July 22, 2009
By Mike Wehrs, President & CEO, Mobile Marketing Association
The worst economy in generations has VCs changing the way they fund young companies. Here's how that shift affects mobile marketing firms.
The mobile marketing industry is constantly changing, and the latest example is the way that younger companies and startups are funded. Gone are funding rounds that stretch deep into the alphabet. Instead, investors are focusing on companies that have technologies and business plans capable of delivering profits sooner rather than later.
That preference shouldn't come as a surprise, considering how the economy has venture capitalists hunkered down. Case in point: In October 2008, one prominent VC firm had a mandatory all-hands meeting for CEOs, the first such meeting since the dot-com implosion.
As attendees entered the conference room, they were greeted with a slide that showed a tombstone and the inscription "RIP, Good Times." During the meeting, one general partner stressed, "For those of you that are not cash-flow positive, get there now. Raising capital is nearly impossible if you're too far off of cash-flow positive."
Another agreed: "Getting another round if you're not profitable will be rough. Do everything possible to get to cash flow positive. Now." Yet another said, "You must get to profitability as soon as possible to weather this storm and be self-sustaining."
Such is the new reality facing all tech companies, including members of the mobile marketing ecosystem.
The new reality
Under the old funding model, startups got a seed round to build a prototype, followed by an A round to move that prototype to commercial readiness. The B round helped get the company cash flow positive and start expanding, and a C round could be added for tasks such as capitalizing on incoming opportunities and enabling faster growth. Each round typically had new investors alongside existing ones, with the latter usually reducing their participation each time.
Under the new model, a single VC needs to plan to fund the business from seed all the way through to the point where the business can fund itself. As a result, there aren't multiple VCs sharing the risk, so the company is under far greater pressure to get to a self-funding position as quickly as possible.
The upshot is that the new funding environment favors companies that have the best chance of being profitable quickly. By demonstrating a clear, fast return on investment to potential customers, a mobile marketing company creates value not just in the eyes of those customers, but of VCs, too. Because mobile marketing offers such a great rate of return in brand lift, CPM, CPC and CPA depending on what the customer is looking to measure, startups in the mobile marketing area can be highly attractive investments to fund. At the MMA we study our members and do research on them and aggregate that information to see the trends. It is clear that despite the state of the economy and the difficult funding environment, many of our small- to medium-size member companies that are specialized in delivering mobile marketing and mobile advertising campaigns are having a very good year with record revenues and profits.
"We work with about 18 mobile advertising companies, and we're clearly seeing a handful pulling away from the pack and earning more of our advertisers' dollars," said John Hadl, founder and CEO of Brand in Hand, which advises mobile companies and major brand marketers, with clients that include Procter & Gamble, Red Bull, American Express and General Mills.
Nothing sells like success
Effective mobile marketing benefits not only the brand but also the mobile marketing company in terms of revenue and profitability. For young companies seeking funding, the good news is that there are plenty of success stories to emulate. Some examples:
- In November 2008, Cricket Nirvana wanted to build awareness of its new mobile Internet site throughout India and parts of Asia Pacific. Its partner, mKhoj, designed banner ads with content--including live game scores--that refreshed every 60 seconds. Within the first week, the Cricket Nirvana mobile site averaged an incremental 72 percent page views per day. In the first three months, the site hit 8 million page views per month. The campaign helped Cricket Nirvana increase its brand awareness and its user base, and it encouraged repeat visits from existing users. As the traffic grew, so did the monetization opportunities because the site began to attract ads.
- In December 2008, Intel worked with Madhouse to launch a treasure hunting campaign on the mobile Internet to promote the Intel Centrino 2 processor. The campaign featured a mix of mobile ad formats, including video, banners and text links. In 18 days, 13,574 mobile users participated in the game, and 8,271,838 icons were collected.
- In February 2009, Hyper worked with Golden Gekko on behalf of Universal Pictures to develop an iPhone application to promote the new movie "The Unborn." The app was the world's first interactive movie trailer, and with no promotions, it went straight to the iTunes App Store's 10 most-downloaded free apps and stayed there for two weeks. Universal Pictures was so pleased with the campaign's success that it's now integrating mobile into its overall marketing strategy for the remainder of 2009.
These individual success stories also benefit the sector as a whole by helping convince other brands and agencies that mobile marketing is highly effective, with a clear, fast ROI. In the process, these successes also help convince VCs that the sector is a good place to look for young companies capable of becoming profitable quickly and self-funding soon after that.
"Mobile advertising is clearly a maturing medium," says Hadl, who also is an adviser to the VC firm U.S. Venture Partners. "Marketers are finding real value and ROI."
The bottom line is the bottom line. Demonstrating fast and significant ROI to customers and investors alike is critical. Today's funding environment is cutthroat and is focused on the business basics not on the hype. The opportunity that mobile brings allows innovative companies to deliver unprecedented value in a way that has never been possible before. For these reasons, it is the hot space to be in.
