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Be the Octopus
Octopuses are fascinating creatures. Three hearts for multi-system management, eight limbs for multi-axis movement, and four defense mechanisms make a good recipe for being around for millions of years. I find companies that deploy octopus-business strategies even more fascinating though.
An octopus business is essentially one that centers their entire success and survival around a core competency and then deploy that core competency along many axes (or tentacles) for distribution or monetization (gathering food?). Like an octopus they shift and evolve quickly with that core competency in different environments, sometimes cutting off limbs or adjusting their internal systems to keep the core competency (and therefore the company) strong.
One of the most notorious octopus businesses out there is Disney. Everything they do is centered around the core competency of being phenomenal at story telling. They then have many "tentacles" to sell and distribute those stories. Yet just like the octopus they've evolved to protect this competency in reaction to shifting markets. We rarely see a reaction like what Disney has done in the last 12 months, especially from an older, public company:
- Took their Disney+ streaming service from a tentacle they were experimenting with for distribution to the core of where new stories would come from first. They even changed the structure of their executive team to elevate the Disney+ team.
- Paused their stock dividend in order to get through the costly transition to a subscription orientated company.
- Started skipping (and planning to skip more) theatrical releases for instead a premium one time purchase on the Disney+ streaming product (meaning you pay $7.99 per month for the platform, but then also need to pay $30 more for certain films if you want to see them when they're released).
We haven't seen this type of massive shift in behavior since their rival Netflix went core with online streaming streaming. I think we're getting most of the implications of this shift wrong though - or rather, we're not going deep enough.
Most journalists who contacted me about Disney's decisions either lamented the short-term lost revenue or heralded the shift as similar to Apple's, which would mean a future trillion-dollar market cap. While both are true, they just scratch the surface. The power of Disney's move here is in the retention of compounding growth and that's where the lessons for all of us exist. Let's dig deeper.
How you deploy your core competency matters
The first lesson here comes down to how you deploy your core competency. In the old world, Disney would create the best stories (or buy the companies that would rival them in storytelling—Pixar, Lucas Studios, Marvel, etc) and then send them to multiple tentacles for distribution. Movie theaters, retail, global syndication partners, etc., are all obvious, but they also deployed these stories in theme parks, merchandise, cruises, and other physical experiences.
Like an octopus they used these tentacles to go out and gather food (cash from customers) to build energy to go start the cycle again (more stories).
Disney ran this strategy better than anyone—thinking about ROI for content in ten-year terms. The first tranche of revenue comes from domestic and international box office returns. The next tranche is from home entertainment (digital sales and rentals, PPV, DVDs, etc). Then comes TV viewing through cable, which is followed by TV viewing on free networks. All of these tranches are also underpinned by merchandising and licensing.
It's important to keep in mind that the success of each preceding tranche impacted the value of the following tranches. Put another way, if the box office is a dud, you're likely not going to see a lot of home entertainment sales, let alone merchandise sales. Small percentage drops in box office results can mean the loss of hundreds of millions of dollars. This is also whyFriends—a mediocre sitcom (yes, I said it)—was able to command $100M from Netflix for distributionover a decade after it was on the air.
The world changed dramatically though. Entertainment became commoditized.
You used to be able to actually count the number of shows or movies coming out, and there just wasn't as much out there. In fact in 1979, there were 89 television shows and the lowest rated one, Rob Lowe's A New Kind of Family, pulled in 19 million weekly viewers. Today the highest rated TV show (NCIS) pulls in 15M weekly worldwide and there are so many shows we've essentially stopped counting them.
Disney competed in this new world through going "upmarket" in quality, but this strategy only lasted so long. Consumer tastes and consumption started spreading out like butter on bread. We were inundated with more quality content than we could watch. Throw in advertising costs skyrocketing and you have a recipe for ROI dropping like a brick.
So what did Disney do? They cut off tentacles to survive by creating a self-serving platform.
By placing their Disney+ streaming service at their core, Disney aligned their core competency and their distribution strategy nearly perfectly. Instead of needing to go to the customers, the customers are already there. This cuts out costs, middlemen, and ultimately puts power back in Disney's hands, because customer re-engagement or retention become easier. It's like an octopus that gets food that lands right in it's beak without any work (yea they also have beaks, which is kind of terrifying).
How could this manifest itself for your business? Well, the basic idea is whomever gets closest to the customer wins. With Disney+ Disney is basically getting as close as humanly possible, cutting out the physical distance of needing to leave your home or needing to buy Disney content on a one-off basis. They've reduced decision time by going direct.
