Stickiness is bad for business

It is common to hear entrepreneurs and investors talk about the high level of engagement (what we used to call “stickiness”) of their website. They quite rightly believe that it’s better to have a more engaging user experience, as that generally means happy users. Unfortunately, the dominant advertising model on the web – Cost per Click (CPC) – rewards un-sticky websites. As Randall Lucas said in response to one of my earlier posts:

The paradox, it seems is this: in a pay-per-click driven world, site visitors who want to stay on your site — due to it having the once-much-lauded quality of “stickiness” — are worth much less than those who want to flee your site because it’s clearly not valuable, and hence will click through to somewhere else.

Facebook recently became the most visited site on the web. Yet their revenues are rumored to around $1B – about 1/30 of what Google’s revenues will be this year. Google has the perfect revenue-generating combination: people come to the site often, leave quickly, and often have purchasing intent. Facebook has tons of visitors but they generally come to socialize, not to buy things, and they rarely click on ads that take them to other sites. Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything.

The revenue gap between sites like Facebook and Google should narrow over time. Cost-per-click search ads are extremely good at harvesting intent, but bad at generating intent. The vast majority of money spent on intent-generating advertising — brand advertising — still happens offline. Eventually this money will have to go where people spend time, which is increasingly online, at sites like Facebook. Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products. Expect the online Starbucks of the future to have a lot more – and more effective – ads.

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http://www.victusspiritus.com/ Mark Essel

Sounds like stickiness will be great in a few years. Still may be good for Facebook, or other social readers (the MVC of software design leads me to believe social data and the view are better decoupled on the web).
http://timetogetstarted.wordpress.com/ brett1211

I like the starbucks analogy but disagree that the quality of stickiness is in of itself bad. SBUX made $9.7bn in revenues TTM and they have COGS! It's only bad if you can't effectively monetize people on your home turf (bc it costs $$$ to host the party). Passing along qualified traffic is but one-way to monetize a website. Selling people things is another.

Zynga is a great example of this. The average Farmville user spends 33 minutes a day tending his crop. Mafia wars players check in for two 20-minute sessions everyday. The stats are astonishing. 97% of zynga's customers just chill out and use the wifi but zynga still gets rich selling ~100% margin coffees to the 3% that buy*. So I would say that when the space in your store infinite, the consumer experience gets better with each additional person that comes in, and COGS are ~0, it is very much in a website's best interest to keep people around as long as possible. Thoughts?

http://www.cnn.com/2010/TECH/02/23/facebook.gam…

I didn't make Charlie’s event but isn't one of the themes of “commerce 2.0″ that e-commerce sites should increase their stickiness by acting more like media companies and engaging customers higher up in the funnel?

http://blog.redfin.com/blog/2010/03/a_media_com…

*I've omitted the 10% of customers that are monetized via offers for simplicity, but I want to pose this question: why can I as a consumer only unlock the value of offers in games? Why can't I gain access to premium Economist content by signing up for a trial Netflix subscription? For that matter, why can't I buy my starbucks the same way? Would love to hear people's thoughts on why payment aggregation services haven't spread beyond games. Thx.
hdemott

I have to believe that over time, instead of throwing vampires or sending seeds or digital teddy bears – friends will be incented to send virtual coupons for Coke or a new Lay's potato chip to their social circle in the form of a digital coupon they can redeem at any store. If friends are the ultimate intent generator – marketers need to find the online lead steers – and get them to use their circles to generate a tipping point on a product. Come to think of it – sounds like a potential business there!

http://www.wac6.typepad.com William Carleton

Picking up on hdemott's comment, Chris, I would like to think we could envision a not-too-distant day when advertising per se would come to seem ridiculous, beside the point, too annoying to put up with. Don't innovations like Hunch help get us there? Businesses will certainly need to have participants in the social discussion or the means by which the information inefficiencies are being brought down, but this kind of marketing will have more to do with customer interaction and product and service feedback than a paid for message (whether broadcast or targeted).

