Getting to the Top

It’s very gratifying to me to watch how quickly and successfully the data industry has evolved in its lead generation capabilities over the last two decades. We’ve moved from the legacy print directory model to highly sophisticated, multi-sourced signals and other inferential data to more precisely identify and pre-qualify sales leads. But where do we go from here?

I have long said that the path forward for data publishers is to move up the so-called value pyramid, from poorly differentiated “there’s a pony in there somewhere” lists that characterized the legacy print directory era to today’s evidence-based, high-confidence, highly targeted sales leads. The top of the value pyramid is actually making the sale on behalf of your customer, presumably in exchange for a sizable commission to justify the effort. Many data producers would be thrilled to shift from $100 sales leads to $10,000 commissions. But when you even scratch the surface of this idea, you see large obstacles, not the least of which is trying to scale a business model like this.

 So what’s the next highest level of value? Pre-qualifying leads. In this model, the data producer takes the leads it is generating, and further qualifies them by making direct contact, and asking, for example, “are you actively in the market for a new CNC milling machine?” If the answer is in the affirmative, you have developed information of extremely high value. A number of companies that sell technology sales leads have been doing this for a while.

 Alas, at the present time, this is a market-dependent idea. Technology marketing and sales teams tend to be highly sophisticated when it comes to lead management. But for most markets, as I’ve noted before, marketers are still out primarily looking for lists to load into automated marketing platforms, and most sales teams prefer to trust their instincts and sales prejudices over verified data, meaning great leads end up on the floor and the data producer is told its data wasn’t very good.

 All this suggests to me that for data producers to move further up the value pyramid, a lot of market education is going to be required first, and that will take a lot of time and resources. We’ll get there, but not anytime soon.

The New Privacy Laws: Be Prepared

First came GDPR (General Data Protection Regulation). More recently came CCPA (California Consumers Protection Act). According to experts, twelve more states are currently considering privacy laws of their own. Given the current political environment, there is little hope for a single federal privacy law. Short summary: it’s a big mess that is going to get even messier.

 For data producers, it remains unclear what the impact of these laws might be. After all, most of us are B2B companies, and most of us hold relatively little information on individuals. Does that mean as an industry we are safe? It’s hard to say, as most of the emerging privacy regulations are oriented to consumer companies collecting individual data incidental to their primary business activity. To date, no privacy legislation has specifically addressed B2B companies that collect data as their primary business, so it’s unclear if we’ve slipped past the regulators entirely or whether we may end up as unintended roadkill.

 An interesting set of short videos from law firm Baker McKenzie is well worth watching, if only to illustrate how far-reaching and potentially disruptive this new wave of legislation is likely to be.

 It starts with employee data – are you prepared to show an employee, on request, all the information you maintain on that person? It moves into marketing, where the contents of your CRM system are likely to be open to inspection by any individual requesting it – are you ready to share call notes and other third-party data you’ve collected? It probably reaches into your datasets as well: the more information you collect on individuals, even if public source, the more you need to prepare. You will likely also need to start re-thinking about the terms under which you license data. In this new world, lawyers are suggesting that B2B companies not hold onto data any longer than needed, not a great piece of news in an industry where building deep historical data remains a big opportunity area. In short, in some way and form, every data publisher is likely to be impacted by the emerging data privacy legislation. Worst of all, many states are giving teeth to their privacy laws by allowing private lawsuits. Yes, anyone with a privacy beef will be able to haul you into court and seek damages

We are moving into a brave new world in this area, and it’s going to be disruptive and painful. Like it or not, you’ve got to stay on top of developments here, because preparedness is the best form of protection.

You Will NEVER Replace This

Elon Musk is probably best-known as the founder of Tesla. When Elon isn’t re-inventing the automobile, he’s running SpaceX, a company that builds and launches rockets and spacecraft. To keep busy, he also runs The Boring Company that plans to tunnel highways under major cities to relieve traffic congestion (a company that also generated a reported $10 million selling flamethrowers to consumers – yes you read that correctly!). On the more esoteric end of the scale, he also founded Neuralink, a company focused on developing brain-computer interfaces. Love him or hate him, you can’t deny he’s brilliantly innovative.

