The Marketing Arbitrage Opportunity

Without doubt, one of the most exciting parts of being a marketer today is the perpetual challenge of finding new channels and tactics to leverage.

Identifying opportunities that we think will create business value is not only a lot of fun, it's key to driving future growth. For that reason, organisations need to invest in the discovery and cultivation of such opportunities.

Why is this important? As marketers we’re well acquainted with the standard playbook of inbound marketing, search engine optimization (SEO), Google AdWords, pay-per-click (PPC) advertising, email marketing, social media and online ads. While these channels and tactics remain effective, and help companies all over the globe to grow, they’re in many cases becoming less impactful. They’re working for now, but eventually they won’t. It may not be next month, year or decade, but eventually decay will set in. When you recognise this truth it becomes clear that marketing leaders need to empower their teams to explore new channels and tactics. Organisations can either create a team with this responsibility or structure their business so everyone feels ownership (something like Google's 20% time, albeit for marketers is an example of what the latter could look like).

Figuring this out isn’t easy - it takes speed, investment and autonomy, but the marketing landscape is scattered with examples of businesses moving quickly when they spy an opportunity with much potential and little competition. We call this situation “marketing arbitrage”. A marketing arbitrage opportunity is when marketers identify a channel or tactic with low saturation that they think will have an oversized impact if they leverage it quickly.

The difference between channels and tactics
Before we go any further it’s important to recognise the key difference between channels and tactics when discussing marketing arbitrage, as people often use them interchangeably. When I mention channels, these are external to your website and crucially, are owned by someone else. For instance, Google AdWords, Facebook and PPC are all channels - marketers are essentially paying to access an audience. Channels can be highly effective, but ultimately, marketers are using someone else’s service and they could change the rules at any stage. Dwindling organic reach on Facebook and the subsequent move towards pay to play is one such example.

Whereas, tactics are fully owned by you. Examples of marketing tactics would be SEO, email marketing, marketing automation and bots. Marketers are in full control of tactics, but results are typically slower in comparison to channels. Best practice is for marketers to take a blended approach and leverage a range of channels and tactics. The key takeaway is to avoid being overly reliant on a channel in case the environment changes.

A recent example of this happening would be the launch of Google Jobs, as Google seeks to take on Indeed.com, my former employer and the world's largest jobs website. Indeed.com now finds itself in the unenviable position of competing directly with Google, but also being heavily reliant on website traffic from Google AdWords and its search engine.

Every channel and tactic decays eventually
It’s important to recognise that every marketing channel and tactic has a lifecycle that fatigues over time. To ensure that organisations are equipped to take advantage of emerging opportunities they need to make it someone’s responsibility. A person or team needs to be charged with identifying new opportunities where the potential rewards disproportionately outweigh the investment and risk.

Within the software as a service (SaaS) industry it’s increasingly common to have a growth team that seeks out marketing arbitrage opportunities. Growth from new channels and tactics for SaaS businesses is particularly important - they operate in an environment where organisations have two options, they can either grow fast or die slow. In short, seeking out marketing arbitrage helps businesses hedge their bets for future growth.

This isn’t a new concept and the world’s leading companies are acutely aware of what happens once a business stops growing. Amazon’s Jeff Bezos best sums it up when he talks about the concept of Day 2:

“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.”

While Bezos is talking about halting decline at Amazon, the lesson and warning is applicable to any channel or tactic. Eventually they all decay.

A brief history of marketing arbitrage
There have been some notable waves of marketing arbitrage over the past 25 years. The very first online ads were served in 1994 by HotWired and the clickthrough-rate (CTR) was an incredible 78%. Today, the average CTR on Facebook ads is 0.9%. Online ads have been through a huge transformation - they were once a highly effective tactic, but after some initial traction, came increased competition and in some cases, dubious practices. That started the decline of online ads, and while the level of sophistication and targeting has improved, their impact remains questionable.

With more competition and diminishing returns the future of online ads is uncertain - there’s a big question mark over the accuracy of advertising numbers due to ad fraud, plus the emergence of ad blocking software. However, it must be said there’s some outstanding companies in this space that are continually innovating. After all, a well targeted online ad at exactly the right moment is to be welcomed, but the reality is there’s often a large gulf between the marketer and person being served the online ad.

Marketing in the 2000s
A decade ago content marketing represented a big opportunity for marketers. Few businesses were creating quality content and those which invested in blogging, webinars and ebooks quickly saw impressive gains. Nowadays, everyone seems to be publishing content, and mediocre content is the scourge of the internet. It’s a massively oversaturated tactic, and companies just starting out in their content marketing journey often find themselves competing against organisations that have had a 10 year head start.

Good content can still rise to the top, but wading through subpar content is a challenge. Attention spans have not increased, but the volume of content has. Exponentially. Content marketing works as a tactic, but it’s increasingly competitive.

During this period we also witnessed the golden era of email marketing. While a highly tailored email that’s based on a behavioural trigger will likely deliver the best results, it is becoming less effective as a tactic. Doing more of something that is having less impact is never an effective strategy - indeed it should serve as a wake up call to organisations to explore marketing arbitrage opportunities. However, the death of email is overplayed and is unlikely to be replaced any time soon. There’s lots of progress being made in terms of marketing automation which may herald a second golden era of email marketing.

