Techneur

This post started out as a response to JP’s blog post Leveraging Social Capital and the 8th Circle of Hell and took on a life of it’s own…

My Multi-level Marketing Experience

I signed up for Quixtar as a freshman in college ready to own my first BMW by age 21 and retire at age 30. I found out that “Start-Up Kit” really meant “$100 lesson in how not to run a business.” As JP pointed out, the problem with Multi-level Marketing (MLM) Companies is that they try to leverage your relationships as a revenue stream in an insincere way.

During my first Quixtar meeting, the associate gave us a vision: “Imagine driving up to the bank in your BMW, unshaven. You roll down the window to deposit a check for $2000. When the cashier sees the amount, she looks up and you smile - all in a days work baby.” (He really said this). Then he bought everybody lunch and asked us to sign on the dotted line.

I signed because I was young and naive. After a few training sessions, I was out. I didn’t feel right asking my friends to use products that (1) I had no passion towards and (2) weren’t relevant to them. Hell, the products weren’t even relevant to me so how was I supposed to sell them to other people? And therein lies the problem with MLM.  A small few can fake the passion and sell millions. The rest of us like to stay true to ourselves and friends. We don’t want to monetize our friendships.

MLM Bots

Like JP, I’ve been approached by several MLM people. Usually, it’s awkward and forced. I’ve outlined the three main types of MLM Bots below:

The Newb Bot: The average MLM Newb Bot is new to business and green around the ears. They strike up uncanny conversations in the work-out section of Walmart. They ask if you like to work out frequently and what you do to get good results (this happened to me). Really, it’s all bullshit. They’re not actually interested in helping you or heeding your advice, they just needed a convo starter to push their product. If they’re feeling lucky, a drone might work up the guts to pitch you right there. Usually they’ll say, “You seem like the type that knows what you’re talking about. Ever thought about owning your own business?” If their voice doesn’t crack, they count it as a victory.

Strength: Has a lot of Newb friends that are prime for signing up.

Weakness: Newb Bots are easily shot down with rational arguments and don’t possess the confidence for rebuttal or stomach for confrontation.

Longevity: Newb Bots will drop out of the MLM business in 2-4 months because they could only sign other Newb Bots for their downline (people signed up underneath them). They eventually realize that they’re all Newbs and should go back to college. Meanwhile, the MLM company makes a shitload off of their initial investment kits. Ka-ching!

The Alpha Bot: This MLM Bot is particularly adept at preying on the weak. They are usually the alpha dogs of the pack and have gotten where they are by being pushy. You send an Alpha Bot into a room full of people and they’ll come out with five party bookings. The problem is that no one will show up because they didn’t like how pushy they were and/or didn’t actually sell the host on the product. The mark of an Alpha Bot is someone who assumes the sale before they’ve found out your needs. They will say, “Nice to meet you, I sell this and this, so when do you want to book the party?”

Strength: Lack of empathy. By only thinking of themselves, the Alpha Bot is able to push past other peoples’ negative emotional cues. They will persist until the sale is made, no matter how tactless.

Weakness: Unlike Newb Bots, the Alpha Bot will continually rebut an argument. They don’t mind confrontation because they constantly use it to their advantage. There’s no nice way to say “No thanks” to an Alpha Bot. Their weakness lies in their ability to view everything as a possible alpha-status attack. To defeat them, simply say, “I don’t want to book a party because I don’t like you and/or don’t want to use your products.” They will rebut with a “why” which is when you say,”I don’t care to discuss it.” Boom! You’ve just shut down all of their premeditated counters. They’ll huff and puff their feathers to make a big show. They’d never let others see the tail between their legs because it’s too much of an ego-bruising.

Longevity: The Alpha Bot will last years and years in the industry. They will cruise to the top by running over non-confrontational people. Just remember, if they try to drive over you, they’ll be cruisin’ for a bruisin’, and you’re Captain Bruisin’.