We're all trying to get closer to the customer and this seems obvious, so where's the new thought? Well, I'd tactically modify this to: whomever gets closest to and makes it easiest for the customer to say yes, wins. Disney is already bundling new releases like Mulan for an extra charge. I'm sure early access or exclusive merchandise, physical park experiences, or even fan memberships are just around the corner.
3 ways to do this
For your business, I see three core ways to do this, assuming most of you reading this are already subscription companies:
- Implement some sort of freemium offering: Freemium is vastly misunderstood. It's not part of your pricing strategy; it's an acquisition model. Think about it as an opportunity to "own the right to nurture leads." You need to provide a ton of value though—most of the time you need to be better than the paid competition. This gets you close to the customer and makes it easy for customers to start paying you based on trust. I wrote a book on freemium here to dig deeper.
- Add-ons. For the love of God, add-ons: Add-ons are the most under-utilized aspects of revenue growth for all companies. Lifetime value for customers with one or more add-ons is typically 18-54% higher, not only because they're paying you more, but also because they're sucked more into your world. Disney doesn't sell merchandise or park access out of the goodness of their heart. They get fans hooked on their stories and mainline more avenues for them to explore those worlds. We all love to tweet the whole "it's easier to keep an existing customer than get a new one," but we should actually act on this missive. You've got the customer; they're presumably happy—sell them more things.
- Run a parasite product strategy (I don't have a better name). Stop trying to be the "source of truth." This is a bit counter intuitive given what we've been talking about, but I think most products out there want to be the source of truth, but they don't have a chance in doing so. Instead, think about how you can permeate whatever you do into every other product your customer uses or their daily life. This'll likely be through integrations, but could also be just in modifying your product to get in their workflow. From day one at ProfitWell, we knew for our free subscription financial metrics product, we didn't have a chance in hell of winning if we relied on people coming to their ProfitWell account every day, so we focused on really good email and mobile alerting, as well as integrations to push our data out.
Everything serves the core and lock customers into the core (respectfully)
Going a bit deeper, the implications from Disney's recent moves also stem from serving the core more efficiently and locking more customers in long term.
When Disney put Mulan on Disney+ for an extra $30 for early access, it brought in an estimated $33.5M over its opening weekend. People fixated on this number and I think it's the most boring one to think about. Instead, fixate on the fact that Disney+ downloads increased 68%—bringing in likely over 500k new users. All of these new subscribers paid to cover part or all of their CAC and the production of the movie.
Disney can easily run this playbook over and over again, keeping some blockbusters in theaters, releasing others for a premium one-time purchase as a part of Disney+, or simultaneously releasing these as a premium purchase in the home and in theaters.
The implication for you here is: what value are you giving up monetizing or minimally monetizing to bring in more customers?
We typically think of growth too much like a single move game—do a thing and get money. It's multi-move. We already spoke about freemium, but there are content, brand, product, and other moves you can be making to get leverage and bring customers into your sphere of influence.
As channels become more and more dense, we're going to need to get more creative in how we acquire customers. I don't have all the answers here, but we're experimenting at ProfitWell by studying media and hype retail companies. Sure, we're going after 43-year-old VPs with 2.3 kids and an SUV versus 22-year-old Tik Tokers, but many lessons are to be learned by the best distributors in the world.
One last big lesson from Disney is that they're creating a lock-in effect that's subtle and oh-so beautiful. Typically lock-in effects exist when your product has something that your customer can't lose, so no matter how bad your product is they stay. This could be data, file storage, wiki articles, etc.
For Disney, let's imagine a world where I'm only able to access my purchased copy of Mulan if I have a Disney+ subscription, do you think many people are going to cancel under those circumstances? Sure, Disney has now released Mulan for general Disney+ subscribers. Yet, I'd bet most of my stake in ProfitWell that the retention rate for those customers who purchased Mulan will be 20% better than those who didn't over the next few months. Buy-in creates lock-in.
Disney is also notorious for differentiating the same movies in different ways. They add bonuses and special editions with never before released scenes. They put certain titles "back in the vault" and come out with platinum editions. I see a future where this is applied to these one-off purchases or even is spurred by purchasing other items and merchandise. Imagine where only people who bought premiumMulancan purchase limited edition merchandise? Double, triple, quadruple dipping—and lifetime value just continues to expand all the way to the bank.
Lessons for your business
- Product distribution that compounds multiple levels of growth: I've belabored the conversation on freemium, but you should also think through the where you can double or triple dip when it comes to growth. At the very least think through the pools of growth you can create (freemium, SEO, content, brand, etc), rather than rivers-ads, events, etc.—that we all learned can be turned off in an instant in 2020.
