Understanding Real-Time Bidding in 30 seconds.

According to Wikipedia – Real-time bidding (RTB) refers to the means by which ad inventory is bought and sold on a per-impression basis, via programmatic instantaneous auction. With real-time bidding, advertising buyers bid on an impression and, if the bid is won, the buyer’s ad is instantly displayed on the publisher’s site.

Wow ! That’s a lot of jargon for any non-digital person to understand. Let me try to break this down and share a story around the media content that you consume almost daily i.e. Newspapers.

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Story 1: 

You received a newspaper and see ads on the first page which is same for everyone in your whole town. That essentially is ‘reserved buy’ of inventory.From an advertisers perspective he went ahead and booked the ad space in advance paying whatever was asked by the newspaper.

RESERVED BUY

Story 2: 

You received a newspaper and see ads on the first page which is same for your whole block and ‘could’ be different for the people living in the next block.
In this case the advertisers met at the newspapers office a day before and placed their respective bids for the blocks citing relevance of the audience to their product. Say an advertiser X with the highest bid for your block won to show his ads for your block. This is a regular ‘bidding based auction process’ followed by most. e.g. ‘Google Adwords’.

bidding process in an auction

Story 3: 

You received a newspaper but it didn’t had any ads till the time delivered to your doorstep. As soon you picked it up to read suddenly an ad appeared on it. The same happened with every single person in the town. Everyone had different ads to see, with some having same ad as well. Plus every page that you flip on the newspaper has an ad tailor made for you based on what you did on the previous page – all in the very instant!

The advertisers waited till the last moment for you pick up the newspapers and then decided how much to bid for that individual ad for you, based on your age, gender, location and 10 other things. They waited till the very end so as to gather feedback on who is viewing the newspaper and then show up the desired advertisement. The advertiser X won the bid for you and showed his ad at that very ‘instant’.Similarly this was done for every person of the town in the very instant they picked up the newspaper. This is now called Real time bidding.

oh hell yeah

So as WIKI says – “Real-time bidding (RTB) refers to the means by which ad inventory is bought and sold on a per-impression basis, via programmatic instantaneous auction”

Thus Ad-inventory is the ad space in your newspaper, per-impression is the ad-view by you, and programmatic instantaneous auction is the the real time instantaneous bidding by buyers, competing for showing you their respective ad.

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Now I might have left some details while explaining this answer but largely from a consumer point of view you will just see the ads without actually knowing how they are served.

The challenge for me was to keep it very plain and simple for a layman to understand. In story 2, the auction process is nearly real time instead of a day before and far more complex using 2nd price auction methods. But in essence the bidding is done ‘largely’ without any individual customer feedback loop mechanism like in RTB.

Please do comment if I could have made this more simpler.

Google

Xiaomi Mi3: Is it the best priced cell phone EVER ??

The Xiaomi Mi3 is priced near to Rs. 14,999 which is like HALF of the exorbitant prices of Samsung Galaxy S4/5, and Apple Iphone 5 series with a similar hardware!

Mi-3 has been touted as one of the fastest smart-phone in the world. The phone is powered by dual processors Qualcomm Snapdragon 800 + 1.8 GHz Nvidia Tegra 4 processor that are top-notch in the tech world.
Xiaomi Mi3,
Despite its slim frame, with its thickness coming in at only 8.1mm with a 5.0 inch screen, the Mi-3 packs a 3050 mAh large battery (Galaxy S5 has a 2800 mAh, iphone 5s has 1570 mAh).Its camera feature is also pretty impressive, coming in at 13 megapixels with dual LED flash lights and a 16 GB storage space. Wow, that is some sexy hardware!
Ok, so now the obvious question:

How is Xiaomi able to price its phone cheaper with such a great hardware?

Well the answer could lie in their unique marketing / pricing strategy with a plan to sell high-end smartphone at slightly beyond the cost of materials and eventually monetize through software and services

Strategy 1: Earning profits from its software.

Xiaomi’s revenue stream comes from its software — the highly-customizable MIUI firmware that is based on Android which already has more than 30 million users, earning approx $4.9 million monthly revenue from apps, games, and theme customizations installed on MIUI.

Thus unlike Apple, for example, which makes money from margins on selling its phones, Xiaomi is a more like Amazon where it wants to earn via its ecosystem by selling various goodies and reap profits like an ecommerce company.

Thus net result is a lot cheaper phone + a great hardware = a happy buyer.

Strategy 2: Zero Advertising, All Product/Social Marketing        

Unlike regular phone companies, Xiaomi is able to save a ton of cash by avoiding crazy advertising costs and rather deploy some cool innovative marketing strategies.

Step 1: Build a tech fan base

When Lei Jun founded Xiaomi in 2009, the first product was MIUI operating system. Lei Jun didn’t want to spend money on marketing, so his crew began building brand awareness in forums. Their staff spent a lot of time on forums, making comments, sending posts and advertising. They used the same method to do marketing with zero budget, they set up MIUI mobile phone forum, which became the base camp of “me fan” with over 1 million registered users.

 Step 2: Engage with the fans – make them ‘loyal’

  • Every week, Xiaomi releases a new version of miUI, its customized Android skin, which is then scrutinized by a few hundred thousand hardcore users.Google
  • “Me fan” participated in product research, development, test, spread, marketing and public relation. Fans also organized offline city gatherings.
  • The company thus gained a whole lot of loyal fan-base by soliciting and adding user feedback into the design of its latest sets and Android skins.