The Value Bot: The Value bot is a socially savvy bot that caters to your needs and isn’t pushy about it. They ad extra value to their product by offering great service and extra knowledge. A Value Bot is worried about what you need, no matter the relevance to their product line. They want to talk to you because they like helping people. The Value Bot will stay in your life for a long time because they forge real relationships. When you meet one, you will know because they will ask you questions about what you do and offer real advice to help you reach your goals. You’ll learn what a Value Bot does because they’re passionate rather than pushy.

Strength: Empathy and positive regard for others. The Value Bot puts their knowledge to work for you.

Weakness: Too much time helping others. A Value Bot’s only weakness is that they put your needs first. This can ultimately hurt them because they are helping instead of selling. If a Value Bot can strike a balance, they will be very successful. If you notice a struggling Value Bot, help them find clients.

You can defeat a Value Bot by saying… Wait, uh, you cannot defeat a Value Bot because you are never fighting a Value Bot. You are always on the same side.

Longevity: Value Bots usually rise to the top. They’ll be in it for life because they are passionate about what they do.

Product Focus vs. Money Focus

That being said, there are a lot of MLM companies that have a good reputation. As JP mentioned, Pure Romance, Mary Kay, and Pampered Chef are all household names of quality. (Sc)amway is not. With the former, products sales drive revenue. Now that I’m viewing their website, I see that Amway has came a long way since it’s Quixtar bad PR days. They’ve rebranded Quixtar into Amway Global and have become more product-focused.

It’s up to the individual companies to set the tone for their sales reps. If a company (EIRO) puts a pile of cash on their front page to entice potential recruits, then they’re not focusing on their product. This is a money first mentality. A mentality that their sales reps will probably adopt. I don’t want money-driven Newb and Alpha Bots interrupting me while I’m pumping gas. If someone interrupts me, they better have some real passion behind what they’re saying. They better be a Value Bot.

If you look at the front page of Pure Romance, Mary Kay, and even Amway (they’ve learned their lesson), you won’t see BMWs or fat stacks of cash. If you look at EIRO’s front page, that’s practically all you see. It’s cool, they’ll learn their lesson or die out just like the rest of them.

With that being said, an individual sales rep can still trump bad company policy. If an EIRO rep is passionate and truly believes in their energy drinks, then I am much more likely to give them a try. If I am already a consumer of Redbull and EIRO can offer a better value proposition, then I’m sold.

Conclusion

It’s all about passion and product relevance. You can bet your tasty can of EIRO that if one of my friends likes Husker Football and has an iPhone that I’m going to tell them about our Reflect7 Football Apps. For two reasons: (1) the product is relevant to them and (2) I’m passionate about it. However, companies that thrive off of pyramidal kit sales can lick my sweaty Redbulls.

Reflect7 took the Freemium approach with our latest ad-based app, Final Madness.  Freemium is basically offering up a set of limited features for Free and then charging for Premium features.  Free + Premium = Freemium.  Within the app store, there are two ways to execute this strategy:

1) Have two separate apps: 1 lite version and 1 premium version.

2) Have one app that offers and in-app upgrade.

We did the latter with Final Madness. Thus far, the results are mixed.  The Final Madness conversion rate (the number of people who bought the upgrade out of all the people who downloaded) is a meager 1.55%.  I thought it would raise up to around 5% once March Madness started, but instead, it has tanked a few tenths of a percentage.  Why?

1) More Competition.  When we first released, we had little to no competition in the Free section.  Now there are 10 or so March Madness apps in the Free section and even more in the paid section.  This hurts conversions when initial downloaders can easily jump ship to another app once March Madness begins.  If we would have offered one lite version and one $1 premium version, we would have benefited far greater from our early bird status.  Those traversing the store in early March would have had only a few options and ours was one of the best for $1 at that time.

2) The app upgrade isn’t an out right killer.  This is no appzilla of March Madness.  If you want a more complicated app that can cook you breakfast, then CBS has that covered (and they have licensing).  CBS’s Freemium success hinged on the same initial motif that ours did: (a) have ads in the app to generate revenue and slightly annoy the customer, (b) offer premium features in the premium version (cbs streams live tournament games).  Given our scale, I wouldn’t change that one bit.