http://learningischange.com/blog Ben Wilkoff

I really like your comparison of Starbucks and Facebook. I think that digital Loitering is going to be a very real part of our future, but I think there is a way that we can use the analogy to figure out a solution to this new problem in online spaces. As Twitter, Foursquare, Gowalla and Facebook all establish themselves as location-based services, they are all starting to ask the same questions: Where are you and what are you doing? Our willingness to give out that information means that we trust the entity that we are sharing with to a certain extent. Meaning, we trust the space. Just like we may not buy a whole bunch at Starbucks, we trust that the space is safe enough to hang around in and when we do want coffee, that is the first thought in our heads. Because of this trust, we are persuadable. However, most brands are not trading on the trust built. They are still trading on their brand. They are not using the medium of where and what that is being established, they are still working with the medium of want. Once brands start to look to work with trust and connection rather than commodity, they will see just how integral they will become to the user experience.

I see a day in the not so distant future, where Coke gets smart enough to become people in a place rather than a product in a place. And people who are talking about what they are doing and where they are going are better at building trust than products that sit on the sidebar. My two cents, I suppose.
mweiksner

Chris,

Odd comparison to put down Facebook: Isn't starbucks wildly successful?

But my two main points: (1) Like Fred Wilson, I believe that FB + Twitter will drive more traffic than Google within 12 months from now. This is an enormous monetization opportunity. (2) FB has identity warranting, so it will become a central player in the entire online payment system.

Let's not forget that many people lacked the imagination about Google's potential, too, prior to 2003 and the introduction of adwords. At that time, critics said loudly dismissed google. How could google ever generate enough PVs to generate meaningful display ad revenue to compete portals like Yahoo?
I think that seeds of innovation are lurking in your post: Facebook will have to move beyond CPC, for example, just as adwords moved us beyond display ads.

In short, I am bullish that Facebook will be a monster of similar if not bigger size than Google in the end.

http://www.cdixon.org chris dixon

I am bullish on FB too. Meant to imply that in last paragraph.

mweiksner

Phew. I was confused by the provocative title I suppose.

http://www.5o9inc.com/ Peter Cranstone

Great post. The comments are excellent both for and against. Where I think the future is – contextual advertising that is based on Who I am, What device I'm using at the time and Where I am. In essence these aren't ad's but personalized information. The key (mentioned in the comments) will be “Me” trusting the Web service.

Effective ads are “Personalized”. All you have to do is figure out Who I am.
http://twitter.com/peretti Jonah Peretti

Companies that brag about their stickiness often have a small rapid audience that generates lots of PVs. Since you can only show an ad to someone a few times, the sticky sites have problems with frequency capping.

Although CPMs are based on impressions the ad revenue of a site actually correlates more strongly with UVs. And the best way to generate UVs is to bring in new, casual readers and not maximizing engagement. This is why About.com and Demand Media are cash cows – not sticky but they always have lots of new people cycling through.

Of course I am biased but I think the big future opportunity for advertising is viral distribution. Viral spreads the media to new people so it maximizes UVs and audience size which has always been what advertisers care about. But more importantly it creates demand because viral is essentially word-of-mouth. And consumers trust word-of-mouth more than anything else when it comes to new products.

http://trueslant.com andreaitis

good points, jonah. two kinds of viral: advertisers creating something they want to go viral (forced viral, difficult and unlikely) and viral through active sharing and engagement, advertisers crossing the line to participate in the experience. for advertisers, word-of-mouth works when it's authentic and transparent. one look at ipad pre-sales and we see a good example of viral/word-of-mouth advertising.

