One. Can you tell us a little bit about yourself and how you got to the position of COO/CFO of Zappos.com?

Alfred Lin: I met Tony Hsieh (CEO of Zappos) during our college days. He was the consummate entrepreneur. He and Sanjay Madan, one of Tony’s roommates, took over the grill in our dorm. The tradition was that students would run the grill at nights and serve burgers, fries and shakes. Tony had the idea to put a pizza oven in the grill because he thought it would be higher margin. I had a large college rooming group and so I would go downstairs each night to buy a few pies and I took it upstairs and sold it by the slice. Tony often says that’s why I am the COO/CFO of Zappos.

It wasn’t all that glamorous. I made money purely by accident. All I wanted was to recover the costs of the pizzas. After all, these were my college roommates, but quarters were a prized possession in college because we needed quarters for laundry, video games, vending machines. So instead of paying me $1.25 or $1.50 per slice, I got $2 per slice. I made a pretty good profit with virtually no risk.

After college, Tony and Sanjay started a company called LinkExchange. I joined a year later as VP of Finance after Sequoia Capital invested about $3 million in the company. Seventeen or 18 months later, LinkExchange was sold to Microsoft for $265 million. Sequoia made 17x or 18x in 17 to 18 months.

Tony and I wanted to figure out how to replicate the really fun and early times of a startup. With backing from friends and family of LinkExchange, we started Venture Frogs, a $27 million angel investment fund and an incubator. We invested in about 27 companies. Initially, Zappos was just one of the companies we invested in. Over time, both Tony and I got more and more involved with Zappos because it was the most promising company in our portfolio. We also discovered we enjoyed building business way more than investing in them.

Two. Zappos has been around for 10 years, and started out slowly at first if I remember correctly. When did Zappos became the No 1 e-commerce site for footwear? And what was that realization like for a relatively new company?

Alfred Lin: Yes, Zappos started in 1999. We grew extremely quickly given how little capital we raised to build a relatively capital intensive business where we need to invest in distribution centers and inventory. Today, we have about $180 million in inventory at cost. Relatively early in the company’s existence, we knew we were “the web’s largest shoe store”. In fact that was our tag line for a while, but as soon as we achieved that tag line, we were already moving onto something bigger. We wanted to be a service company that just happens to sell clothing, shoes, bags, and accessories. One of the many things we do is to constantly expand our vision over time.

Three. Most of us have seen the Zappos branded shoe trays at various Airport security check-thrus and they are definitely clever. What has been the response from this, and what are some of the metrics -if any- you use to measure the success of these viral campaigns?

Alfred Lin: The response has been great. We get lots of emails and comments about how creative it was that we were the first to start advertising in the security trays that and how creative the ads were. We do measure ROI on the security trays and they have a pretty decent ROI, although it is still mostly a branding campaign. It’s pretty hard to get someone to respond immediately to an advertisement while they are rushing through a security line with their laptop in the tray.

Four. What is your favorite thing about working at Zappos?

Alfred Lin: My favorite thing about Zappos is the company culture and the people of the company. We are all friends and family here. We all work long hours so having friends and family at work makes it that much more fun and enjoyable.

Five. When you ask people how they found out about Zappos, what do they say? What do they say about their experience?

Alfred Lin: The vast majority of them say that a friend, family member or coworker told them about Zappos. We believe in providing great service to our customers and creating a WOW experience for them because we believe in the power of word of mouth. Our customers are our most powerful advertisers.

Six. How has the ways in which Zappos advertises online changed over the years? What are some ways that the company has changed with the changing trends, and the changing economy?

Alfred Lin: It hasn’t really changed for us. We have always focused any advertising on an ROI basis. We are willing to try and test any vehicle. We redirect money from advertising vehicles that have below average ROI to vehicles with higher ROI. It is as simple (and as complicate) as that.

Seven. How did the Amazon deal come about? Has there been a change in the corporate culture since Amazon purchased Zappos? Has anything else changed significantly?

Alfred Lin: We have kept in touch with Amazon over time. It came about very naturally. We want to continue to build our culture, our brand and our business. We came to an agreement that would allow us to do that this time and made sense for both parties.

Eight. I know Zappos is very open about the premium they place on customer satisfaction. Would you say creating what you guys refer to as the ‘wow’ factor has been the single-most important factor in the brand’s success?

