Scrub Money

Business

10
Nov

Over the past two years, I have developed a growing fascination with lawn signs. Not the ones advertising politicians or plumbers, but the ones advertising websites. Dating websites.

These signs are so prevalent in my area that I decided to launch a private investigation into who was behind them and just how far they stretched. What I found started in my small home town and led me all the way to the secret guerrilla marketing infrastructure of a multimillion-dollar company…

Single Lawn Sign

Background:

In the fall of 2007, I was about a year into an Analyst gig at a large web-focused private equity firm. My job description was simple: do whatever it takes to find interesting companies who are making lots of money on the internet.

During this time, every radio commercial, billboard, and t-shirt bearing a domain name held a special meaning: it represented an opportunity to find the next big deal. As you can imagine, the same names kept popping up again and again. I was looking for new deals everywhere.

One weekend, I trekked down to South Jersey to visit my parents in my hometown of Glassboro. The town sits about 30 minutes southeast of Philadelphia and has a population of less than 20,000. As I drove past my old high school, my deal-hunting subconscious noticed something bizarre. Stuck in the grass by the curb was a white lawn sign about a foot tall with a very simple message in black Times New Roman: “Single? www.GlassboroSingles.ORG

It looked like something the local contractor would ask to stick in your front yard while he replaced your roof. Except… well, it was plugging a dating website. I had about a million questions, but two immediately simmered to the top:

* Glassboro is a tiny market of nominal interest to even local advertisers. Who would register a domain, let alone build a website, to target our tiny population?
* Who in their right mind advertises websites with lawn signs?

By the time I pulled into my parents’ driveway, I had convinced myself that the site was the product of some overzealous local entrepreneur. I wrote off the lawn sign as an amateurish stab at guerrilla marketing. When I drove out of town the next day, the sign was gone.

Fast forward a few weeks. I was back in New York, rushing up 5th Avenue on my way to work in Midtown. As I wedged myself through the usual crowd, something stopped me in my tracks. Eight feet in the air, tied to a lamp post, was a white sign with black Times New Roman: “Single? www.FifthAvenueSingles.COM

I promptly morphed into one of those sidewalk-obstructing idiots who stares up into the sky and infuriates the people who actually have to be somewhere. Aside from the URL, this sign was identical to the one I had seen in Glassboro. By the time I got to my work, I decided that there were four possibilities:

* This was a complete coincidence and these were the efforts of two completely separate businesses with identically unorthodox advertising methods (unlikely).
* The overzealous Glassboro entrepreneur had loaded up his car with lawn signs and decided to extend his guerilla marketing scheme to the Big Apple (less likely).
* Some NY-based business had done some marketing in the tri-state area and decided Glassboro was a ripe market (even less likely).
* There was something bigger going on. This struck me as the most likely case, but raised a question that made my head hurt: if whoever is doing this has the ability to target New York City but somehow made their way down to Glassboro, how many of the towns in between have also been hit?

Not long after, I stumbled onto another clue. I was in Central New Jersey on my way to give a guest lecture at Princeton University, which is about the geographical midpoint between New York and Glassboro. As my cab rolled through neighboring West Windsor Township, I saw a familiar-looking lawn sign wedged in the grass alongside the road: “Single? www.WindsorSingles.ORG”.

That one did it for me. At the absolute least, I was now convinced that this lawn sign business had its tentacles stretched into almost every town in the state of New Jersey. It was worth spending some time to learn more.

Industry Research:

In talking to a few colleagues about this fascinating business, I learned that most private equity shops shy away from dating sites for a number of reasons:

* Dating sites are known for tremendously high churn rates (if your product works, your customers never have to come back; if it doesn’t they see no reason to come back). This means dating sites have to keep a steady flow of new customers coming into the top of the funnel in order to survive, let alone grow revenue and profit.
* High churn rates mean new customers have low, volatile expected lifetime values. This has a negative impact on the equity value of each customer, making it difficult to justify the valuation multiples seen by membership-driven websites in other verticals.
* The need to keep more and more new customers coming in creates a necessity for massive marketing budgets that often involve aggressive affiliate marketing (i.e. paying third parties to bring you new customers). This further damages the perceived value of the user base to a potential investor or acquirer.
* Like social networking, “online dating” is a natural monopoly (or, at best, a natural oligopoly). A dating site’s quality is determined by the number and quality of matches it can provide a new user, which is directly tied to the size of its membership base. This makes it extremely difficult to enter the market.

