Advertising intensity of the industry is an element that we'll explore. It's influenced by industry status, as well as its impact on the entrepreneur. This fits within industry structure as we continue our discussion on industry status. So when we look at defining advertising intensity, we're look at the importance of advertising and branding to the success of competitors in a specific industry. And so, this is the second leg of what we're going to be analyzing within this broader segment. High advertising industries are characterized by costumers that prefer to buy and transact based on their histories. They prefer to buy based on past successful transactions. Or they prefer to buy brands they know, or products they've heard of. Established companies that have a reputation for success are going to have a unique advantage in these high advertising intensity industries. And new ventures have a much harder time with competing. There may also be perks in play. Things like loyalty programs that are offered by the credit card companies, by the airlines, by the hotels, by retailers. They make it more difficult for new entrants to compete. Now, for many of us, we may not be starting a credit card company or a hotel or an airline. But we want to recognize that increasingly there are other technology base firms and or smaller firms that are doing similar things. They're building and populating profiles or integrating networks. They're building out preference engines. They are developing one click transactions online. And doing other things that essentially add more stickiness or adherence to their customers on those selected platforms and sites. So we want to think broadly about the variety of things, that can take place and that can influence advertising and influence the resistance of a customer to try and do something new. When we look at low advertising intensity industries, customers here are more willing to try new products and to try new brands. There might be other influences in play, there might not be establish product leaders. There may not be established brands in that space. There might be low switching cost so it's easy for them to experiment and try a variety of different things before committing the one thing. There might be differentiation and or other value that the new products deliver. This is certainly the preferred scenario for new ventures to be able to operate and the lower advertising intensity Industries. We can go to IBIS, continue our exploration of online tutoring, and think about the advertising element. And when we look at the barriers to entry section, there's one paragraph that really addresses this. While instruction techniques may vary, tutor to tutor, the same general purpose of educating students remains. And as a result, new firms, perspective firms must be willing to spend large sums of money on advertising. Now, that's not good news if you're a new entrant considering the online tutoring space. What is large, how do you quantify large? Well IBIS quantifies it as a percent of revenue. In the left-hand column, you can see the average cost as a percentage of their revenue that companies spends on wages and purchases on deprecation, marketing and rents. And we see that the average company will spend 1.6% of their revenues on marketing. We see that for online tutoring, it's more than twice that. 3.8% of revenues are spent on marketing. And if you're a young firm, if you're an unknown firm with an unknown brand, a new entrant. You're likely going to have to spend a lot more than that. Maybe 10%, maybe 20%. That essentially would make your 8.4% profit go to zero. And perhaps be zero for a year or two to build that brand and to build that market awareness. We also want to think about who's our customer. And IBIS helps with this as well. Starting online tutoring? Perhaps our customer are public schools or private schools. Perhaps they are public universities, or private universities, or for profit universities. Or perhaps it's the end consumer, it's the student themselves, or the parent themselves that we're going to try to sell our product to and market to. Or maybe some combination. But what we want to recognize Is that there are options for who we want to target. And the relative expense of targeting them is something we want to consider as well. The relative influence of advertising on their decision of what to buy and what not to buy should be part of our decision as well on who we want to market to. Once we've identified them, we can do some fairly simple things. We can look at mailing lists that are out there. And, if we want to target the schools or the universities, we could spend all day and all night looking at websites, trying to collect contact information for people at universities that we think would be interested. Or we could buy list, we could buy contact list of names and phone numbers or emails of influencers at these different institutions. At these different schools, at these different universities and that might be a more effective way of spending our time and money. Or if we're trying to sell directly to consumers and we're trying to find households of a certain income level and a certain geography, that have school age children. Whatever our profile is both our demographic and our behavioral profiles, we might be able to find those on some of the lists and let that be our entry in the targeting. Now for many of us, we think that well, social media is the way we're going to do it. And online is the way we're going to do it, and it's going to be viral. Well, good luck with that, easier said than done. Certainly more complicated than you may think. This is a profile of the various tools and techniques as well as companies and providers in the online marketing space. So, this does not include anything you may do via print. It does not include anything that you may do via other radio media etc platforms. Does not include conferences or other things you may attend or exhibit at. This simply is a snapshot of the various online tools that are out there. Be it email marketing, social media ads, other automation platforms, business intelligence and customer experience elements. It's a complicated landscape that you want to be thoughtful, driven by the core values you're delivering the audiences that you're targeting and the relative advertising intensity that you're up against. You may also partner with select providers