For the last two years I have been building a company called Matchbook. It’s an iPhone app for saving those must-remember restaurants that are probably cluttering up the notepad of your phone.
It’s been fascinating to build an iPhone app, talk to excited users, and learn about mobile user acquisition. I built it into a popular app with a very engaged user base, but now it’s time for me to move on to new projects. At the start of the year I sold Matchbook to Quotidian Ventures. There is a new team of great people who will be caring for it.
This is not one of those situations where I say it was acquired, only to have it shut down the next month. The new team is focused on Matchbook full-time, and they will continue to improve it. For those of you who are users, thank you for all your feedback and support. I’m leaving you in good hands.
Cross-posted from Business Insider
“Love ‘em or hate ‘em, you have to admit GoDaddy’s Super Bowl ads are effective.”
That’s how Mashable opened their recent blog post on GoDaddy’s biggest sales day in the company’s history. What’s perplexing is that the numbers don’t add up to a profitable campaign. In fact, they seem to suggest that GoDaddy lost up to $7 million dollars. Despite this, I applaud GoDaddy for releasing these numbers. This type of transparency keeps the cost of advertising in check by allowing us to calculate its value.
Here are the stats from Mashable:
- Hosting sales jumped 45%.
- Dot-com domain sales rose 40%.
- New mobile customers increased by 35%.
- The company added 10,000 customers in total.
We need a few more stats to calculate GoDaddy’s ROI:
That makes their customer conversation rate .009% (10,000 customers/108.41 million viewers).
The Cost Per Acquisition for GoDaddy is $750 ($7.5 million / 10,000 customers).
A campaign is only considered successful if it acquires a customer for a cost less than the customer’s lifetime value. In this case the lifetime value of a GoDaddy customer would need to be greater than $750 for this campaign to be considered successful.
Let’s gather a few more data points from GoDaddy’s website to calculate LTV (lifetime value):
Let’s assume that the average hosting customer stays with GoDaddy for 1.5 years, making them worth $89.82 ($4.99 hosting cost x 18 months). Some customers will cancel after a month or two, and some will stick around for a long time; 1.5 years is an educated guess on the average.
Let’s also assume that the average domain renews at least once since that happens automatically, making it worth $18.78 ($9.39 x 2).
Assuming that there was a 50/50 split in the products purchased, the lifetime value of an acquired GoDaddy user is $54.30 ($89.92 hosting + $18.78 domain / 2). That means that GoDaddy lost $660 per user ($750 CPA – $54.30 LTV) or $7 million dollars ($7.5 million – $54.30 LTV X 10,000 customers).
To be fair, GoDaddy was only reporting the number of customers they received on Monday, the day after the Super Bowl. They will likely continue to gain new customers for a longer period of time. Let’s assume that each day they acquire 20% fewer customers, as a result of the Super Bowl ad, than they did the day before. This should account for the ripple effect of media attention. That would mean that the Super Bowl ad would have a one-month effect, and GoDaddy would end up with 50,000 new customers. If we re-do our calculations:
Cost per acquisition: $150
Lifetime Value is still: $54.39
That means they lost $95.61 per user, or $4.7 million total.
I hear a lot of talk from marketers about intangible benefits. Maybe the intangible benefits of running a Super Bowl ad is equal to $4.7 million, but I have a hard time wrapping my head around that. An often-cited explanation is that the media buzz from running a Super Bowl ad exceeds the cost of the ad. According to the Wall Street Journal, companies value the media coverage at an additional $10-20 million dollars in equivalent advertising. Measuring the return on investment by calculating the value of the additional advertising they receive seems circular. Why aren’t they measuring their return on investment in sales?
This isn’t a condemnation of GoDaddy. It seems that the ad industry is significantly overcharging for their Super Bowl slots, and not delivering on their promise of customers. Companies are willing to pay, so you could argue that they are valued appropriately for demand. However, as we move away from traditional marketing and towards measurable user acquisition, I imagine that will change.