Have you ever read half of a book, and then put it down only to pick it up again two or three months later to finish it?  Something just brings you back to it.  That’s exactly what happened to me with Dr. V. Kumar’s book entitled “Managing Customers for Profit: Strategies to Increase Profit and Build Loyalty”, Wharton School Publishing.

The main idea in the book is that standard decay curves, historical trends, and generic lifecycle models are not sufficient for estimating a customer’s future value.  Each customer is unique and should be viewed as a long term asset rather than a source of period revenue or profit.  So how can we leverage predictive analytics to get a clear picture of the value of a customer, including potential activity in future years?  Try a Customer Lifetime Value (CLV) method that includes a forward looking component.

Kumar suggests that with the right data and a little thought, we can not only capture the historic value of a customer, but we can also predict with some level of accuracy the future buying patterns of an individual customer and understand their potential contribution to profit.  Aggregate methods and mass assumptions are not good enough anymore. Three years is about as far out as Kumar suggests predicting though for several reasons that make sense. 

The place where the forward looking aspect really makes a difference in is product lifecycle purchases.  Is the customer due to buy a new computer next year, or a new $300 phone, or an extended warranty, or a new car?  Customer demographics, purchase frequency data, and product roadmaps have a lot to do with accurately predicting this.  

There are simple versions of Lifetime Value and more advanced components.  One example of a more advance concept is the idea of incorporating the value of customer referrals in the CLV calculation.  If a company has evidence that a customer provide 3 referrals a year, and each one of those refers 3 more, then the value of that particular customer goes way up. 

Another example is, as I mention above, the idea of measuring purchase frequency.  I personally get a new computer roughly every 4 years.  Would it be of interest to Dell, IBM and Apple if they knew that my current laptop is 3 years old?  Would that change how they treat me this year and next?  Bet it would.  See how this works.  Cool stuff.

Such predictive measures can be extremely valuable and completely change customer level strategies. The by-product of calculating CLV is that we may also pick up clues that lead to customer attrition and allow us to take proactive measures to save.

Here’s an official definition of Customer Lifetime Value from BNET.

Business Definition for: Customer Lifetime Value
The net present value of the profit an organization expects to realize from a customer for the duration of their relationship. Customer lifetime value focuses on customers as assets rather than sources of revenue. The volume of purchases made, customer retention rates, and profit margins are factors taken into account in calculating customer lifetime value. Strategies for increasing customer lifetime value aim to improve customer retention and lengthen the life of the relationship with the customer. Customer lifetime value is a key factor in the customer equity of an organization.

If you’re not currently using CLV, particularly a forward looking version of it, then it might be worth considering.   It all really boils down to knowing the customer better and optimizing your resources to take advantage of opportunity.

You’re going to need the right data, a good calculation engine, business rules,  and place to put the results so users can get to them.  Call us.

Until next time…keep counting.

Paul Frangoulis

June 23rd 2010. 6/23/10. It’s a real shame the numbers don’t have more of a ring to them. A verdict on the 10th of October (e.g. 10/10/10) might be more resonant. But, even if the date doesn’t roll off the tongue, mark my words: this is a date which will live in infamy for content distributors and content owners everywhere.

This is the day Google won. In a potentially landmark decision (though one with many, many appeals in its future), a federal judge in New York threw out Viacom’s $1 billion copyright infringement lawsuit against Google’s YouTube.

It’s a long story—and one made-for-Hollywood with its subterfuge and plot twists. But, in short, Viacom sued Youtube for boat loads of money for copyright infringement-- that is, knowingly posting copyrighted materials to the site, without financial remuneration to the rights holders. In one of the truly major tests of the “safe harbor” provisions of the Digital Millennium Copyright Act, the judge found that Youtube (nee Google) were not liable. Title II of the DMCA generally protects a Web site from liability for copyrighted material uploaded by its users as long as the operator of the site takes down the material when notified by its rightful owner that it was uploaded without permission. So, in the judge’s estimation, Youtube met this test.

But, here’s the good stuff: the case evidence dated back to some pretty shady pre-Google-acquisition days, and highlighted alleged tactics that pointed fingers at Youtube’s founders. Equally bad behavior was alleged on the part of Viacom, who was accused of hiring a clan of promotions companies to upload “leaked” Viacom content to the site under pseudonyms. Naughty, naughty.

