The problem with paid acquisition and how to fix it

With the mobile world saturated, great product without thinking about marketing is a way to ensure no one will see your product and your company will not get built.

Acquiring users in the mobile space becomes one of the biggest challenges. Because everyone has a phone, you can’t NOT have a mobile app or some mobile solution to access your mail, social media, etc...

You will fight with everyone else to get on the device.

The noise to signal ratio is high. This forces companies to use paid acquisition as a strategy, but has proven the fastest way to burn cash and in many cases without the highest ROI.

Paid acquisition, especially when the business model monetizes your customers directly, becomes an effective and direct tool to ensure you are working towards an ROI.

While paid acquisition is a necessary evil, what makes it so dangerous — especially when a company solely relies on it? Here are the three largest problems with paid acquisition:

Will these customers be the biggest evangelists?

Most customers that are willing to pay within an app tend to be the most fervent of fans. While fans generally make the best evangelists, the earliest fans may not be.

They may be so ardent that they are so focused on how much the app fulfills their tastes and solutions. Telling others about their experience, may not be their top priority, but rather using the app to solve their issue will be their focus.

Monetary incentives only last so long

Daniel Pink, the author of Drive: The Surprising Truth About What Motivates Us, cited a study to where creatives were incentivized to create something. They found putting monetary rewards as an incentive caused them to take longer to find a solution to the problem:

Rewards, by their very nature, narrow our focus, concentrate the mind; that’s why they work in so many cases. So, for tasks like this, a narrow focus, where you just see the goal right there, zoom straight ahead to it, they work really well.
— Daniel Pink, The Puzzle of Motivation, Ted Talk 2009

Solutions that require creativity rely on other pieces of motivation such as mastery and autonomy. Solely incentivizing creative problems or tasks can lead to de-motivation in an odd way. One could argue this what happened to Vessel.

Vessel

Vessel was a video platform company that was created by Jason Kilar, former CEO and founder of Hulu. There should be no question that Kilar knew video content and how to distribute it. He paid YouTube stars gobs of money to come to their platform.

Their business model was then to make money by charging viewers for early access to the videos by the YouTube star. Sounds like a very logical and good plan — especially if you have gobs of money.

Unfortunately, frequently paying for content may be like paying for friends — when they money dries out, you find out if you have real content. This ultimately led to the selling of Vessel.

Arbitrage is ecosystem and platform dependent

Paid user acquisition is reliant on arbitrage opportunity and arbitrage for acquiring users is usually dependent on the ecosystem and platform.

Kabam Case Study

At Kabam we built our core competency around paid acquisition. This works well when platforms are emerging and growing. The users are cheap and you can calculate ROI easily.

This allowed us to achieve a competitive advantage within the platform markets — on both Facebook as well as mobile. In fact, our decreased reliance on virality helped accelerate our competencies in paid acquisition. We knew how to make it as efficient as possible without leaning into virality.

In many ways, this caused us to be the first Facebook gaming company to expand past Facebook — mainly because we did not depend on virality and its tactics of the platform.

As the platforms began to change and mature, very quickly being great at paid user acquisition was not enough. CPIs became too exorbitantly expensive.

To lower our user acquisition, we had started moving towards traditional methods of marketing such as PR or existing brands for leverage. It went full circle, and eventually, as with almost all mature platforms paid acquisition does not amount to much clear ROI and more influential measures (PR, WOM) becomes more and more impactful but hard to measure.

Marketing Costs & Marketing Strategy

Like SEO — arbitrage is opportunistic and opportunistic things usually have a window that closes. This does not mean to not to take advantage of these opportunities as they come by. Take advantage and double down! It is cheap (hopefully quality) traffic because the platform is growing and it is the growth that will enable you to market as wide as possible. And in the end for consumer products:

Whoever wins the market, wins.

But to last in the market and to even change the market, a product and marketing strategy that relies solely on paid acquisition will have a very difficult time winning. And, eventually, economics will get the best of you.

It gets expensive

Paid user acquisition can and is incredibly expensive when the platforms are no longer growing. You should always be looking to drive your CAC (Customer Acquisition Costs) down. Over time, it will naturally rise given that you usually convert your most excited or best users first.

Solutions

1. Grow as organically as possible : WOM

The highest compliment is your referral

This is written on many real estate flyers. In cash constrained, small businesses not only do they rely on cheap forms of user acquisition but also require the testimonials. The type of customer that becomes a net promoter (someone who tells others about you) is much better than trying to convince as much as possible.

It is the same reason why people us a wing(wo)man or testimonials. It provides social proof “where people assume the actions of others in an attempt to reflect correct behavior for a given situation”.

The greater the number of people who find any idea correct, the more the idea will be correct.
— Robert Cialdini, Influence: The Psychology of Persuasion

It also removes any ulterior motive a person tooting their own horn may have, causing the conversion to be more sincere. Thus, producing a higher quality user as a result of that net promoter. Furthermore, it reduces costs to zero and creates free marketing and evangelism!

2. Inherently viral , not necessarily network effects

Network effects are things that need a network or someone else to be effective. Classic examples of these are communication devices. Phones are useless unless there is someone else who has a phone to call. This truism has moved into messaging applications as well. A messaging app with no one to message with is useless to the user.

However, when more people have the device or the app, it becomes more and more useful; and people get upset when you do not have one or are not on the same app.

Therefore, expected growth for these applications should always be exponential due to the more people use it, the more configurations of communication that can happen between each app user (or within each node of the graph).

‘Network Effect’ for Telecommunications Networks (adapted from Wikipedia)

However, inherent virality is something different. Something that is inherently viral focuses on what is being shared rather than the platform. For example, if a parent takes a photo of their baby, they will want to share it with their partner, family or friends.

This is why baby photos, your baby photos are inherently viral — they are made to share. Combine the network effects of a social network like Facebook and the continuous uploads of personal photos; you have an inherent virtuous superhighway loop that reinforces each other.

Of course, as the network matures, these highways can be manipulated for bad — hence fake news or echo chambers.

Inherently Viral Content — baby photo shared with friends and family, they return to the site and will upload their own personal photos too.

3. Support paid acquisition — PR pushes, SEO , brand

Now given the maturity of the mobile app economy we have delved into the black arts of influencing. Just because the impact is more influential it does not mean you should not try to measure your channels to see what makes sense.

What you should do is not only measure what you can (using promo codes, time stamps, etc..), but you should also coordinate your influencing efforts with your paid acquisition efforts.

Coupled with your paid acquisition influencing work that supports it can create a halo effect that well timed can increase your reach much farther than paid acquisition can do.

Think of it this way: paid acquisition is great for highly targeted and growing platforms and is like starting a fire; however, adding fuel at the right time can grow the fire and help sustain it — like influencing marketing strategies.


Kabam was able to grow with the ascent of Facebook and later mobile markets. We grew through paid acquisitions on each platform. We know the bruises from moving a business that relied solely on paid acquisition to larger marketing strategy.

I am co-founder and Chief Development Officer at Kabam, which exited for close to $1 billion dollars.