Alfred Lin: The single most important factor in our brand’s success is our culture. The importance of culture comes from a very simple philosophy. You can’t have happy customers without having happy employees, and you can’t have happy employees without creating a culture and a work environment that employees want to belong to and help build. Tony says that brand and culture are two sides of the same coin. So it is important to get all employees aligned to the culture and live, breathe and inspire the culture of the company. You can find many brands that are larger than life and larger than what you might expect the brand to be from the company’s size of revenue, profit, organization, etc. because the employees live that brand.

Nine. I have to ask this one: Zappos is famous for offering new hires $2000 to quit on the spot. The premise is, if they take the money, then they were never that interested in the job in the first place – and, as such would not have made a good Zappos employee in the first place. Have you ever experienced any strange or unusual stories about this, or how often do people take the money?

Alfred Lin: Yes, we believe if you can be convinced to take the money and run, you aren’t that committed to Zappos. We want to weed out the uncommitted as quickly as possible. That is why we make the offer. A very small percentage of people take the offer and that suggests to us that the offer maybe too low. If you are really good at interviewing and judging people, you might be right 60% to 70% of the time. That still means you are wrong 30% to 40% of the time.

10. Is there anything else you’d like to add?

Nope. Thanks for interviewing me.

An article written by Nicholas Carlson was featured on BusinessInsider.com yesterday, marking 15 years since the debut of banner ads as we know them. The banner ad, “born” on October 27, 1994, first premiered on Hotwired.com featuring offers from Volvo, AT&T, MCI, Club Med, Zima and 1-800 collect.

Frank D’Angelo, founder and partner of CL&S, the ad agency behind a few of the original banner ads, wrote on Adage.com yesterday that one of the first banners obtained an astonishing 78% click-through rate. But click-through rates have declined since then, and so have banner ads’ relevance. ComScore claims that only a mere 8% of all Internet users account for 85% of all banner ad click-throughs. What’s more, these ‘clickers’ tend to be from lower income levels, and generally have less education than other web users..

This at first came as dire news to publishers who have been convinced over the past 15 years that click-through rates were a strong metric for determining whether or not users were engaging with their ads. But to Carlson, perhaps the death of the click and the banner is welcomed news. If nothing else, it is encouraging publishers to re-evaluate what actually makes a good online ad. Carlson isn’t disappointed. He says, “let’s face it, the banner is a lousy form of advertising.” The following are his major reasons why banner ads are losing out, or are no longer relevant:

• They can’t tell a story.
• They can’t be engaging without being interrupting and obnoxious.
• They’re scalable, but doesn’t feel “premium” in the way the back of a magazine can.
• They’re dependent on clicks.
• They’re loaded with baggage from the Web’s early spam-infested days

via Nicholas Carlson @ Business Insider

Michael Learmonth at Adage wrote an article last week indicating Google and Bing’s plans to integrate Twitter’s real-time updates into search results – a deal that will inevitably increase non-micro-blogger exposure to the site. Although neither side disclosed inancial details of the deal, it may turn out to be a substantial source of revenue for Twitter. To this,  Evan Williams, Twitter CEO, told The New York Times that, “…revenue was not the focus of the deals.” The deals take their aim at indexing the conversations, news feeds, and status updates occurring on the web in real-time. Microsoft has also revealed their plans for Bing to soon integrate Facebook updates as well, however, only those made public by their users. Twitter updates, on the other hand, are considered public information unless locked by the user.

According to Learmonth, soon every Twitter update will be indexed in real-time. But, unlike Twitter’s search engine, Bing will assign a value to tweets attempting to bring to light those with the most valuable information. Tweets that contain links, and tweets from high-follower users will receive a higher value than those tweets that say something like “that sucks”, said Yusuf Mehdi of Yahoo! Additionally, viral news topics that overwhelms the service on a daily basis will be filtered accordingly.

The plan to index Twitter and Facebook into search results has been a long time coming. The difficulty, however, will be determining relevancy of search results. According to Kevin Lee, CEO of search marketing firm Didit, “Google and Bing have different systems for determining relevancy in ‘standard’ search results, so it will be interesting to watch how their different systems adapt to weeding relevant results from irrelevant results and spam for real-time information.”

