ROI of Video Commerce Platforms, Part 2
In Part 1 of the ROI of Video Commerce Platforms series, I outlined the evolution of online video publishing technology: from CDNs, to OVPs, and finally to VCPs (video commerce platforms). Further, I defined a video commerce platform as “a set of integrated tools that enable businesses to maximize the value of video.” In this second part in the series, I’ll emphasize the importance of results generation as the focal point of the video commerce platform, provide a simple framework for thinking about results generation using an industry example, and break down the components that, when taken together, form the foundation of an ROI model consisting of new revenue in, cost savings, and cash out. In Part 3 of the series (which will itself be broken up into sub-parts), I will show the assumptions and calculations behind a model, based on the components presented here.
The value of a video platform
I believe VCPs will eventually overtake OVPs (or OVPs will need to adapt to become more like VCPs to survive). The reason? Whereas increasing the accessibility of online video was the imperative at media companies that prompted the launch of OVPs, improving business results is what drives investment decisions most everywhere else. Large-scale investment in video and video platforms across broad market verticals will only happen once the results of both are sufficiently clear. A video platform focused on generating results as opposed to improving accessibility is a disruptive force in an online video publishing landscape defined primarily by OVPs. In my view, the presence of such platforms constitute an important and necessary catalyst for the expansion of the online/mobile video industry in general.
Create results or die
There are few – if any – industries more sensitive to results generation than retail/travel. As a general rule, every investment made by a retailer needs to show a 7X to 10X return – sometimes more. For that reason (and others I will elaborate on in the comments section if you feel so inclined to engage) I will use a retail example in the ROI model. If you are not a retailer, don’t fret. Most of the ROI components can be easily modified to suit other verticals. As long as your company sells products or services and has a website, this will still mostly apply.
Measure the platform, not the video
I began part 1 of this series promising not to talk about the ROI of online video. That’s already well proven. Rather, we need to focus on the ROI of a video commerce platform. It’s important not to confuse video and the platform. Video will generate results by itself, independent of the technology used to deliver it. Therefore, any ROI model you build that’s used to justify a platform decision needs to eliminate the impact of video on its own, and focus solely on the technology. If you want to pad the numbers by including the impact of video, too, sobeit; just understand you are not really measuring the value of the platform itself when you factor video performance into your model.
Revenue pillars of the video commerce ROI model
To establish the foundation of an ROI model, we need to first take a highly simplified look at the way companies that sell products or services online make money:
1. Get more people to come to your site, thereby increasing the number of people who transact/convert. (drive traffic)
2. Get more people already on your site to buy stuff. (increase conversion)
3. Get the people on your site to spend more money. (increase average order value)
The ROI model I’ll share focuses on points 1 and 2. Average Order Value is a component used in the calculations to determine ultimate revenue for both 1 and 2, but while there is evidence to support video can drive higher average order value, and therefore a third pillar of the revenue side of the ROI analysis is possible, that evidence is not as well documented in the industry today. Hence, I’m leaving point #3 out (for now). If you don’t agree with my assessment, or you know from your own experience that video increases your average order value, go ahead and add it back in – more revenue to you, my friend… love the spreadsheet magic!
VIDEO COMMERCE ROI PILLAR 1. How does a VCP help drive traffic?
Please note: I am not going to take the time to explain what each of these things are – there are other articles on this site and great sites like REELSEO that explain each of them in detail. For the purposes of constructing an analysis, I’m just going to bullet out a list of the common digital techniques (and some emerging, uncommon digital techniques) companies use to drive traffic alongside the video commerce equivilant.
Primary Revenue Levers:
- Search Engine Optimization/SEO (Video SEO)
- Paid Search/PPC (Video SEM)
- Online/Mobile Display (Video Advertising)
- Targeted Display (Video Retargeting)
- Email Marketing (Video Email)
- Mobile – Offline to Online/QR Codes (Video QR)
- Social Media, including Facebook, Twitter, and YouTube (Social Video)
- Affiliate Marketing (Affiliate Video)
- Referrals from blogs or other 3rd party web sites (Video Direct Embeds on 3rd Party Sites)
You may have others you’d add to the above list, but for most businesses the above list will be sufficient as a foundation. I’m only a guide. You know your business best.
VIDEO COMMERCE ROI PILLAR 2. How does a VCP increase conversion?
Primary Revenue Levers:
- Adjust site presentation – optimization/analytics (video presentation optimization)
- Adjust site content (video content optimization)
- Adjust site performance (video delivery and player optimization)
VIDEO COMMERCE ROI PILLAR 3. How does a VCP save cost?
Cost savings are important in any business decision, and a video commerce platform can bring many.
Primary Cost Levers:
- Publishing automation
- Development/IT cost savings
- Distribution automation
- Encoding automation
Are you getting excited to see the ROI calculations? In the next post, I will review the revenue side of the ROI model in detail. Until then, I wanted to briefly recap what we’ve covered so far:
- CDNs focus on throwing around 0’s and 1’s better/faster/cheaper/more reliably than the other guy.
- OVPs focus on making video highly accessible and easier to publish/manage/develop apps on top of than the other guy
- VCPs focus on driving business results through integrated applications that sit atop a video publishing foundation
- Measuring the value created by a video platform is crucial and must be separated from the value video provides on its own.
- The ROI analysis we’ll use is built on 2 of 3 key revenue-driving pillars, Driving Traffic and Increasing Conversion. The 3rd Pillar, Average Order Value, is deliberately left out for now due to lack of broad industry agreement/cases. There is also a Cost pillar in the model with several subcomponents.
- The subcomponents of the pillars each have a video equivalent that can and must be used to ascertain the value of a video commerce platform