Pushmi-Pullyu

Couponing is a two-sided network; you must have both the coupon content and distribution to consumers in order to make it work. A collection of coupons with no distribution is useless and at the same time distribution to consumers without coupons is useless. But, you put the two together and you have a powerful combination.

Very simply put, two-sided networks suffer from the curse of inertia. You can’t address one-side at a time, you have both sides or you have jack-squat. However, once you address both sides, the “fly-wheel” starts turning and it feeds upon itself. Once that fly-wheel is turning you benefit from the network effect or the Law of Increasing Returns.

Some examples of two-sided networks are eBay (buyers/sellers), Windows (applications/users) and Linkshare (advertisers/publishers). As you can see, once you overcome the inertia, both sides start feeding upon each other. For example the more buyers eBay gets, the more valuable it is to sellers. The more sellers, the more valuable it is to buyers…repeat ad infinitum.

The best way to crack the two-sided network is to piggyback on another medium that can help you solve at least one if not both sides of the network. George Valassis understood this when in 1972 he piggybacked his coupons on newspaper distribution. In that one year, total US coupon distribution jumped 10X from 20 billion to 200 billion. Newspaper coupons, or free standing inserts (FSI), now comprise 88% of total coupon distribution in the US.

How can online coupons overcome inertia and achieve the critical mass, or the tipping point necessary to initiate the network effect. Online coupons need to piggyback on partners that can help drive one side or both. You cannot simply address a single side, but you can line up partnerships that can drive one side, as long as you have complementary partnerships driving the other side. In short, online couponing is a partnership game, and those companies trying to do it alone are doomed to fail.

My brother used to work at Overture (later acquired by Yahoo! for $1.63B, now powering their search marketing). He described the lean years at Overture when they were unable to align both sides of the network rendering them essentially valueless. Then they found a believer at Yahoo who agreed to publish their ads. The rest was history. Online coupons will follow this same path, they will limp along until they gain a critical mass of partnerships, at which point they will explode upon the Internet, just as search engine marketing has done before it.

It’s easy for an online coupon service to track (and report) when someone views an advertiser’s coupon. ZiXXo offers a patent-pending solution that tracks actual coupon prints. But collecting information on coupon redemption—the Holy Grail of couponing—remains an elusive goal in the local business market segment.

How valuable is it to close the loop on coupons? By virtue of redemption alone, advertisers get a great deal of insight the ROI on their advertising budget; much more so than other advertising options. A closed loop would enable more powerful payment for syndication, paying only those affiliates who syndicate coupons that are actually redeemed, versus those that are printed. It would also provide valuable feedback to the advertiser, enabling him to tune his advertising campaigns.

This transition from tracking a sales precursor (clicks) to tracking to the sale is not unique in coupons, search engine marketing (SEM) went through this same evolution. Initially SEM provided no insight into transactions, just clicks. In fact today, most web stores still don’t track to the transaction, just the click.

While it might appear to be easy to close the loop on coupon redemption, it isn’t. Grocery stores and major chains scan and track coupons, after many years of working on the problem, but the majority of offline businesses don’t and can’t. Their point of sale (POS) systems are not yet equipped to handle coupons themselves, let alone pass that information to an online coupon service.

In Japan and some other Asian countries, merchants can track offline transactions through mobile phones, leveraging radio frequency identification (RFID). They use RFID because the screens on mobile phones are too reflective for laser scanners…but these and other mobile couponing challenges are the source of several more posts in the future.

The Internet is a pull medium. It is also increasingly composed of user-generated content. This is leading to a tectonic shift in marketing, specifically brand marketing. It means that brands will increasingly be defined by users, not marketers. Marketers can influence their brand, but their ability to define their own brand through media saturation is progressively declining, as the influence of the Internet continues to grow.

Does this mean that brand marketing is dead? Does it mean that customers exercise total control over brand definition? No. Brand marketing isn’t dead, nor will it ever die, but the influence of traditional saturation advertising is on the decline. Consumers are taking more control over brands.

Ironically, the definition of your brand is increasingly disseminated not merely to consumers, but to every customer-facing role in your business. For example, restaurant brands are defined by their cooks, hosts and serving people. If they are polite and efficient, the customer reviews will be more positive. Positive reviews then result in a positive brand image in the community.