- Cause a mild amount of pain to leave your product: If you have a subscription product where cancelling doesn't cause any pain, you're setting things up incorrectly. To be clear, you shouldn't hijack your customer from being able to cancel. I'm referring more to what you can do with your product to cause the customer to rethink the decision. A customer should lose their history, the storage of their data or content, their personalization, or just something. You're not here to extort your customers, but you're here to make sure it's clear there are tradeoffs.
I trust this was helpful. I bet we're going to see more octopus businesses in the future, mainly because we're not going to have a choice. The market's getting denser and rather than resetting our growth expectations, we're going to remember the good ol' days of 2004 and seek those multiples, which'll only come through evolving.
I suppose that's the ultimate octopus lesson here though—evolution within your environment is the only constant. Your core competency will remain the same, but everything else you need to have the guts to throw out the window. Disney is definitely aggravating their traditional partners, but it's because they're adapting to the new world.
I find a lot of execs and founders holding on to some outdated vision document or trying to force a square product into a round world—it's just not going to work.
I leave you with one of my favorite excerpts of all time from Mike Troiano:
"The octopus is whatever it needs to be to win: invisible or ominous, strong or liquid, ugly or beautiful. It is smarter than its enemies, but feels with the strength of three hearts. It uses ink to conceal, and jets to escape. It has the resolve to detach its own limbs when attacked, and the inventiveness to light its own way in the darkness. The way of the bull comes naturally to me. But I try every day to be more like the octopus."
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This is probably the most obvious superficial point we could learn from Disney. It is just straight up lazy analysis. We need to go deeper to uncover why this is so powerful. For every subscription business out there.
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From profit while recur, its Protect the Hustle, where we explore the truth behind the strategy and tactics of B2B SaaS growth to make you an outstanding operator. On today's episode, we're diving deep on an analysis of the shifts Disney made in the past 12 months and the lessons we can learn. On deploying our core competency how to create lock in, and ultimately how to align your core competency with your distribution.
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Take it away. Patrick.
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Hey, everyone. Welcome back to Protect the Hustle. Welcome back to the year. It's our first episode of the year and we're starting off with one of our B-side episodes, and this is actually the first B-side episode of kind of the revived Protect the Hustle. And so just some housekeeping. Each week, everyone, you are going to receive two episodes.
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You're going to receive one episode where we go deep with a B2B SaaS executive or founder on how we can all be better as operators. And then the other episode you'll receive is a deep dive from me based on some analysis I've done or some introspection I've done in order to be a better operator in the world of B2B SaaS.
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And if you are not subscribed, these are all in email and all have good summaries that are written out. If you don't have time to listen, you can just go to protect the hustle dot com or for some reason you're having trouble. Just email me at PC at Qualcomm. That's my direct email address. And I think what I'm really excited about this year is we're going to be able to do this in audio and in written form for everybody.
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So you can kind of choose the medium of your choice. But also these are, you know, bi internal thoughts and these are the things that I debate with, with my friends about and also the things that kind of interest me in what's going on. And that's not just one. A little selfish for me, don't get me wrong, but to, you know, hopefully the things that we're going to talk about are going to give some really big lessons.
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And so I can kind of learn in public, I guess it's not really build in public, but learn in public and pass on those learnings and that research that I've got on to you. And so today we're kicking things off. We're talking about Disney, as was mentioned in the intro, The big thing that we're going to be going deep on is what are the big changes that Disney has taken, taken play or have has done in the past 12 months?
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And what are the implications of those on Disney and ultimately, what are the lessons that we can take away? And Disney is one of these businesses that I like to call an octopus. And for those of you who don't remember your marine biology section in high school, probably or maybe even middle school, depending on what you studied, octopuses are very fascinating creatures.
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They have three hearts for this multi system management. They've got eight limbs for multi axis movement and they have four defense mechanisms that make this really good recipe for being one of the most resilient creatures around. They've been around for millions of years at this point. And what I find fascinating are these companies that are able to deploy these octopus business strategies.
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And an octopus business is essentially one that centers their entire success and survival around a core competency. Their entire livelihood is basically not only just deepening that core competency, but deploying that core competency along many axes or tentacles to kind of continue the metaphor here for distribution of that core competency or ultimately monetization. And like an octopus, these businesses shift and evolve really, really quickly with that core competency in different environments and they end up sometimes having to cut off limbs or they have to adjust their internal systems to basically keep that core competency really strong.
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And therefore the company in this case really, really strong. As I mentioned, you know, Disney is is one of the most notorious octopus businesses out there. Everything that they do is centered around that core competency of being phenomenal at storytelling. It's one of the things that they do basically better than anyone else, and they just get deeper and deeper and deeper at their knowledge in doing it.
