Neil Patel and his co-founders at Silicon Valley-based Kissmetrics want to bolster online analytics. Patel sees a market opportunity for sharper tools to track the rate at which online visitors become customers. The goal is to help marketers understand potential customers better and to distribute marketing dollars more efficiently, he says in an interview with India Knowledge at Wharton.
An edited transcript of the interview follows.
India Knowledge at Wharton: How do you define Internet marketing, a term many people use loosely? The website of one of your companies, ACS, says, “On-line marketing is about getting in front of your customers in every way possible. This can include search, social media, or any other on-line destination where you will be able to attract customers or get in front of them with a message.”
Neil Patel: Internet marketing has been changing over the years. In most cases, people would see Internet marketing as e-mail marketing, banner advertising, search engine optimization — which is getting ranked higher on Google — and being on other search engines. Today, there are more social sites such as Facebook that are becoming popular. Google is trying with Google Buzz. Of course, there’s Twitter. All of these social sites are connecting with people over the web. That’s a big new medium for marketing online now. If you look at Facebook, I’d venture to bet that most Fortune 100 companies are actively using that platform.
India Knowledge at Wharton: In terms of the landscape changing towards networks that are more social, how much of the social “buzz” — no pun intended — is noise, and how much is real? Where are companies really making significant Internet marketing bets or plays nowadays? How are they allocating marketing budgets?
Patel: It seems that companies spend their money mainly on Facebook and Twitter, excluding YouTube, since that’s a part of Google now. These are the sites that companies are really going after because they allow one to interact with and target customers while also allowing them to filter noise quickly.
India Knowledge at Wharton: Let’s discuss both networks. On Facebook, a brand can amass hundreds of thousands of fans. “Fans” of this company want to get invited to participate in marketing surveys, and get freebies, and so on. But we can use filters on Facebook to become a fan of a company, and then hide all the information so that it never comes up in your stream. Is that something where Facebook fan counts could be particularly misleading? When you peel away the layers of Facebook marketing, what are some of the hidden truths?
Patel: I wouldn’t necessarily say it’s misleading. It just means that some of your fans don’t care to share that information. But the key with a fan page is for the company to get better feedback from its customers, to understand what they like and what they don’t like. In essence, Facebook allows brands to build brand evangelists. If you have millions of fans, you’re building a channel with people who like you and hopefully will talk about your company in a positive fashion.
India Knowledge at Wharton: This all sounds rosy for brands. What should they, or consumers, beware of?
Patel: I don’t think there are too many issues with mostly social sites like Facebook. For instance, spam on Facebook, in my opinion, is very little to none. The biggest problem I start to see is privacy. In the future, what information will Facebook give to these companies? With fan pages on Facebook, the sites know what kind of people are joining, their rough demographics, their interactions, and so on. When a brand creates a fan page on Facebook, the company creating the brand receives stats from Facebook. As Facebook continues to grow and is used more and more, one big issue that will arise in many forms will surround user privacy.
India Knowledge at Wharton: Is it possible that the company creating the fan page will get individual data, or aggregate data, or both?
Patel: Right now, it’s aggregate data. But, who knows where Facebook’s going to go.
India Knowledge at Wharton: Now, let’s move to Twitter, where a user or company brand can control whom they follow, release information, and in most cases not control who follows them and/or communicates with them in a public manner. This creates a different type of “noise” problem on Twitter. Let’s look at an airline company. Generally, as you peel back the Twitter “onion,” what layers do you see?
Patel: Well, it shouldn’t be an issue to filter through the noise with Twitter. Let’s go to the example of an airline company. This company can use Twitter to figure out how the brand can interact with other people who are flying. Anyone can conduct a free Twitter search for this airline company and start to monitor the tweets and conversations. This method of communication would give the airline company a good idea of which Twitter users it should be interacting with. Even if the company can’t interact with all of them, they can target all the ones that are saying negative things, and only interact with those users, for instance. To take it one level deeper, if they have a budget, they could hire someone to interact with people that are disappointed with other competing carriers. They could say, for example, “Hey, we noticed that you’re upset with Airline Company X. We’d like to give you a free voucher for 50% off to try our company. I’m sure if you try it, you’ll actually like it.” That could be a powerful way to target and woo specific customers.
India Knowledge at Wharton: Between Facebook and Twitter, do you see them as competing services, or targeting different online marketing needs?
Patel: I do see them as competing. Facebook bought FriendFeed, which was a Twitter competitor, and they’re integrating Twitter capabilities into Facebook, such as for status updates. They are going to butt heads. The question is when.
India Knowledge at Wharton: Let’s talk a bit about your current venture, Kissmetrics. I know you’re in beta phase, and that your company measures the impact of your clients’ customers as they interface through the web. How did Kissmetrics form, what’s the organizing principle behind the company, and what is the company up to currently?
