Positioning: finding distinctions that matter to users and customers

Posted: December 21st, 2008 | Author: ScottMcGregor | Filed under: Strategy | Tags: Positioning | No Comments »

I was recently communicating with a correspondent who expressed their concern that there were several companies “in the ad optimization space already and feel that in general this is a very competitive market.”

The obvious question that arises is “How can XooXooX break out of the pack in such a competitive market?”

This post discusses our view on how XooXooX can distinguish ourselves from so many other web ad optimizers.

COMPETITIVE ANALYSIS

There is no doubt that many companies going after ad selection using a number of behavioral and contextual optimization algorithms. We came across over a dozen start-ups with various ad optimization strategies when we were first considering founding XooXooX, and the issue of competition was of great concern to me too.

When you are a start-up, the existence of competition is a mixed blessing.

If there is no competition you have to ask yourself why — is there something that other potential competitors know that we don’t know?  Is the market not large enough to yield the kinds of returns venture capital expects?

On the other hand, if there is a lot of competition, you have to be concerned about whether any player will be able to make a profit or achieve a leadership position.  Sometimes market segments are over-funded and there is not enough business for any one of the competitors to succeed.

And success in such crowded markets is often not dependent on having the best product or service, but by other marketing considerations.

THE IMPORTANCE OF POSITIONING IN UNDIFFERENTIATED COMPETITIVE MARKETS

Number one among these considerations is strategic positioning.  If customers and users can’t easily distinguish your offering from your competition’s in a meaningful characteristic, you can’t pull away from the rest.

Conversely, if you can distinguish yourself from your competitors in an easy to comprehend and meaningful way, you have the ability to own a position in the minds of potential customers and users and thereby dominate that subset of the market which cares about that position.

One of the books on this topic that most influenced my thinking on marketing strategy is. Positioning: the Battle for Your Mind, by Al Ries and Jack Trout. Jack Trout has recently published a new book, called In Search of the Obvious, which is a nice refresher on these principles for those who are looking for an updated book on this area.  For those companies looking for a marketing strategy firm that is a real master of positioning, I highly recommend Zoom Marketing of Palo Alto. Over the years, Zoom Marketing’s founder’s Nick Copping and Ellie Victor have not only been great mentors, but have always impressed me by their ability to quickly find the market position that allows a company to win a clear position in the minds of customers and users.

WHY AD OPTIMIZATION ALONE THE WRONG POSITION FOR XOOXOOX

When I was considering founding XooXooX, it was good to see that there were other companies who also thought that there were significant opportunities for a new company in the web ad selection business. Since  my CTO and I developed advanced bayesian predictive analytical methods for making personalized offer selections for Citibank and Columbia House Record and DVD club in a previous venture, building an ad optimization company around such techiques might seem an obvious choice.

However, because the ad optimization market was so crowded with players competing with different algorithms: bayes nets, neural nets, genetic algorithms, etc. , we deliberately chose NOT to compete on this basis.

Our reasoning was this:  Let’s say that our bayesian predictive algorithms were better at making personalized ad selections that resulted in increased click-thrus and purchases. Would that be enough to win in such a market?  How much better would our selections be?  Would they be 1% better? 10% better? or 10X better than the next best technology.  No matter what algorithms we tried, it is unlikely that we would get a 10X improvement.  At best we might get somewhere around 10% better. But that doesn’t necessarily make us the best choice for a publisher– because even if our algorithm yielded 10% more revenue than the next player, that competitor might even the playing field by charging less for their solution.  And these algorithm battles are ongoing — we might lead today, but a competing technology might get a few % more tomorrow.   It’s tough to defend a lead based  on such a tenuous technical advantage alone.

And we thought it would be tough to make the technical choice a meaningful position in the mind of customers (web publishers) or in the minds of users (web visitors).

A prospective car purchaser might understand whether safety, performance, economy, reliability or luxury matters most to them, so these kinds of positions can influence purchase decisions.  However, whether the engine was designed using Windows hosted CAD/CAM software or Solaris hosted CAD/CAM software isn’t a meaningful position — and doesn’t affect the purchase decisions of  the end user customer nor of the dealer.

For the same reason it seemed to me that publisher and web visitors would not care whether ads were selected using bayesian networks, neural networks or genetic algorithms — only the results — in terms of increased revenue, or reduced cost were likely to matter to the publisher, and those two factors weren’t even likely to matter to the end users.

For Positioning to actually distinguish XooXooX from competitors, that difference would need to be based on something that is meaningful to Web Visitors and to Web Publishers. Bayesian algorithms vs. Neural nets weren’t likely to be such a difference.

POSITIONING BASED ON WHO CONTROLS ADS AND DATA

But WHO CONTROLS the ads, and WHO CONTROLS the ad selection data might well matter to end users.  And if those differences motivates the web visitors’ behavior, it is likely to motivate web publishers who want to attract more web visitors.

So, in order to avoid this “me too” positioning problem, when we founded XooXooX we deliberately chose a position that is easily and meaningfully distinguished in the minds of our  customers and users.  Our technology choices followed from our positioning strategy.

The two easy to understand and meaningful differences between XooXooX and all other ad optimizers, are:
1) who controls the ads shown, and
2) who controls the data used in selection.

Viewed from the perspective of the user, these alternative positions can be stated as:
1)  There are the ads you choose and control (XooXooX), vs. the ads someone else decides you should see (all the other ad optimizers).
2)  There are ad selectors that keep you in complete control and possession of your data (XooXooX), vs.
ad optimizers who collect, transfer and store your data outside of your control, where it may be deliberately or inadvertently compromised or misused.

As it turns out, letting users choose their own product categories has some distinct optimization advantages too.  But without a clearly distinguishable position in the minds of customers and users, we think optimization advantages aren’t enough to win in the marketplace of ideas.

WILL USERS CARE ABOUT CONTROL AND PRIVACY?

It might be hypothesized that users and customers won’t care whether they control their own data, or the ads they see. If so, XooXooX’s position while easily distinguished from the competition might not meaningful.

On the other hand, this distinction could become more meaningful to users (and to the publishers of pages they visit) even if they don’t result in significantly increased ad optimization results.  For example, one early class of behavioral ad optimizer software wound up being labeled as “spyware” and “adware”.  Nowadays, any software that gets so labeled is quickly and automatically purged from millions of machines — even if it is actually benign.

If users — or European regulators — become aware of user controlled alternatives to today’s server based ad optimization systems, and if they consider these issues of privacy and control to be meaningful, the underlying patent pending client side selection technologies used in XooXooX might become the dominant technologies used in all of the next generation of ad selection systems.

FROM OPINION TO TEST RESULTS

Today, how meaningful (and actionable) this distinction will ultimately become remains a matter of opinion.  Over the next year we hope to run large scale tests which will make it a matter of record.

We welcome introductions to large publishers and web ad networks who would like to participate in strategic tests with us.

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