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And they have many tentacles to sell and distribute. Those stories. But what's interesting is they've evolved to kind of protect this competency in reaction to the shift that's existed. And we'll get a little bit deeper into that in a bit. The past couple of of years. And we've rarely see a reaction like what Disney has done. And this is why I think they're so fascinating because they've had the guts to essentially kill a lot of their businesses, kind of tear off their tentacles in order to sustain or elevate the right parts of their core competency.
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So just to give you a little bit of context, some of the things they've done. So they launched this Disney Plus streaming service. But what was really powerful is that very, very shortly and very, very quickly after launch, they basically elevated that particular tentacle from kind of an experiment for distribution to basically the core. And that's where new stories that they come out with when they have their core competency really working.
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That's where the stories are going to go first. They even change the structure of their executive team to make basically the Disney Plus team, the team that kind of runs a major part of Disney or the major part of Disney. The second really big kind of underappreciated thing that they did is they paused their stock dividend. And the reason that they did this, they kind of blamed, you know, kind of COVID and things like that.
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But when he read through the subtext and those of you who are in the subscription world understand when you are going from a perpetual license type business to one of subscriptions, you have this kind of fish diagram that Zora, I believe came up with first, where basically your costs will soar and your revenue will fall. So your revenue goes through kind of the bottom part of the fish where it essentially goes down and then all of a sudden it goes back up as the subscriptions compound and your costs of infrastructure go up and eventually your costs come down and you basically get into the advantage of a SaaS or subscription business and when you read
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between the lines, they basically paused their stock dividend in order to get this kind of costly transition to a subscription orientated company essentially accelerated because of reinvesting that dividend, essentially. And then the last really, really big thing that I don't think we appreciate enough and we just did not get right in our analysis, not us, but like just the industry as a whole is that they started skipping in their planning to skip more theatrical releases, meaning not taking a big blockbuster hit and putting it into theaters and they're going to put it on to Disney.
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Plus first, meaning you'll have to pay $8 a month. I think the price is now just for the streaming service. But then in addition to that, if you want the premium thing, in this case, the first big one was Mulan. You're going to pay $30 for that in order to receive that early. So if you want that 60 days early, right when it's released, you're going to have to pay more and then eventually that'll be on the platform.
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But we'll talk about why this is such a big implication. And actually, even though I think COVID was a spark for this, I think this was already in the works for a very long time. And you'll see that in the analysis that we kind of go through. And to kind of summarize the background here, we have not seen this type of shift in behavior since the rival Netflix went core with online streaming.
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And I think we are getting most of the implications of this shift completely incorrect, or rather where we're not really going deep enough. And I say this because most journalists who contacted me about Disney's decisions either lamented kind of the short term lost revenue that Disney was going to go through, especially with Mulan costing them so much or they heralded, you know, some of the more astute reporters that I talked to, the heralded this shift very similar to Apple's shift to subscriptions.
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And this would mean that Disney would be $1,000,000,000,000 market cap at some point. Right now, they're around 350 billion. And I believe that both of these things are true, but they're just kind of scratching the surface because the big thesis here and the big thesis we're going to unpack is the power of Disney's move here is in the retention churn of compounding growth.
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That's where the lessons for all of us exist. So this is what we're going to walk through. We're going to walk through a couple of these big points. And first, we're going to talk through how do you deploy your core competency and why? The way that you deploy your core competency really matters. And the reason that I want to harp on this is because if we look at what Disney did in the old world, the world before 2020 for them and I don't mean that's not a reference for COVID, but just in terms of the world of entertainment and frankly, subscriptions are Disney would create the best stories or they would buy companies that would,
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you know, rival them in storytelling. They bought Pixar, they bought Star Wars through Luca Studios acquisition, Marvel, etc. and then they would send these stories to multiple tentacles for distribution in movie theaters, retail, global syndication partners. Those are obvious ones. But we also have to realize they deploy these stories in theme parks, merchandise, cruises and a lot of other physical experiences.
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So they got the story and then they just send that story based on a success to a bunch of different places in order to monetize it, get higher lifetime value. And what's interesting is that Disney ran this strategy better than anyone, and they would think about ROI for content in ten year terms. It was a very perpetual license.
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It's kind of like an old school software company. They would get the first tranche of revenue from domestic international box office returns. So if Mulan was being released in the old world, they basically would take and they would say, All right, this is going to be $150 million in domestic. Another 200 million international box offices. And then after a certain amount of time after that, that revenue would go down and theaters would stop hosting that particular movie.
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They would then go for the next tranche in home entertainment, digital sales, rentals, pay per views, DVDs, etc. I don't even know if they still I'm pretty sure they still sell DVDs, but actually maybe not anymore. And then what they would do after that would that would kind of go down. This is when you would start seeing this on cable and then you would see it on free TV networks.
