Spending Like Its 1999: Startup Burns $50k of VC Money on Crazy Contest

By Dharmesh Shah on July 29, 2008

You remember 1999, right?  It was the day of the sock puppet and crazy, CRAZY marketing strategies.  By the way, before going too much further, I will confess that I actually bought pets.com shares back in the hey day.  Why?  Because everyone was doing it, and my wife and I thought the commercials was creative and funny.  Granted, my "due diligence" bar was lower back then, but I'd understand if many of my colleagues would revoke my angel investor license just for that.

But I digress.  Today's article is about new ways startups are using to try and attract attention and -- wait for it -- eyeballs!  A software company in Cambridge, MA is running a "viral marketing contest" whereby they are giving away a total of $50,000 for bloggers, videographers (basically anyone with a video camera) and others into the "new, new marketing". 

Here's the article: 

Insanely Brilliant or Just Insane?  The HubSpot $50,000 Viral Marketing Contest

Now normally, I'd be having a jolly old time making fun of this startup with references back to every lame attempt at "marketing" we saw out of dot-com startups back in 1999.  There's just one problem.  It's my startup that's doing the crazy stuff!  Yep, that's right, my startup HubSpot, which recently raised $12 million in venture funding is giving away $50,000 of that in a viral marketing contest. 

I figured once people get wind of this, many of my friends, colleagues and bloggers are going to send me emails saying, "Dharmesh, what the hell?".  Actually, I might get an email from an investor or too as well, because we haven't run this by them yet.  I figured I'd try and pre-emptively answer some of the inevitable questions.

1.  Why do it?  Well, it's kind of simple.  We've been having great success with attracting leads (and closing customers) through our blog and other online channels.  Some of our most successful marketing efforts have been blog articles that went viral on social media sites like digg and reddit.  Last week, we tried to do a rough economic analysis and estimated the value to us of leads generated from these successful pieces.  It was high.  So, there's opportunity here.  Plus, we don't like spending too much money on AdWords.  It pains us.

2.  Why not just do it ourselves?  Well, frankly, because developing viral content that spreads like wildfire is a tricky business.  We have a team of great folks writing content all the time for our blog (including me), and sometimes we hit it out of the park.  But our guess is that there are folks much more talented than us that are capable of producing remarkable content (as Seth Godin would say).  We figured it's worth a shot trying to draw those people out.

3.  If it works, it could work big.  We're at a stage now where experimentation is reasonably cheap.  Instead of getting stuck in the rut of turn this dial a bit, flip this switch a bit, and crank out the customers -- we'd like to look for some non-linear growth opportunities. 

Oh, and if you're a VC reading this (particularly one of our VCs), we're doing the same thing in marketing that you do when looking for investments:  Pick projects that have potentially huge impact, even if they are a bit whacky and high-risk.  If we do a dozen of these crazy projects, if just one wins, we're golden!  Champagne and chocolate-covered strawberries for everyone! 

So, what are your thoughts?  Is this genius or desperation?  Would love to hear your comments.

Topics: marketing
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BusinessWeek On SaaS: Article Smells Like That Thing In My Refrigerator

By Dharmesh Shah on July 29, 2008

Warning:  I'm about to go on a bit of a rant.  I usually only reserve these kinds of articles for when things really irritate me, and this is one of those times.  I'm generally a patient, considerate person, really I am.

Here's the source of the most irritation I've felt from a technology article in a long time (and this from BusinessWeek, a major brand that I respect): 

Beware The Hype For Software As A Service

I actually hesitated to even include a link to the article, because you might be tempted to go read it.  But it has to be done.  It's kind of like when you smell something really awful that's been growing in your refrigerator.  Then, you give it to your spouse and say:  "Hey, check this out -- can you believe how bad it smells?" 

Disclaimer:  I work for a tiny little startup that provides marketing software as a service.  So, I guess I could be biased.  I'm not wrong on this one, but I could be biased.

Back to the article.  Here are some of the issues I had:

1.  SUVs Suck, So SaaS Must Too:  The author does some strange build-up in the opening paragraphs using "SUVs are cool" and "cell phone causes cancer" as examples.  The point?  That both of these are/were surrounded by "hype".  And, we should always beware of hype.  Think of the children!  I'm already irritated.  For the record:  I don't think SUVs are cool.  Oh, and these inane examples are what drove me to the title of this article.  Fight fire with fire and all that.

2.  SaaS Is Cheaper:  The article tries to refute the "myth" that SaaS is cheaper by providing this cogent argument:  "Most service providers charge each user by the month."  There's no discussion of the economics of installed software, drive-by sales in enterprise software, or the cost of capital for small businesses.  Hey, those SaaS vendors charge monthly, so it must be more expensive.  Right?  That must be why Salesforce.com has been so successful -- they just charge more than Siebel.

2.  SaaS Reduces Hardware Investment :  It refutes the "myth" that SaaS requires less hardware investment by arguing that although you don't have to pay for all the servers and stuff, you still have to pay for fast access to the Internet.  Here's the quote:  "Sure, the SaaS providers deal with the servers, and all the Windows headaches and patches and builds and versions and whatever. That's their problem. But you still need fast access to the Internet."  The rest of this particular argument just gets worse from there.  Now, I'm really irritated. 

3.  SaaS Is Quicker To Setup:  Yep, this is a myth that is "busted" too.  The example provided:  "It's kind of like assembling furniture."  The author provides as evidence that SaaS is not easier to setup, the fact that he's got a lopsided bookcase in his den.  This "proves" that little theory about SaaS being quicker to setup, wrong.  Sure, setup costs for SaaS can be high (based on level of customization), but on average, SaaS offerings are simpler and quicker to get going on.

4.  Data Can Be Secure In SaaS:  The article argues that data backup and reliability in SaaS is a myth.  Once again, we have extreme (and in one case totally unrelated) examples offered as proof.  Yes, data security is always a risk, but I'm not convinced that the risk is any higher for SaaS than businesses (especially small businesses) than running the software on your own servers, sitting in your closet somewhere.

If you think I'm being overly harsh, please read the article.  I dare you.  And, if you do go read it, please don't forward it around to your colleagues.  Sometimes, you don't need validation that the thing in your refrigerator really does smell that bad.

End of rant.  Back to our regularly scheduled program next time.

Topics: saas
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