9. Company value in the digital domain

By regarding the internet ecosystem as a business ecosystem, one actually sees the emergence of new value models in the relationships of all parties that make up the internet ecosystem.

Estimated reading time 22 minutes

The internet ecosystem is in fact a business ecosystem as defined by James F. Moore in the 1990s. Moore compared business networks to biological ecosystems. He noticed that successful brands, companies or organizations used survival strategies that can be found in natural ecosystems. Moore defined the business ecosystem in his book, ‘The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. By regarding the internet ecosystem as a business ecosystem, one actually sees the emergence of new value models in the relationships of all parties that make up the internet ecosystem.

Innovation really is only one way to realize an above average growth of value of the company, as opposed to turnover. It means you have to constantly find new and unique ways of identifying and satisfying the needs of fans and clients. This is the reason why successful internet companies such as Google, Apple and Amazon not just service the ever increasing internet population, but invest billions of dollars in fundamental innovation. It gives them room to maneuver before the law of diminishing returns kicks in, Annet Aris, who lectures at business school Insead, writes in Het Financieele Dagblad, the Dutch Financial Times.

Integral

The digital domain and social media offer the DJ excellent opportunities to monitor and analyze his reputation, how popular his music is in terms of clicks, likes and downloads, how popular his concerts are in terms of ticket sales and on-line views, and how the competition is doing. Every marketing and PR consultant will assent to the notion that reputation is everything. No matter how good your music or your concert is, negative reactions on socials networks will damage your reputation. It works the other way around too: an average track or gig that triggers a tremendous response can earn you big money.

By closely monitoring and managing your online reputation, it is possible to deflect negative reactions in time. For instance, a quick response to a comment can result in wide approval and, as a consequence, digital media value. Before you know it, you have a new fan who can promote your music or gig in his network; who either listens to your music online or downloads your music. Obviously, the same applies to festivals and events.

The DJs or event producers value growth comes from the integration of the digital strategy into the business operations. After all, the entertainment business has evolved into a digital business, now fan contact and client contact has moved predominantly into the digital domain. The companys value increases by identifying and fulfilling the needs of fans and clients of the DJ or event producer. The potential value of a DJ or event producer can be found in the internet ecosystem. The platform outlined in the previous chapter will map out the online behavior and the needs of your fans and clients, as well as your digital reputation. Currently, these insights to translate to media value, brand value and potential company valuein short, to currency.

Goodwill

So far, your biggest asset as an entrepreneur is probably your brand name. Brand value (or brand equity) is the financial value of the brand. Usually it is assumed that the brand value equals the future cash flow generated by the brand. Your brand is not (yet) part of the balance sheet, however it represents a hidden value: the so-called goodwill. In the financial world, the concept of goodwill is used to indicate the companys value that cant be expressed in terms of assets and liabilities.

Usually, goodwill becomes relevant in the case of a business takeover; accountants and bankers view goodwill as the surplus value of the companys net worth. In this view, goodwill represents future income for companies, organizations or brands; not written into the balance sheet, yet present as knowledge, clients, brands, personnel, etc.

In regard of the aspects knowledgeand clientsof the goodwill concept, a new and important added value emerges. It is based on data. The arrival of the latest social media trends and technologies creating opportunities for DJs and event producers to store all data generated by online connections and conversations creates a new perspective on the matter of how to value your company. The discounted cash flow calculation will remain relevant. However, valuators, ‘EDP-auditorsand transaction managerswill increasingly investigate the structure and operating procedures of social networks, as business consultant Pim van Berkel poses on Doelands Digitale Wereld.

Top of mind

The digital domain is all about creating content and sharing content. It demands the creation of appealing and interesting content, which is shared via social media such as Facebook and Twitter, and by publishing posts on your website. Pro-active social media behaviorwhat can it mean to you, the DJ or event producer? Publishing a non-stop stream of messages that show up in the followerstimeline is an option. Your name will be published above these messages, so followers will see it time and time again. This creates brand awareness, which increases your profile (top of mind awareness) among followers. They will think of you, rather than the competition, when they are looking for a DJ or an event.

You probably learned in school that it is easier to remember foreign words when you repeat them several times. It is the way our brains work, how it processes information and stores it in our recollection. Your sensory memory registers visual or audio impressions. Relevant impressions, for instance a word, are stored in the short-term memory, which holds it without rehearsal for just a few second to up to a minute at most. By repeatedly hearing or seeing the word rehearsing it it will be held longer by your short-term memory. When it is repeated more often and for longer periods, the better the chances are it will be transferred from your short-term memory to your long-term memory.