Patel: My business partner Hiten Shah and I encountered many issues when it came to analytics and tracking. As marketing consultants, one of our biggest problems was showing people the return on investment from their online marketing efforts. With Kissmetrics, we decided to create a product that focuses purely on conversion tracking (measuring the rate at which online visitors become customers). There are many products out there that are conversion-related, such as Google Web Site Optimizer, which helps you improve conversions. The big problem here is that most people don’t even track their conversions. There is a market for improvement, since there’s no point to tracking conversions if they’re not being done correctly. We also understand that Google Analytics, Omniture, and a lot of competitors do have conversion tracking capabilities built into their products. However, they’re doing hundreds of readings, which makes it’s hard for them to focus on one single element. With Kissmetrics, we’re taking conversion tracking from what all these analytic solutions provide, and just purely focusing on that in order to build a product that helps you track your conversions.
India Knowledge at Wharton: Who are your typical or ideal customers at Kissmetrics?
Patel: In our current beta, our ideal customer is someone who has a specific conversion point. Let’s say a publisher has a premium subscription program, or an e-commerce company, or someone who’s making money from their website through means other than advertising.
India Knowledge at Wharton: Could you give us a popular example? For instance, would The Wall Street Journal be an example of that?
Patel: Yes. Let’s say The Wall Street Journal is releasing a subscription program on their website — and they may already have it — in which you could view premium content [online] on WSJ for $5 a month. With Kissmetrics, we will help track which users are converting into that $5 subscription. It can even tell them, “Hey, here are the traffic sources that cause people to sign up for the subscription program, and it causes users to cancel after 30 days or 60 days.” In other words, we could point them to a referring URL, or a specific source, that caused the conversion, it’s not causing sticky conversions, in which people are coming, they’re swiping their credit card, and they’re canceling. On the flip side, we can tell you, “Users who type in WSJ on Google are 50% more likely to convert to your subscription program. Additionally, these specific users staying on as subscribers, on average, for one year, and they’re paying for two years, or whatever it may be. This enables the WSJ to know the true lifetime value of that user.
India Knowledge at Wharton: Currently in your space, are there competitors that are doing slightly different things? The Kissmetrics website mentions that it has three key features. Are those three key features differentiators?
Patel: Yes, they differentiate us, but truthfully, it is a competitive landscape. By no means is analytics new, and we’re not the only one in the space. People aren’t sticking to just one solution; they’re using multiple [solutions]. At Kissmetrics, we say to potential customers: “You can use Google Analytics. It’s great to tell you things like your page views, your unique visitor count, and all that, which we won’t tell you. However, if you want to track conversions, we have a more robust product, so we can do a better job of it.”
India Knowledge at Wharton: How long has Kissmetrics been around? How many people work there? What are your plans and goals for 2010?
Patel: Kissmetrics has been around for almost two years. We’re around 10 people. We’ve raised US$4 million in venture capital from True Ventures, Polaris Ventures and a few angel investors. Our goal for 2010 is to get the product out within the next few months and start getting paying customers. We’re going to release one of our products within the next 30 days, and just keep on pushing forward.
India Knowledge at Wharton: What is Kissmetrics’ new product?
Patel: Our new product is going to be called Kiss Insights. Kiss Insights helps you get feedback from your customers in real time. Think about it as a mix between UserVoice (a service that offers companies user feedback)and SurveyMonkey (a provider of web-based survey solutions). Let’s go back to the WSJ and their subscription program. Consider a user that goes online to cancel their subscription. Why are they canceling? Usually, you can’t find out. With Kiss Insights, right when someone hits the cancel button, you can have a little pop-up on that page that says, “Why are you canceling”? So you can get feedback from customers in real time, understanding the reasoning behind their actions, and then adjust your business so that way you can maximize your revenue.
India Knowledge at Wharton: Don’t most users just skip pop-ups? How can Kiss Insights guarantee that enough cancellers will not skip another pop-up?
Patel: We can’t guarantee people will not skip our pop-ups. We try to make them as unobtrusive as possible and we have noticed that a good portion of the users will end up filling it out.
India Knowledge at Wharton: It sounds like Kissmetrics is trying to help businesses better manage their customers’ online experience?
Patel: Correct. This can be done a lot better, because the web is changing so rapidly. New technologies and sites like Facebook and Twitter have caused a whole new mess of problems with analytics, which are very 1.0. Most of these solutions were built in the 1990s and in the early 2000s. It’s hard for these solutions to keep up with the changes. And for a company like Omniture, which has millions of customers and making millions of dollars, it’s hard to create and roll out an entirely new product and risk cannibalizing existing sales. Luckily for us at Kissmetrics, we’re starting from scratch, so we don’t face some of the legacy issues that Omniture and Google face.
India Knowledge at Wharton: One of the biggest challenges for an online business is to try to whittle down the cost of acquiring a new customer, or a new user. What’s your view on the cost of acquisition rates online now, and how does Kissmetrics leverage that?
