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Revenue Matters

Friday, May 28th, 2010

Revenue growth is the foundation of all businesses, including our own. So it’s heartening to see our accomplishments recognized by Lead411 in their recent release of “Silicon Valley’s Hottest Companies”, in which companies had to show 100% growth over the past three years. At a rate more than double that Vindicia obviously qualified, but more importantly we’ve proven a point that companies can actually show real GAAP revenue growth that encompassed a period of significant economic turmoil. For that we have to thank our customers who have proven that the digital wave is cutting a wide swath through all businesses, from publishing to video games to software, and that customers are more than willing to pay for a compelling experience that offers more than just access to a service.

We continue to focus our attention on enhancing the capabilities of our clients to broaden their acquisition capabilities and optimize their retention rates. To that end, stay tuned. We have some interesting product news in a couple of weeks.

Tags: acquisition, Lead411, retention, revenue growth
Posted by Sanjay Sarathy in Data Geek, Marketing Fury | No Comments »

Payment Method Breakdown for Digital Commerce

Tuesday, May 18th, 2010

Many of the questions we get asked about online billing are focused on how prevalent certain payment methods are and which ones our merchants should offer for their customers.

As our CEO discussed in his last webinar (Innovation in Business Models), the overall breakdown for payments by type across all ecommerce is summarized in the chart below with information from Javelin Research.

The 29% labeled “other” consists of everything from bank transfers (ACH / ECP), PayPal, mobile SMS billing and additional alternative payment methods such as BillMeLater. As this breakdown is measured across all ecommerce, the results are skewed towards internet retailers such as Amazon.com, Ticketmaster and airlines. For digital commerce (merchants only offering digital goods and services and driving revenue with subscriptions, virtual goods or virtual currencies), the results are even more biased towards payment cards. Also, the mix of alternative payments will be different with the most common ones being prepaid cards, PayPal, and SMS billing.

However, not all payment card brands are created equal – while we were digging through the mountains of data handled by CashBox recently, we found a nice high-level summary for the breakdown of the payment cards brands (credit & debit) that passed through our systems last year.

Visa: 63%
MasterCard: 26%
American Express: 9%
Discover: 2%

Or, to put it graphically:

As you can see, the overwhelming majority belongs to Visa, with Mastercard making up just over a quarter of card-based transactions. The other card brands (Carte Bleu, JCB, Diner’s) make up a negligible percent of transactions. Admittedly, this is skewed towards the US, as over 2/3 of our merchant’s customers pay in US Dollars. Combining this with the ecommerce statistic, this means that Visa is responsible for almost 45% of all transactions on the internet.

As always, your mileage may vary with customer demographic and product uniqueness, but the key takeaway for merchants should be to focus on the big 2 or 3 brands and think about reducing the number of payment card choices on your buy page.

Tags: credit cards, digital payments, microtransactions, subscriptions, virtual currency, Virtual Goods
Posted by Jeremy Nusser in Data Geek, Marketing Fury, Payments 101.201.301 | 2 Comments »

Dangers of Half-Sourcing Your Billing System

Monday, May 3rd, 2010

Accepting payments online is complicated, especially for companies selling digital goods and services. Because of the complicated nature, it seems like every day there is a new startup that is trying to revolutionize the industry with a new payment method, or billing solution to make accepting traditional payments less complex. Because of this, we are talking to more and more companies that are confused or that have been burned by choosing the wrong billing system.

Background

Let’s talk a little about what it takes to process payments online. The graphic below shows the major components necessary for a company to manage their customer’s billing plans, allow them access to the service, store their payment information and bill them on a regular basis through subscriptions or one-time purchases.

(more…)

Tags: billing ecosystem, digital payments, how to grow revenue, industry trends, scale
Posted by Jeremy Nusser in Best Practices, Data Geek, Marketing Fury, Payments 101.201.301 | 1 Comment »

Facebook Platform Trends

Friday, March 5th, 2010

Facebook is wildly popular, the latest comScore report shows that it currently has 38.3% reach across all internet users and they have doubled their unique visitors (111%) over 2009. Facebook’s success has led to a massive economy of third party applications built around their 400 million strong (and growing) user base.

Most of those applications make money through advertising or virtual goods and currency. Regardless of the mechanism, the underlying success factor is attracting a large number of users. That either creates an attractive demographic for advertisers, or creates a user base that will convert at some percentage into paying customers. Over the last few months Facebook made several changes that change the playing field for application developers monetizing on their platform.

