#pjfitzpatrick

This is my model for all B2B value propositions. I created it to better understand how our product is viewed by our customers. The important questions to ask are: what does your product accomplish for your customer, and what does that mean about the needs of your customers?

Mobile software marketers rarely have the luxury of having the time and/or money to develop a product or application for each mobile platform from the outset. This constraint forces them to choose to develop their product for either (largely) iOS or Android. And when talking about making that decision, I find that most often people look to market share as the deciding metric. They see that Android has taken the top spot for smart phone sales, and conclude that development should start there. But is market share the right consideration? No, it isn't. At least in most cases.

Hootsuite and Webtrends have integrated their products to give their users greater ability to track the effectiveness of social media campaigns. Messages broadcasted through Hootsuite can now be automatically analyzed by Webtrends to track the ROI of investments made in social media. This new integration can be used to justify social media investment and improve social media campaigns.

To justify any investment a manager must prove the benefit it brings to the firm. A simple and common way to do so is to find the financial return the company earns from the investment (the investment's ROI). To be worthwhile the investment should provide a higher ROI than alternative investments, while achieving the same objectives. By using Hootsuite and Webtrends to track click-through and conversions rates marketers can calculate the revenue generated from each post, and in turn the profit and use this information to prove their worth to their organization.

By tracking the success of each post marketers also have the ability to test different messages, formats, and content to build a more effective social media presence. A marketer can now send several versions of a message to several social networks and track which message and network combination generates the most revenue. The marketer can then maximize revenue by focusing their resources on that message and  network.

While tracking information of this type was possible before, this integration will save marketers a great deal of work. For example, later this month I will begin testing different messages on different networks for a client. We will run several experiments at once. This integration between Hootsuite and Webtrends would take care of setting up the tracking, and allow our team to focus on figuring out what the data means.

It is now possible to analyze every tweet every tweeted. The social media data company Gnip is offering access to every tweet ever written, giving anyone the power to analyze an immense amount of potentially valuable data. Only the Library of Congress has the same access.

Gnip expects their customers to use past tweets for research. They hope the data will be used to find correlations between tweeting activity and the outcomes of important events. They considers themselves the “plumbing” of online data analysis, and do not analyze the data themselves.

Gnip claims to have 90% of the Fortune 500 as clients, but how do their clients use the data? In one example, a marketer could study how past tweets affected product launches by studying the correlation between pre-launch tweets with post-launch sales. That understanding could then be used to predict the success of future product launches. In another example, Obama’s political campaign could analyze how Obama-related tweets correlated with his successful election in 2008 and then use that data to poll supporters in the 2012 election. Besides the prediction of events, the information could be used to collect product feedback, competitive research, or measure the success of marketing campaigns. 

I found a range of data on eMarketer that indicates LinkedIn is the most effective social media platform for marketers looking to generate B2B leads. Data from eMarketer shows that 61% of marketers who responded to a survey had acquired a customer using LinkedIn compared to only 41% from Facebook and 39% from Twitter.

Data from another study on eMarketer shows that 2.74% of traffic that comes from LinkedIn generates a lead while traffic from Facebook and Twitter only generates a lead .77% and .69% of the time respectively. This data indicates that if B2B marketers focus on LinkedIn they will see more than three times more leads per hit than with a focus on either Facebook or Twitter. I could not track down data that shows the number of leads each social media platform generates, but at the very least we now know that it is worth it to pay three times more for traffic from LinkedIn than from Facebook or Twitter.

When looking at buying a firm the most important thing to a private equity investor is whether or not the cash flows from the business can pay down the debt they needed to make the acquisition in the first place.

To explore the interest coverage concept, let's compare two investments made by different private equity firms: one made the first period and one made in the second. Let's assume that both investments were of a business worth $100 million dollars and both can borrow at 20%. Firm One put down 10%, and Firm Two put down 30%. Firm One borrowed $90 million and paid 10$ million; Firm Two borrowed $70 million and paid $30 million. Each year Firm One pays $18 million in interest, each year Firm Two pays $14 million. 

