All About Advertising on Bonanza

This document covers the most commonly asked questions about advertising on Bonanza.

What is Bonanza's general philosophy on advertising?

We think that advertising, when done effectively, is a great way to help new users discover a product. And when not done effectively, advertising is an effective way to get poor and distracted. So, what distinguishes effective from non-effective advertising?

In the simplest terms, an effective advertising campaign is one where the residual value of the customer is equal to or greater than the advertising investment to acquire them. If a business pays $1.00 to acquire a customer that ultimately generates $0.10 of revenue, then the business effectively lost $0.90 worth of resources that could have been put toward making a sustainably better business. The more the business spends on these types of endeavors, the more it will fall behind its smarter-spending competitors.

So, to make advertising work, the company needs to maximize the residual revenue that is derived from a new customer. There are three keys to achieving this:

1. Send the new customer to a page that compels them to buy on their first visit.
2. Give the customer an experience so uniquely wonderful that they remember it and return later.
3. Make enough money per transaction that the investment in advertising is eventually recouped.

In a nutshell, to the extent that a company can succeed at the above goals, money on advertising is money well-spent. If the company can't succeed at those goals, then money spent on advertising is a net loss. The more you spend, the more you lose.

How has Bonanza fared on advertising so far?

To be honest, not so well, but not for a lack of trying. We have tried advertising via avenues ranging from as Google AdWords (where we continue to have a monthly advertising budget), to posting graphic ads on well-trafficked blogs, to grass roots efforts such as pasting Bonanza advertising placards around community gathering places. Taken across these various mediums, a new customer tends to cost about a 25-50 cents, and residually generates about 20% of that back over their lifetime.

We believe there are a number of reasons that our advertising has failed to approach sustainability:

• Low fees. Whereas our competitors that advertise more frequently charge their sellers 8-15% per transaction, Bonanza charges about 3%, which means that our new buyer would have to purchase about 3x more items on Bonanza for us to be able to bid as much as more expensive sites for ads.
• Continued evolution of the buying experience. Other than charging high fees, the most effective way to justify spending big bucks on new customers is to get them to become site regulars. Bonanza continues to add features that differentiate it from other choices. But even if we provide a buying experience that is 5x better than comparable sites today, we need that experience to be 10x better before buyers will learn to remember the "Bonanza" name and visit it directly next time they are deciding where to buy.
• Lack of a strong landing page. Because Bonanza's inventory is so diffuse, there is no single page to which we can send an acquired customer to stimulate a strong buying interest.

To see our advertising dollars become dollars well spent, we would need higher fees, a buying experience 10x better than other choices, or a more targeted page to send buyers to. Given that our strong preference is not to raise our fees, that leaves the product-centric options. Thus, these are the goals that we have our sights set on as we move forward.

How might Bonanza's advertising efforts look in the future?

While there are marketplaces that have become extremely successful without advertising, we remain intrigued by the possibility of using advertising as a tool to accelerate the growth of Bonanza. Our commitment at this point is to focus on building a product that is 10x better than all others for buyers. Once we have reached a point where our data shows new buyers "sticky" enough to visit multiple times, we will get to work on our Bonanza Super Bowl Ad. Our parents will be so proud of us for that, we can hardly wait.

In the meantime, we will continue to use advertising on an as-it-makes-sense basis, such as during the holiday season.

Isn't there value in getting the "Bonanza" name out there, even if you can't directly measure the positive results?

You could ask 10 different advertising professionals that question and get 10 different answers. Ultimately, if we can not measure the successful results being derived from an ad campaign, then we are doing something akin to what kids do when they swing at a pinata. Might they hit it? Sure, they might. But "hoping for luck" generally does not a successful business make.

Especially when we have a wealth of product-centric ideas that we can translate directly into more sales.

What about advertising for the holidays?

The holiday season (late October to December) represents a uniquely good opportunity to advertise, as there tends to be a much higher conversion rate per customer. As such, Bonanza significantly increases its advertising budget during the holiday season to help put its sellers in the best possible position to succeed.

If Bonanza doesn't have a meaty advertising budget, what are the chances that it can succeed?

Now there's the $1,000 question: can a marketplace that relies on non-advertising growth still effectively generate sales for its sellers?

While every marketplace is different, we see a number of parallels to Bonanza in online marketplace Etsy.com. Like Bonanza, they charge extremely low final value fees. Like Bonanza, they have directed the lion's share of their revenues toward building a better product and a better community. In fact, in a recent business analysis of Etsy, they disclosed that they dedicate 50% more people toward community management than marketing. In this same business analysis, "more advertising" was not mentioned as any of the eight best opportunities for their continued growth.

As we see it, short-term gains to traffic and sales can be made through advertising. But 9 times out of 10, the product that succeeds is the product that is most satisfying for its users. Building a satisfying product leads to word-of-mouth growth, and customers referred from a friend are far more likely to be loyal than those referred from an advertisement.

Bonanza's ascension to one of the largest online marketplaces has so far been fueled through building the best product. While we have maintained a monthly marketing budget so that we can continue to evaluate how advertising performs for us as an incremental way to drive traffic, what we have consistently discovered is that our most impactful successes come when we listen to our users and build a product that they are passionate about.

Our number one commitment is to helping our sellers make sales. We are constantly evaluating all possible avenues to ensure we succeed at this goal to the greatest possible extent. To this point, we have found that our limited resources convert most directly to increased sales when we point those resources toward building the best marketplace online.