Defining RoDA: Return on #Digital Assets

How do we measure the Return on Investment for digital assets? It’s a question that is starting to challenge digital marketers and IT managers alike, but there don’t appear to be too many guidelines. Whether your social media campaign is being expensed as direct marketing costs, or your hardware upgrade is being capitalised, how do you work out the #RoDA?

In most businesses, measuring the expected RoI of plant or equipment is usually quite easy: it’s normally a financial calculation that takes the initial acquisition price, amortized over the useful life of the asset, and then forecasts the “yield” in definable terms such as manufacturing output or capacity utilisation.

However, when we look at digital assets, many of those traditional calculations won’t apply, either because the usage value is harder to define, or the benchmarks have not been established. Also, while hardware costs may be easy to capture, how are digital assets such as websites, social media accounts, software (proprietary and 3rd party) and domain names being reported in the P&L, cash-flow analysis and balance sheet?

Sure, most hardware (servers, PCs and physical networks) can be treated as capex (e.g., if the purchase price is more than $1,000 and the useful life is 2-5 years). But how do you make sure you are getting value for money – is it based on some sort of productivity analysis, or is it simply treated as fixed overhead – regardless of your turnover or operating costs?

As we move to cloud hosting and #BYOD, many of these assets utilised in the course of doing business won’t actually appear on the company balance sheet. Yet they will have some sort of impact on the operating costs. Most software is sold under a licensing model, where the customer does not actually own the asset. (But, if the international accounting standards change the treatment of operating leases longer than 12 months, that 2-year cloud hosting fee might just became a balance sheet item.)

I was once involved in the acquisition of a publishing business that was converting legacy print products to digital content. Not only did they capitalise (and amortize) the servers and the conversion software, they also capitalised the data entry costs (using freelance editors) to avoid the expense hitting the P&L. Nowadays, that’s a bit like putting the HTML coding team on the balance sheet and not the payroll…

In some cases, the costs associated with maintaining an e-commerce website or registering a URL, will remain as overhead or operating expenses. But over time, businesses will want to have a better understanding of their RoI for different online sales and digital marketing channels, especially if they have been investing considerably in their design, build and maintenance. Measuring online visitor data, customer conversion rates and average yield per sale, etc. are becoming established metrics for many B2C sites. Having a good grasp of your #RoDA may just give you a competitive edge, or at least provide a benchmark on effective marketing costs.

 

If it seems too good to be true, then it must be!

As someone who commissioned one of the first books on advance fee fraud (sometimes called ‘Nigerian 419’ scams) nearly 20 years ago I find it staggering that people are still being sucked into these ‘get rich quick’ schemes.

While ‘advance fee’ is a particular type of bank fraud, those spammy and ubiquitous e-mails offering you fantastic sums of money in return for simply providing your personal details (and/or a small upfront payment and the ‘loan’ of your bank account) are among the more common form of financial scams on the Internet.

In most cases, the perpetrators (often posing as government officials, lawyers, bankers or accountants) claim to have unique access to enormous funds which need to be transferred out of their country of residence – usually in the context of foreign trade, bank deposits, bequests or international loan transactions. More recently, I have seen attempts to ‘liberate’ the proceeds of deceased estates where there is no legitimate heir.

Advance fee fraud scams should seem obvious by now, and hopefully recipients are wiser about these dubious offers to make them wealthy beyond their wildest dreams. Yet, I can’t help feeling these predatory fraudsters are merely an extreme version of the contemporary snake oil salesmen that inhabit the business world today.

This thought occurred to me, as I was reading about how one self-made millionaire had built his fortune – and, just by following his ‘system’, anyone could do it too. The images used to accompany the article emphasised the material trappings associated with this wealth, as if to reinforce the message: “You too can have a lifestyle like mine.”

Other variants of these ‘get rich in 10 easy lessons’ programmes are business ownership opportunities (mostly outsourced telesales operations), seminars on how to flip real estate (some of which are now illegal unless provided by licensed financial planners), and courses where you learn to build websites for clients (but your only customers end up being people who want to learn to build websites for their clients….).

Call me sceptical, but many of these ‘systems’ are merely pyramid sales schemes (sorry, MLM plans) masquerading as ways to “Be your own boss and kick the 9-5 routine”. Sure, some of these programmes may be free to access, but the likelihood is that the person offering ‘valuable’ business insights on how you can make your fortune is making their money from ‘selling’ the programme to you (via third-party advertising, sponsorship, speaking engagements, etc.).

If these insights are so valuable, why are they giving them away?

 

Stripe’s John Collison: “Better to be #disruptive than incumbent”

In a Melbourne fireside chat with Paul Bassat (hosted by NAB and Startup Victoria) Stripe‘s co-founder and President, John Collison offered the insight that “it’s better to be disruptive than incumbent”.

Incumbency comes with all the baggage of legacy data, semi-redundant systems, siloed business operations, and customers with long memories.

Whereas, a nimble and agile startup like Stripe can cut out inefficient and lazy business processes – especially in areas like online and mobile payment systems. And in doing so, a disruptive service can make us think, “how did we ever manage before this was invented?”

Collison was careful, though, to point out that Stripe is working with the banks, not against them, in case anyone thought his company has designs on becoming a fully fledged financial institution. “We simply want to make the payments business more efficient.”