The fact of the matter is that Youtube—and Youtube-like services—are the way of the future in the eyes of the consumer. And, while no one can say Youtube is perfect in its attempt to “protect” content-owners, they surely seem to meet the DMCA provisions with the processes and technologies they’ve implemented to alert copyright owners. I just listened to a fascinating TED Talk last week from Google’s Margaret Gould Stewart, where she outlined Youtube’s methodologies to alert content owners to rights infringements.

Youtube has created a massive registry for rights holders where they can upload reference copies of their content. Then, Youtube runs EVERY piece of newly uploaded content against that registry—analyzing picture, audio, and more—to identify matches. The system is so sophisticated, allegedly, that it can account for quality degradation, video effects (slow-motion or speed-up), clip-extracts and more. When a match is found, the system alerts the copyright owners, who can then block the content altogether, or monetize it through advertising and product promotion. It’s a fascinating process—and the technology was so, well, cool that I was awestruck.

Then, I waited a few minutes, and started to scoff at this notion of protection for content owners. Perhaps it’s all my years having been a “content creator” and working for and with content owners. But, I couldn’t beat away the nagging question: why is the burden on the rights holder? And, I assure you, that same question was likely one of the largest on the minds of Viacom execs as they embarked on a now 4-year journey to take-out Youtube. It’s a large burden indeed. To protect your content, you must encode, upload and capture metadata about EVERY piece of content you own; you must think through and capture your protection policies about that content; and, you must review notifications when protected content is uploaded to determine the desired response (e.g. remove vs. monetize). Whipping out my calculator here, I see that amounts to a load of operational cost, resources and time for already strapped businesses. Imagine similar and probably more unwieldy processes taking place across other UGC aggregation sites. I’m not sure how that scales, even in the face of the revenue upside.

So, here I leave you with two sides of the coin. I should say that I am pleased with the verdict. And, I am, for the most part, impressed with Youtube’s processes to screen content, though I hesitate to see Youtube in the same beatific light they themselves suggest. There’s no question that Youtube and rights holders need to be, more than ever, partners in this eco-system. And, I’m not so sure we needed a judge to even confirm that. But, confirm he did. Here’s to 6-2-3. A milestone, indeed.

Colleen Quinn

I pride myself, perhaps without merit, on creating witty, funny, life-affirming blog posts which are generally joys to read. Amusing and insightful. There’s something you don’t get every day. But, there’s nothing amusing about losing money and nothing insightful about missed opportunity. Today’s post, my friends, asks the question: has the time come for our emerging digital supply chain to stop emerging, and start achieving its promise as a fully realized, fully accountable line of business. Is our baby ready, to put it another way, to take its first real steps into adulthood?

I’m ruminating today on discussion from this year’s ESCA Edge Supply Chain conference, which took place a couple of weeks ago in Los Angeles. I attended the ESCA event last year for the first time, and it struck me how much our world—the world of making, managing, moving and monetizing content—has changed. The event was a smashing success (both in 2009 and 2010, I hear), succeeding where other industry shows hadn’t yet. You see, I never thought of myself as a “supply chain” person. Supply chain (yawn!) focused almost exclusively on the movement of physical goods. Supply Chain was for duller professional adventures than my own. Oh sure, we’d bandied-about the term “digital supply chain” some years back in digital entertainment, but we thought our world unencumbered by the challenges faced  by our friends in Home Entertainment. And, I’m sure the Home Entertainment crowd shared a set of opinions about digital media: new technology cowboys running roughshod over a seasoned industry. Or, as NBC-U’s Jeff Zucker once suggested, none-too-serious dabblers in a world of digital pennies. Analog dollars were the real business.

After attending ESCA in 2009, it became apparent that the organizers, at least, were far savvier than the aforementioned “thems” and “us-es.”  ESCA was making the point that we were in this together.  Suddenly, digital media was everyone’s problem—including the supply chain guys. I’d never heard so many people fretting about the digital media supply chain in one place. I nearly laughed out loud when I realized the panel I’d been asked to sit on felt more like coming home than work. It was time to listen to each other, it seemed. There were many reasons for our collective interest. Most were looking for the inflection point for digital content distribution—the point at which physical businesses were perceived as having been trumped by the new kid; others were inheriting the digital businesses under their Home Entertainment umbrellas; and still others were realizing that we all just needed to get along, if nothing else.