The real question is whether or not this will increase adoption for Twitter which has grown rapidly in the U.S. but as of late has last some traction. Steve Rubel, senior VP-insights for Edelman Digital, is nothing short of skeptical. “It can boost its traffic, but the reality is that I believe Twitter may be peaking in terms of users,” he stated. “The media monsoon has brought a ton of new users in, but fundamentally I believe that everyone who wants to publicly tweet is already doing so.”

via Michael Learmonth @ Adage

MG Siegler at TechCrunch recently published a post about Mary Meeker (Morgan Stanley’s Managing Director)’s recent presentation at the Web 2.0 in San Francisco. The main focus of her presentation, was that, according to recent market analysis, the economy is showing many good signs of recovery. To Meeker, stock markets are typically the leading indicator that things are starting to get back on track, but also that the tech sector shows signs of rebounding (ie., Apple). This of course great news, because the technology industry is now more capitalized than the financial industry.

Additionally, Meeker notes that recent growth of mobile web has a lot to do with the strengthening state of the tech sector. This is not only because mobile web signals a new computing cycle, but that it should eventually be 10 times the size as desktop internet – and, this is expected to happen sooner than most can imagine. Meeker adds that the explosive growth rates of Wi-Fi, GPS, 3G, Bluetooth – during in a recession, nonetheless – are further indicators of a burgeoning mobile web, and a strong tech sector that is set to rebound, and grow even stronger.

According to Siegler, other key points from Meeker’s presentation include:

• Location-based services are the “secret sauce” of what makes the mobile web interesting.
• The iPhone/iPod touch is the fastest growing piece of hardware the world has ever seen.
• And usage share versus market share of the iPhone is incredible, meaning it will only grow.
• Facebook is becoming the multimedia repository, and it will allow you to do so much.
• Companies absolutely need to be on board with the mobile web. They have some time, but they need to act

Below are the slides from Meekers presntation, via TechCrunch

via MG Siegler @ TechCrunch

There’s no secret that different types of websites attract different levels and types of advertisers – but the variance is rarely elaborated upon. For instance, Facebook’s top 100 advertisers spend $49,045,000 per month, while the top 100 advertisers of IMDB ($7,217,400), CNET ($3,094,000), and NYTimes($7,128,500) combined spend about 1/3 ($17,740,000) that of Facebook. This of course addresses the levels of ad revenue by popular sites, and is just one of the findings from the most recent Nielsen AdRelevance report. Of special note are AT&T’s spending trends, and the rate at which this brand has invested online, especially in the four sites included in the study.

(click image to enlarge)

InternetRetailer.com recently featured a condensed forecast of what the online shopping industry can expect to see this holiday season. The primary source of this forecast, is a recent PriceGrabber 2009 Holiday Report, which argues that 70% of online shoppers will visit price comparison sites, up from 38% just a year ago. The primary reason for this: the economic climate, of course – with consumers looking for ways of stretching their dollar further.

According to this article, which quotes an unnamed PriceGrabber spokesperson: “Shoppers this year really want to make sure they’re getting the best value, the best deal and the right product for them.” The caveat however, is that that one-third of shoppers plan to purchase fewer gifts this year than they did in previous years; 53% plan to spend less than a year ago.

This echoes recent findings by the National Retail Federation, that other signs of increased consumer caution are on the horizon. According to a recent NRF survey, U.S. consumers are expected to spend an average of $682.74 on holiday shopping this year, the weakest total since 2003, and equal to a 3.2% decrease from last year. Additionally, over 65% of consumers say the current state of the economy will impact their shopping plans. The result is an increased focus on bargains, with more than half of all shoppers surveyed claiming that sales and discounts (43%) or everyday low prices (13%) will be the most important factor when making decisions about where to make purchases this year. Other factors, such as selections (21%), quality (12%), convenience (5%) and customer service (4%) will be less important than they once were.

But, there is another issue which may prove difficult for e-tailers: shipping costs. According to PriceGrabber, 20% of customers surveyed in their report, claimed that they would only make an online purchase if free shipping was offered. This, could be a substantial reason why the total number of those planning to make online purchases is expected to drop from 80% last year, to 78%.

