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Exclusive Interview with Thomas Gerace, Chief Marketing Officer at Be Free
With the dot-com meltdown showing no sign of letting up soon, the brutal market environment can present a double-wammy of sorts for online affiliate marketers, whose entire business is based on helping those besieged dot coms advertise and market online. The bad conditions have forced many dot coms to shave ad budgets or, in some cases, eliminate advertising altogether. No one knows this better than Tom Geraze, the founder and chief marketing officer of Be Free, one of the biggest online affiliate marketing firms.
by Michael Grebb
Since the tech shakeout began in the Spring, Be Free has seen its share price dip from highs around $60 to recent lows of around $4 on worries that its customer base is drying up. But Geraze says the demise of online advertising has been greatly exaggerated. He admits that Be Free lost 17 customers in the third quarter but says they represented less than 3 percent of revenues (Be Free has about 350 total customers). In fact, the company's third-quarter revenues actually increased 300 percent over the same quarter in 1999. So what's going on here? Geraze took time out to give BizReport his take on the brutal market, the future of dot com advertising, and why he says Be Free is in the game for the long haul.
MG: How has the terrible market environment affected Be Free, which after all depends on these advertising budgets to survive?
TG: Well, it's interesting. If you look at the third quarter results, I think you saw a shift from pay-per-space advertising to pay-per-performance advertising. Companies that were doing pay-per-space had revenue warnings. The results for Be Free were quite different. We continued to exceed analysts' expectations as we have every quarter. We saw record revenue per customer in the third quarter. We continued to grow our relationships with the strongest players online. We did lose customers. We lost 17 customers in the third quarter primarily due to attrition and, frankly, customer death. But those 17 customers represented only 2.7 percent of our revenue. It was a tiny fraction of our value.
MG: But beyond ad budget cuts for financial reasons, there seems to be this sense out there that online advertising has lost its sizzle. How does this perception affect you're ability to base a business on affiliate marketing online?
TG: Let me say this: While we believe there will be a shakeout, e-commerce is here to stay. What we're going to see is that there won't be fewer transactions done online-fewer shoes bought, fewer books bought, fewer frisbees bought-but they will be bought from fewer players. You'll see a consolidation even if e-commerce continues to grow. If there's going to be e-commerce, there's going to be Internet marketing. There will be fewer players, and those that are delivering marketing more effectively will see their market share grow even as other players see their share decrease. So what you saw last quarter wasn't a decrease in Internet advertising. You saw a shift in market share toward performance-based players like Be Free and away from pay-per-space players like the banner advertisers. They've been the big voices in the industry, so when you begin to see those players squealing in pain, they're going to make a lot of noise and get a lot of press coverage. But we're going to be sitting here quietly succeeding, quietly continuing to grow our share in the space, and quietly continuing to become a marketing platform for those leaders in the space that are benefiting from consolidation rather than suffering from it. So frankly, we think long-term that the consolidation will be a great thing. With the 150 million in cash we've got and with the best customers, Be Free will be one of those players that survives.
MG: So what's driving the skepticism out there? Why are so many dot coms going down in flames if, in fact, the marketplace remains robust?
TG: I think that execution is a big part of it. I think the market was very, very, very, very forgiving and would tolerate customer acquisition costs that were 10 times the lifetime value of the customer. It would tolerate spending millions of dollars on ads without any kind of accountability. The market is becoming much more rational. And because the financial markets are becoming more rational and not throwing venture capital or public money around, you're seeing the whole business process become more rational. People are having to become more efficient in their business processes. Those players that have been efficient all along are emerging as the survivors and, in fact, the future dominant players in the industry. I think that those that burnt through the cash and were flying high are learning the Daedalus lesson pretty effectively. As the wings melt and they crash down to the ocean, they can look back and wonder why they spent that two million dollars on a Super Bowl ad rather than trying to survive through the fourth quarter.
MG: Sorry to keep harping on all of these depressing topics...
TG: No. I think it's important to differentiate between the true story, which is consolidation in the industry, and all of the hype, which is that the whole place is going to Hell.
MG: Well, the most trouble seems to be concentrated in the B2C area. Assuming that the Internet is here to stay, will you focus more on the B2B sector going forward?
TG: We have a mix of B2C and B2B customers, but I'll say it again: I don't think B2C is going away. I fully expect that it will continue to grow, but it will grow with names like IBM, AOL, Barnesandnoble.com, Bertelsmann… these are all the names that we already know and that have massive operations offline. They're making online a core channel, and they're going to be creating integrated online and offline services. Those players are going to be thriving online once the environment shakes out the Kamikaze dot com players.
Tags: affiliate marketing
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