Where CBS differed was in having two separate apps, not just one app where you could purchase an upgrade.  This worked well for them as they were able to establish themselves as leaders in both the Free and Paid Sports categories.  They probably also gained revenue from people who traverse only the Paid section and thought that their app looked snazzy without giving a second glance to the free section.  These “blind buys” are eliminated when you only offer one app with an in-app upgrade.

Actually, I can’t think of any monetary or exposure advantage to having just one app.  If I were to do this over again, I would definitely say that we needed two apps: one lite and one premium. 

Advantages to having two apps (one lite and one premium):

Exposure (List) advantage: Since 80% of the apps that are purchased are free, most people who ended up purchasing the paid version of an app will have already purchased the free version.  This gives you two list bumps.  With an in-app upgrade, there is no list bump given when a downloader decides to purchase. 

Monetary advantage: More exposure means more purchases.  In addition, you will have curious customers who will purchase the app outright because they never traversed the Free section.  In addition, you won’t loose any purchases when compared to an in-app upgrade model, because app owners who patrol the free section will have already seen your app.

Summary

2 Apps are better than 1.  Having a Free and Paid app will give you more exposure and hence, more purchases.

-Brian

Five days have gone by since the last installment and we’ve learned what has and hasn’t worked.  Final Madness made it all the way to no. 13 in the Free Sports category.  The March Madness app held tight for three days until dropping back to the twenties.  I’ve crunched the numbers, made some predictions, and our team has restrategized.  Want to know how many downloads it takes to break top 20?  Wondering how many views you need for an ad strategy to pay off?  Reflect7 has gone through the journey and made the mistakes so you don’t have to.  Think of us as the tour guide that always dies in the horror movies, except with smaller man-boobs.  So follow us down this dark cave as we explore the creepy caverns of the app store.

Brief Recap

How downloads correspond to rank:

Last Saturday morning we were sitting in the mid 30s in the Free Sports category. We had high hopes for our conversion strategy: cross promoting to our other 60,000 sports fan customers.  We’re still executing but it has already paid off. 

Stats:

Saturday was big for us, propelling Final Madness to the top 15 spot in the Free Sports category.  Sunday was even bigger, helping us climb all the way to number 13.  We’ve learned that it takes about 1200 downloads to break top 15 in the Free Sports Category.  It takes about 650-750 to place in the top 19th-22nd range. I’m estimating that we need around 1600 to break top 10 on the weekend and about 1300 to break in top 10 on a weekday.

Visibility:

So why do we care about getting to the top of an app category? Visibility. 80% of iPhone users purchase apps from their mobile device.  80% of apps sold are free.  In order to be successful, Final Madness has to have a presence in two very important mobile lists.

1) Top 25 in Free Sports

2) Top 5 when a user searches for the term “March Madness”

Anything ranked lower is beyond the mobile default view and out of the users periphery.

It’s also important to make one app store desktop list:

1) Top 20 in Free Sports

This view is showcased on the sports category main page.  Anyone perusing the sports section on their computer will be exposed to this list.

Guide Lesson: Visibility is key.  If you can push your app to top 15 in it’s primary category, you’re getting great exposure where it counts.

Monetization: Ads or In-App Upgrade

Pleasure & Pain:

Our monetization strategy was simple.  Offer a free, ad-supported app with the ability to upgrade to no-ads within the app.  Motivational experts argue that there are two primal motivators for human action: Avoiding Pain and Seeking Pleasure.

Our strategy was to utilize these emotions in a way to maximize revenue.  Here’s what we did:

Avoiding Pain: We placed ads in an area at the top of the app that would annoy the customer just enough to purchase the no-ads version.  Honestly, I think they are only semi-annoying, if even that.  JP wanted to play a Jonas Brothers song each time a team scored but I said, “JP, we want users to upgrade, not commit suicide.”  So we left it out… for now.