Jump to 2010. Studios have been facing the hard-realities of multi-platform distribution for something approaching 5-years. The Digital Supply Chain—yes, that’s the official term now— is no longer a line of business for dabblers. Studios must shift from thinking of these businesses as emergent and transitional to steady and performing.  And, while 2009 showed ESCA organizers at the forefront, the conversation in 2010 reflected that the general audience was in agreement. By acknowledging that digital businesses are, in some ways, the studios’ future, folks from across the enterprise now have serious a stake in making these businesses successful.

The notion of digital pennies isn’t bearing out at all. Perhaps—and still, only in some cases-- the per-unit revenues for digital downloads may be less than physical, but the volumes are greater and margins ostensibly higher. This isn’t news. Time Warner’s CFO, John Martin, said just this week that Warner is “aggressively transitioning” their physical business because they anticipate the success of their digital businesses. Martin, I’m sure, also knows that digital businesses are successful only when they can scale to drive the right margins across this fragmented ecosystem.

I use the word “anticipate” intentionally. Climbing that maturity curve to better margin and profitability in these new channels is tough. Multiplatform distribution, in its dizzying array of processes, specifications, possibilities—its sheer scale— requires content owners optimize processes that have scarcely been introduced. The need to drive cost out of the supply chain—this new supply chain—is critical to convert those supposed pennies to dollars. I can see Home Entertainment executives nodding their heads from here.

There are several areas where content owners can start to see immediate relief. I’m frankly out of time to do justice to these areas in this post, so I’ll name them now to give you food for thought, with the promise to elaborate later. The first is metadata management. I’ll just ask anyone reading this post to take a quick count of the number of title or product management systems in use at your company today. I’d ask you to mentally run through the process of prepping a single title for output. Enough said. What about the promise of DAM for content re-use and repurposing? Does it bear-out when you think about how many times you re-encode the same piece of content to fulfill to your distributors?  Finally, imagine for a moment you do fulfill content everywhere it needs to go, on-time and in the right package. Do you have the tools in place to track that content’s performance against your bottom line? Is it easy to know how the licensing deal performs relative to others like it?

There’s something exciting about watching your baby graduate and head-off to college… this is, as pathetic how it sounds, how I feel about digital supply chain.  And, along with college—if I may painfully draw-out this metaphor a bit more—comes additional responsibility. Say, making ends meet on your own. Maturity has its downside, I guess. But, I have total faith in my baby. I may need a box of tissues for proud tears at ESCA 2011. Stay tuned.

Colleen Quinn

Last week I mentioned that Taipei was the most wired place on earth according to Wikipedia. But I think I was wrong… I have a new nominee:

Yes that’s my backyard, where I am writing this blog post – its Sunday Okay? I got out of the stuffy office. Our houses are becoming some of the most wired places on earth. Actually the most wireless. This picture was taken with my iphone from an app I downloaded wirelessly, then sent to my work e-mail wirelessly and then downloaded wirelessly – inserted into the blog and posted – ahem wirelessly.

About 10 years ago, I had a problem with my phone line and the service guy from Qwest came out. I had five phone lines, two personal landlines, a work landline, a fax and a dsl line. The guy looked at this situation and told me I had too many phone lines, I was using up all the line in the neighborhood – so the tech would just disconnect lines to see if anybody complained. My fault, I am sure.

A few weeks ago, while moving my office, I ripped out about 3 miles of twisted pairs (phone lines). Because I don’t have any local phone service anymore – it is all wireless. Except for the Comcast data line. And no more Qwest lines – even though I can see their sign from my front porch.

Funny story (apologies to my Qwest friends). Back then Qwest’s stock was around $80 a share. Now it is at $5.00 a share and they are being bought by Century telecom. And I am sitting in my backyard, with better connectivity on my PC and iPhone at the same time.