Step 3: Sell to your fans. Let them spread the euphoria via social sites.

Naturally, the 1 million “me fan” users became the first buyers of MIUI smartphone.

At the same time, Sina Weibo grew more and more popular. (China’s top twitter like micro-blogging platform with 400 million members). In December 2012, Xiaomi announced that it will sell phones directly from Sina Weibo.

The unusual marketing tactic proved successful: within two days of the announcement, Xiaomi said it had sold 50,000 smartphones in five minutes, with 1.3 million additional reservations.

 

Final Take

A unique blend of innovative business strategies is really propelling this ~4 year old company by leaps and bounds which already has a valuation crossing $10 billion.

In India they might tie up Flipkart and sell their Xiaomi phones exclusively via Flipkart. Their basic appeal is to those who follow trends easily — the younger generation who also have less disposable income.

Xiaomi understands the power of influence. Just like a celebrity, Xiaomi knows how to make use of the power it has, and it is little wonder that the company has managed to climb so fast in such a short amount of time.

Edit: In a recent development, Xiaomi now confirmed selling the Mi3 by their own website e-commerce platform with pre-registrations starting from 15-July-2014 at an awesome price of Rs. 14,999. Cheers ! 

Google

Economics of the Onion Deal – How Rs.9/kg materialized?

When onion prices have skyrocket, Groupon’s onion deal (check here) comes as a god send. A deal seeking Indian customer is always on the lookout for value-for-money options. The deal websites usually attract customers by using price differentiation strategies through lucrative offers and discounts that go up to almost 70 per cent.  With the best deal on onions, Groupon has caught the pulse of the Indian consumer who is sensitive about vegetable prices. It has tied up with one of largest onion distributors to procure 3,000 kilograms of fresh onions every day for the next seven days and selling it at Rs. 9 per kg.

Groupon India's Rs.9 per kg Onion Deal
Groupon India’s Rs.9 per kg Onion Deal

 Economics of Onion

Lets try to uncover the inside working of this deal.

Well the cost for onion in the wholesale market is ranges from INR 1000 – 4000 per quintal in Maharashtra (ref: http://www.indicat.com/Market-Rates/Commodity-Rates/Onion). Since Groupon have secured a bulk buy of 21 ton of onions in 7 days, with 3000 Kilograms of onions every day I am sure they must have negotiated  a killing price. Lets for the time assume that they bought onions at a rate of INR 2000 per quintal, which is equal to 20 Rs per kg. Thus a total expenditure of Rs. 420000.

At this moment they have already sold 19.8 ton and with this rate will easily sell the whole of 21 ton by tomorrow. At a sale price of Rs. 9 this would have generated an overall loss of Rs. 231000 for the company.

 But why would any company indulge in a loss making practice? And that too simply buying expensive & selling cheap?

The answer lies in the economics of a digital marketing campaign which are regularly run by these deal based sites to capture new customers & amplify their customer base.

Economics of a Paid Marketing Campaign:

There are roughly 10 Lac deal based searches in a month on Google.  The deal based sites often run ads on Google to capture new audience. These 10 Lac searches would have roughly generated 50,000 clicks for such a website assuming a healthy Click through Rate of 5% and at a generous 10% click-to-lead conversion rate there must be around 5000 new user registrations per month. Since the average click cost in a deal based vertical is in the range of Rs. 7-8 per click (CPC), thus we can easily conclude that every registration must have cost GroupOn around 80 Rs as advertising expenses & this should have generated about 5000 registration per month. Thus a total digital marketing expenditure of Rs. 4 Lac in 30 days to capture 5000 new registrations.

 

Turing the loss into profit:

 

Google Web Search Trends
Google Web Search Trends
  • Day this deal went live,  the total Google searches for Groupon jumped by 400% in a single day. This was even more than they could have expected & lead to momentarily crashing of their site as well (as reported by Aljazeera here)
  • At the end of the whole sale they will have gain 21000 transactions on their website in flat 6 days & since each transaction mandates a registration, they would have generated a maximum of 21000 new customer registrations, or on an average close to 15750 new customer registrations (assuming 75% as new customers).

The only expenditure incurred for achieving the above statistics is the net loss amount of Rs. 2.3 lac. Thus from a marketing prospective, the total promotional expenditure of Rs. 2.3 Lac in 6 days has been able to capture 15750 new registrations.

Brilliant Strategy! They gained 3x their monthly customer registrations at 50% of the regular digital marketing cost, just by selling onions  :-)

Moreover not to miss the wide spread national/international media coverage and mentions on twitter, facebook & other social media channels – All included in the 2.3 Lac total marketing expenditure.

On the hindsight, its needless to say that Onions have great veiled powers which if used correctly at the right time & space , have the potential to crash anything from websites to political parties   :-D

[Edit:  Someone pointed out that the delivery charges are not accounted in the above calculations. Ideally fulfillment costs are not accounted while measuring the marketing & acquisition channel costs. Even if we add up the normalized delivery charges of Rs. 5 per delivery (normalized due to economies of scale with limited cities covered), then for 21000 deliveries they would have spend Rs. 105000, taking the whole project expenditure to Rs. 3.3 Lac for 16K registrations at Rs. 20 per registration (75% of regular acquisition costs).  All this without not yet accounting for the loads of direct traffic registrations over and top of these 21000 sure shot ones.] Google