http://CityandOut.com/ AndreaF

Chris, I agree in principle with the concept but not sure that the FB vs Google analogy holds very tight. 4 things at least to consider with regards to Fb: 1) they only started worrying about monetizing in the last couple of years or less so we are still in the very early part of their revene growth path; 2) they suck at ads; I spend a lot of time on FB trying to promote my business and all the ads I get prompted with are either irrelevant or crap looking or both; 3) FB was born as a place for socialising and its shift to becoming a marketplace has only just started; 4) execution is important; until about a year ago Zuckerberg was surrounded by, in my opinion, fairly mediocre executives and advisors; he's changed the team, taken back full control of strategic decisions and the results are coming fast.
With regards to the more general argument of stickiness, I think that we will see a continuous trend whereby advertising and content will merge into one thing to the point of making advertising irrelevant. Best monetization will occur where people find best content (professional and UGC) and can then (with one click) buy a related product/service.
The Search ads display model is in its maturity phase and at some point in the next year or so will peek and start declining while the Social Web one is still at the beginning.
But you and Hunch know all this.
http://www.investingwithoptions.com/ steveplace

fbConnect + fbCredits = new revenue stream. I have a feeling they're working on some social-e-commerce-voodoo that will give their stickiness an edge.
http://bsiscovick.tumblr.com/ bsiscovick

I'm a bit confused here, Chris. Stickiness is bad for who's business?? It seems like you are saying it is bad for the ad serving intermediaries because they can serve fewer ads. But if I am a content site, stickiness is desired because I can charge higher CPM for my inventory.

Of course, it is dependent on the nature of the business and business model, but I would argue that stickiness is highly desirable for most businesses.

I don't think I am disagreeing with the points in your post but, humbly, I think the title is misleading…

http://www.cdixon.org chris dixon

Not sure how much simpler I can say it than I did in the post.

http://bsiscovick.tumblr.com/ bsiscovick

Well let me clarify –

You write “the dominant advertising model on the web – Cost per Click (CPC) – rewards un-sticky websites.”

But who is being rewarded for un-sticky sites?

In the quote you reference above, it seems that Google (or any other CPC serving intermediary) is the primary beneficiary of un-sticky sites since they are the ones who ultimately get more clickthroughs and thus generate more revenue. But in this scenario, the unsticky content website itself seems to lose out.

So when you say “Sticky is bad for business” – do you mean sticky is bad for Google's business? Or do you mean Sticky is bad for the specific website itself. It would seem to be the former, but your title implies the latter…

traxor

Sorry to say this but I really fail to understand what you're trying to get across here. You don't really prove your point in any way. The comparisons you're making don't really apply to sites that are there to generate revenue as much…

http://www.cdixon.org chris dixon

Which point do u not believe? Google has 30x the revenues as FB and
fewer visits. You don't believe that ?

http://trueslant.com andreaitis

“Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products.”

the problem is that advertising is so often a one-way experience. banner –> click –> advertiser site. brands needs to loosen up, relinquish some of their control and, yes, engage with consumers. so much of online activity is conversation-based, whether thru status msgs, sharing of content, 'liking' or 'recommending' content, even following and retweeting. Conversational marketing really is the future, but it'll take a bit of time to get there as brands get more comfortable with the concept. they need to recognize that the audience is smart and savvy — just because they put out a message, it doesn't mean the audience will buy it (literally or figuratively). having an authentic, transparent relationship with consumers will take them much farther. at True/Slant, we've tried to eliminate the barrier between advertiser and consumer with our T/S Ad Slants. marketers use the same tools as our contributors (entrepreneurial journalists) to self-publish and self-market; see http://trueslant.com/webtrends for an example. it's early yet, but we're optimistic. and, funny to hear 'sticky' after so many years. the buzz words may change but the point remains.

bmconry

andreaitis – great point. The customer needs to be engaged and feel part of the experience. Once they make that personal connection, the ad/brand/video goes viral.

The most difficult problem that marketers face is creating that personalized message in an engaging manner at scale. Ford did this well with the Fiesta, but the methods employed may not work (or be as successful) with the next launch. It quickly becomes the “seen that before – next?” mentality.

http://stevecheney.posterous.com/ steve cheney

Great how this post turned out.

Along ‘stickiness’, Facebook recently did some statistical analysis on user engagement. Turns out user activity within a few months of signing up is based on 3 factors:

1) how often a user was reached out to by others
2) frequency of third party application use
3) term they coined “receptiveness” — related to user’s propensity to share

All of these stickiness factors are social – #3 isn’t likely to change, but #1 and #2 are increasing like crazy. also #2 smells like a micropayment gold mine.

food for thought
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http://nabeel.typepad.com nabeel

Very good point, however you should have one caveat to all of this Chris, “For advertising-based business models.” Which of course your two examples, Facebook & Google, fall in to.