1) The biggest of these changes is Facebook Payments. They’ve spent a lot of time working on building a payment infrastructure and it won’t be long before the only method of payment for applications will be Facebook Credits (at a 30% cut to Facebook ala Apple’s iTunes)- http://news.cnet.com/8301-13577_3-10460201-36.html

2) Secondly, there is an increasing shift towards limiting communication between applications and users, this has been ongoing for quite a while as Facebook balances notification spam and the major source of customer acquisition for many apps – http://www.readwriteweb.com/archives/facebook_silences_app_notification_spam.php

3) Facebook has been shifting more and more burden onto developers. This is a good thing overall for the community and encouraging developers to contribute value for the community. They are basically forcing their developers to shift from being a dev shop into providing a full customer experience including customer service, policies and monitoring. http://wiki.developers.facebook.com/index.php/Policy_Examples_and_Explanations

These trends will continue as Facebook continues to grow – it will be harder and harder to create a profitable business on their platform. The outstanding question now is will developers re-evaluate their relationship with Facebook and develop their own stand-alone portals? The difference between offering an application on Facebook and offering it on a stand-alone site used to be quite large, but that gap is narrowing quickly. The freedom to control the customer experience is compelling, as is the ability to control customer billing and put more revenue in your bank account.

Will Facebook work with developers and entice them to stay on the platform? Or will it become a marketing channel for users to get acquainted with off-platform brands? Either way, it’s going to be an interesting year for social apps!

For more on the tradeoffs associated with “on or off” platform applications – Susan Wu of ohai! has a great post on her blog.

Tags: facebook, industry trends, social apps, social games
Posted by Jeremy Nusser in Data Geek, Marketing Fury | No Comments »

Online Business Metrics

Thursday, February 18th, 2010

If you’ve talked to us here at Vindicia, you know that we’re passionate about helping online merchants grow revenue through increasing customer acquisition and retention. That might seem strange for a billing company, but we think everyone selling digital goods online should focus on the levers that really impact their business – and our billing solution provides some of the answers.

So what metrics should you be tracking to understand acquisition & retention? This will depend on the nature of your products, but the following are a good start:

Monthly Unique Visitors (Monthly Active Users for social network apps & games)
Campaign conversion
Trial conversion
Free to paying user conversion
Offer page conversion

The metrics above disregard the work necessary for SEO & page ranking in search results (which obviously affect customer acquisition), but they are a good place to start for customer acquisition. For customer retention, the basic list should include:

Customer Duration
Average Ticket Price
Number of purchases / month*
ARPU / ARPPU (monthly)*
% of payment failures (gross & net, where net = passive opt outs after retry schedule)

* = microtransaction / free to play specific metrics

The average customer lifetime value (ACLV – product of customer duration & average ticket price) will also inform customer acquisition spend in the virtuous circle of online businesses.

Now that we’ve discussed the typical metrics, let’s take a look at some baseline values by industry.

Social / Casual Gaming

Free to Paying user conversion – Many analysts are plugging in 10% as an intuitive guess. From our experience, this is a highly subjective number and our microtransaction-based merchants have conversion rates ranging from 6% to nearly 20%
ARPU / ARPPU – Again, the blogosphere has done much analysis on these numbers and the consensus tends to be around $0.40 for Facebook games and around $1-$2 per user per month for standalone sites. Our merchants in this space tend to range between $1.25 to over $2, so these numbers seem to be inline.
% of payment failures – This tends to be higher for microtransaction-based games than subscription counterparts due to the nature of “one-time” transactions. The gross payment failure rate tends to be around 30%-40% as compared to a 20%-30% rate for subscriptions. Note that the net payment failure rate after billing retries is much, much lower, especially for subscription-based games (typically from 3% – 10% total).
Number of purchases / month – Our evidence indicates that the paying users are making multiple purchases per month – from three purchases every two months on average for one merchant to several per month for others.

Premium Content / B2C Software / Subscription MMOs

Customer Duration – While this depends on the product and the relative value for consumers, most of our merchants are finding a customer duration of 6 – 18 months, longer if products are renewed annually.
% of payment failures – As mentioned in the social gaming section, subscription-based sites have a much lower net failure rate. Our merchants are regularly achieving 90%+ retention rates.

The metrics covered here are the ones that we are most often asked about, and this is an effort to share what we’ve learned from our experience running consumer sites and working with our merchants across different industries. As with any metric though, each of these will depend on the products offered, target markets and customer demographics. For further reading on these topics, I’ve suggested a few links below.

Customer Duration / ACLV

http://www.csb.uncw.edu/people/howe/Classes/MBA541/Customer_lifecycle.pdf

http://customerexperiencematrix.blogspot.com/2007/04/deltalytics-lloyd-merriam-comments-on.html

ARPU / ARPPU / Microtransactions

http://giffconstable.com/2009/07/virtual-world-and-social-game-arpus/

http://www.gamasutra.com/view/feature/4046/what_are_the_rewards_of_.php

http://freetoplay.biz/2007/06/28/economics-of-making-a-free-to-play-console-game/

http://dubitplatform.com/blog/2009/7/26/calculate-how-much-your-virtual-world-can-afford-to-spend-ac.html

http://lsvp.wordpress.com/2008/06/09/successful-mmogs-can-see-1-2-in-monthly-arpu/