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Right. And all of these tranches were also underpinned by merchandizing and licensing. So if it was one of those things where if they knew it was going to be a tentpole franchise, they would start the merchandizing right away. If not, if it was really successful, then they would then get merchandizing going. And that's a really important subtle point because the success of each preceding tranche impact to the value of the following tranche.
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So put another way, if the box office is a dud, you're likely not going to see the negotiating prowess nor the ability to get leverage in home entertainment sales, let alone merchandise sales. Right. And this is where you had, you know, some major flops that they've had. But the other thing to keep in mind is that this calculation that they're doing a small percentage drop in box office results can mean the loss of hundreds of millions of dollars down the road.
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And this is why you have some franchises like Friends, which you know is a mediocre sitcom from the nineties. And yes, I said it was mediocre because I believe it's mediocre, even though I've watched all of it to be, to be really honest. But Friends was able to command $100 million from Netflix for distribution over a decade after it was on the air.
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And this was essentially happening because, friends, they essentially said, hey, it was really popular. Everyone loves it. Think of all of the tape sales. I remember for a high school girlfriend, I bought a season of Friends on tape, which is kind of fascinating to think about and also showing my age. And they went to Netflix and said it was really popular.
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So they had a lot of leverage and were able to get $100 million. Obviously, the world's changed since then. Entertainment has become commoditized. And just to give us a little perspective, used to be able to count the number of shows that were coming out. It's kind of fascinating. So here's a little tidbit. In 1979, there were 89 television shows and the lowest rated one, it was Rob Lowe's, a new kind of family.
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I think it was his first television show ever. It pulled in even though it was the lowest rated show. It pulled in 19 million weekly viewers. So about 20 million people were watching the lowest rated show on television. And this was mainly because it just weren't there, only 89 of them. Right. And for context, today, the highest rated TV show is NCIS.
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It pulls in 51 million weekly viewers. And that's worldwide, not just in the U.S., like Rob Lowe's, a new kind of family. And there's so many shows that we've just essentially stopped counting them. Right. So you have this supply issue with so much out there. And Disney has competed in this new world by going up marketing quality. They've leaned into that core competency.
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But this strategy only lasted so long because your core competency, if not aligned with your distribution strategy, ends up getting kind of in flux. And in the world of entertainment, consumer tastes and consumption started spreading out like butter on bread. We were inundated with more quality content than we could watch. And if you throw an advertising, those costs basically skyrocketed.
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And you mix this together with the supply being out of whack, you have a recipe for basically ROI dropping like a brick. So Mulan, you know, independent of COVID, they're going to spend a lot of money just to advertise the thing, to get people to have butts in seats. But there's so many seats now for people to watch, including YouTube content of all things, obviously on very different scales.
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But people are getting so much entertainment from so many different places that if your costs go up and essentially your demand goes down, you're walking into a world that's really, really hard to survive in. And so what did Disney do? We've already essentially teased this, but they cut off the tentacles to survive. They started saying, Hey, we're not going to serve these particular old channels.
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And they started doing this long before 2020. They placed their Disney Plus streaming service at their core. And this is where it gets really, really fascinating for all of us. They align their core competency and their distribution strategy nearly perfectly instead of needing to go to the customers, meaning, Hey, let's go negotiate with AMC, Regal, all of these other folks and go to them and rely on these middle people to basically get us what we need.
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The customers are already there, and if the is already there, if they're already on your service, if they're already in your sphere of influence, that cuts out costs and ultimately puts power back in Disney's hands because customer re-engagement or retention just naturally becomes easier because there's just not as much distance. And when we think about our businesses, the basic idea is, is that whomever or gets closest to the customer is going to end up winning Disney.
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Plus they basically got as close as humanly possible right on their phone or right on their television. They cut it out the physical distance they needed to leave your home or needed to go buy Disney content through all of these partners. And they've also reduced decision time by going direct. And this is where I think I would modify this notion of dismissive of whoever gets closest to the customer wins.
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I think it reality at whomever gets closest to you and makes it easier for the customer to say yes is ultimately who's going to win. We saw this in the world of B2B SaaS dramatically, where some of the best companies that are accelerating Atlassian, HubSpot, Zendesk, etc. they've made it very easy for you to come in either on a freemium product or on a paid product.
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And then once you're in that dashboard, once you're in that app, very easy to find out. Oh, HubSpot also got the sales thing up. So it's got this help desk that maybe we should look at both of those. And Disney has basically done that by having that audience in Disney Plus and then going after the folks with new releases like Mulan for an Extra charge.