Patel: It’s a very important metric, because if you know the value of your customer, then you know how much you can spend. Say your customer’s worth US$100, you know that you can technically spend US$50, and supposedly make US$50 more in revenue. This is what Kissmetrics is trying to solve. In other words, how can companies better understand the value of each customer coming from each traffic source, so that that way they know where they should be spending money, and where they shouldn’t be spending money.
India Knowledge at Wharton: Is there a company you have worked with at Kissmetrics that has encountered that problem, where you can anonymize it and walk us through what the challenges are?
Patel: Let’s say you’re at the Wall Street Journal, which doesn’t currently use Kissmetrics, as an example. If we were to approach them, Kissmetrics could put a tracking code on their site, and even on the conversion pages, allow them to see through our funnel system as to how people are converting and the path that they’re taking. The interesting feature of a funnel system is that it can be modified in real time; you can move the funnel around. Traditionally it used to be that people went through a specific path to get to a conversion point, but now people could go through multiple convert points. Therefore, you can figure out what pages are causing conversions and which ones aren’t. This in turn will give the company an idea of what one needs to improve upon, or which page one should start focusing on when it comes to maximizing conversions. The company can input in user names through the Kissmetrics code and can then figure out what each user is doing and where the user comes from, which helps them determine the value of each user from that specific traffic source. Say that each visitor that comes from Google is worth, on average, US$100, and each user that comes from Twitter is worth US$50, you know how much you can spend on each marketing vertical. That’s the bottom line.
India Knowledge at Wharton: Let’s switch gears a little bit and talk about you as an individual entrepreneur, as Neil Patel. I know from looking at your website and your blog at Quicksprout that you’re probably one of the youngest entrepreneurs we’ve profiled here. So, congratulations on that.
Patel: Thank you.
India Knowledge at Wharton: I’d like to know, briefly, about how you became an entrepreneur. What are some of the memories you have of growing up? You were born in England, and then moved over to South California. What were some of the forces around you that made you into who you are?
Patel: I would have to say it’s my family. I feel entrepreneurship runs in my family, especially on my mom’s side. My mom is herself an entrepreneur. She owns a home day care, and she’s owned day cares in the past. Literally every single one of my Mom’s brothers and sisters are entrepreneurs. Being surrounded by successful entrepreneurs, it’s like, “Oh, I want that.” And I didn’t have that. I saw many family members making money through business. And I said, “Oh, they have more money than me. How do I become rich?” And I found out, you know, surely enough, it’s entrepreneurship. You can work nine to five, but if you really want to make a lot of money in this world, you have to work for yourself. It was ingrained in my head since a young age. As I grew up, I started becoming an entrepreneur at an early age.
India Knowledge at Wharton: You mention in your blog that one of your uncles in particular was influential. Please talk about that a little bit more. And, how did that relate to you starting companies in high school? How much of your path so far has been guided by the Indian diaspora, whether they’re relatives or not?
Patel: My mom’s brother, my uncle, is nicknamed “GM,” like General Motors. He still works at Boeing, but on the side, he does a ton of things, from managing rental properties to owning liquor stores, to whatever he can get his hands on that provides a decent return on investment. I learned a lot from him, just watching him. I never told him, but he was probably one of the biggest influences in my life, when it came to entrepreneurship.
India Knowledge at Wharton: As you started ACS and Crazy Egg and some of the other companies, did you leverage the Indian diaspora to start and grow your ventures?
Patel: Absolutely. In the beginning, the influence of the diaspora was big, though as I gained experience, it wasn’t that huge. The biggest thing that I learned from Indian culture was that it’s easier to save money than to make it and that there’s nothing wrong in being cheap or frugal. I’ve learned that you save money because there’s always going to be a rainy day. What comes up, must go down. This was probably one of the biggest things that helped me in business, because I never really wasted money.
India Knowledge at Wharton: Let’s take that a step further. Did you come across folks from the Indian diaspora in business as you were growing your ventures?
Patel: Not too many. I rarely encountered other Indian people. I didn’t do too much business with them because I have a saying about Indians, Chinese, and Jewish people. We’re all hard to do business with because we’re all stingy and we’re all trying to get the best deal. I don’t think there’s anything wrong with it. I actually love it. But as a business, I try to avoid these three groups, because I know that it was going to be hard for me to squeeze money out of them. Therefore, I targeted the companies that spent money more loosely.
India Knowledge at Wharton: You mention in your blog that you’ve made mistakes. And that those mistakes have cost you money. I don’t want to go into what those mistakes were specifically, because I think most entrepreneurs make tons of mistakes. I’m more curious as to why you’re so open to discussing them on your blog. Why are mistakes important to you?
Patel: A wise and successful Indian entrepreneur in the Seattle region once told me, “Neil, if you talk about your successes, no one’s going to learn from that.” If I told everyone, “Here are all the 10 things we did that were great,” the chances of someone replicating them are slim to none. But if I told people, “Here are all the mistakes I made, and here’s how much money it lost me,” at least they can avoid those mistakes when they’re running their business. Then, hopefully, the chances of succeeding will increase.