Mary Meeker’s annual report on Internet Trends is always a long read. It took time to get through all 333 slides, but I respect the grind. I found the section on online advertising and customer acquisition most relevant for hip-hop.
There are more cost-effective ways to acquire customers
Online advertising spend is higher than ever. Growth has accelerated 22% year-over-year. Most of that growth is in mobile. That spend is across most platforms: Google, Facebook, Amazon, Twitter, Instagram, etc. It’s easy to see why. Data and machine learning have enabled hyper-targeted advertising.
In a recent conversation I had with a Trapital member, I learned about a company that had a highly-targeted Instagram ad campaign focused solely on getting one of the most popular athletes in the world to endorse a product. It wasn’t cheap, but it worked.
The same thing happens in music. When up-and-coming artists get compared to established acts, their managers of the up-and-comers use that as an opportunity to push ads. Marketers will try to buy YouTube ads on the established artist’s page and promote their up-and-coming artist. If those ads can be focused on a particular song that sounds most like the rising artist, even better.
Initiatives like these have driven customer acquisition costs (CAC) through the roof. But if these costs exceed lifetime value (LTV), then what’s the point? Also, as GDPR cracks down on data, it might be more difficult to rely on targeted ads.
Meeker’s report highlighted cheaper customer acquisition alternatives that are still effective.
“Effective + Efficient Marketing = One’s Own Product + Happy Customers + Recommendations”
Freemium products have been effective for Spotify and Zoom. It opens the funnel of potential customers and increases the likelihood of future purchase. Spotify reported that 60% of its paid subscribers came from its free tier. Both Spotify and Zoom companies have a CAC:LTV ratio of 3.0 or higher.
Hip-hop can apply this logic in a number of ways. A&Rs spend money to acquire top talent to sign to their labels. “Rap Camps” are a cheaper form of customer acquisition, especially if the top talent from Rap Camp gets to build a stronger partnership with the label. But as I mentioned a few months ago in my Def Jam article, these camps can be more effective if they are open to the general public.
Artists can use this same approach when growing their audience and acquiring new fans. Some artists create exclusive interviews and commentary for streaming services. In some cases, these come with trial subscriptions for Spotify, Tidal, and Apple Music.
Here are two other takeaways from the report:
Digital engagement is up
Digital video viewership has grown 2x in the past five years. A lot of that growth has been in “short-form” videos on Instagram stories, Facebook stories. We’ve also seen much higher engagement in video as well (as opposed to images and text). Artists can consider this with their social media strategy. Videos can build a deeper connection than text or images.
Podcasting continues to rise
Podcast listening is up to 70 million monthly active users in the U.S. alone. That’s 2x growth in four years. It further validates the opportunities I referenced in How Hip-Hop Podcasts Will Adapt in the Streaming Era.
Artists can release a behind-the-scenes mini-series podcast that document the creation process of their next album. Some artists have already done this. Think Beyonce’s Homecoming but far less expensive to produce.
A boutique record label can also create podcasts to document their management style and process. For instance, Dreamville is beloved by the culture. But not everyone who loves the label will actually sit down and listens to Revenge of the Dreamers III (some will lie and say they did, but others will be honest). A podcast like that is a unique, but easy to create product that certain fans will be more willing to consume.