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And this is new and a lot of people are saying, Oh, it's just because of COVID, but this was already in the works and it's already in their DNA. And one of the things to think about, I think that we're going to start seeing Disney Plus start bundling with early access, obviously for stuff like Mulan exclusive merchandise. If you purchase that early access product, physical park experience, imagine you have a Disney Plus subscription and you get 15% off the passes to go see Disney and go see Mickey Mouse Disney.
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There might even be some fan memberships that revolve around this and sort of bring it back more specifically to your business. There's really three big points on this whole concept of aligning your core competency to distribution. The first thing is, and I've talked a lot about this in public freemium, implement some sort of freemium offering in freemium is vastly misunderstood.
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It is not a part of your pricing strategy. It's an acquisition model. This is the biggest misconception that people have. You got to think about it as an opportunity to, quote, own the right to nurture leads. Now, obviously, if those customers are paying you like in the case of Disney Plus, that's great, Then go get more from them, which we'll talk about in a second.
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But for you, there's no better power in terms of distribution that have a freemium customer base that is happy. You got to provide a ton of value. Most of the time you need to have a better product than the paid competition, but it gets you really, really close to that target customer and it makes it easy for those target customers to start paying you based on the trust that you're building through the value that you're basically providing them.
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I wrote a pretty extensive book on freemium profit dot com slash freemium, if you want to check it out. The second really big point here is add ons. And for the love of God, please have an add on strategy. I don't care if you're B2B, DDC doesn't matter what you are. Have an add on strategy. Add ons are the most underutilized aspects of revenue growth for all companies that I come into contact with.
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Just to give you some perspective here, some data lifetime value for those customers with one or more add ons is typically 20 to 50% higher than those who don't have any add ons. And I know you're might saying like, Oh, this is super obvious. They're obviously paying you more, right? That is true. But you also double dip because the retention is better.
00;17;54;05 - 00;18;14;05
That customer gets sucked into your world for. And the thing I think about is that Disney isn't selling merchandise or park access out of the goodness of their heart. They're getting fans hooked on their stories and then they're mainlining more avenues for them to experience those stories. We all love to tweet the whole. It's easier to keep an existing customer than get a new one.
00;18;14;05 - 00;18;34;21
Stuff on Twitter. But we should actually act on this missive because you've got your customer there presumably happy sell them more things. The final point here, it's a little bit more nuanced and I don't have a really good name for it, but I'm going to call it Running a parasite product strategy. And the other sub point here is stop trying to be a source of truth.
00;18;35;08 - 00;19;00;20
A lot of us, we love to try to be a source of truth. We're like, yes, if you simply just log into my product that has nowhere near the features of the enterprise alternative, we will be your source of truth and so on and so forth. I think that this is really problematic because there's really only going to be one source of truth for certain types of data and if you're not an accounting product, if you're not a CRM or if you're not like a central database, you're probably not going to be that source of truth.
00;19;00;20 - 00;19;23;13
And rather than trying to become that and trying to convince your prospects and customers that you can be that, why do that and when you can do the opposite? And what I mean by that is what can you do to permeate whatever you're doing into every other product your customer uses or their daily life? This will likely be through integrations, but could also be just in modifying your product to get into their workflow and giving you an example.
00;19;23;13 - 00;19;55;02
A profit. Well, we knew that subscription financial metrics, so profitable Metrics is our free subscription financial metrics, product plugs into Stripe or branch or whatever you're using used by 24,000 people. Our sales team makes me say all this, I'm sorry, but the beauty of it is we knew that subscription financial metrics were important. But what's fascinating about that is that we also do that a CFO, although would love it and wants to log in every day, they're not going to look at it like net Suite or their ERP system.
00;19;55;29 - 00;20;17;23
And so what we said was, okay, cool, if we need to rely on them logging in every day to provide value and for them to understand us, we do not have a chance in hell of winning. And so what we needed to do is we need to permeate throughout our our users lives. So we focus on really good email, really good mobile, alerting to make sure that they weren't just a fire drill.
00;20;18;10 - 00;20;43;25
We spent an agonizing amount of time designing those notifications and then we also built a lot of integrations to push data out because essentially what we're doing is making sure that we were just getting so many hooks into the business, kind of like a parasite. I know that's not like the best strategy. I don't want you to think about profit as a parasite, but basically in order to get that data moving and if you have a better term than parasite, I would really appreciate it because I'd like to describe this more and go deeper on this.
00;20;44;07 - 00;21;03;26
Moving on from here, a couple of other big points about Disney. So these cover essentially serving the core and also locking customers into the core. So going a bit deeper, I think one of the big things you have to think about with Disney is that these recent moves did a lot for pushing more and more people to Disney.
