A report was released to today by Borrell and associates showing the huge churn there is in small to medium sized business customers buying paid search. Greg Sterling and David Mihm gave some excellent analysis on the report but in short it said that:
The local search advertising market is huge and there has been some significant growth by industry players such as Yodle, Reach Local, and Local.com
Being a great sales force is one thing but re-sellers of the major paid search need to find ways to add value. This make sense as a smart business will always be asking what are they paying for and will eventually go direct if they dont see the value.
The biggest challenge for resellers is churn. Estimates are that 60% of customers leave every 12 months. The biggest reason is that the small businesses not perceiving a return on investment, particularly in the first 90 days.
The reason for this failure is the failure for the re-sellers to clearly understand the amount of business being brought to the small business and clearly and easily communicating that to the owner. To a business owner that has just made thier first purchase of search engine marketing campaign to expect them to immediately understand the value of a click is naive. If I own a local restaurant do my 500 extra clicks on my website per month result in a good investment of my $500 per month. When they read that i bet most owners dont think it does. If they can show it resulted in 50 new reservations, then it is so much easier for the owner to understand without having to be an SEM expert.
Tracking online reservations and calls sent to a business is the only way to determine the true effectiveness of a local search marketing campaign and until the business models and sales commission structures are based around that then there will always be some misalignment between the business, the local search directory and their users. The industry isnt there yet and its because half of the 100,000 sales people selling to these businesses are yellow pages and local newspaper people so its the history of those industries that are still leaving thier legacy.
If you are interested in learning how to re-align your online directories to be more inline with business owners and users get in touch with dean (at)bookingangel (dot) com or follow me on twitter
Open Table IPO seems to be the oasis in the desert of tech public listings but is it simply a mirage?
There is no doubt that there is a worldwide meme in online reservations /bookings and Open Table has benefited from this. Check out Google Trends to see what I mean. People trained in booking their travel online now understand the convenience of organizing their life online and want to be able to do it in other areas of their life. There is no doubt consumers like online reservations, as they become more trusted they will continue to grow. The question is how do you get restaurants to adopt it and how do you make money. Sarah Lacy wrote some interesting points in a recent article. Its a good article along with some of the other articles she links to and I agree with some but not all of her points
She highlights how difficult the sales model is. It has taken Open Table $48million in funding and 10 years to enable 9000* restaurants with their technology, most of which are in the Bay area and New York. Thats a pretty expensive cost of acquisition and its because they have to convince a restaurant owner to completely change their behaviour, to throw away the restaurant diary which worked pretty well and replace it with a complicated computer terminal that all of the staff will have to be retrained on and that will inevitably, like all technology go down. Tough sell.
I dont think local has to be hard to monetize its just about understanding that business just want more business. If you are selling them more business, they will pay for it. Its just when you try to sell them a monthly subscription that offers them no benefit that it gets difficult. Business owner in the past have all been ripped off by some advertsing / yellow pages sales person that sold them ads or services that didnt bring them business but if you can prove to bring them business they will pay.
I understood from being in the tech industry for 5 years before buying a share in a bar and restaurant that the problem is not that local / small business people are luddites, its that they are so damn busy working in their business. As a restaurant owner I was pitched advertising / new business opportunites 3 or 4 times a day. The only things that got any of my attention where things that guaranteed me more business at a reasonable cost.
That is what we realised in the beginning with Booking Angel. You get maxium adoption with the least friction when you fit in with the way that restaurants work today, make technology work for the business. You can then slowly start to bring them more business and only offer them more advanced technology solutions when they are needed and not before.
Compare the stats.
Open Table Funding prior to IPO $48 million - restaurants enabled 9000
Booking Angel funding to date $250,000 restaurants enabled 27,000
Its exciting times ahead for this industry. Opentable proves there is a large market and services like ours prove there is an easier way to approach it.
*(There are over 220,000 full service dining resaurants in the US according to the National Restaurant Association)
Do you know more people search for “restaurants” than “travel” on the internet? Millions of potential customers are walking past your virtual front door every day. Are you really open for business on the internet? How do you make sure you get this business instead of the restaurant down the road. Its all about understanding your customers better and talking to their goals in a relevant and succint way.
Who visits your restaurant and why? Who do you want to visit your restaurant? Maybe the competition attracts a type of client that you don’t or you have identified an untapped market you want to focus on. These need to be explored. Try and categorise these people into groups and understand their needs. Who are your most important customers? Rank them. Are your clients mostly tourists, business people or locals? Why are they there? Is it casual dining with friends, entertaining clients, holding a function, just a quick easy meal or walking past? When you know this you can prioritise their goals and focus your site, not just its layout but its language and style as well. For example you might conclude that the most important customer group for your restaurant is business people entertaining clients.