I bring this up because this is a data blog and I generated a bunch of data tonight for my Satellite provider. I paid my bill online, requested a credit for a movie that was all garbled via e-mail and ordered a new movie over the wireless network in my house through the set-top-box., all within 2 minutes (maybe less). As an old internet person, it blows me away. It also comes back to the network – the IP network, not the old POTS network (plain old telephone) which was amazing in its day ( The turn of the 20th century, not the 21st,)

As a digital marketer, it is fascinating. I had intense engagement with the company for a couple moments. Creating financial, marketing, customer service and product data in a burst. The data could be used so many ways – but it has to be orchestrated, analyzed and mined for value.

What kind of movies do I like? When do I pay my bills? What do I complain about? What is the best channel to reach me? All there created in a moment.

How does your company deal with these bursts of customer interactions? Are they valuable? Can you see patterns in the data? How is mobile access changing your business?

Answer these questions – and come to the webinar on June 15th with Teradata and KXEN’s brilliant Laura Squier. I will be Lou Costello to her Bud Abbot. Gracey to her George, Lucy to her Ricky...

Anyway, I think this has to change our ideas about how we see the world. For the past few years we have seen the web through the filter of HTTP – Hyper Text Protocol. But, we move so efficiently between the the web and other internet protocols we don’t even notice it. Mobile IP, Video IP, SMTP. The elegance hides the complexity for marketers.

We talk about click-stream, but that is a very narrow definition of data generated. As marketers, we need analytics from mobile apps, set-top-boxes, websites, social media and e-mail – all of which happens within seconds.

Which leads me to my second observation of the night – marketing is becoming more about orchestration than marketing warfare. The last marketing battle was warfare-like. Who could convert a visitor, who could get a click on an e-mail, who could get someone to answer the phone.

Now, the conversation and engagement slips effortlessly between technologies. The customer is leading and the pace is frenetic yet directed. Like the Tango.

Which completes the circle of this blog – in a way I didn’t imagine.

We are not involved in conversations with the customer, but in a Tango. We want them to buy, we use all our wiles and technology ( looks and steps) to create this environment. In the past this was dance like warfare, today it is about the give and take.

Plus – In this back yard I used to have a parrot (Senegal) named Tango by my wife.

And now I am listening to Tango 3.0 by Gotan Project

Paul Barrett

Oh yeah, this is one hot topic. Just about everyone that we speak with from communications to studios to gaming companies are madly focused on how to ring the register with social media today. It’s like a really fascinating math problem that everyone figures has an obvious answer but only a few can crack the code. Those who do figure it out however can buy Greece. Suffice it to say that there’s a lot of money to be made out there.

Google has definitely figured it out the equation and so has eBay; Facebook (FB) probably has too but we’re only speculating because they’re privately held and don’t share financials, Amazon still looks strong at the top line, but their lower margins are a challenge comparatively. MySpace; ouch. Then there are the Zynga types of the world who represent the promising young companies who might write their own formulas.

Let’s first look at how the new social media math for market capitalization works. Market cap by the way is recognized as a being a good representation of a companies net worth according to Wall Street. Stick with me on this.

Google is a great example. Last year, Google generated $24 billion of sales, an operating margin of 35.1% and added $6.5 billion to the bottom line. They also generated $8.5 billion in free cash flow. Nice. Google’s market cap sits at around $161 billion. Now watch this. Wal-Mart (WMT), now the 3rd largest company on the planet, generates 16 times the annual revenue that Google does, $400 billion a year. Their market cap is $189 billion, vs. $161 billion for Google. Not a whole lot different. How can this be?

Well for one thing, Wal-Mart generates 3.5 cents of net income for every dollar of sales when Google generates 27.6 cents of net income on a dollar of sales because of their fantastic business model. The other thing though is that Google sits at the center of the most promising market on the planet, social media, and they draw in mega millions of buying eyeballs every day. That’s the magic of the internet and also the massive allure of social networking. It’s the new business math of our time. Check out the May 2010 edition of the Harvard Business Review for a great story on how this all played out in Google’s IPO in 2004.

Are their others? Well take a look at Facebook who is the new social media darling. The Financial Times (FT.com) reported in March reported that Facebook has now overcome Google in popularity among U.S. internet users having scored more visits on its home page than the search engine. Facebook reports to having 400 million active users. Farmville, the popular FB application, alone has over 20 million players PER DAY. Location, location, location, they have it.