00;21;03;28 - 00;21;24;00
One of the problems with the former kind of octopus strategy is you are pushing out from the core. You're essentially I don't know how to continue the metaphor, but you're essentially losing all of this control as things go away from the core. If you're running an octopus strategy, you're pushing people back into the core more and more into your core competency.
00;21;24;09 - 00;21;40;24
So with these integrations, although they're not necessarily going into the core, if they're in HubSpot, looking at the proffered data, they might click on their profile data inside HubSpot and then go back to profit Well, or they're just like on top of mind being like, Oh, I really like that. That data's inside HubSpot. Thank you. Profit Wow, right.
00;21;40;24 - 00;22;03;12
And what's kind of cool is that. When Disney put Mulan on Disney plus for an extra $30 for early access, it brought in an estimated 33 and a half million dollars over its opening weekend. Now, that's cool. And this is what people fixated on. But I also think it's the most boring metric to look at in the implications of this one off purchase.
00;22;04;00 - 00;22;34;02
The more interesting one in pushing people to the core is that they actually got an increase of 68%. That was about a half a million additional new users on Disney Plus. And so they took one of these tentacles or one of these pieces and they released it for distribution, which brought more and more people to their core, providing kind of this self-fulfilling kind of compounding growth and all of these new subscribers.
00;22;34;02 - 00;22;56;17
And this is what's really fascinating. They paid to cover part or all of their acquisition costs through the $30 purchase, and they paid for the production of the movie. That's insane. If you think about it, they can easily run this playbook over and over and over again. They can keep some blockbusters in theaters, but then maybe provide early access still on Disney.
00;22;56;17 - 00;23;22;19
Plus for a premium charge, they can release them just as a premium one time purchase on top of Disney Plus, or they can simultaneously release them at the same time. But you still have to pay on Disney Plus. But the implication here is that you have to think about not the old school world of monetizing something, but what value are you okay, giving up monetizing or maybe only minimally monetizing in order to bring in more customers?
00;23;23;22 - 00;24;02;08
We think of growth too much as a single move game. I produce this thing, therefore I need to get this much value. It's a multi move game. That's what we're all in and freemium is an example of a multi move strategy. Let me get you in on something value. I'm not making any money on our analytics product, but there's other things out there content, brand products, other moves you can make in order to get leverage and bring companies into your sphere of influence and its channels in our markets as we try to grow, become more and more dense, we are going to need to get more creative in how we acquire our customers, bringing them
00;24;02;08 - 00;24;21;18
into our sphere of influence. I don't have all the answers here. We obviously talked about freemium a lot, but a profit. I know we're experimenting by studying media and hype retail companies, and I know it's a little weird because we typically serve, you know, 43 year old VP's with 2.3 kids in an SUV and we're not serving, you know, 22 year old tech talkers.
00;24;22;09 - 00;24;49;22
But there are many lessons to be learned by the best distributors in the world. And one last big lesson here, very tactical for a lot of subscription companies lock in and the way that Disney Plus has the opportunity to create lock in is subtle and just oh, so beautiful. Typically lock in. And when I'm talking about here is keeping customers here into the product.
00;24;50;07 - 00;25;15;09
It exists when your product has something that your customers can't lose. So no matter how bad your product is, they basically stay. A lot of times you see this as data file storage, wiki articles, personalization, these types of things. And for Disney, we could imagine a world where I'm only able to access my purchase copy of Mulan if I have a Disney Plus subscription.
00;25;15;09 - 00;25;38;29
And in that world, I can't imagine that there's a lot of people who are going to cancel after they've made that actual one time premium purchase. There's so much lock in there now. Disney in, you know, kind of full disclosure, they have released Mulan for General Disney Plus subscribers at this point. But I would still bet I would still bet all of my stake in profit.
00;25;38;29 - 00;26;09;09
Well, that those customers who purchased Mulan, even though it's on the standard Disney Plus subscription right now, they will probably have 20% better retention than those who didn't. Buying creates lock in. Disney is also really notorious for differentiating the same movie. And what I mean by this is that they like to add bonuses and special editions with never before release scenes.
00;26;09;11 - 00;26;28;18
I'm sure you've heard or seen the commercials for they put certain titles back in the vault and you have to buy it before it's back in the vault. They come out with platinum additions. They're just literally taking a story and just remixing it over and over again. And I see a future where they apply this mindset to these one off purchases on top of Disney Plus.