PriceGrabber conducted its online survey of 2,018 U.S. consumers from September 24 to October 12. BIGResearch conducted the NRF survey of 8,431 consumers from September 30 to October 7.

via InternetRetailer

Arik Hesseldahl recently published an article at BusinessWeek’s Apple blog, Byte of the Apple, featuring the recent TV spot for the forthcoming Motorola Droid smart phone. The Droid runs Google’s ‘Android’ operating system and is an obvious competitor of the iPhone, especially given that it is coming soon to Verizon. The ad begins with drawing attention to the features that the iPhone doesn’t have – and questions the usefulness of the wildly popular device.

Hasseldahl cites Craig Moffett of Sanford Bernstein, in purporting this ad is most likely a sign that discussions broke down between Apple and Verizon over a CDMA version of the iPhone. Moffett also speculates that this may be Verizon’s way of turning up the pressure on Apple; or, maybe that Verizon has already turned its back on the iPhone entirely. The latter would of course be welcomed news to AT&T who is rumored to be coming to the end of its exclusive agreement for the iPhone in the U.S. In any event, it will be interesting to see this story play out as we near the release of the much-anticipated smart phone.

1. So, the first question is: What is so unique or special about Dynamics Logic’s Measurement  Tools?

Ken Mallon: Well, I guess what is unique is that we have done so many of them and we have so much experience that we can deal with different situations that come up operationally. I think that we’ve been copied by others in terms of our basic methodology and our survey questions so what really makes us unique at this point is our level of experience and as a result our normative database that we have.

2. Your company’s solutions all forms of media, TV, radio, etc. How do you tie everything together?

Ken Mallon: Well we have a solution called Cross Media Research where we actually measures the independent and synergistic effects of each media so we are able to tell our clients – you know advertisers, agencies -how the different media work together, whether or not they are synergistic or not. Sometimes one plus one equals three so we have identified that for them.

3. What are the major differences in tracking brand awareness in the various types of media?

Ken Mallon: You know it’s all pretty much the same. We track awareness by surveying people and asking them what, they have you heard of? And that’s what would be, what we call aided brand awareness and we have unaided brand awareness where we ask people, you know which brands come to mind when thinking of, you know running shoes or whatever it is. And so that question asked in that style has been asked for dozens of years in all kinds of media, it has become pretty standard. That’s the main methodology.

4. Now, your client’s list reads like a Who’s Who of household names. To what degree are you able to tailor solutions or engagement to your various clients; it seems like a lot of the brands you work with would have special needs or are expecting a certain type of engagement.

Ken Mallon: We actually tailor every single project to a certain extent, so you know that, at least to a small degree, every single project has a certain amount of customization or tailoring. And that is because every brand that we work with has different types of brand attributes that they’re interested in. You know, we ask the client up front what their branding goals are. Sometimes they may want their brand to appear hip or they may want their brand to be, you know technical or you know they may have all kinds of attributes that they want people to ascribe to their brand and so we test for those specific attributes in addition to doing our standard testing. And so every single project has customization. There is also sometimes customization that we need to do, because of operationally, in terms of sort of recruitment, how we execute the recruitment on – websites, panels etc depending on what kind of media we are working with, we customize pretty much every project. We tailor it to that brand. Like you said because we are working with a very large brand they tend to know their brands really well, so they know exactly what it is they are looking for in terms of various brand attributes and because we have you know dedicated teams to these brands we have people in general who know everything there is to know about some of these common household brands.

5. Does that make your job easier?

Ken Mallon: I think yes and no. I mean I think it makes it easier because they have some clear ideas on what they want to do but it also makes it difficult because big brands are really complex. You look at, for example, Coca-Cola brand, they have all these sub brands that might have different goals. What Diet Coke wants to do is very different from Coke Zero and the umbrella brand; and, Coke have all other brands too that we need to think about, so how they all work together can become pretty complex. I would say yes and no. We certainly enjoy working with the big brands and you know we are happy that they put their trust in us and we enjoy the challenge.

6. So, your studies indicate not only brand awareness, but intent to purchase as well. How do you track real conversions or sales, online or offline in your studies?