Seeking Pleasure: If a customer upgrades, they will receive push notifications when a game ends.  They will also get all of the brackets and stats from 2003 until present.

Right now our conversion rate is low (around 1.7%), and it might stay pretty low given that a lot of competition has entered the “Free” zone.  I suspect we will see a higher conversion rate once March Madness actually starts.

Guide Lesson: If you have an upgrade mechanism, make sure to not only motivate your users with new features, but also with minor annoyances if they haven’t upgraded. 

Adding it up:

We’re expecting ads to be our main source of revenue.  As of midnight on Wednesday we’re sitting at a whopping $24.05.  That’s enough for JP to buy 24 McDoubles, or in Corey’s case, 10 Happy Meals. 

Stats:

At the moment, we’re assuming that users are spending little time within the app because March Madness games don’t begin until next week.  If you can afford the overhead and the programming time, I urge you to embed analytics code within your apps.  Knowing how long each session is and what parts of your app customers are using is invaluable.  Our ad server, Mobclix, has this code available and an analytics page that looks pretty snazzy. 

I won’t go into the math, but we can guesstimate that the average time per Final Madness user is around 2.6 minutes.  That’s enough time to see 6 ads (30 second ad rotation).  The chart above shows that we have a .69% click-through-ratio (CTR) which has earned us an average of $.53 eCPM (effective Cost Per Mille - for advertisers to display a thousand ad impressions in our app).  Here’s the revenue table for Ad Impressions vs. eCPMs:

A very optimistic projection is that we will have 18,000 active users by March 18th (I’m thinking 16000, but with 18k, it’s easier to display the math).  I also predict that users will double their daily time in our application to 5 mins 12 secs.  We’ve lowered our ad rotation to 23 seconds so those users will see a daily average of 14 ads.  If these numbers are close, then we should show around 252,000 ad impression each day (18,000 users x 14 ads per user).  With Final Madness having a $.53 eCPM, we will probably be making around $125 per day.

As the chart shows, you have to have about 250,000 ads impression/day and attain a $.57 eCPM to pull in about $50k per year with your app.  If you can increase your users session time, than you can dramatically increase the amount of ads you display.

Dead Ads: Part of attaining a high eCPM is getting rid of Dead Ads. Ads that your customers continually see and never click because they’re not interested in that product, or they already have it.  The best way to do this is to serve up the greatest variety of ads possible.  To accomplish this, you need to utilize as many ad networks as possible.  Mobclix serves up ads from several different ad servers.  They also allow open allocation for Admob and Google ads.  If all goes well, we’ll be allocating 30-40% of our ads to Admob before March Madness begins.  Hopefully, this strategy will raise our eCPM and put us in the .7-.8% category on the chart above.

Guide Lesson: So when thinking about monetizing with ads, always use analytics to see how long users are in your app.  We didn’t and now we’re left with very loose projections.  In addition, try to minimize the number of dead ads you show by maximizing ad servers.  This can raise your eCPM substantially with little work.

-Brian

Update at the bottom.

Recently, my business partner Brian wrote an article about us promoting an app on Apple’s App Store. One of our strategies was to leverage our existing customers of our NBA apps to promote Final Madness. We had done this with our NCAA basketball apps, and it worked great - in two days, the app made it to #13 in the sports section of the US iTunes store. We had submitted our revised NBA apps to Apple for approval over this weekend. Our thought was that they would be approved by Monday or Tuesday. We thought this would provide enough momentum for the Final Madness to stay in the top #25 until Selection Sunday.

On Monday morning, Apple sent an email. The email notified us that the application review state has changed. Typically, this is done to indicate that the reviewer is unsure about something and needs someone with higher authority to make a decision. In the past, Apple has called us when this would happen. Not this time. After I read the email I was feeling a bit bitter towards Apple. Internally, I was blaming them for this problem. I thought, Why can’t they just accept it as they usually do? Why do they have to go through this annoying review process? I just so happened to stumble upon an article entitled: Note to Entrpreneur’s: It’s Your Fault. The premise of the article is that everything that happens to your business is your fault in one way or another.