Financially, only a few really know how Facebook is fairing since the company is privately held and are secretive about such things. There’s pretty good evidence in 2008 they were not breaking even. But that was a long time ago in social media years. I’ve seen estimates that now place their revenue between $1 billion and $1.5 billion. Keep in mind that FB is still a young company only launched in 2004. I’m just guessing here, but am willing to bet that FB is now on the positive side of the ledger. We’ll all know once they announce for IPO. Such rumors persist, of course Facebook denies it. Are they the next Google?

Then there is MySpace, who is owned and deeply buried in the financials of their parent company News Corporation (NWS). MySpace is not in a terrible market space today but it’s not going in the right direction for them. They claim to host the “world’s largest music community” which is their bread and butter. Still, most analysts agree that MySpace is not fairing well compared to competition. Just ask your teenagers which site they prefer. No fancy statistics needed.

One more and then were out of here. Have you ever played with Farmville on Facebook, or how about Texas Hold ‘Em? Both were developed and are being marketed by a young company by the name of Zynga. Zyngas’ mission is to “connect people through games”. How cool is that? They were founded in 2007, and have approximately 600 employees according to their website. Zynga is privately held, but it’s been reported that the company generates in excess of $100 million in revenue. My guess is that it’s greater than that now because of the extremely rapid growth in the market. They have quickly become a formidable player in the online gaming space. Do they create a positive net income? Don’t know, but let’s keep a close eye out for them. They just signed a nice 5 year deal with Facebook and the IPO phrase is beginning to come up in same sentence as Zynga.

So there you have it. I didn’t get into Amazon or eBay in detail but I probably will later. Teradata has a close relationship with both of them and the stories are fascinating.

The role of business intelligence in all of this is huge. Think data, data and more data….combined with millions of global customers, dynamic products and rapid growth. Perfect.

I’m out of time for now. See you later, until then, enjoy and keep counting!

Paul Frangoulis

I recently spent a couple weeks working in Taipei – which according to Wikipedia is one of the most wired places on earth. I mention this because every time I brought up the slide with this comment and noting wikipedia as the source, the audience would laugh – and no one told me why.

But one additional fact that was astounding to me and my audiences was that Taiwan went from 250,000 Facebook users in April 2009 to over 6 Million in April 2010. In twelve months 30% of the population adopted a new communications channel. Aside from being remarkable it highlights a key challenge for marketers – how do you maintain a competitive advantage in a dynamic, rapidly shifting marketplace?

Back in the day, when I was doing CRM in telecom, we saw a similar shift – perhaps less rapid and pervasive. In long distance, the best profits were in international calling – suddenly e-mail started replacing long distance phone calls – or at least enough of them to reduce grow and flatten profits. So these shifts have meaning and consequences for marketers.

This is all the more relevant for me as I am preparing for a webinar with Laura Squier from KXEN, (Which I really hope you will join). The purpose of this webinar is how companies can keep up in this dynamically changing marketing environment. Using data and predictive analytics marketers can continually recalibrate there marketing decisions and investments.

One big challenge in the marketplace is marketing attribution. This is a big hairy problem for businesses because there is a growing number of media on which to put your message. But big questions remain?

• Where should I invest my next dollar of advertising – TV, Local Print, Search Facebook, Direct Mail?
• How do I attribute advertising to my sales. Sure, last click has been a default and under attack, but just looking at clicks and online ad placements is only a small part of the story.
• How do different channels impact each other. Display ads Drive Search, but so do TV, product placements and local media. How do you manage your search budget when your other channels heavily impact search impressions?
• What do all these changes mean for customer acquisition?
• Does all this data help or overwhelm as you target offers?

We hope to address many of these questions in our webinar, but it would be great to get some input from you, as we prep.

Our perspective is that more data gives you options in how to approach the problems and to develop customized solutions that deliver a competitive advantage. Our perspective is also that data mining can deliver insight on developing opportunities by identifying changes in patterns, shifting relationships between data, customers and channel and emerging trends that could prove to be disruptive to acquisition, loyalty and revenue.

I would love to hear any comments or different perspectives that may be out there.

