But the social network’s advertising revenue grew 18.4% during the quarter.
CoolSavings may be best known for its online coupons. What it’s really delivering is customer data about multi-channel shopping behavior.
Fresh from a previous job in new business development for Microsoft Corp.’s MSN that put him in the middle of the web’s fast-rising commercial development, Matthew Moog looked at CoolSavings Inc.’s business model and believed it could be a winner. His challenge on joining the marketing and promotions company as vice president of marketing in 1996 was convincing everybody else.
“My job at Microsoft had been to explain to companies how they could leverage the Internet to advance their own business,” says Moog, who became CEO in 2001. “The CoolSavings model made a lot of sense to me. It was a great convergence of Internet marketing with database marketing and promotional marketing, in a much better way to deliver promotional offers to consumers.”
The way that CoolSavings had identified was to use the Internet to deliver targeted promotions on behalf of marketers, and it was a key departure from the mass mail distribution at the backbone of the couponing industry for decades. But there was a problem: In 1996, not a lot of people knew the Internet and even fewer recognized its promise.
“Retailers thought we were crazy,” Moog says. “Our focus initially was on coupons that you could print out and bring to stores. But the Internet had not yet become all that popular. And the people that it was popular with were thought to be young, geeky men.” In other words, the sort of consumer who might buy software and consumer electronics, but not the family staples and apparel that most of the retailers first approached by CoolSavings wanted to sell.
Moog saw the Internet as a perfect platform for collecting and using customer data to improve marketing performance by applying it to coupons, samples and promotional offers. The CoolSavings model combined a core expertise in database and direct marketing with a knowledge of personalization, modeling, and how coupons and special offers work for marketers.
But it took some wrangling on the part of Moog and his team in the first few years to convince coupon sponsors that the Internet would become a medium that women would use to find sales information and promotional offers, and that it could effectively augment their other marketing activities.
Ultimately, the Internet developed in ways that Moog and CoolSavings’ investors had foreseen. Moog joined a company that had four employees upon his arrival: today, he heads a staff of more than 100. Cash flow positive for the past five quarters, the company reported its first full year of net profitability last year: $700,000 on net revenues of $32.4 million, up from $26.4 million in 2002. Moog anticipates CoolSavings’ revenues will double this year from 2001’s $21 million, driven by new advertisers coming on board as well as increased spending by its major existing advertisers, who retain programs year to year at the rate of about 90%.
What happened between that can’t get-past-the-door launch year and the revenues that Moog projects at $40 million for 2004? New technologies, marketers’ increasing comfort level with the web and a rising online population, he says, all have made advertisers and consumers more receptive to CoolSavings’ message. Moog says CoolSavings’ success hinges equally on its acceptance by both audiences.
“We really serve two masters,” says Moog. “We generate our revenue directly from advertisers, who pay us to reach consumers that are a part of our service. But if we ever lose site of that fact that it’s the consumers who make this business possible, we won’t get far.”
Growth was not on a straight upward trajectory, though. In 2000, just before the recession which killed advertising of all kinds, CoolSavings had revenue of $39.9 million. The following year, its revenue plummeted to $22.2 million. The recession slowed the demand for advertising, pushed down advertising prices and constrained CoolSavings’ marketing ability.
From an initial focus on retailers such as J.C. Penney Co. Inc. and Toys R Us Inc., the company’s client list today has broadened to include major CPG brand manufacturers as well as service and media companies. Chicago-based CoolSavings has spent hundreds of millions to get to this point, including $50-$60 million in marketing and tens of millions on technology. A full time sales staff of 50 combs the ranks of new and existing advertisers for promotions that will attract more shoppers to CoolSavings.com.
Last year, consumers downloaded three times as many coupons as they did the year before and the company expects coupon downloads to triple again this year. It won’t say how many coupons that is.
6 billion data points
While it’s deals that bring consumers to CoolSavings.com, the core of the company’s value proposition for clients is its targeted, interactive marketing platform. CoolSavings’ database now contains 6 billion data points on 32 million households, and its active users number about 12 million. “We are more a company that provides targeting, insights and relationship marketing with our consumer database than we are just a simple way to distribute coupons,” Moog says. “A lot of offline businesses can do targeting but it’s very difficult for them to track the response in real time to follow up with the consumer, and personalize for their next interaction with that consumer.”
The difficulty of replicating the Internet’s speed and control in offline coupon programs is one factor encouraging growth in Internet coupon distribution. Other attributes of the online environment are limiting factors in the eyes of some coupon sponsors. For one thing, though the number of Americans online continues to climb-about 75% of Amercans now have Internet access at home, according to Nielsen/NetRatings - Internet access isn’t yet universal.
And the Internet landscape is much more fragmented when it comes to coupon distribution than the traditional Sunday newspaper FSI-free-standing insert. “You are talking about a coupon on a site reaching thousands of people, versus hundreds of thousands, which is what you often find with a Sunday newspaper drop,” says Forrester Research Inc. analyst Christine Spivey Overby. “If you compare them on an apples-to-apples basis, you’ve got some marketers who don’t see why they should be doing Internet couponing.”