However, just because something isn’t a great investment prospect doesn’t mean it’s a bad business. Many, many people have become obscenely wealthy in this industry (both online and offline). The technology required to connect two people is trivial, meaning your only real expense is the cost of customer acquisition. If you are part of the natural oligopoly, your product quality will be high and people will seek you out. This cycle lowers your costs and sends your margins skyrocketing.

Furthermore, the online dating industry has made a lot of secondary players wealthy thanks to affiliate marketing. At times, online dating sites have paid as much as $100 per head for new paying customers, and routinely pay out at least a few dollars for new “free trial” users or other prospects. This means anyone with the power to herd single internet users can potentially tap into a strong monetization engine.

With this information in-hand, I started to see some beauty in the lawn sign model. Since virtually all dating sites are national, even ones with millions of members can under-serve certain geographic regions. The “YourTownSingles.com” approach leads potential members to believe their area will be extremely well represented in the site’s population. This creates the perception of high-quality matches, even if the total user base is small.

I had visited each of the URLs I saw on the lawn signs, and each contained a multi-step form asking for a bunch of personal contact information. This led me to suspect that the business wasn’t running its own site, but was acting as an affiliate marketer. Often times, an affiliate’s commission is tiered based on the level of pre-qualification of their referrals. This means that an affiliate can make a lot more money selling my information to a third-party dating site if they have my name, e-mail, phone number, age and gender than if they simply have my e-mail address.

Given the large amount of information these pages required, I became fairly confident that I had figured out what was going on (for the most part). The business makes a small investment ($50-100) in buying a domain name and a few dozen lawn signs for a given town. Then they put up a form landing page at the URL, plant the signs, and see what kind of return they generate by luring the townsfolk to their site and then passing their information on to user-hungry dating websites. If the ROI is positive, they keep at it. If not, they try another town.

After reaching these unverified conclusions, the lawn sign business slipped out of my mind for quite some time. When I quit my private equity job to found RJMetrics this past July, however, my interest was reignited. The reason: I still see these signs everywhere.

Relapse

I seriously can’t take a ten minute drive without passing one of these signs. What fascinates me more, however, is that they never seem to last more than a few days in one spot. In most cases, I’ll see a “Single?” sign somewhere and the next time I drive by it will be gone. I can only assume that these signs are being taken down by whomever maintains the property where they are placed (they are almost always stuck in the lawn of a public park or building).

The fact that these signs are still so prevalent today, more than a year after I saw the first, means two amazing things:

* Despite their short shelf-life (or, lawn-life), sticking these plastic signs into the ground in small towns has proven financially viable (I can’t imagine that a year’s worth of data to the contrary would result in the business continuing to print and plant these signs).
* Someone must be monitoring and replacing these signs as they are taken down. When you consider the number of towns likely involved in this system, it’s clear that this is far from a one-man show.

Then, just this past Friday, I saw the most amazing sign yet. A town not far from my house is called Haddon Heights, NJ. It is a miniscule town that occupies just 1.6 square miles of land and has a population of barely 7,000 people. Furthermore, 56% of the population is married and 25% is under the age of 18 (thanks Wikipedia!). Not exactly a ripe market for a dating business. Nonetheless, as I drove through the town, I saw (no exaggeration) twenty signs that read “Single? www.HaddonHeightsDating.COM”

Full Article here:
http://themetricsystem.rjmetrics.com/2008/11/06/single-lawn-signs-conquer-the-american-landscape/

Category : Business | Blog