Customer Groups >>> Business People Tourists Locals
Customer Goals
Entertaining clients
Holding a function
Quick easy meal
Walking past
Casual dining
Special night out.
The objective of your website should be to provide the most pertinent information to the right people at the right time. You will understand what type of customer already visits your restaurant and you should have an idea of the type of customers that visit your competition. That will help define how you structure your site. Dont get caught in the mistake of trying to be relevant to everyone because you will find on the web you will be relevant to nobody.
There is a fascinating presentation and webinar by the Kelsey Group on the Mobile Local Opportunity. The thing we probably all know but is recapped with detailed statistics in the presentation are:
That mobile web and search is being lead by the prolific uptake of smartphones particularly the iPhone and that the focus of usage has a partcularly “Local” focus
The share of total mobile search that is local is going to increase 27.8% of total searches in 2008 to 35.1%. What was fascinating though is that local search’s share of revenue is expected to be over 56.1% of mobile search revenue.
Mobile ad revenues although small in size relative to other mediums will experience exponential growth (85% CAGR)
The highlights for me were what exactly people are searching and are doing on their mobiles, how to monetize these opporunites and how effective the early results are for mobile ads.
People are searching for local products and services. Restaurants and bars is the most popular category with 43.4% of people searching.
Mobile ad click thru rates are great according to Verizon (2%) compared to web (0.25%)
Mobile ad recall ratesof 33% (41% for iPhones) - and half of these people actually responding to the ads
There was discussion of other monetization methods: Cost per acquisition ie online reservations, affiliate models etc
I think this steers to a point I have been talking about for years. Cost per acquisition business models will be what makes local search explode. Why? Small business dont track their clicks and understand thier cost of acquisition online, they are lucky if they have a website. We have to make it simpler to get mainstream adoption. ie they are only paying a fixed fee for each new customer and dont ask them to change the way they already operate. Make the web and mobile work for them!
In the next post I’ll talk about some of the problems with implementing CPA models in local and some of our solutions
I was reading a post here on the Silicon Beach Group. Elias Bizannes from Pricewaterhouse Coopers had an interesting framework for looking at consumer internet companies. I think its a good categorizer (is that a word) but I recall in the early days I did a slide that tried to distill how we could make Booking Angel successful. Its probably over simplified but I like simple explanations of the world.
Firstly the Internet is all about engagement and transactions. How many eyeballs do you need to attract who will transact with you and how much will you earn. If you are a blog running adwords your transaction is someone clicking on an ad and as such you need to attract alot of eyeballs to make it successful. If you are social network like facebook who have struggled in the past to convince people visiting there to click on an ad, you therefore have to attract a lot more people or work out some way to convince them to click.
Not everything is ad supported there are subscriptions and product sales but it doesn’t really matter the success of a startup is roughly described by the graph below. If you wanted to put it in a formula the survival metric for internet companies in the next year is
Eyeballs x Conversion x $ Transaction > Expenses
In thinking about the companies that are making the real money on the Internet they have enabled other people to make money and have shared in their success. They are the business models and enablers of the Internet. Why is this cool? Its obvious you have other people working on attracting eyeballs for you. Google has been most successful because they have done it without needing the consumer to actually transact ie pull out a credit card and hand over money, all they have to do is click. There is also some argument that Google ads provide some user benefit because theier text ads are in context and relevant.
Imagine if someone came up with a widget that was distributed in a similar way to adwords that actually provided some real user benefit right at the most appropriate time. Imagine visiting your favourite review site, reading a review on a few businesses and then this widget is right there allowing you to make an online reservation, imagine if you were the owner of this website and this useful widget earned you $$ every time a user did it. Now go one step further and imagine you owned the business that was being read about on that website and you only paid for confirmed appointments or reservations made through this widget…. Isn’t that a perfect simple beautiful world. We think so.
I know I have been a bit slack on the blogging. The Always On conference was interesting. I found the companies and the networking much more interesting than the content this year. Some interesting sessions I saw on location based services (you can also view all sessions online) There was a lot of talk about Video, which suprised me a bit. Mobile was of course a hot topic. The other Australian companies represented there did us proud. They were all companies I had not met before (except for Martin from Red Bubble) but are making real progress with some awesome technologies. You can see the presentations here.