Ken Mallon: We have two methods for this. The first method we can only use for packaged goods companies, and what we have done is developed a partnership with a company called IRI. And, IRI has a large panel of people who scan all of their grocery items. So they have a scanner in their house and when they come home with their groceries they scan them and it gets uploaded into a database. What we have done is created a master panel between the ads that we track and these panel members and so we know who saw which ads and what purchases they made. So for any item that you buy commonly in a grocery store we have a direct way to track ad exposure through to purchase. In other categories where there is no such panel we use a recall-based methodology where we survey people after a campaign and we ask them if they remember what they purchased. And that’s probably the most direct way. These two services work well hand-in-hand because, if you ask someone which paper towel they bought they might not know, so it’s good that we have the database. But for other items, let’s say: consumer electronics, travel, fashion, when we ask someone if they bought insurance they definitely know and so the recall based system works well for the non-CPG. Using these two methodologies we can cover all the categories.

7. That’s very interesting. The next question to ask has to do with the economy and a lot of the commentary right now in advertising has to do with the relationship between efficiency  and brand awareness. How do you believe that the dialogue has changed in the last year, do you see a lot of your brands talking more about ad efficiency versus awareness, do you feel like there has been a major trend across the industry towards what do you guys do?

Ken Mallon: We want to stay nimble and stay relevant to our clients and so about a year ago, while we were sort of in the middle of this downturn we went and talked to a lot of our clients and asked them:  what are your needs right now? How can we better address them? And the main themes that we heard is that they want are ROI; they want ROI measurement and they want it inexpensively. So we went back to the joint board and we looked at our offer and we significantly broadened it and enhanced it during the past year to fulfill this need. And we did it in two ways, one is if you look at our standard brand metrics what we did is we, we are now offering to look at a cost per impact. And so previously we would say your campaign brought brand awareness to 10% of the people who saw it. Well now what we also offer is we can take their spend data and say how many people did you make aware per dollar spent or how many people did you create a purchase intent in X number of people per dollar spent? So we are making it more of an efficiency-type argument even with the brand metrics. Outside of the brand metrics we also expanded, and I have already talked about the sales tracking and measurement that we do, so we added that to our arsenal. So now we have brand plus off-line sales impact and then we did a partnership with a company called compete.com. Compete.com is one of our cousin companies, they were part of TNS in TNS was bought by our parent company and so we formed a partnership with compete and compete tracks behavior. And so now in addition to branding impact and sales impact we also have online behavioral impact studies – and by this I mean we are able to track – after ad exposure – what activities someone did. So is there an increase in user rate? Was there an increase in online sales? Was there an increase in search? An example might be automotive advertisers, they might drive traffic to the client site, let’s say it’s Honda.com or being exposed to that ad make you more likely to go to Kelley Blue Book or to Yahoo Autos or it may increase your likelihood to do a search for Honda. So now we’re tracking post view online behavior as well as tracking sales and it’s a pretty encompassing ROI offer suite at this point.

That sounds pretty comprehensive.

Ken Mallon: Yeah, we sit and talk to our clients so it’s really, no real hole in it at this point. I mean what else would you want to know other than why advertising changed people’s perceptions; it made people buy something, it made people do certain things. The only other areas that are of interest right now are viral and word-of-mouth: does advertising generate people talking, increasing discussion. Interestingly, we’ve developed a partnership with a company called Symphony (which is also a cousin company), and they track bogs and other unstructured discussion areas, and so we now can also track that kind of discussion and buzz that is happening.

8. It sounds like your company figured out how to measure the immeasurable, the awareness aspect. The next question we had touches on that, and also relates to the economy and efficiency. Did you notice a difference in efficiency across different types of advertising,  or in different types of media during the downturn? Does it seem like certain kinds of ads are becoming more efficient, specific to each type of media?

Ken Mallon: I think a lot of advertisers and agencies are trying a lot of ad networks a lot more because of the low cost and sometimes they see better performance, sometimes somewhat worse performance, sometimes the same performance versus their standard buys. But typically it is so much more expensive so from a cost-effective standpoint ad networks can many times be cost-effective, cost effectiveness wise. What else do I see people trying? I think better targeting is being attempted, with behavioral targeting or demographic targeting. Other things that people are trying are video ads, although I think that they are seeing they are very impacting but maybe not yet cost-effective. I would say that the main trend that I see with the economy would be the use of ad networks and the purchase of remnant inventory.

