations around the country. If you get to the point where your site is generating thousands of dollars per hour, then you can’t afford a site outage or a site slowdown.
  • An onsite search engine. The best article I’ve ever read about how important on-site search is to revenue was published this week by Catalog Age. If you run an online company, I’m betting that your own onsite search engine is weak (most are), and that you are losing a great deal of revenue because the results you are given your customers are subpar. Invest in better technology and customization of your web site’s search results. I use a free service from Atomz.com for my Infobase Ventures web site (since it’s not an ecommerce site). They are a good company and are listed in Catalog Age as one of the vendors for commercial search.
  • VentureSource database from VentureOne. I have never personally used VentureSource, which is a database of all the venture investment and M&A deals going back many years. But at MyFamily.com we had a brilliant young investment analyst who helped us with our acquisition strategies and he used this tool very effectively. It’s the best way to figure out how to price a deal. All the VCs use this database, and they have a great advantage over entrepreneurs who don’t usually have any insights into recent deal terms and valuations. There used to be a great free service called VCbuzz.com which announced all the new venture investments and now I still get free emails regularly from VentureWire announcing new deals. It’s important for entrepreneurs to find out who is getting funded and how much money they are raising. Many times they are your competitors or potential customers (now flush with cash) and you need to be aware of strategic opportunities. I sometimes wish I could spent full-time watching VC investments and analyzing how new VC bets are going to impact existing businesses and industries. It’s fascinating stuff and one thing that makes our economy so exciting and so unpredictable. Within five years of raising venture capital, Google is the most valuable search engine in the world, with a market cap that rivals eBay. Within five years of raising $130 million in venture capital, JetBlue is the second most valuable airline in the United States. It is so fun to try to spot the next eBay, Amazon, or Yahoo. It’s also fun to predict which online companies are going to fail. But alas, I’m an entrepreneur, not an investor, so I can’t afford to spend all my time analyzing and studying this fascinating field. Someday I hope to start a company that will do this for me, and just feed me (and other paying customers) their analysis, based on the tools and data that we will have access to.

Please comment on my list. I want to know what I’ve left out. If you have experience using other expensive (and therefore unaffordable for most startups) tools or services that could dramatically benefit internet companies, please let me know.

5 Comments

  1. Steve

    Great article Paul.

    It’s always fascinating to learn how the “other half” does business (those companies that have money to afford any service they want.)

    I’d be interested in a follow-up article listing free or minimal cost options that you would recommend as the best alternative to each of these expensive services. Is there even such a thing? (Besides the “Power Tools for the 21st Century” services that you’ve already given us.)

    Thanks

  2. I second the request for cheap tools the rest of us can use. I want to know about the web analytics that I are cheap, the cheap research tools, ways to cheaply set up a successful affiliate program.

  3. Eliot W. Jacobsen

    Paul: I wholeheartedly agree with the list you’ve produced and nicely described here. Stepping back a bit and thinking, I suppose I would add 2 items to the list.

    1. “a very good attorney”: It’s easy to think a corporat e attorney’s role can be filled by your brother-in-law or a neighbor or member of your church. But an attorney experienced with many companies of your type is probably one of the best coaches an entrepreneur will ever find. They’ll cost more, but in my opinion, it’s money well spent.

    2. “Monster.com”. Using an unlimited Monster subscription to search for resumes relevant to your industry is a great way to build an advisory board and management team. I’ve had great luck with this, but it takes time and careful search discipline and the Monster service isn’t cheap. (but you’ll pay for it several times over if you hire just one executive this way instead of using a search You also have to be pretty good at using your network (including Linked-in and Spoke)to build connections relevant to the people you find to make your cold call warmer. firm.)

  4. Jeff

    You mention Kowabunga as an inexpensive alternative to the big 3 affiliate networks, but failed to mention that KowaBunga now offers its own low-cost network solution, Kolimbo. Now that they have been acquired by CGI, this will put added pressure on the big 3 to lower their prices or lose clients.

  5. paul

    Something very few smaller companies do is custom research into their customer base. Or, more accurately, very few smaller companies do it well. It is so easy these days to set up a survey on the multitude of survey sites and host it on your home page. These small surveys get great hit rates but the number I have seen that just ask the wrong questions is amazing. The good old 80/20 rule still applies to Internet businesses, companies that don’t bother to find out the attitudes/needs/thoughts of that vital 20% are flying blind when making key strategy decisions.

    Otherwise, I agree with the list wholeheartedly, especially Jupiter at #1.

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