John Linton
I've been involved in building, from ground zero, several ISPs and have never previously ever considered advertising or any other sort of promotion as being even vaguely useful as I could never find a way of making the numbers work so there was an actual return on the money spent in terms of profits in either the short or medium term and I was never prepared to try and justify such expenditures on a long term basis.
I was not stupid enough to believe that advertising didn't work financially, so many ISPs going back ten years have spent, and those that remain in business, continue to spend seemingly huge amounts of money in press, television, radio and other forms of advertising so returns must be possible. I can just never seem to find a way of seeing how the money can ever be recovered.
Annette pointed out an iiNet ad in today's SMH main section (I only read the sports section and Spectrum) featuring the face of the gormless Irish actor whose persona seems to be an omnipresent annoyance in Sydney cimemas over the past few months. I have no real idea of what an ad of that size costs in the SMH presumably around $8,000 (and I assume the same ad will run in other similar publications) but I was struck by the two additional costs it contained - a promise of a mailed letter to all residents of the 77 suburbs named and a free ADSL2 activation.
I don't know how many households would be mailed but a guess would be around 200,000 which would cost something like $2.00 per mail piece/envelope/stamp so presumably the cost is inexcess of $300,000 BEFORE the cost of the free activation is also included in the total costs.
If I was doing the numbers on this expenditure even a very persuasive 'marketing guru' would have no chance of convincing me that more than 5,000 (at the very most) new users would actually sign up from a promotion as ultra basic as this and almost certainly far less - but for a starting point - let's take 5,000 and a campaign cost of $300,000 as I think both those numbers are very optmistic.
I don't know what iiNet's cost of ULL connection is but let's say it's $50.00 per connection - far lower that I know Powertel's is (assuming you ignore the loss of profit you would normally get for a new connection).
The cost of acquiring these possible 5,000 new ADSL2 users is therefore:
Ad Campaign - $300,000
Free Connection - $250,000
Total $550,000 for 5,000 new users = $110.00 per user - and this is an absolute best case scenario; the real cost is likely to be double that.
So how does it happen? How do responsible people actually cold bloodedly analyse the real costs of advertising and then make decisions to spend so much money that it's almost impossible to see being returned in less than 18 months - if ever?
Either I must be totally wrong on the simple assumptions and costs or I'm way too cynical in gauging the likely numbers of people who will end up signing up.
The iiNet example above is almost conservative when comparing it to the advertising being done by Optus and Telstra for Broadband/Telephone services at the moment. Unlike the iiNet example (where I just winged some cost and result estimates) Optus published some figures that go much further to substantiate my wonderment at who authorises advertising expenditure.
From Optus' published annual results/Paul Sullivans press coments:
Optus Averages 18,000 new DSL subscriber sign ups each month.
Optus DSL Advertising averages $1,200,000 per month
Optus, almost universally, include free modems/activations and mostly some free months in their advertised offers.
If you assume that 50% of all new DSL sign ups come from advertising (almost certainly not the case) then the direct cost per new customer of advertising cost alone is over $120.00 per sign up to which has to be added the cost of the modem and the cost of the free activation - a likely cost of in excess of $250.00 per new user and probably it really costs far more.
There have to be many things I don't begin to understand about the costs and returns of advertising.