9. So people are trying to cut costs. What else you think is next for online branding management?

Ken  Mallon: I think increasingly people want to look simultaneously at multiple media and digital itself is now being viewed as multiple media because you have media being bought on social networks, media on display advertising, plus search. So you look at search, video, social standard display and people; our clients want to understand how those work together and how those can be synergistic and how those can be independent. And how those can also work with off-line. So I think my first answer would be, understanding how the various digital components work together and how they work off-line. And the second thing I would say is mobile. You know mobile is a pretty big area for us and we are measuring the ad effectiveness of mobile. Also there are different ways of doing mobile executions and so I think because of the prominence of cell phones globally, I think mobile is going to be an interesting area of research.

10. Any last words that you would like to add to tie all this in together or something that we touched on that you would like to elaborate more on?

Ken Mallon: Well I think the final word I would say is that we study a lot about you know what drives things to be effective online. We look at things like ad sizes, ad technologies, targeting and many factors and again and again what we see as being the most important thing that drives success is the actual creative quality. And sometimes this is overlooked because the digital space is so technical people, forget that, “oh yeah I’ve got to make these ads.” Often, you will see pretty average or poor ads online and so I think, the smartest thing you can do if you want to be successful online is to make good ads by copy testing them, really researching and understanding what makes a good ad online.

Ken Mallon is the Senior Vice President, Custom Solutions & Ad Effectiveness Consulting for Dynamic Logic.

Not every company has a multimillion dollar advertising budget to work with. And increasingly, even those that do are turning to more creative means of reaching their audiences. Many consumers have become averse to slick commercials and polished sales pitches over the years, causing savvy marketers to adapt with offbeat, attention-grabbing marketing campaigns. Following are 18 of the most memorable guerrilla marketing campaigns and what made them so effective.

Cingular’s “Dropped Calls” Billboard

(Source)

Few things irritate cell phone users as much as their calls being dropped mid-conversation. But rather than take to the airwaves, Cingular tackled the problem in true guerrilla spirit, and addressing this widely-felt problem in bold, dramatic, in-your-face billboard This ad, which portrayed a call being “dropped” onto the ground below, instantly arrested the attention of passers by and those far off who cannot help squinting to see what “that crazy looking billboard” was all about.

Read more…

Fred Aun recently posted an article on ClickZ, showcasing a recent forecast by Interpublic Group’s Magna Media Services. According to Magna, although total spending on Internet and mobile advertising is expected to decline three percent in 2009 from 2008, substantial growth can be expected for the near future – 5 to 10 years.

According to Brian Wieser, director of forecasting for Magna, $22.8 billion will have been spent on online and mobile advertising by the end of 2009. While this signals a slight decline decline in yearly terms, the future looks optimistic; Wieser predicts a 7.7 percent total increase for 2010 with ad spending to reach an estimated 24.6 billion. According to this article, Wieser also predicts that by the end of 2014, spending will reach a robust $35 billion, which represents a growth rate of 8.9 percent, compounded annually.

According to Magna’s study, expenditures on advertising,”…industry [all advertising] revenues will fall from $47.5 billion in the fourth quarter of 2008 to $43.2 billion during the fourth quarter of 2009.” But compared to the estimated revenue declines of 13 percent during the third quarter and 18 percent for the first and second quarters of the year, this represents a, “…moderating pace of decline.” In the midst of the decline, it was reported that paid search and online video grew quickly in the first half of this year – a trend that is expected to continue in the next several years. Aun again cites Wieser, who stated: “Search advertising caused an expansion of the market, making it possible for millions of small- and medium-sized enterprises to do what we call advertising.”

The Magna report also found that direct online advertising, which raked in $13.5 billion last year, grew 2.5 percent this year totaling $13.8 billion and is expected to reach $15.4 billion next year. Local digital advertising revenue this year will see around $3.4 billion, an 11 percent decrease from 2008; it will likely increase to an estimated $3.5 billion in 2010. The forecast report also predicted that national digital ad revenue will reach $5.5 billion, 9.8 percent less than in 2008, and will see a mild increase next year as it sees $5.6 billion. According to Wieser, the rapid recovery time for many types of advertising will actually benefit display, which may have fared worse in the recession. He argues it enable advertisers and brands to purchase display at more competitive rates.

Via Fred Aun @ ClickZ