Marketing via Facebook v.s. emails

I love Facebook.

However, we see it time and time again that for most consumer electronics products the CAC (Customer Acquisition Cost) via FB is simply too high. As I stated in the previous blog post, FB marketing cost should be treated as as channel cost and counted against channel margin, if there's no real proof that such advertisements reinforce the brand image.

For CAC to make sense, the lifetime value of a customer, taking into account for CAC and future expected net contributions from such a customer discounted to the time of acquisition, should be positive.

For software startups, churn rate is the key number to monitor after CAC is figured out over a large enough sample in a period. 

For hardware startups, there's no churn rate. Most of the time it's a one-shot acquisition and CAC counts against the margin directly.

Every buyer in consumer electronics by default churns. Only when the company is able to lure them back to buy the next generation product or other related products would there be any meaningful discussion of future expected contributions.

And only product itself and branding would bring them back to buy the 2nd or 3rd products. CAC itself won't.

As far as branding goes, the fact that Facebook controls whether a content shows up effectively or not in front of a page follower is a real issue for hardware startups.

My partners and I have personally experienced such lapse on Facebook. We've liked and are actively following and interacting at a startup's FB page. Usually it's our portfolio company. But somehow some content just missed our live feed. Here it could only be explained that some sort of weird logic behind FB's algorithm is at fault.

But you can do little about it.

On the other hand, with emails (risk of being seen as spams) at least one knows the message gets through. One can even measure the open rate.

And the death of emails has been announced prematurely too many times. Our view is that as long as invoices come in the form of emails, consumer spending will be tied to emails to a certain degree.

Emails will not go away.

As an early-stage hardware startup, you have to make sure that you're rich enough on the email subscribers, even in this age of all the rage about non-email communications, both on smartphones and on laptops.

A hardware startup is like a train

On-line advertisements should be counted as channel cost, not marketing