The Evolution of Digital Marketing: An Expert's View
Kyle Sturgeon and Sarah Abdel-Razek of MERU recently sat down with Ed Hallen, cofounder of the email marketing platform Klaviyo and more recently co-founder of Expedition. The following is excerpted from a longer conversation.
MERU: To start, how did you get started in and how have you come to know the digital marketing space so well?
Ed: So, right out of undergrad, I went to work for APT [Applied Predictive Technologies]. APT uses A/B testing to figure out what business strategies work. APT software helps clients plan giant real-world tests and minimizes the cost to run that test in a few locations as possible. While I was there, I ran the product for a few years, opened their London office, and worked for a bunch of British retailers. I came back to the States for business school and ended up starting Klaviyo.
MERU: Tell us a bit about Klaviyo.
Ed: We realized that email as a marketing channel was being dramatically underutilized, and at the time there was no good solution that would allow brands to further connect with their customers. Klaviyo provides a set of digital marketing tools that allow a business to better use their own data to more effectively target emails and drive customer actions.
MERU: How has digital marketing evolved over the past few years?
Ed: All marketing basically works the same way. First, you find a customer for the first time. Then, you try to convert that potential customer into an actual buyer. Once you have a buyer, how do you turn that one-time buyer into a frequent customer? Digital marketing has become an incredibly efficient way of doing this for a large group of consumer-focused companies.
These days, companies place ads on a platform like Facebook to reach an audience. Once you get that audience on your website, you either try to get them to convert right away or try to get their email address. And if they're not ready to buy yet, you can email them as an incredibly cheap way of nurturing them as a potential customer until they're ready to buy. The whole engine is so much better than traditional marketing channels because it is so easy to directly measure the success of a particular campaign.
MERU: Why is it that social platforms like Facebook are dominated by digital-first brands like Bonobos, Bombfell, or Allbirds rather than legacy retailers or brands?
Ed: There are a few things that are happening there. One, it's tough to figure out what's happening just to you and what's happening to everyone. Each customer segment is getting hit by different companies. If you look at all of e-commerce, I suspect larger people are playing this game very well. Traditional retailers are now investing in these channels, but you as a 35-year-old may not be their target market.
Second, social advertising works really well for product-first brands. As a brand, you are solving for an equation where it costs $1 to get someone in the first time, and then spend an incremental 25 cents on top, eventually, they buy a pair of shoes, and you make $15 of margin. And it makes sense to just funnel money into those channels.
For brand-focused spending, it's just not as simple an equation, and so I think some of those companies are exploring other channels that are less productivity-focused. But this model does work for those big guys, and I think more and more they'll be doing it.
MERU: Scott Galloway of NYU writes about how Facebook and Google are becoming a duopoly in the digital ad market. Does that match your experience?
Ed: The hypothesis that Facebook and Google are sucking up most ad dollars because they are efficient is basically correct. The main reason for that is that they changed marketing from a guessing game to an equation where I pour money in and I get something measurable out. And so that's incredibly appealing. Even beyond the efficiency, there's a predictability that really changes the game on marketing.
MERU: Is there any reason to believe that will end? Or will these brands learn to more effectively use highly targeted channels?
Ed: Is it always going to be Google and Facebook, because they're so efficient? I'm a little skeptical of that, I'm pretty convinced we're going to see more and more platforms that allow the same type of targeting. The problem now is Facebook and Google are clearly the best.
MERU: It’s about following where users’ attention is going.
Ed: I think that’s right. I think the question is what happens when suddenly you can capture eyeballs in different places, does that all change? If Uber has self-driving cars, you can have a ton of ads in Ubers and now hey, Uber's a marketing channel. I don't think Facebook and Google are going to be the only channels. The closest thing to them now is Snapchat, but I don't know anybody who's making a ton of money off advertising there. Compare that to Instagram, where we would have customers like a famous social media influencer who could sell 10 million dollars’ worth of product in 72 hours. So, you have these insane person-driven brands making a ton of money.
MERU: Is part of Facebook’s advantage relative to others is that they just know so much about all of us?
Ed: Yes, that is 100% correct, having all the data is a huge advantage. There is a second piece which is that they don't just have the data, but they also have email addresses associated with the data, which means they can literally find a specific person and show them a particular ad.
MERU: Do you see the current data privacy controversies that Facebook has experienced as threatening their competitive advantage in advertising?
Ed: I don't think it threatens the underlying system that's driving this, meaning that people are willing to trade their information to have this type of very personal online experience for fundamentally free services. That said, I think there are ways that this could pose problems for Facebook. But do they change how they sell ads? Does that open the door to somebody else?
What happened [with the Facebook scandal] is people were selling or giving away their friends' personal information, often without even realizing it. I think you're going to see much bigger crackdowns on things like that. Privacy is really important and we need our society, our government, and ultimately our technology to protect consumers. As someone who builds companies based on these online marketing technologies, there's a lot of benefit to everyone from having them, but we really need protections in place. Just because you can do things, doesn't mean you should.
MERU: Thanks for your time.
Ed: Thank you.
Kyle Sturgeon is a Managing Partner at MERU. He has led turnaround efforts for numerous consumer and retail companies over the last decade.
Sarah Abdel-Razek is a Director at MERU. Her restructuring and turnaround experience includes digital media, energy, and retail.