The very same process applies to the (brand) names of DJs, festivals and events. You see a name, it is held in your short-term memory for a brief while, but without repeating (rehearsing) it will disappear. Social media can ensure that the (brand) name will be seen by the fan or client time and time again. It is rehearsed by the fan or client, so to speak, which makes the transfer from short-term memory to long-term memory possible. This, in return, makes it easier to remember the name and retrieve it from memory.

Brand awareness is important to every DJ and all event producers. Lets imagine DJ X. He is active on Twitter, so his (brand) name shows up on the timeline. One day, an upcoming event is looking for DJs. The event producer thinks of DJ X, whose name he knows from Twitter, for the (brand) name DJ X is stored in his long-term memory and thus top of mind.

Big brands advertise their (brand) name almost on a daily basis, mindful as they are of the old saying: repetition is the power of advertising. It enables brands to become top of mind.

Commitment

Currently, top of mind is best rendered by engagement via the social media on offer. Engagement is what Facebook is all about. But what is engagement? Engagement can be best described as involvement. A fans every interaction with a message published on a DJs Facebook page, can be seen as involvement. Clicking on a link to view a photo, liking a message, posting a reaction or a comment, or sharing a messageall these responses indicate the interest in a message.

Interaction is important to the majority of the DJs fans. They like a message on his Facebook page and show an explicit preference. After interaction follows activation, this is the next step for the DJ. This group of (activated) fans wants more interaction than just liking a DJ on Facebook. They want to react to postings. This type of fan wants to commit to the DJ and is ready for action. You can trigger their response, thus activating the fan.

American research makes clear that involved fans are more transaction-prone. Consumers who connect to companies via social media and become followers, turn out to be loyal customers, The study shows a correlation between social media and turnover. On the basis of research, the University of Buffalo (NY) School of Management maintains that consumers who participate in a companys social media activities visit the (physical) shop more frequently. Based on the same research, Ram Bezawada, assisting professor at Buffalo University, poses that these customers spend on average 56% more money than customers who do not engage in social media-interaction.

Moreover, the study prompts Bezawada to conclude that companies should aim (on social media) for personal interaction with customers and encourage him or her to contribute (to the interaction). This is labeled customer engagement. The analysis of customer behavior generates keynotes for customer relations, which enable the company to timely respond to signs that the customer is ready to make a purchase. Ultimately, this leads to a higher conversion. The same effect has been demonstrated for the correlation between social media buzz and music purchases: social engaged fans buy more music of the artist they follow. Mapping this involvement will increase the value of brand and company.

Ratios

The aim of being distinctive, from the road to the top, is to seize a top of mind-position and to maintain it. Presently, it is possible for the DJ or the event producer to observe online what the competition does and how well (or ill) they do. Top of mind is demonstrated very acutely by fan and client behavior on social channels such as Facebook, Twitter or Instagram. By using engagement and interaction ratios, it is possible to calculate how involved a fan or client is with a DJ or an event. These are the so-called new benchmarks.

The benchmark concept originates from the domain of quality control. In its literal meaning, it indicates a point of reference for land surveyors. Used figuratively, it refers to a procedure that makes it possible to compare the performance of equipment, systems of organizations. Organizations use benchmarking to improve their performance, to account for their actions and to facilitate inspection.

Basically, benchmarking entails three steps:

  1. Comparing in-house processes and performances with those of others;
  2. Analysis of the results of step 1: why do distinct processes produce different outcomes;
  3. The information that results from step 2 is the basis for improvement of the processes.

You, the DJ, should meet the challenge and benchmark yourself. View the competition as an imaginary enemy, striving for the number 1 position in popularity polls. It should be your aim to beat your competitors every day of the year. The way to achieve this, presently, is to bind fans and clients. Naturally, this is fully applicable to festival and event producers.

Binding

What is the answer to the question: How do I become top of mind? In other words, how to influence the subconscious in a deliberate, conscious manner? In practice, this means that your tweets or posts should contain relevant content. The fascinations of fans and clients are relevant as well. A fan or client who is interested does not need repeated messages the way a less interested fan or client might in order to bring the point across. Chapter 5 outlines a solid content strategy that will help to bind fans and clients.

The top of mind-position of a DJ or festival expresses to what extent the DJ or festival is bound with the environment. Successful DJs and festivals are in a position to significantly influence persons concerned via their personal communication tools, their products and their behavior.