Around the same time as content and email marketing came to the fore, we also saw the rise of AdWords, which enabled companies to buy highly qualified search traffic. Others soon wised up to the benefits of this channel and the average cost of AdWords traffic increased. AdWords is still highly effective and many companies have built great businesses off the back of it. However, it’s an increasingly competitive channel - as more people start buying AdWords, it pushes the price up for everyone. This is especially worrying if the search volume for your product or service does not increase accordingly.

For a period of time, mobile websites offered a marketing arbitrage opportunity, but now they’re simply a prerequisite for good SEO. This change was less about a channel or tactic becoming oversaturated or more competitive, but technology evolving. It became much easier to have a mobile website and Google began taking this into consideration in its search results.

The rise and fall of social channels
There was once a time where social media platforms offered a big, untapped opportunity for businesses. It’s unhelpful to cluster all social media together as they have unique characteristics, but MySpace represented a sizable opportunity in the mid-2000s, then Facebook, LinkedIn and Twitter came along. Facebook and LinkedIn are still valuable to marketers, but the cost is rising as competition increases.

It’s a different story for Twitter however. After years of anaemic growth and an unclear monetisation strategy, it’s becoming a less effective channel. Its audience numbers are falling and with it, the value it offers brands. The next wave of social media platforms like Snapchat, plus messaging services, such as WhatsApp and Facebook Messenger are the current marketing arbitrage opportunities. Some businesses are making notable progress, but there’s no clear winner yet.

Should you invest in something that is decaying?
That’s a tough question and the answer is, it depends. If a channel or tactic is delivering for you, I would absolutely continue investing in it. But you should also be aware of how it is trending in terms of impact, saturation and cost. You should create a model to see how each channel and tactic is expected to change over two or three years. This will give you an understanding of what the mid-term future looks like (this is imperfect, but it gives you a data-driven indication of future performance).

Once a channel or tactic becomes more expensive, less impactful or oversaturated, it’s time to explore others. This doesn’t mean abandoning it (not by a long stretch), but it’s important to recognise that you need to innovate in order to continue growing. Marketers should view each channel and tactic through an S-Curve, so they keep experimenting as older channels and tactics become less effective. The chart below illustrates how some channels and tactics have decayed, while others are still on an upward trajectory.

marketing-channel-and-tactic-decay

Today’s marketing arbitrage opportunities
More recently podcasting has been a big marketing arbitrage opportunity - there was limited competition and the barriers to entry remain high (you can’t outsource a podcast in the same way as a blog post). While this tactic is becoming somewhat busy, it remains a tremendous opportunity for smart marketers to steal a march on their competitors and increase the reach of their brand.

There’s also much discussion around messaging and bots, and the intersection between these technologies. In my mind they represent the greatest untapped opportunity today. There’s a number of companies investing in both technologies and they will likely achieve significant results, before decay starts to sets in. Conversion rate optimization (CRO) is also a big marketing arbitrage opportunity. This tactic seeks to get more conversions from existing website traffic or to increase website traffic to high converting parts of a website. While you should continually run CRO projects, realistically a large scale, transformational CRO project can only be tackled every 12 months.

Identifying marketing arbitrage
To identify marketing arbitrage opportunities you need to keep a close eye on the big trends occurring. Where are people now spending their time online? What captures their attention? How is people’s behaviour changing? And at a team level you must be structured to move quickly and comfortable operating without an established playbook.

To understand if a channel or tactic is worth investing in, use the marketing arbitrage matrix below. It helps you easily identify what will be most valuable.

marketing-arbitrage-matrix

Marketers should focus primarily on channels and tactics which have low saturation and high impact. This is where the marketing arbitrage opportunities will be found. However, it’s important to recognise that this matrix is dynamic and fluid - the channels and tactics may be recategorised as they grow or decay. This makes speed crucial to leveraging marketing arbitrage opportunities.

Next up, you should also keep a close eye on channels and tactics which are characterised as low saturation and low impact. You read that right. This may be seem counterintuitive at first, but allow me to explain. Firstly, if anything changes and these channels or tactics become more impactful, you want to be able to respond quickly to take advantage of the emerging opportunity.

Secondly, it’s highly likely you’ll already be well acquainted with the high impact and high saturation opportunities. The majority of marketers follow the same playbook and leverage the same channels and tactics. They work and are highly effective, and that’s why it gets saturated, but you don’t want to invest extra time here. Lastly, marketers should always avoid channels and tactics with high saturation and low impact. These are time wasters and will not provide significant returns.

Remember, there’s always an advantage to being an early adopter of new trends. It gives you the opportunity to get, and importantly stay ahead of competition. But as more companies leverage new channels and tactics they inevitably becomes more competitive and often over time, they deliver less value (this malaise could take many years). To combat decay, marketers must continually be investing in ways to steal a march on competitors.

While channels and tactics evolve, the continual challenge for marketing teams is to strike the balance between investing in activity that generates great results today, but also investing in the new and emerging activity, that will drive future growth.