Volume 61: Airbnb learns $660m brand lesson.
1. Airbnb learns $660m lesson in the power of its brand.
tl;dr: Slashes performance spend, sees barely any negative impact.
As Airbnb reported their first quarterly earnings as a public corporation, a narrative emerged that they’d slashed all marketing spend in the first half of the year, and yet 95% of their usual traffic had come back, so they were now vowing never to spend another cent on marketing again.
Now, this is the kind of narrative that’s catnip for the anti-marketing, anti-brand, anti-being-successful, all-it-takes-is-a-great-product bullshit brigade. But if we look a little closer, we see a radically different reality.
Specifically, three things stood out:
Airbnb never said it wouldn’t spend on marketing again; what it actually said was that it would never spend as much “as a percentage of revenue” again. So, as revenue increases, it will likely spend more in the future than in 2019 in total dollar terms.
Where the cuts occurred is much more telling than the fact that cuts happened. Of the $662m cut, $541m was cut from performance marketing spend, 4X more than brand spend because performance marketing wasn’t just underperforming but barely performing at all.
Their marketing strategy moving forward is what they refer to as a “full-funnel strategy” designed to maximize brand penetration where they lead with PR and closely follow with brand marketing, which they view as both educational and an investment rather than a spend.
So, what does this all add up to? Well, a couple of fascinating things, actually. First, it’s yet more evidence that for some companies, building a strong brand is their business strategy, and as Airbnb shows, a strong brand is very much a competitive moat that matters. Second, it reinforces the evidence that much performance marketing spend is wasted because of a disturbing tendency to target either the people most likely to buy from you anyway or non-human ad-fraud bots.
A good way to visualize this challenge is with an analogy. Imagine we have a nightclub with a big line of people waiting to get in. Now imagine giving everyone in that line a discount flyer. After the night is over, we review our marketing performance and find that 100% of people in the club used the flyer. So, the logic based on our limited metrics is to think the flyer is why people came to the club, which in turn suggests that we should shift most, maybe even all, of our marketing resources toward printing a lot more discount flyers. I think you can see the problem here.
While this is a massive oversimplification, it gives us a decent window into the performance marketing conundrum. It looks so very seductive, it’s easily measured, and it has impressive-looking marketing ROI, even when it’s contributing nothing.
It’s only when we turn everything off that we get to see where the real value lies. And in this case, that value was clearly in the equity strength of the brand that’d been built and people’s continued desire to do business with it, rather than the performance marketing tactics that had now been shut-off. (I often joke that brands are like radiation; they have a half-life. The stronger the brand, the longer it takes for the equity to decay and the bigger the residual benefits, even if you turn marketing spend off for a bit).
As a final thought, one of the most insightful statements in all of this was when the CEO attributed PR as the primary brand-building vehicle, which has driven Airbnb to become a verb in popular culture and, as a result, their intention to double down on PR activities moving forward.
This reiterates that a big part of building a brand to succeed in the 21st century is deliberately creating an attention-grabbing and PR-able business and not just an attention-grabbing and PR-able campaign. Now, I get that Airbnb has some highly beneficial conditions (Travel is a highly PR-able category, the sharing economy is a highly PR-able concept, and Silicon Valley benefits deeply from a sophisticated and well-funded PR-media-industrial complex), which means this probably won’t work to the same extent for everyone. Nevertheless, it’s clear that the executive leadership team at Airbnb thinks out from the brand they want to build when making business decisions, thinks carefully about the business and how it is designed, think about how the media will react to the decisions they make, and how that reaction will, in turn, create attention and build brand perception among their stakeholders.
There’s a lot to process here about growth, brand-building, embedding the brand you want to become into your business's design, designing that business to grab attention and build perceptions, and yes, about building that business in such a way that it becomes consciously PR-able.
All in all, a fascinating $600m lesson learned for us all.
2. Citi jumps every shark that ever lived to pitifully pump Bitcoin.
tl;dr: Abysmal Bitcoin report is giant red flashing neon warning sign.
If you read the business press at all, there’s a good chance you stumbled across this headline about Bitcoin becoming the currency of choice for international trade. The source for the article is this 108-page report by Citi Global Perspectives and Solutions. But you don’t need to read it because it’s filled almost entirely with made-up bullshit.