Know who your fans are and create content that is interesting to them. Focus on interaction. Informing them and keeping them pleased is another priority. It is all about being committed to fans and clients. Know what is important to them and meet their cravings. Enter into conversations. Show them that you follow them too. This will lead to a higher conversion. In this way you will boost the commitment and thereby loyalty and therefore viability. Remember this: loyal fans are the lifeblood of your career, the very reason that you have a career at all. It is them who pay your bills.

Value

What is your value really? How many fans or clients would miss you if you were not around? Do you know what you really mean to your fans or clients? Have you loaded your DJ persona? What communication tools do you apply to become top of mind in the mindset of your fans and clientsand to keep that position? How do you employ social media? Have you freed budget for that purpose? In short, what are you doing to raise your brand value, and thus, your company value?

All the while a digital media value for digital (social) channels is beginning to emerge; it represents the value of messages, tweets, updates, retweets and interactions that include your business partners or sponsors. It is important to compare your media value of your personal digital channels to traditional media value. The unit of measurement for traditional media is circulation or GRPs. Until recently, new media used clicks, impressions and such as the unit of measurement to establish its circulation or reach.

In advertising, media expenditure is (slowly) shifting from television to the internet, however, the challenge is still how to value (in euros) the various digital channels, in particular when you want to measure all possible actions of fans and clients. Digital channels in this context mean all your personal channels: websites, email, all social channels such as Facebook, Instagram, Twitter, YouTube, and, for instance, personal digital radio channels.

A business model that relies on sponsoring does well to present the DJ or the event as a media platform that has a significant reach and a ditto impact; a platform that is proven to be an effective tool for communication. All this matters to partners who will benefit more from digital channels than from traditional media: radio, television and print.

Own media

The term owned media is self-explanatory: media you manage yourself, such as your website or Facebook page. There is no third party that tells you what you can or cannot do: you are in charge. An excellent example of owned media is the DJs or event producers Facebook page. This Facebook page represents media value. Advertising a brand via paid media still carves a large slice off any marketing budget.

Conventionally, advertising value for radio and television is calculated by using Gross Rating Points (GRPs). 1 GRP is 1 percent of the viewer (or listener) ratings for that target audience. GRP gives the relative number of viewers (listeners); the absolute number depends on the size of the target audience group. The aggregate of GRPs equals the gross reach of an advertising campaign. GPRs are calculated by multiplying the net reach with the Average Contact Frequency (ACF). The ACF of a television campaign represents the average number of times a viewer has seen the commercial. You can reverse calculatethe Average Contact Frequency by dividing the GRPs (gross reach) by the percentage of the net reach. The net reach is the percentage of viewers that has seen the campaign (channel, show) at least once.

The digital domain is the home of various other advertising values. Pay Per Click (PPC) is an advertising model that is used for search engines, advertising networks, and content-driven websites and ditto blogs: the advertiser pays only when the visitor clicks on the ad and visits the advertisers website or homepage. The advertiser pays a minimal fee per click, the Cost Per Click (CPC).

Cost Per Mille (CPM) is the fee the advertiser pays per thousand views of his ad. Furthermore, Cost Per Action (CPA) is the fee for the owner of the website that publishes the ad; the fee is paid for every sale or information request the ad produces. Cost Per Action aims at the highest conversion possible. Cost Per Click generates traffic.

When it comes to getting a message out to a target audience, company managers usually have a better understanding of value in terms money than of value in terms of clicksor actions. There is no clear-cut answer to the question: What is the value of a target audience that can be reached via a Facebook page? It is still not easy to fix the value of the target group and the direct link to fans on a Facebook page.

Several well-known approaches of traditional marketing are applicable to social media. One of those is the advertising value. It is possible to estimate the number of people that can be reached via a Facebook page. What would the costs be if you want to reach as many users as possible via traditional advertising, say banner advertising? The answer is: multiply the number of individuals you want to reach with an average CPM. This method allows you to calculate and to compare the advertising value of messages published on a Facebook-page. It works for other networks too.

New media-value

The advantage of working with a digital medium is that it is relatively easy to value specific behavior of fans or clients. This is a big step beyond the current reports on visiting and buying behavior that focus on service, inspiration, or sales. Their goals eventually are service, inspiration or sales derived from a consumer centric selling model. The Media Value Report focusses on explicating the fans interaction with your brand. This is diametrically opposed to passive media consumption, like noticing television commercials. It is a more relevant manner of measuring the effect of a digital campaign, helping to improve the collaboration with sponsors and partners with regard to digital media. You value and validate joint campaigns, in order to optimize the campaign by attuning it to the target audience.

