Tis the season to go public. According to USA Today, there are 12 companies lined up for IPOs this week alone, among them online gaming company Zynga and social networking software company Jive Software. That's the busiest schedule all year. Apparently, investors are still hungry for speculative offerings, despite the recent market setbacks and overall malaise about the global economy. There is reason for caution, however. Despite huge first day gains, companies like Pandora and Groupon have struggled in the post-IPO market, trading 39% and 11% below first-day closing respectively. How can inbound marketing help these companies turn things around?
Both companies spent huge amounts of money pre-IPO to ramp up their subscriber base. This is a classic SaaS company manuever to attract and court investors. "With this huge email subscriber base, we should be able to generate a ton of revenue in short order". Urban legends surrounding Groupon suggest that they have a giant war room of cold callers calling everybody in the U.S. and screaming at them until they subscribe. I don't know if this is true, but if so, we're looking at a very expensive form of marketing that is ultimately unsustainable.
At a recent conference, Groupon's CEO Andrew Mason said that Groupon has improved its ability to spend marketing dollars more wisely, allowing it to lower its subscriber acquisition costs from $32 per customer in the second quarter to $25 per customer in the third quarter. In addition, the company is working to shift more spending to market deals, or "transactional advertising." It sounds like paid search or PPC to me, which is better than cold-calling in terms of sustainability, but it can be very expensive as well.
An earlier focus on inbound marketing could have averted much of the post-IPO revenue gap with a more balanced approach to marketing focusing on content creation, ideas for marketers and courting the small business sector via social media instead of massive cold-calling and PPC advertising campaigns. This could have kept cost-per-subscriber down to a manageable level and allowed them to generate revenues sooner.
There's nothing wrong with going public at the right time, but a strategy of marketing to create a huge wave of interest for the IPO itself is misguided. Savvy investors know (or at least should know) better than to latch onto a company that spends a lot on buzz creation and generates paltry revenues. These companies may come out of the gate strong but seldom maintain momentum. Companies that focus early on sustainable revenue generation and brand loyalty through inbound marketing are the ones where the real value lies. LinkedIn has had its own ups and downs since its IPO in May, but revenues were up 126% in the third quarter and show no signs of slowing down. LinkedIn has a sustainable revenue model with its advertising and job posting services and a loyal customer base that uses the social network to make money themselves. This is a far cry from Groupon's dependence on outbound marketing and in-your-face approach to customer creation.
I think we'll see less foaming at the mouth about IPOs, and investors will take a harder look at how companies make money and focus less on how popular they are. We can all take a lesson from the IPOs. A sensible marketing strategy based on generating qualified sales leads rather than unique visits to our website is a good place to start. Using inbound marketing to build brand awareness and connections through content and social media is a low-cost, sustainable way to grow our companies over time. Who knows, maybe we don't even need an IPO to achieve our ultimate goals?
Photo Credit: Groupon
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