The incredible danger of third-party payee systems
USA Today and Get Rich Slowly both featured an absolutely amazing statistic recently that blew me away:
The amount of student loan debt outstanding in the US now exceeds the amount of credit card debt outstanding.
Rattle that around in your brain. The legions of people buying crap they don’t need with money they don’t have are now second to kids accruing massive amounts of debt for an education of questionable value. College tuition has gone up to astonishing highs, in which students are graduating with a bachelor’s degree at price tags of a quarter million dollars.
How did this happen? Why did this happen? The answer lies in third-party payee systems. Here’s what that means. You generally don’t pay cash for college. You take out loans, you get scholarships, etc. Uncle Sam pitches in with loans, too. What happens then is that the price becomes decoupled from the people who pay it. Colleges effectively are getting their money from banks, not consumers, and banks in turn get their money from consumers. The problem with decoupling cost from buyers is that it changes how market forces work.
In a normal market, prices change demand. If you raise your price to be too high, people will stop buying your stuff. They’ll find cheaper alternatives or simply do without. As a result, you have a soft cap on how high your prices can rise before your business becomes unprofitable and you have to bring prices down, or competitors step in to take profits at slightly lower margins, forcing you to reduce prices.
In a third party market, if someone is paying the bills and passing the costs on, neither party has an incentive to control prices. Neither party benefits from regular market forces – in fact, quite the opposite. Both parties acting on behalf of the consumer have strong incentives to make things as expensive as possible as quickly as possible. A good example is real estate – if you had to pay cash for a house instead of borrowing, there’s a good chance that:
- many people wouldn’t own homes
- those who owned homes would have bought them for materials cost plus labor
Once you introduce a third party into the system that pays on behalf of the customer, prices and reality begin to dine at separate tables. It takes much, much longer for a price increase to change the consumer’s behavior when a third party is paying on behalf of the consumer, and as a result, prices rise at amazing rates.
The only way to get prices back down to earth on any third party system – healthcare, college, housing, etc. – is to remove the intermediate party and recouple prices back to the consumer. The consequences of doing so are drastic, possibly economy-breaking. Colleges would lose 80% of their students overnight until they adjusted pricing. Houses would sit empty for years, or possibly never be bought at all. Healthcare would be denied to everyone but the wealthiest at first. It’s this nuclear scenario that prevents us from making substantive changes that in the long term would benefit us, but in the short term would be incredibly painful.
There is one other option, one which holds more promise, and that’s revolution. Online marketing has made life very hard for direct mail marketers and other channels. Online forums have been the death knell for newspaper classifieds. Once the way of doing business is shattered by a completely new model, the old model becomes affordable as the market leaves for greener pastures or is rendered irrelevant. Education is headed this way rapidly: why pay $250,000 for information and skill you can acquire with Google, iTunes, and online learning? Eventually, colleges and education groups may realize their role isn’t the dispensing of knowledge, but the certification that you have it and can wield it. Certification comes at a much lower price tag than today’s current model.
What do you think? Is college worth it? What about home ownership or other third-party payee systems?
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Premium content results: the first 24 hours
Last week I told you I was trying an experiment with my newsletter, announcing a premium content feature experiment. While the full scope of the experiment will still play out over time, I thought I’d share the results of the first 24 hours. Future updates and a more formal case study will likely be published by Blue Sky Factory down the road.
In the first 24 hours, the newsletter went out to 9,533 active subscribers. (there are more total, but some deliverability issues from me not following best practices bumped that down) 1,448 people opened the newsletter in the first 24 hours, or about 15.2%. Of those, 159 “upgraded” to premium content, or 11%. I was predicting 2-5%, so 11% makes me very happy.
Now, if I didn’t ask for money, what did I actually get?
The same thing that I’ve been preaching about since I first heard Jeff Pulver say it in 2006: we live or die by our database. I was able to get 11% more data on the people on my mailing list, from names to titles to companies, and let me tell you this without breaking any confidentiality: you folks on my list are a damn impressive crowd. Lots of entrepreneurs, lots of business owners, a bunch of VP/EVP folks at Fortune 500 companies, and a few people that even made my jaw drop. Hi there. I suddenly feel like I’ve been wearing a t-shirt and jeans while not realizing I’m at a black tie party.
I would have known little or none of this had I not done the premium upgrade experiment.
A few things that made this work. First, the dynamic content feature in Blue Sky Factory’s Publicaster email marketing software made it incredibly easy to set up logic loops (if/else statements based on database variables) to dynamically change content based on what was in the database. More important, once you “upgraded” to premium, you could visit the web-based version and see your upgrade immediately.
The second thing was a concept that John Wall, my Marketing Over Coffee co-host, talks about frequently, the greyed-out feature. Some software, like Zoho CRM, does this brilliantly. It shows you exactly what you’re missing with a subtle (or not subtle, in my case) message saying, “if only you had paid a little more, look what you could be using right now”. By putting content placeholders in the premium spaces with a clear call to action for an upgrade, it was relatively obvious what you were missing if you weren’t a premium member and there was a path to upgrade immediately.
The third thing, of course, was that the premium upgrade cost no money. As one subscriber pointed out to me privately, most premium upgrades cost money, and so to see one that did not likely made the upgrade path easier.
Will I continue with premium content in my newsletter? Absolutely. In addition, I’ll be making a few minor changes here and there to create content that better suits my audience, now that I know who you are a little better. For example, I need to do some DNS work to improve the deliverability of the newsletter. I’ll also be upgrading its design some from “slapped together in Dreamweaver” to “slapped together in Dreamweaver and then asked a designer for their opinion”.