Paul Barrett

“I’m not sure that this is a good idea”. Those were the words that I spoke to my 11 year old daughter when together we boarded the Tower of Terror ride last month at the Disney Magic Kingdom Theme Park in Orlando, FL. For those who don’t know, the Tower of Terror is a ride that’s made to look like an old haunted hotel in classic Disney style. Participants (un-expecting subjects), are squeezed into a small cranky elevator and slowly pulled up 5 stories of a scary hotel set in the early 1900’s. Then comes the good part, together you’re catapulted and dropped both unexpectedly and repeatable with almost no time to catch your breath in between. It also reminds me of my flight to LA last week but that’s another story. My 11 year old loved the ride. I had fun too but was glad when it ended. Let me just say that once enough for the Tower of Terror.

For many people in finance and IT, a visit or letter from the Securities and Exchange Commission (SEC) is something akin to the Tower of Terror. Most of you are aware of the official filings that the SEC requires of publicly traded companies, 10K, 10Q, 8K etc... The SEC and the investing public take these filings very seriously as they should because it’s here where companies formally document results and explain them to stakeholders. If the SEC, as the watch dog of such things, isn’t fully satisfied with the quality or depth of the filings then quite often they’ll follow up with an SEC letter asking the company for clarification or more supporting details. Actually, they’re not really “asking” they’re insisting. Each such correspondence requires an immediate and complete response that can take weeks and as a result thousands of dollars for a company to prepare and submit. The response has to be correct and defendable. As a side note, did you know that every letter of this type is available for public viewing on the SEC Edgar database? Just do a search in Edgar by company with the keyword of “CORRESP”. It’s kind of a cool thing to know if you don’t mind doing a little research to find out what’s going on behind the corporate scenes (or preparing for a meeting with the CFO).

The section of the filings that draw the most attention from the investing public is not necessarily the financial statements as you might imagine, but rather the Management Discussion and Analysis also the MD&A. According to the May issue of CFO Magazine (cfo.com; pg. 25) it’s also the section that’s at the of the SEC “Top 10 Concern” list. According to the article, the reason for the high level of concern is that the SEC really “wants more color in companies ‘description of operating results, their liquidity and capital resources, and how they develop critical accounting estimates”. The article goes on to say that “Companies are still struggling with making their MD&A’s a story and not a recitation of the financial statements,” quoting Bridgette Hodges, a Grant Thornton partner.

The reason this comes up in the context of business intelligence is simple. For years now, surveys of CFO’s have revealed that they want more operational data mixed in with financial data for reporting and analytics. Operational data such as customer orders, call detail records, ad sales information, Neilson data, micro transactions, customer demographics, supply chain data, number of sales people, etc… all lend themselves to explaining the why of the financial results which is what Wall Street really wants to understand. When armed with the business driver facts, the executives can better explain the story behind the numbers. Where is the best place to combine operational data with financial data for the purposes of analytics and reporting? You guessed it, in your BI environment.

It can be said that the Tower of Terror for a CFO is depicted in a situation where the information that’s needed to understand what really drove results is either not available or not understood. Some of the more advanced companies will say that this situation occurs if the information is not available in enough time to enable a directional change to alter the results otherwise. Either way investors rely on business leaders to provide the insight that they need to make a responsible investment decision. An inability to respond accordingly can turn into a real live terror ride that no one wants to take. The SEC will be there taking the ticket and operating the elevator.

The promise of business intelligence simply stated is to close the gap between the “what” and “why” of business. In a more advanced way BI can help us to determine cause and effect, and to project what could happen under given circumstances. In the real world, closing this gap is not always easy to do though. There can be many distractions and pitfalls along the way. Leave it to the SEC and others to tell us when we fall short. It’s a path that can be viewed either as a scary Tower of Terror, or as an opportunity to make your business better and your cause more effective. Which path are you on?

My goal with this blog is to share with you ways to better understand the business drivers behind the numbers. I’m not a professional writer by any means and barely have enough time to do this. I am mostly a road warrior out fighting the battles today along with you. But I think this topic is important enough to stop on occasion and report back to you regarding what I see working and not-working in the real world. Lessons learned along the way. We want to hear your stories as well. This is a safe forum for good ideas. Let’s share them. If I can do it then you can do it too.

I think starting this blog IS a good idea. I hope you enjoy participating in it.

Paul Frangoulis