The Lifetime Value Dilemma - Jaffer Ali

It is our task both in science and in society at large is to prove the conventional wisdom wrong and to make our unpredictable dreams come trueFreeman Dyson theoretical physicistFor thirty years I have been at war with myself In these years we have owned media sold it and alternately owned a marketing company that used not only our own media but outside media to sell directly to consumers The mindset of media owners and marketers is decidedly different and hence provided the boundaries of my personal war Participating in almost every phase of the ecosystem became all encompassing when we moved all of our business online back in 1998As mentioned media owners and marketers usually are at odds on most things Media owners want to charge more for their space and marketers want to spend less Pretty simple I always get a kick when online networks try to ignore the contradiction by telling publishers that they will get them more revenue per thousand while on a different page promising marketers more efficiency and profit per thousandSupposedly a monster algorithm stands between the two and magically glosses over the inherent contradictionamp8230but that is for another timeA curious exception to contradictions between media owners and marketers is embodied in the notion of quotlifetime valuequot LTV There are few more universally accepted gems of conventional wisdom than the notion of LTV of a customer WhyFirst media owners want marketers to look beyond the transaction The further the look the more marketers can spend on customer acquisitionamp8230and thus spend more for media So we get Google cofounder Avinash Kaushik saying quotI reserve the best hugs kisses smiles love respect and my deepest admiration for Marketers and Analysts who use Lifetime Value computationsquotIf you are not following closely it would be reasonable to ask who benefits from quotlifetime value computationsquot Certainly Google doesamp8230but does the marketerPutting aside the fact that LTV is literally impossible to nail down the reasons are for another time I can tell you that as a media owner I have benefitted greatly by this LTV meme thoroughly entrenching itself amongst my fellow marketing brethren There are presently 2040000 entries in Google for quotcalculating lifetime valuequot and to be fair most of the entries were written by quotsavvyquot marketers That is what happens when a meme enters into the vaunted heights of conventional wisdomI myself have written about the need to look beyond the immediate transaction Once upon a time TV direct marketers reduced all expenses associated with a campaign down to the transaction But as the effectiveness of media declined more justification to spend money on media was provided by extending the time horizon for making a profitAided by those peddling media like Avinash and myself plus a number of mathematicians who created complex algorithms to calculate LTV rationalizations for spending more money was complete The effect of LTV on television direct response marketers is illustrative As more marketers used LTV for media calculations media rates escalated because dollars spent on media no longer had to bring immediate ROI The time horizon shiftedTV direct response marketers unwittingly conspired with media owners in raising ratesOnline marketers who use LTV are not so much in danger of raising rates There is still too much inventory available But the effectiveness of online advertising is plummeting and LTV is still being used by media peddlers agencies and algorithmic geniuses justifying media spends that are not yielding an immediate ROISo what exactly is the LTV dilemma First it is a mythical theoretical number metric that sounds like we should quotknowquot what it is yet requires perfect knowledge of the future to really quotknowquot Secondly the more we use a mythical metric to make decisions the only folks who truly benefit remain media owners Marketers using LTV can take solace that Google cofounder reserves will give them hugs and kissesJaffer Ali is the CEO of the media company Vidsense and ecommerce company PulseTVcom He can be reached at 7084784500 ext 105 or email at jdotaliatVidsensecomRead all Jafferamp8217s MediaBizBloggers commentaries at On the Other Handamp8230Check us out on Facebook at MediaBizBloggerscomFollow our Twitter updates MediaBizBloggerThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaBizBloggerscom management or associated bloggers MediaBizBloggers is an open thought leadership platform and readers may share their comments and opinions in response to all commentaries

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