The companies were”
Contivio - Call centre functionailty in a browser
Loop 9 - SMS travel concierge
Greatest Asset - Health management programs for large companies
Red Bubble - Community for artists to create, sell and connect
SmackBiz - Corporate Video Storage
I also got interviewed by some bloggers at the event. See below. Lucky it wasnt a bit later once the martinis they were handing out kicked in
I am often asked by Australian entrepreneurs getting started about raising money. Not that I can claim to be an expert, but I guess I have a few war wounds from raising $450K from 2 incubators, an angel, Visa, Friends and family MasterCard, American Express and some government grants. I am also currently in the US starting to get to know who the good investors are. So I thought I would share some of my experiences so that it might make it easier for some of the Aussie Entrepreneurs getting started now. I believe we Aussies have some great ideas and skills and we just need to do more as a business community to nurture that into successful businesses.
A few rules or lessons on raising money: (I welcome any comments or feedback as this is by all means not a definitive list)
1. don’t do it. If you haven’t done it before it’s a pain and will distract you from your business. Try every other avenue before you look to outsiders for funds. Friends and family, mortgages, savings, credit cards, prostitution…just kidding. Its seriously hard raising early stage money in Australia and you will need more than a business plan.
2. Rather than spend money partner with someone who has what you need. If you don’t have the programming skills to build your great idea, partner with someone who does. If you aren’t great at networking or marketing then find someone who is.
If you have exhausted those options and still need to then I learnt a few things that may help you.
The amount you are raising determines the type of investor you are talking to.
Angels (rich folks with money to invest) – 10K – 500K.
Angel networks (ie groups of rich folks normally managed by 1 person) 500K - $2 Million
Government Grants (I’ll talk about this one in a later post)
VC’s early stage - $1M - $8M
Its really no point talking to VC’s unless you can demonstrate how one day you will be a $100million company. So most likely you will have to find some Angels - How? Start with rich people you know, if not try going to networking events, just meet and talk to people. Nick McNaughton gave some good advice at Angel connect and said find someone who has made a lot of money in your industry and contact them.
Valuation:
This is the hardest question I found at the start. My finance degree and a few people I spoke to told me that you work out what your sales and expenses are going to be and discount your cash flow some rate of return (20-30%). This is a good exercise to do and it helps you plan your business but I don’t think it’s practically how a lot of investors think, certainly not in the US (Maybe more in Australia). There are some benchmarks which I will elaborate on in another blog.
Let me know if you have tried raising money in Australia and what you found hardest at the start. If anyone is looking to raise, let me know what is puzzling you and maybe we can start a discussion about that.
We were really happy that Booking Angel was voted # 7 in the top 100 web 2.0 companies in Australia. There was a great article in the BRW discussing web 2.0, some of the companies and stakeholders involved. The list was compiled by Ross Dawson and the future exploration network.
i was lucky enough to be one of 5 CEO’s selected to present at the official launch hosted by KPMG. The best thing about the day was meeting so many people either working on interesting projects or really interested in what is going on in the web 2.0 space.
The full list of the top 100 companies and their description can be found here
The trend in online reviews driving more bookings in the travel industry is now starting to happen in the restaurant industry. According to a recent study by Comscore 79% of people who have visited a restaurant in the last 3 months considered online reviews to be very influential in their decision to visit.What was also interesting is that user reviews were given more influence than professional reviews (82% vs 69%). Power to the people , huh. Its not just about restaurants either it talks about several categories. Check out the release here
Booking Angel gives restaurants a way to tap into this opportunity. We will help convert more of these people reading ratings into customers. So which restaurants are getting the Bookings and how do restaurants tap into this opportunity? Our restaurants vary in size and style we have 3 hat fine dining restaurants like Tony Bilsons restaurant Bilsons through to family owned local restaurants …. Some of our restaurants have received over $50,000 worth of new business others only get a few bookings a month. What is fair about our service is that restaurants only pay for each booking they receive…. It gives restaurants a way to start to experiment with their online advertising. If the initiatives they are trying aren’t resulting in more bookings they will know and can start trying something else.”
Peter Barker Owner of the Pink Peppercorn restaurant in Darlinghurst said “The initiatives Booking Angel recommended resulted in about 30 extra bookings a week. That was around 80 extra covers.”
Pink peppercorn is typical of most Australian restaurants they either don’t take online bookings or take a long time to respond to customers when they email them. Booking Angel overcomes this problem as the instant somebody makes an online booking at the restaurants own website or at a website such as Eatability the restaurant receives a phone call and they just press 1 to accept the reservation or 2 to reject. The restaurant receives all the customers details and just records the details in their usual booking diary. They don’t need any special equipment just a telephone.