From a consumer’s perspective, I increasingly rely on customer feedback, reviews, ratings, etc. than I do on brand. For example, years ago I purchased an Audi based upon good user feedback and its brand. Then I had a problem with the ABS system, which should have been covered by warranty or recall. The service department at Rector Motors was miserable. With the Internet, everybody has a platform to voice their grievances. And these issues are increasingly defining the brand, not the manufacturer.

How does this relate to this blog’s push versus pull theme? Very simply, brand marketing is shifting from a push model to a pull model. Marketing departments are losing the ability to push or force a brand. Instead, they are increasingly forced into a pull model where they must nurture user communities and provide proactive customer support and service. Without this grassroots support, consumers will shred your multimillion dollar branding campaign.

The article “SAGE Advice: Newspapers Caught in Web as Clippers Click E-Coupons” presents valuable statistics that highlight the growing prominence of online coupons and the potential threat to newspaper revenues. The authors correctly point out that advertisers can engage their customers much more effectively online than via print. This superior engagement, or interactivity, is what fueled the success of online classifieds, which offer self-service listings, pictures, richer data, immediate feedback, etc.

Now these same principles are being applied to the coupon market. In the online world, advertisers can create their own coupons, edit or delete them in real-time, pause them, add pictures, maps, selling points, and more. Then the advertiser can get reports on how many times each coupon is viewed and printed. Instead of a large up-front fee, advertisers can pay for performance, making it affordable to even the smallest merchants. Clearly, this can be extremely disrupting to the current printed coupon market.

The Internet enables an equally compelling consumer experience. Users can sign-up for email or RSS deal alerts in their area. They can rate businesses and coupons and write reviews. But best of all, they don’t have to clip and save coupons; they only print the coupons they want, when they need them.

Once online coupons are in the system, they can be syndicated everywhere. Using a simple application programming interface (API), any website can integrate coupons into online business directories or yellow pages, local search results, maps and much more. Soon they will even be available on mobile phones.

Is this a vision of the future that will destroy the newspaper coupon business? Actually, it is neither a future vision, nor a threat to destroy newspapers. All of this functionality is available today from ZiXXo. And instead of presenting a threat to newspapers, this could represent a tremendous revenue source for newspapers, while simultaneously reinforcing their print revenues. The only real loser is the post office.

ZiXXo provides this functionality to affiliates, like newspapers, yellow pages and Internet portals. Newspapers can brand the ZiXXo solution or embed it right into their online offering. As a result, the newspaper maintains total account control over their advertisers. The online coupons can even include the newspaper’s branding.

The article said: “The question is whether newspapers or Internet companies will own the integrated print and online publications.” We believe that the two can co-exist and actually reinforce each other. Newspapers can sell online coupons and then piggyback on Internet companies to syndicate them. This Internet syndication actually enriches the newspapers.

Isn’t it ironic that so many Internet businesses built their revenues by syndicating the articles from newspapers, and now newspapers can build their online coupon revenues by leveraging syndication from those same websites. But then turn-about is fair play.

First, I challenge the very premise; who said we were sane? Here is our rationale for naming the company:

1. At the time, the most successful brands on the Internet were Yahoo, Google and Kazaa. All three had two syllables and double letters.

2. We were doing something brand new (sorry I couldn’t resist the pun) so we wanted to be able to brand the segment, just as Google means search, we wanted something that could mean online coupons.

3. We wanted a name with no prior meaning so we could define it ourselves.

4. A company called Esso paid a great deal of money for a study on naming that found that double letters are very memorable, and the double X’s are the most memorable. That company became Exxon, with its distinctive interlocking X’s. So we wanted double X’s.

5. The Esso study also found that double X’s were only used in Maltese, making them very unique.

6. In keeping with our theme of being memorable, we liked the letter Z because it is the second least used letter in the alphabet (behind Q, but QiXXo created pronunciation problems and reminded us of quicksand).

7. We checked to make sure that the domain names were available for our name and misspellings including .com, .net and the international ones.

That is how we came up with the name ZiXXo. Then we decided to use “intraCaps” for the X’s to further draw attention to them, just as Exxon did with the interlocking X’s.

Pronunciation: Our pronunciation of the name ZiXXo is “zix – oh” and rhymes with “six – o”.

So that’s the reasoning behind our name. I’ll let you know how it works out for us.

I’d like to welcome you to the ZiXXo blog “Pushmi-Pullyu”. It’s named after the two-headed Llama in the Dr. Doolittle books. Right now the Internet, like the fictional Pushmi-Pullyu, is caught in this awkward position of being a pull media that relies largely on push advertising.