00;26;29;04 - 00;27;03;29
So what that means is, is that imagine where only the people who bought premium Mulan can purchase limited edition merchandise or only the people who purchase premium. Mulan will get the extra seats this allows them to essentially double, triple and quadruple dip where they can not only get the people who want to pay premium and haven't signed up for Disney Plus yet, but then they can get the people already on Disney Plus and who want to pay more for the extra features and maybe some of those extra features they do park passes, merchandise, etc. And then they also keep the people of standard Disney Plus who are willing to wait basically happy as well.
00;27;04;09 - 00;27;27;16
And essentially what's happening is lifetime value just continues to expand, expand, expand. So in summary, a couple of big lessons from these two points. Product distribution that compounds multiple levels of growth is so important. I've talked about freemium, but you also got to think about where you can double or triple dip when it comes to growth. Are there things you can release that will bring you more users, that will therefore bring you more revenue and also bring you more add ons?
00;27;27;26 - 00;27;49;26
At the very least, think through these pools of growth. You can create freemium, SEO content, brand, etc. rather than the rivers of growth which are like ads and events, because you're rivers can be turned off in an instant. And that's what we found out in 2020. Right now, the other big thing here is cause a mild amount of pain to leave your product if you're a subscription products were canceling doesn't cause any pain.
00;27;50;08 - 00;28;11;24
You're just setting things up incorrectly. Now I'm not talking about some like masochism where you're hijacked your customer firm. You know, being able to cancel that is not what I'm talking about is all you need to find a way where your product causes your customer to rethink that cancellation decision. Our customers, they should lose their history, they should lose their storage or of the data or their content.
00;28;11;27 - 00;28;30;05
Maybe you offer up a storage plan where they can't use the product but or keep their storage of whatever they have. It's, you know, downgrades better than churn, right? They should lose their personalization, they should lose something and you're not here to extort them, but you're here to make sure it's clear that there are trade offs. So couple of final thoughts.
00;28;30;05 - 00;28;43;18
I trust this was helpful. It's a bit of a different format if you want to see just the written form of this, basically typed up these thoughts into a blog post, just go sign up and protect the hustle dot com. You'll continue to basically get, you know, the emails where you can just read it right in the email.
00;28;43;18 - 00;29;05;11
You don't have to click off the email, but if you'd rather listen on your commute, walk, whatever it is, you know, you'll continue to hear these in audio. And I bet just for a final thought here, we are going to see more octopus businesses in the future. I think actively going after this strategy is smart, but I think we're going to end up seeing this because we're not going to have a choice.
00;29;06;03 - 00;29;26;25
Our markets are getting denser and denser and that's not going to stop. And it's probably not going to get to a point where you have no choice. But we're getting addicted essentially to the good old days of 2004, and we want to see those multiples. Right? We want to see these giant multiples. We're seeing this in the stock market right now, crypto, etc..
00;29;27;11 - 00;29;47;28
And in order to get those multiples, we have to get involved as businesses. And if we don't evolve, we're just going to end up being like a corner store, which don't get me wrong, it's not a problem at all. Like if you have a corner store or a subscription or SaaS business for nominal, meaning you're making a few million a year or even a few hundred grand a year, or even a hundred grand a year, depending on the business.
00;29;48;12 - 00;30;04;22
And that's what you want to live on. That's great. But if you want to be that high growth company, you're going to need to evolve. And I think that's probably the biggest lesson from from our octopus, right? Evolution within your environment is really the only constant. Your core competency will remain the same. You'll get better at it, you'll get deeper at it.
00;30;04;22 - 00;30;26;22
But everything else you need to have the guts to throw out the window. Disney They have definitely aggravated their traditional partners, but it's because they're adapting to this new world. And the reason I bring this up is that I find a lot of exactly that a lot of founders hold on to some outdated vision document or trying to force a square product into a round hole, and that is just not going to work.
00;30;27;22 - 00;30;48;13
So with that, when I step off my soapbox and I'm going to leave you with one of my favorite excerpts of all time from just a great marketer, but he's also a great writer, which is great guy by the name of Mike Troiano. He's out of Boston. I just love this guy to death. He's taught me so much, even though a lot of it was me just reading his stuff or listening to him speak.
00;30;48;28 - 00;31;18;09
But he's got a great, great, great couple of lines here on the Octopus. The octopus is whatever it needs to be to win Invisible or ominous, strong or liquid, ugly or beautiful. It is smarter than its enemies, but feels with the strength of three hearts. It uses ink to conceal and jets to escape. It has the resolve to detach its own limbs when attacked and the inventiveness to light its own way in the darkness.
00;31;18;09 - 00;31;32;15
The way of the ball comes naturally to me. But I try every day to be more like the octopus. All right, everybody, have a good rest of the week. Be well.
00;31;32;15 - 00;31;55;09
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