Most importantly, the article writes:

“The real trick is not to give the “it’s my fault” attitude lip service, but to actually believe it and live it. Never let your guard down. No whispering to friends/ family that “if only so and so did this” or “if only that hadn’t happened….” Always blame yourself. Its the only way your problems get solved.”

The article is right. We knew about Apple’s developer agreement. Yet, we decided to look the other way.

Later that afternoon, I had finally received the following email from Apple:

Dear Reflect7,

Thank you for submitting your family of fan applications to the App Store.  We’ve reviewed your applications and determined that we cannot post them because they appear to contain features, namely,content and feeds, that bear resemblance to well-known third-parties including The New York Times, LA Times and CBS Sports.

Additionally, we determined that we cannot post these versions of your iPhone application to the App Store at this time because of inappropriate ‘Keywords’ used to identify your application.  Applications that contain terms, product names, brand names, or entities in their search criteria that are registered trademarks not licensed or owned by the submitter cannot be posted to the App Store.  It would be appropriate to remove nba, nba team and NBA.

Please remember that pursuant to your agreement with Apple, you represent and warrant that your application does not infringe the rights of another party, and that you are responsible for any liability to Apple because of a claim that your application infringes another party’s rights.  Moreover, we may reject or remove your application for any reason, in our sole discretion.

Please provide documentary evidence that you have the rights to use this content to ensure compliance with the iPhone Developer Program License Agreement. Once Legal has reviewed your documentation and confirms its validity, we will proceed with your application review. Be aware that while your iTunes Connect Application State is displayed as Rejected, it is not necessary to upload a new binary in this particular case.  However, if your application is not in compliance, and you are able to make the necessary changes, we encourage you to do so and resubmit your binary for review.

Regards,

iPhone Developer Program

The bomb dropped. The applications that the email is referring to have been in the App Store for over two months now. Why weren’t these problems flagged earlier? From the text of this email, it would indicate that Apple has problems with applications using RSS feeds to link to well known news sources. That pretty much describes all of our Sports Fan applications. Our bootstrapping strategy was over - and it’s all our fault. As I said earlier, I knew that Apple held the keys to their kingdom. I understand that they are well within their rights to control what is on their store and what isn’t. I agree with all of it. The inconsistency of the review process bothers me, but yet again, it’s done by humans. Humans are inconsistent creatures. One app reviewer may interpret a policy different than another. However, it is still our fault.

Why You Shouldn’t Build Your Business on the App Store

I’m not saying that you should stop developing your iPhone apps. What I am saying, is that if you are attempting to build your business off of the App Store you are putting a major liability on your company. Recently, the EFF requested the Apple Developer Agreement from NASA on the FOIA. Read it, and then read it again.

Mark Suster, entrepreneur turned VC, wrote an article: App is Crap. One of his finest points in the essay is that Apple is a channel and not a business model. Mark writes:

“I see too many companies that are building iPhone App companies.  iPhone is not a business model unless you’re Apple.  It’s a channel.  It’s a way to reach your customers.  And single channel businesses are vulnerable to the vagrancies of the market place.  If you’re a “pure mobile” company that’s fine.  There is a strategy for that.  But you need to think in terms of broader distribution.”

I think he is spot on. It’s too bad we didn’t focus on this earlier. But, yet we are young, nimble, and hungry entrepreneurs and so we didn’t. Now we know.

A wise man once said: “Stay hungry, stay foolish.” Perhaps he meant that literally?

You can follow me on Twitter @jprichardson

-JP

Update 2010-03-12 10:40 CST:

1. Many people have asked if we are ‘giving up.’ We are not. We are just changing strategies. My main point still stands, it’s foolish to build a business on the Apple App store.
2. To my knowledge, there is no trademark infringement against the NBA. The trademarked word “NBA” is not used anywhere in the application in content that we own. Nor is it used to promote the app. In fact, our description clearly claims that we are not associated with the NBA. 
3. I’m not sure what happened to all of the comments. They show up in my Disqus profile, but they are not visible here. I’m looking into this.