to try and figure part of that out. Adaptly and someone in the social media space, this is a bit interesting because their going to talk load about advertising and marketing in that context. There also going to talk a little bit about the genesis and launch of their company as well. So we'll spend a few minutes hearing from their co-founder and their CEO about their firm and what they do. >> What is it that let's say Adaptly would do for their company? How would it help them make more money? >> Yeah, so essentially we're a media bind technology for social. We sit on top of Facebook, Twitter, a bunch of their platforms and help big brands, little brands, big agencies. This is of all sizes reach audiences across the different environments. >> Okay, but how would you do that? I mean, I understand rhetorically how that make sense. But let's say, a big pizza company comes to you and says that we don't know what to do. There are all these different source of media platforms. We can't be sending tweets and to Facebook likes out all day long. We make pizza, what do you do for that? >> Yes, so ultimately becomes an interesting question around which platforms do you want to be on first. How do you think about these environments as containing all the audiences of people who will buy a pizza from you. And then where it gets really interesting is thinking about how do you amplify your content. How do you make sure you can apply paid media, in real dollars, in marketing dollars to grow that message against that audience and layer on all kinds of really interesting data. For example, for pizza companies, which we work with a few of, you can leverage things like TV retargeting. So when the ad for Domino's goes on television, you could show them the ad on Twitter and on Facebook at the same time. >> And you handle all that. So the company writes a check to you. >> Yes. >> And you say, we'll take care of all the technical back office stuff. We'll take all of that video and we'll figure out a way to get it to the people that want it. >> Yeah. We're fundamentally a technology company. We provide a layer of services and tools to our brands or partners that enable them to do that. We also do everything ourselves just to make it as easy as possible. >> So are you in competition with a traditional advertising company? And at the same time you are complementary because the ad company will come to you and say, we're very good with the concept, but we want you to do the implementation. >> Definitely, we're that technology company that sits alongside all the traditional agencies and traditional advertising businesses. What is really interesting when you think about it, social is something that complements the way people use the Internet and live their daily lives. It's not something that's really decided to replace anything. It helps achieve the message across many, many different channels. >> Did you think of this when you were at Northwestern, because I know you went from Northwestern, but then you started another company. You've got a background as an entrepreneur. When did you come up with this idea? >> Yeah, so it's a really interesting story, actually. I actually had an internship my junior year. I was an electrical engineer at Northwestern and was at HBO here in New York and my sister saw how they were marketing. And how they were buying. They really know how to do billboards and TV and all kinds of different things but when it came to the social thing, everybody was like, how do we do this? What's the best way to do it? There was a lot of confusion it was very new. So I went back to school and met my cofounder in the back of a really boring probability class and essentially said hey, let's figure out a way to solve this problem. Somehow convinced him to drop out of school. >> You convinced him to drop out of school? >> I did. I did. >> What's his name? >> His name is Garrett Ullom. >> Okay. >> Yes, his mom wasn't too happy at the time but she sends us care packages of cookies and stuff nowadays. >> All right. So you're both working on this start-up. You gave up I believe a job offer to go work for Microsoft. >> Yeah that's right. Ultimately my father was an entrepreneur and built a lot of businesses in Silicon Valley. And just kind of got the bug at an early age and said hey you know opportunity cost if there's any time I'm going to do anything and start a business it's going to be now. So I figured I might as well try it right after school. >> What about raising the money to do this? You basically put yourself out there, and what happened? >> So really, right out of school, went into an incubator program in Philadelphia called DreamIt Ventures. >> Dream Adventures? >> DreamIt Ventures. >> DreamIt Ventures in Philadelphia. >> That's right, they give you a little bit of cash, 20, $25,000, and say you have three months to go figure something out. If you can make it, you made it. You can't go back to doing whatever you were doing. And we went to the program, met a lot of really great people and it was an amazing program that supported us and literally, after demo day, which was kind of the day to present your ideas to the community and investors. First Round Capital, which is a major institutional venture capitalist firm in the country, decided to fund us. >> So we've heard a little bit about Adaptly and their genesis to getting started. As well as a little bit of what they do and how they try and help startups navigate this advertising space. So in summary when you look at industry structure there are a number of elements and sub elements and sub elements of the sub elements that we're going to talk about. But all of it's geared towards helping you better understand the industry and how to compete effectively within that. As we look at advertising intensity, it's something that low advertising intensity does present a more affordable opportunity for new entrants to enter and compete effectively on a more level playing ground. It also suggests that the brand loyalty of incumbents, the brand loyalty that may exist for companies that you're already competing against, may be surmountable. It may be something that you can conquer, not easily but with more relative ease than if you're competing at a more high intensive industry. So we encourage you to think about low capital as well as low advertising industries and how you can enter in success and realize your success for that