As my experiments continue, I’ll share more results with you, but I have to say in the first 24 hours of data and results, premium content as recipe for marketing (and upgrading your email marketing list) is definitely working better than I’d expected, and is something I’d recommend you investigate for your own marketing efforts.
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How to tell if you need a mobile strategy right now in 3 steps
2011 is being promoted as the year of mobile, when mobile devices eclipse the desktop, when the iPad 2 and the Android tablets dominate computing, and various other bits of hype. But how much should mobile matter to you and your business? Unquestionably, you should have a mobile strategy, in the sense that you should have mechanisms in place to serve up content targeted at the mobile audience. How do you know what to measure, though, in order to determine how pressing a need this is? Let’s take a quick look at a few important data points.
Every installation of Google Analytics has a custom traffic segment called mobile traffic. Log in, go to your Analytics account, and turn on this segment in the upper right hand corner.
Now browse to your visitors tab. What percentage of your traffic is mobile?
- If it’s higher than 1%, you need to start thinking about a mobile strategy.
- If it’s higher than 10%, you need to be turning your mobile strategy on.
- If it’s higher than 25% and your mobile strategy isn’t in full swing, you are losing business to people who don’t want to navigate a mobile unfriendly site.
In this case below, almost 10% of my site traffic is mobile. Luckily, I’ve got at least some mobile-optimized content up:
Let’s take a look at two other data points worth noting. Look at your new vs. returning visitors. What percentage of each is mobile traffic? If your returning visitors (fans and customers) are using mobile in any serious way, then you’re annoying them by not offering up mobile options. If your new visitors are coming from mobile traffic, then you’re turning away business and you don’t even know it.
The last area worth noting is traffic sources. Pay special attention to how much search traffic is coming in by mobile device. There is a very good chance if you are a brick and mortar location that an increasing amount of your traffic is coming via search from a mobile device because people are trying to find your business while actually nearby. Make absolutely sure that your mobile content display gives the items that mobile, location-aware searchers are looking for: where you are, how to get there, and who to call.
If you’re not getting any mobile traffic at, that raises two questions: why not? and what should you be doing about it? As more and more web traffic migrates to mobile devices, you should see an increase over time in the amount of mobile traffic that you see on your sites. If you see none, that means you’ve likely done zero optimization for mobile and local search. At a bare minimum, register your site with Google Places, and consider at least starting a free account (plus profile data) on Facebook, Yelp, Foursquare, Gowalla, and any other services that heavily promote mobile usage.
Mobile isn’t just a trend in marketing – it’s rapidly becoming one of the most dominant trends. Use these tips to diagnose where you are and where to head next.
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Experimenting with premium content
In my next newsletter coming out some time next week, I’ll be experimenting with premium content using Blue Sky Factory’s Publicaster email marketing software. I’ve just about got all the pieces assembled and figured out, so that everyone will get the newsletter, but premium members will see more content in the actual newsletter than non-premium members. For example, a paragraph or a section might not be included for non-premium members, but would be there for premium members.
If you’d like to participate in this, it’s really easy to become a premium member, and no money is required. Just make sure you are subscribed with all of the information filled out on the newsletter page. What I’m going to do is pretty simple: I’ll do a database export of everyone who provided complete information and mark you as premium. If you’re already subscribed, make sure your information is updated so that everything is filled out.
What sort of premium content will be included that would make it worth it? I’ll drop this hint: some of my favorite WordPress plugins (and why).
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First impressions: iPad 2 for marketers
When they’re not staring at Charlie Sheen, the mainstream media will be drooling over the iPad 2. But what does the magical device hold for marketers? Quite a few goodies, at least from my perspective.
Content creation. Onboard video editing means videoblogging on the go. iMovie’s interface, already pretty good, will work even better on a touchscreen because it’ll be that much more intuitive to simply touch, drag, and move around video clips. Assuming that the iPad 2 maintains all of the existing functionality, you’ll even be able to load stuff from Dropbox to the machine, edit there, and then send back, probably through iTunes.
Onboard audio editing means the same, but for audio. That’s right folks, podcasting from the iPad. Lest you’ve forgotten, Garageband for the Mac is one of the easiest way to get podcasting. With Garageband appearing for the iPad, doing your basic audio editing and podcast preparation, if not publication, means that there’s no excuse not to podcast if you have the gear already.
Data management. The mobile hotspot functionality on the iPhone means you’ll have a roving hotspot for the iPad if you need it, and that means even more opportunities for working remotely, working on the go, and even limited data throughput on places like trade show floors.
Speaking of trade show floors… front and rear cameras on the iPad not only mean more impromptu videos being shot, but it also means apps like Shoeboxed’s business card scanner will see a lot more use on the trade show floor and at conferences. Likewise any web-based app for registration, ticketing, or other forms of data collection. Don’t forget to put some QR codes on your business cards, by the way. The iPad cameras with the right apps will pick those up easily.
Whether you’re at the trade show booth or in the conference room, the video mirroring application is likely to help presenters and speakers like me do a lot more with interactive presentations and much less raw slideware. I’m salivating at the idea of presenting with the iPad, building a mind map in real time on the unit, showing it on the big screen for audience members, and collaboratively putting together a takeaway from a conference session that will be unlike anything you’ve ever seen before. And sales demos? Get ready to go big. Walk into any major corporate boardroom and there’s a flat panel TV in there. Just plug in and you’re ready to go.
What’s your take on the iPad 2 for marketers?
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