To cover their interest payments Firm One needs their business make at least $18 million a year in order to pay for the debt they took out to buy it. Firm Two needs their business to make $14 million a year.

What is interesting about this is that Firm One has the opportunity to make a much better return than Firm Two but they also take on much more risk.

Now let's say that both acquired companies produce $20 million in free cash flow per year. Both firms have interest covered. Firm One is at a higher risk because if something were to happen to the profitability of the business, EBITDA only needs to fall by 10% and they will not be able to meet their debt obligations; Firm Two's EBITDA would need to fall by 30% for them to not be able to meet their obligation. 

But let's assume that both operate for 5 years and grow their business's value by 50%. Both firms sell after 5 years for $150 million. 

Firm One has made 2 million each year from the cash flow that wasn't used to service debt ($10 million) and $50 million on the sale. Their total return is $60 million on a $10 million dollar investment - 6X return in 5 years (not bad!).

Firm Two has made $6 million per year ($30 million) and $50 million on the sale - $80 million profit. Better right? 

When I heard that Facebook announced they would purchase Instagram for $1 billion, I started to wonder how Facebook justified the price they paid. Why $1 billion? Only a week earlier Instagram was valued at only $500 million. Instagram has 30 Million users, which means Facebook paid about $33.33 per user. Is that expensive? Maybe.

To figure it out you could try to work out how Facebook will earn more than $33.33 per Instagram user. But instead I took a look at how much users on other social media communities are worth.  

I took a look at LinkedIn, the only publicly traded company that I thought was comparable. (Public companies publish a lot more information about themselves than private ones and their value is updated constantly, so starting with LinkedIn makes sense.)

On their first day of trading, LinkedIn was worth $8.9 billion (their market capitalization), and had about 100 million users. That values each LinkedIn user at $89 dollars. More recently, at the beginning of 2012, their value was $6.2 billion, with almost 145 million users - a value of $42.75 per user. Clearly market fluctuations and other factors are affecting LinkedIn's value, but what is important is that compared to either valuation of LinkedIn, Instagram looks cheap. If Facebook can quickly grow Instagram's userbase, it will get even cheaper.

To make the purchase look even better, Facebook can leverage it's immense resources to grow Instagram's user base. Already Instagram became the most downloaded app on Apple's App Store because of the announcement. 

It's likely that Instagram is not yet profitable (LinkedIn is), but this sheds some light on how expensive Facebook's first major acquisition was. If anyone has any other thoughts on how to value Instagram, I would love to hear them.

A favorite blog post of mine, and one of my most popular, is one I wrote about night clubs creating a lemon market for dating (Why it isn't wise to look for a date at the bar). A friend of mine recently did their own analysis and it was so good that I've decided to share it. They asked me to keep them anonymous, so I haven't provided their name.

The below was written about individuals (of either sex) looking for dates at a night club or bar. 

There is not a single underlying "quality" for each person. Instead, suppose each of us has two kinds of quality: Outside and Inside.

Outside can be directly observed: it includes looks as well as displays of wealth (clothing, shoes, jewelry, watches).

Inside can only be assessed via conversation (intelligence, wit) and observing behaviour over time (loyalty, truthfulness).

At a nightclub there are some impediments to observing Outside (the dark, the strobes you mentioned) but Inside is almost entirely unobserved at the bar.

So what should we expect? People who are strong on Inside but weak on Outside should definitely avoid bars.

Since a strong outside is observable in non-bar contexts, people have high scores on Outside and Inside will do better at some place besides a bar.

But people who are strong Outside and weak Inside will do better at bars where their weak Inside is difficult to observe.

Whether night clubs can survive as an institution depends on a large enough population of high quality Outsides that don't mind foregoing inside quality in their partners.