Stripe’s approach is to leverage engineering skills and solutions “to fix first world and middle class problems”. Precisely so – why would you want to undermine the system (payments and transfers between banks and their customers) that gives rise to your very existence?

Collison also reflected that never before has it been possible for such a small number of people to create such enormous value, very quickly – citing the fact that WhatsApp had a mere 55 employees when it was acquired by Facebook earlier this year for $19bn. (Stripe itself, founded in 2010, had about 100 employees when it was valued at $1.75bn around the same time.)

While WhatsApp does not yet generate revenue, its valuation as a disruptive IM platform is largely based on a notional value per user, and what that may represent in terms of data from customer analytics or premium pricing for add-on services.

But you don’t even need to be a startup business to disrupt an existing market, as the music industry continues to discover to its cost – you simply need to be part of the demographic that is used to “free” stuff, has no real concept or appreciation for IP, refuses to pay for anything on the internet, and develops brand loyalty based on likes, shares and number of views. Even Stripe would be out of business if everyone switched to peer-to-peer money transfers without wanting to pay commissions or transaction fees.

 

 

 

 

Why #collaboration is not simply “working together”

Along with productivity, innovation and employee engagement, collaboration is fast becoming the new mantra for businesses seeking growth and/or competitor advantage. But while collaboration can take many forms, the mere act of “working together” does not of itself lead to sustainable collaborative outcomes.

The theme for last week’s inaugural class of Melbourne’s Slow Business School was “How to collaborate effectively with other businesses”. Hosted by Carolyn Tate and facilitated by Richard Meredith, the class did not arrive at any prescriptive processes or techniques for collaboration. But, as one student wryly observed, our discussions took the form of a dance without choreography, which is perhaps the highest form of collaboration. However, we did identify a few core attributes without which successful collaboration would be unlikely, if not impossible:

  • Shared values among the players
  • Defined roles
  • Common purpose or vision
  • Mutual trust between all participants
  • Voluntary (i.e., parties choose to be here)
  • Equitability (e.g., recognition of each contribution)

I would also add that from my experience, collaboration does not happen unless there are opportunities for the participants to be co-located at least some of the time.

Which leads me to those activities that are NOT collaborations:

  • A routine or regular project (“BAU”)
  • Outsourcing
  • Commissioning
  • Remote teamwork
  • Shared services
  • Trading transactions

For example, if I commission an architect to design a house, even if I am intimately involved in all the detailed decisions about materials, specifications and aesthetic choices, it is not a collaboration – it’s a transaction between client and professional. However, if I was a heating engineer, and I used my knowledge and experience to work with my architect to come up with some new energy-saving solutions (that could be used in future projects) that would be a collaborative outcome.

Collaboration certainly cannot happen if organisations operate within silos, but nor does it come about by happenstance – there has to be a deliberate and conscious decision to collaborate, even if at the outset there is no specific product or solution in mind other than a desire to collaborate (“Let’s see where the dance takes us”).

One aspect of this approach is “co-creation”, where companies embed themselves in their client’s world to identify what problems they can work on to solve together. In this way, collaboration leads to the outcome. Clearly, to be effective, co-creation would be backed by some formal product development or service design techniques, agreed ground rules and even a game plan – whether that is a lean canvas business model methodology, an iterative prototyping process, or a defined supply chain framework.

In any collaboration, one party may try to force the pace, but if this is not reciprocated, the mutuality will be lost – it becomes just another transaction (or a series of mis-timed steps). The best partnerships and joint ventures are founded on the commonalities of purpose, process and participation. Further, a successful venture will know when it has run its course – even if this means having those “difficult conversations”, which the class felt were also a vital feature of the best collaborations.

By strange coincidence, the same day Slow Business School was in session, Deloitte Access Economics published a research report commissioned by Google Australia. It concluded that greater collaboration by Australian companies could be worth $46bn to the local economy, based on increased productivity and reduced costs/wastage. Although the report reads more as an OD approach to collaboration (linked to the productivity, employee engagement and innovation mantras) it nevertheless offers some empirical evidence that companies who get it right will see benefits across a range of KPIs. If nothing else, employees who are given more opportunity to collaborate will display greater job satisfaction (this is part of the philosophy behind etaskr, about which I have written before).

For me, there are a few interesting data points in the Deloitte report:

  1. While technology has been important in enabling increased collaboration, the right workplace culture, management structure and team members are seen as paramount.
  2. Although “shared electronic resources” were seen as the single most important tool for effective collaboration, “common areas for staff to socialise” was not far behind, and “more meeting rooms” scored higher than “open plan office”, while having more technology solutions (collaboration software, video conferencing facilities and social media) all rated lower.
  3. Finally, just over a third of respondents reported that “collaboration helps them work faster” (and nearly a fifth said “their work would be impossible without collaboration”), but nearly a quarter felt that collaboration meant their work took longer.

So, a paradoxical interpretation of the report could be:

  • fewer open plan offices (but more meeting rooms);
  • more technology (but not just productivity tools); and
  • more teamwork (but not at the expense of getting my own work done).

A final thought: If we think that the prerequisite for collaboration is the “willingness to co-operate”, then this can get murky, as participants will only be prepared to operate at the level of trading favours (and only because they’ve been told they have to play nicely) rather than entering into the venture with enthusiasm and without ulterior motives.