Many people know that Elon Musk got rich as one of the founders of PayPal. Far fewer know that his initial business success came as the creator of an online yellow pages company called Zip2 way back in 1996. Seeking to partner with print yellow publishers, he and his brother visited a top executive at the largest yellow pages publisher in Canada. After pitching their vision, the executive responded by picking up one of his thickest directories off his desk, throwing it at them and saying, “You ever think you’re going to replace this?”

 Well, 25 years later, we know the answer to that one. Not only did the Internet replace the print yellow pages business, it largely destroyed the legacy yellow pages industry as well. Not surprisingly, the Musk brothers did well when Zip2 was ultimately sold for $300 million.

 But what caused the death of the huge and fabulously profitable yellow pages industry? At the time, a lot of people (including me) thought the Internet would herald a new era of growth for the industry. The answer, in large part, was hubris. 

Almost without exception, the big yellow pages publishers decided the fastest path to online riches was to take their regional products and go national. Overnight, these companies bought national business databases to roll out national yellow pages products. In doing so, they moved from having deep information on all the companies in their region, to having nothing more than name, address and telephone for all companies nationally. They vastly degraded the information value of their products in the belief that advertisers would flock to their doors. That’s critically important, because with yellow pages and buying guides, the advertising is the content.

That leads to the second miscalculation: these publishers all had regional rather than national salesforces. Good as these salespeople were, these publishers didn’t have the capability to sell nationally. This led to the third big miscalculation: the publishers all had regional brands and couldn’t come to grips with the fact that nobody had heard of them outside their regions. Without strong national brands, prospective advertisers yawned at these new national products that seemingly emerged out of nowhere.

Of course, the other big shift is that search engines got better. While still imperfect, in large part you now can find a plumber in your area with a simple search. And businesses flock to advertise on the search engines because with pay-per-click pricing, their advertising spend is now (at least in theory) more efficient.

The key take-away lessons for data publishers? First, a database that is a mile wide and an inch deep isn’t an effective product strategy these days. Far better to know a lot about a specific group than to know a little about everyone. Second, advertising-driven online data businesses are tougher than ever to pull off. Third, when you start believing your own press releases, things never end well. Fourth, when Elon Musk calls, listen before you throw something!

A Good Business in Bad Times

As I write this, the federal government has announced 3.3 million new unemployment claims – and this in just one week. In other words, this could likely represent just the tip of the iceberg. The human toll of the coronavirus is difficult to comprehend, with the toll on businesses not far behind.

In any sudden downturn, it has long been understood that some businesses will always get hit harder and faster than others. The rule of the game in any business downturn is to preserve cash in anticipation of reduced revenue. Consequently, expense reduction becomes the focus. Rightly or wrongly, most companies view advertising and marketing as something that can be suspended for some period of time with little consequence. Other business activities, such as company meetings and events, quickly get postponed. Every company reacts slightly differently, and often in uniquely arbitrary and sometimes ill-advised ways. But the goal is always the same: slow spending as much as possible to conserve cash.

With everyone trying to cuts costs and slow payables at the same time, an adverse ripple effect is created that amplifies the pain. That’s why in widespread business downturns, few businesses are left truly unscathed by the resulting fallout.

Can one ever find safety from events of this magnitude? Probably not, but while few if any businesses will be totally untouched, some business models are clearly stronger than others. 

The information business is inherently one of the stronger industries to be in right now. That’s not because information products are uniformly essential to their customers. We learned during the Great Recession that many information products believed to be “must-have” became “nice-to-have” almost overnight. But the B2B subscription model employed by most information and data publishers adds an important additional level of resiliency.