This segment is the first of a multi-part post cataloging our adventure as we push our March Madness iPhone app to the top of the store.  We’ll show you our revenue, stats, and share our experiences while they’re happening.  We’ve even set up a counter website where you can view the app’s free downloads, $1 upgrades, and conversion rate.  So instead of getting important work done, you can stalk the app 24/7 like I do.  We’re basically blogging our entire strategy and analyzing it for your entertainment.

Brief History: Reflect7 & our app Final Madness:

We’re a small software company (3 part-time dudes) located in Lincoln, NE.  That’s right, Nebraska now has software and the electricity to run it (watch out Google!).  Our Final Madness app has been released for about a week and it’s been steadily gaining ground since we started our marketing campaign.  The guys and I took a bet on how much revenue we thought the app would accumulate.  Corey said $15k, JP said $1.5k, and I said $54k.  Initially, I was going to do $15k but it would have been a jerk move to go right above Corey’s estimate, price-is-right-style.  Instead, I went balls out to $54k to make it seem like I had some inside mojo.  But honestly, if Final Madness can just break into the top ten list for free sports, we’d all be happy.  Not because we’re making money, but because we’re finally starting to make sense of the app store.

The Campaign:

1) Our first order of business was to release a simple and elegant app that would never crash.  We adopted the 37signals mantra, “Underdo your competitors.“  I’ve been doing that my whole life, just ask my previous girlfriends. Our mobile developer must have been doing it too, because that is where Corey shined.  He built a simple bracket slide interface with live scoring, push notifications, linked stats for every game, and previous years brackets.  Everything a basketball fan needs to follow March Madness.

2) Next was cross-promoting Final Madness in our other apps.  For the last six months, we’ve had nearly 200 team-specific applications on the market.  Here’s the customer breakdown:

The sport with the $ next to it represents apps that people paid for.  The ones without a $ represent free apps (about 75% of our total). You can see in column O33 that we have about 60,000 customers.

Reflect7 is operating off the assumption that making a top 10 list in any category is a self-feeding process where new views bring in more downloads, which raises your app rank for more views.  Our goal was to leverage our 60k customer base in a condensed time period leading up to March Madness.  If we could convert 33% of our base to Final Madness in a period of 7 days, we’d be looking at 20000 downloads.  That’s almost 3000 a day and enough to get us to the top five of the Free Sports list.  After that, we’d hopefully sustain a top presence from the list view and March Madness hype.

So far we’ve inserted icons in all of our 91 NCAA basketball apps and a handful of our NBA apps.  Final Madness had the largest jump in sales after those updates were approved.  The conversion strategy seems to be working, but we’ll have more on that next week when I crunch the early numbers.

3) Our next move was to build a Final Madness website with a Twitter/Facebook promotion. That promotion began today.  We’re giving fans a chance to win a 40” Flatscreen when they retweet or update their facebook status with our message.  So far, we only have about 5 entries so if you’re reading this, the odds are pretty good. I’ve never done anything like this before so it’s really up in the air.  We’re tracking all the links so it will be interesting to see the numbers next week.

To supplement the promo, we’ve set up a facebook fan page and decked out our twitter page Final Madness style.

Well that’s all for now.  If you’re just tuning in we’re sitting at 2033 downloads with 44 $1 upgrades and it’s Saturday, March 6th at 6am.  We still have a few marketing tricks up our sleeve but you’ll have to wait until next week to read about them.  With this being a big College Hoops Day, I’m anticipating 1000 downloads. Hopefully, that will push us into the top 10 free sports apps (fingers crossed).

Check back next week for an update on our struggle, including details on: stats, Mobclix ad campaign, promo stats, strategy…

-Brian