Take, for example, the following nugget: “36% of small/medium businesses in America already accept Bitcoin”. Umm, no, they don’t. So, let’s do a rabbit hole check and see if we can find out where this comes from. Ah, here we have it. The source? 99bitcoins.com. Hardly an unbiased actor, quoting an insurance company that hired a research company to ask 500 small businesses if they take Bitcoin.
Unfortunately, this is just the tip of the iceberg, as the full 108 pages are riddled with basic errors, outright falsehoods, and charts that literally make no sense. Most worrying of all is how it downplays, dismisses, and falsely characterizes a significant legal case happening right now that has the real potential to impact the crypto landscape deeply.
So, what’s going on here? Well, two things really worry me. First, this looks suspiciously like the kind of conflict of interest boosterism that previously blew up in Citigroup’s face after the dot-com bubble of 1999. Does anyone remember Jack Grubman? The at-the-time famous analyst whose glowing reports were partly responsible for driving up tech stocks' value and who continued to boost soon-to-be bankrupt companies like Worldcom long after others had become more cautious. In his case, it turned out that he wasn’t actually an independent analyst at all but more of a salesperson reaping big rewards from the investment banking division behind the scenes.
Well…this feels suspiciously similar. It feels like somebody somewhere within Citi will benefit financially from a bit of judicious Bitcoin boosterism; truth and accuracy be damned.
The second thing that worries me is that aside from the last-remaining-great-business-newspaper, I’m the one pointing this out. Why can’t the business press do their job and call out this kind of nonsense for what it is instead of just re-hashing the press release and calling it newsworthy?
A lot of concerning things are happening right now in the world’s financial system, so having a megabank like Citi put its reputation on the line (again) to boost a spurious narrative about a cryptocurrency that’s risen in value by 2,000% in the past year should be a giant red flashing neon warning sign to all of us.
3. Walbank is finally coming.
tl;dr: Goldman alums bail to start something new with Walmart.
Walmart starting a retail banking franchise has been rumored for absolutely forever. I’ve worked a lot with financial services companies over the years, and for at least the past 15 or so, the prospect of competition from Walmart has been one of the few topics guaranteed to strike fear into the hearts of retail banking executives.
The reason is simple, with 150m customers and 5,300 stores nationwide, Walbank would instantly have the heft to operate at the scale of a BofA or a Chase.
Now, by poaching the brains behind Marcus, a Goldman Sachs consumer franchise that’s grown to $1bn value in just five years, and their pre-announced partnership with Ribbit Capital, it now looks like “Walbank” truly is imminent. So what might this look like?
Well, the retail financial landscape is a lot more fragmented and interesting today than it’s ever been as fintechs like Robinhood (backed by Ribbit) and Marcus and Lemonade have broken down many of the old barriers, and regulators have encouraged more non-bank competition.
The most interesting question at hand, though, is whether they decide to create something completely new that is largely independent of the Walmart franchise, other than retail distribution and perhaps brand muscle, or whether they integrate more deeply with Walmart's business activities. If it’s the former, I’d expect something that starts with low-cost and basic banking services that seek to attract both the under-banked and the “mass affluent” (a consistent mistake made by banks is to think that people with money want luxury, when what they really want is value - the reason they have money is that they don’t spend it). If this is what they do, the opportunity is real. Federal estimates are that 22% of the US population, some 63 million adults, are currently either un-or-underbanked. And coming out the other side of the pandemic, this may sadly rise to an even greater number.
But, it’s the latter scenario that’s more interesting. A financial services operation that more deeply integrates with the Walmart business opens up a whole slew of different opportunities, from purchase financing to payments and remittances, a highly disruptive entrant into healthcare insurance, supplier finance, or perhaps even a retirement-focused investment platform for everyday Walmart customers.
The scope of what they could do is huge: Walmart’s digital capabilities have risen exponentially in recent years, they have a lot of customer data, their capital strength provides the strongest of foundations, and the sheer scale of the Walmart brand opens opportunities that would otherwise be closed to pretty much anyone else besides Amazon.
Just don’t do something daft, like calling it Marcus.