B2B subscriptions tend to be, in effect, annual or even multi-year contracts. Many are prepaid. Many are difficult to cancel during the contract term. This buys information and data publishers the most important protection of all: time. Time to ride out the storm, for conditions to improve or at least for calmer heads to prevail. Sure, new subscriptions will decline and renewal rates will drop during a downturn, but the bulk of the business will remain relatively safe.

In addition to being contractual and often prepaid, subscriptions to information products typically are not high visibility or so expensive that they capture the early attention of cost-cutters. And for data products in particular, they don’t sit idle during downturns like our current one, because they are just as useful to employees working from home.

Some data products have even a further level of protection because they are embedded into the workflow and systems of their customers. Simply put, it’s too slow, complicated and sometimes even risky to turn them off.

As I said earlier, there are no winners in a global pandemic. But the importance and value of data products, coupled with the strength of the dominant industry business model, will help this industry spring back quickly.

This pandemic is bigger than all of us. But if we all act responsibly, we can minimize severity and duration and get back to business sooner. Stay safe … and stay healthy. We’ll get through this if we all work together!

It’s Hard to Trust This One

Recently, ADP (the association of yellow page publishers, not the payroll company) announced something called “Trusted Local Directory,” an online directory of “Trusted Local Businesses.” To become a Trusted Local Business, a company is “thoroughly investigated” and if worthy receives both a Trusted Local Business seal for its use, along with a listing in the Trusted Local Directory.

I give ADP kudos for trying to find ways to breathe new life and relevance into the yellow page directory business, but I have to admit some skepticism as well.

First, this model is not a new one, and the track record of third-party trust evaluators isn’t a good one. Trust is hard. Perhaps more to the point, trust is expensive. And to a great extent, trust is in the eye of the beholder – simply defining how a company can objectively prove it is trustworthy is remarkably challenging. That’s why this is one tough model.

 Consider as a case study the Better Business Bureau (BBB). They’ve been providing assurances of trust for over 100 years. But they’ve come be viewed as a consumer advocacy organization when in fact they are supported by their business members, setting up all sorts of inherent conflicts. Moreover, new BBB business members automatically receive a top rating upon joining. The rating may then be reduced over time depending on how the business handles its complaints. That’s a loophole that scammers can drive a truck through. Moreover, BBB has set itself up to process and resolve mountains of consumer complaints, something it doesn’t get paid to do. More fundamentally, BBB has a pay to play business model. It makes no money unless a business becomes a member, and once a member the business automatically receives a top rating from BBB.

If BBB has trouble with this model, consider that ADP has the additional hurdle of being an unknown brand. Moreover, rather than leveraging the directories of its members, ADP has created the Trusted Local Directory as a new directory site that will need to build usage from scratch, a daunting task at this late date. And lest you think that the Trusted Local Directory is a directory of trusted local businesses, be advised that it appears to be a national directory of all businesses, one that offers no more than business name, address and phone.

An online directory of trusted local businesses could be a good and useful product. But the business model inherently fights you every step of the way. A directory like this needs a critical mass of businesses to be useful and viable. But assessing trust at anything more than a cursory level is slow, manual, expensive and difficult to scale. So you can’t do it for free. But by charging for inclusion, fewer businesses will want to be included. To combat this you can reduce your price, which means a less rigorous assessment, which in turn limits the value of the product. Alternately, you can give the impression of a rigorous review without actually doing the work, but that is more likely to lead to court than to success.

Crowdsourced reviews have come closest to making the third-party review model work. They are low cost and do readily scale, but many suffer from gaming and have credibility issues of their own. To succeed, they need a lot of policing and quality control, and that quickly gets complex and expensive, and there only a few examples (TrustPilot is one good one) of meaningful monetization with this model. 

Again, kudos to ADP for thinking outside the box, but it doesn’t seem to me they’ve cracked the code on this inherently challenging business model. And for anyone else considering this model, trust me, it’s hard.