Pixazza: An innovative business model in Internet advertising

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A short project that seeks to explore a disruptive advertising company called Pixazza, and how they run a 'different' sort of marketing campaign than the traditional internet marketers.

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Pixazza: An innovative business model in Internet advertising

  1. 1. An innovative business model in Internet advertisingIntroductionWe have chosen to examine Pixazza1, a start-up company employing innovative means toprovide image-based advertising on the Internet. After describing and classifying the businessmodel we will discuss its customers, what they value, and how Pixazza provides that value.Finally we will explain whether we would invest in this company, and why.Business model description and classificationPixazza offers a platform to online publishers that superimposes content-relevant advertisingonto published images. The platform identifies and links products so that when a user runshis or her cursor over the image, a pop-up vignette appears containing information and linksto the exact or similar products for sale on retailers’ websites. This is achieved by, firstly,partnering with both advertisers (retailers) and publishers to create databases of images andproducts; then, instead of using a fully automated process, Pixazza employs an army ofindividual ‘experts’ to supplement their digital recognition algorithms and manually identifyand match the objects to sellable products2. Potential experts sign up through the Pixazza site,and if determined to be suitably qualified they become part of the working community. Theyare paid a commission and have flexibility in the quantity of work they carry out.The result is a concept that creates value through supporting some of the classic web-basedbusiness models set out by Michael Rappa3. Considering Rappa’s classification, broadlyspeaking Pixazza facilitates an advertising model where the publisher generates revenue byinserting advertising messages from a wide range of possible advertisers (merchants). ThePixazza platform itself, through the embedding of links, provides purchase opportunities tothe users by means of a “purchase-point click-through to the merchant”, and it generatesrevenue by negotiating financial incentives related to the success of the links themselves. Ittherefore most closely resembles the affiliate model. As Rappa notes, this model runs on apay-for-performance basis, so if the links do not lead to the success criteria stipulated (basedon clicks, acquisitions, or impressions), the advertiser will not incur a cost.Behind this combination of affiliate and content targeted advertising models, the Pixazzastructure also uses aspects of an open content community model to outsource it’s labour to agroup of experts. This ‘crowd’ develops the “picture to product mapping” required, thus© IE Business School | IMBA Nov 2010 Section N1, Group B 1
  2. 2. An innovative business model in Internet advertisingfocusing the advertising. However, the business model does not go quite so far as beingcompletely open content since contributors are selected and then work on a commission basis. Therefore, in line with Rappa’s discussion of the web reinventing existing models, a new sub-group might best represent the model, perhaps called community content. In this case the motivation for the contributors is the economic benefit, flexible volume of work, and the fact that they are engaged in an activity Exhibit 1:The Pixazza that is fun and interesting to them. Model In general the business model has aclear revenue model: by efficiently distributing the benefits amongst its various stakeholders,and taking a cut of the proceeds, Pixazza obtains money for the value it provides.Furthermore, it is a smart system because it motivates all members to participate actively inorder to maximise the total revenue generated.Customers and ValueIn many ways, the lines of customer and client are blurred with the Pixazza business model.However, in terms of cash, its revenue comes directly from the advertisers, who might beclassified as the traditional customers. They value a number of Pixazza’s key offerings: higherquality, more accurate product-image matching than other, fully automated, service providers;targeted advertising to an automatically segmented audience; higher response rates than withtraditional banner ads; and flexible pay for performance criteria (costs are directly linked tobenefits) giving scope to set strategy and even experiment. In general, the value-for-money ishigher than with both traditional and other forms of targeted advertising. Furthermore, theyreceive quantifiable information on buying patterns which may be valuable in their marketing.In this model, the publisher is also a customer, in the sense that it receives a service fromPixazza in return for access to its content. They derive value in several ways: additional© IE Business School | IMBA Nov 2010 Section N1, Group B 2
  3. 3. An innovative business model in Internet advertisingrevenue, without sacrificing either further investment or existing webpage real estate; choiceof merchants, allowing control over the associated branding; an innovative feature thatencourages visitor involvement; and an unobtrusive ad framework that minimises annoyanceto users. Therefore, in addition to the clear value from monetising their content at no realexpense, they also make their website potentially more attractive to their customers. This mayresult in longer session times and more traffic, further amplifying the benefits.Would we invest in Pixazza?In deciding whether or not to invest we need to examine the value proposition to thecustomers in the context of the market and competitors today, and in the future. Importantly,the market itself offers ample opportunity for exploitation with an estimated three trillionimages on the web and an enormous online sales industry4. Pixazza appears to havedeveloped the means to capture a significant share of this market. To maximise the valueproposition discussed above they have developed a diverse and comprehensive set of partners,and with the numerous merchants involved they have established an inventory of ten millionitems5. In focusing on their unique process they have also differentiated themselves well fromtheir fully automated competitors (such as GumGum6 and Image Space Media7).Moving forward, the plans to expand to other consumer markets and countries, and theongoing innovations to the business model8, are evidence of the future growth required tojustify an investment. The risks that this expansion might bring - for instance expanding thevolume of images and products and growing the size of the community of workers, whilst stillmaintaining sufficient speed and quality - are mitigated by the competencies of themanagement team. Their wealth of experience in the field supports confidence in their abilityto overcome future obstacles and maintain a high value proposition to the customers9.In conclusion, Pixazza has created a mutually-beneficial, efficient, and innovative way foradvertisers to reach the consumer. The subsequent monetisation of this hybrid model presentsa compelling investment proposition. Based on the reasoning above we would invest, with theexpectation of good returns and acceptable risk.© IE Business School | IMBA Nov 2010 Section N1, Group B 3

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