For Freemium-based businesses stickiness is everything.
ablanaru

I like the analogy with Starbucks. I would further compare it to Brookstone or Sharper Image – people go there to satiate their curiosity but they don't really buy that much. Turns out Sharper Image went bust and Brookstone is probably not in it's happiest time either.
Not that I think that Facebook is going bust – I agree with your point that they should be able to better monetize over time – but just for the sake of analogies.
http://bsiscovick.tumblr.com/ bsiscovick

Seems like your underlying point here is that CPC business model is strongly preferred to a CPM model since CPC is much much better at harvesting intent and thus drives much higher revenue. Can't argue there.

But for sites that ARE CPM-driven or more generally, for content oriented business model sites, wouldn't you want to be as sticky as possible?

http://www.cdixon.org chris dixon

Yes, if you are CPM driven stickiness is generally good, although
without click thrus I wonder if your CPMs will suffer long term.

bmconry

Arguable FB is a great example of the declining CPM revenues given its ad *price* levels.

aaronfranklin

I disagree that Google users “flee [the] site because it’s clearly not valuable”. Google users are specifically looking to be forwarded elsewhere – that is the value of Google. The difference between brand and CPC advertising is that users find value in CPC ads. Google's ads can be so relevant that the majority of users don't even realize they are ads. And the ads really deliver for advertisers.

The ideal solution is not waiting for inefficient Brand advertising dollars to move online. The internet allows more targeted advertising, and therefore more efficient spending. Facebook should tailor its product to generate some aspect of user intent. This would allow them to deliver the right ads to the right users – a win for revenue, advertiers & users alike.
SV-Guy

This is not true. Revenue depends on the business and type of website. I spent 5 years working at a startup and our competitor destroyed us by building the stickier website. FB's revenue isn't near Google's yet because they really haven't figured out how to monetize at the same rate per user.
Aviah Laor

unless you are 3M
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http://blog.intwig.com/ Raymond Rouf

chris, thanks for the post. i breakdown facebook into 2 sets. You have the feed (the main attraction) and everything else(profiles, events, etc). google is similar with search and everything else(everything other google product).

you definitely leave the feed quickly, either to other fb pages or other types of content. i think the future of monetizing facebook is in the feed. it's their biggest non-sticky asset and a source of information that millions of people love now.
http://www.SuccessNexus.com/blog/ Ankesh Kothari

Thanks Chris. Good food for thought.

The day Facebook comes out with a payment platform is the day stickiness becomes more beneficial than unstickiness.

Facebook sees very little advantage from being sticky at the moment. Because it doesn't get anything when the user takes out their wallets. But this will change as soon as Facebook takes a page out of Apples strategy book. And comes out with the payment platform.
sweller

CPC is the modern day advertising equivalent to WWII carpet bombing.

It's inaccurate, rewards stupidity and is route with fraud.

Channel building is far more powerful.

We have clients that once said “I don't want my customers loitering on our website”. Now they realize the true value of engagement, as they have more customers spending hours on their website than are watching the local news channel.
http://www.yanivnizan.com/ Yaniv Nizan

There must be a better way to compensate the content websites. Paying for clicking out is a redicilous way of compensating this kind of websites. I think Google adwords can change all that with the new retargeting feature.
http://www.yanivnizan.com/2010/03/google-adword…
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galenward

Chris, I've heard this argument a lot recently – FB users aren't worth as much because they're just screwing around and have no intent behind their visits. I think there is some truth to it, but a much larger reason for the disparity between FB and Google is time.

Google has honed adwords over the years, advertisers have taken years to become acquainted to it, and users have come to use Google as a jumping off point for transactions. For an apples-to-apples comparison, look at Google's revenues per user when they were Facebook's size – I think you'll find it's a lot closer.
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Chris Dixon