Social media can be seen as a collection of engagement types: the degree of commitment, interaction and conversion. All these interactions and conversions are acted out by the participants via actions on various (social) channels, like clicks, likes, comments and posts. You can add them up, after assessing all interactions and conversions, normalizing these for the various (social) channels, and giving each its own value. This way the overall value of a campaign emerges, giving direct insight into how the value breaks down between the various channels.

The most important challenge is the assessment of a reliable media value per action. New parameters such as Click Per Comment(CPc), Click Per Fan Contact(CPFC) or Click Per Retweet(CPrt) come into being and have to be (re)calibrated. You can do this by using known advertising costs of other platforms and social media. IAB-sanctioned standard rates, plus reports from various agencies, are useful too. The table below gives a clear example.

Valuing the company

Like any company, a digital networks corporate valuation is determined by its ability to generate revenue from the network. Many networks receive money from advertisers, yet other networks rely on unique models based on functionality or the value of virtual commodities and services. The final value is established by issues such as: how much do advertisers pay per user; how much users are prepared to pay for premium services; and how much turnover is generated through third party-platforms, like e-commerce (tickets and merchandise), streams and downloads.

You, the DJ, are a company. The arrival of the latest technologies and trends offering DJs the opportunity to collect and store all data generated by online connections and interactions makes it obvious that the notion of corporate valuation, and therefore, your DJ company, is changing. With a little effort it is possible to determine the fans value. What is it that you want to value? There is more than one way to do so, and from various perspectives. Valuation in the digital domain must be looked at from the financial, marketing, media, (e)commerce, or customer service point of view.

In a business model that relies for an increasingly important part on sponsoring and advertising, it is vital that you, the DJ, show that you are in effect a platform or network that boasts a significant reach and impact, available for effective campaigning. We have already seen what content development yields in terms of earned media (i.e. your personal networks within your ecosystem) in relation to the purchase of reach and paid media (i.e. traditional media, plus the rest of the internet). This gives you, the DJ, the accurate input to determine your value for the near future, and thus your market potential.

It really all comes down to fan behavior. When private companies, like Facebook and Twitter, go public, investors are keen to know the value of each user in relation to certain brands. The information users leave behind in the digital networks is of enormous value. Before, it might have taken years to collect and analyze this information, while some information was not available at all. Researchers and marketing managers meanwhile have come to realize that preferences and behavior are detrimental factors for understanding the consumer, and they are willing to pay for this information. In this way Facebooks and Twitters stock value was stipulated.

New way of valuation

Financial advisors have to evaluate why fans and advertisers spend this amount of  time and that kind of money in your network, before they are able to stipulate the proper parameters for the networks valuation. Remember this: you, the DJ or event producer, are a network, even if the fans originate from beyond your website. Current technology makes the value of owned and earned media (i.e. your personal internet ecosystem, your personal channels, in short, your personal network) much more transparent and much easier to map and measure than in days of old.

This new way of valuing a company implies a new policy for you, the DJ or event producer. Much more than before, data from various sources and various linked applications will be reviewed. When you are able to convert these data into digital media value and direct transactions (such as ticket sales and merchandise sales, paid-for music downloads and music listening via streams), these data can be included in the corporate valuation.

Digital networks are networks which users rely on recommendations for products, music, sport, and other topics they are interested in. The DJs network is one of those topics. As more and more platforms begin to publish photos and link these photos to various options, it becomes possible to measure and value the visual content as a kind of word-to-mouth advertising. It is clear that eventually the digital networks of DJs will be used more and more for content marketing; advertisers will deploy these networks for their marketing efforts.

So each fan is more than just a potential new visitor to your gigs or a new set of ears for your music. You can offer direct access to the fan in your network to a wide range of companies, brands and media. As soon as you realize that your personal digital network (i.e. your ecosystem) is a hotbed of information a very special and rare volume of market and consumer data it becomes easier to value your networks, that is, your ecosystem, which, at first glance, appears to be a time-consuming pursuit. Thus you learn your net worth as a DJ.

EDM and the Digital Domain

SpinninRecords and ID&T

In 2014, DDMCA reviewed the data generated by the various social media channels used by SpinninRecords. It is evident that SpinninRecords has built a multitude of fans and followers on several social media networks. However, the collected SpinninRecords data, as published in the report, show that the label has no relationship with its supporters. The SpinninRecords organization is mainly active in terms of receiving messages and data, yet it appears to be reactive in building a relationship with its supporters. Fans actually want to be engaged with the brand. They long for a relationship.

Creation of value by means of the internet and social media comes down to being able to start, disperse, maintain and optimize current and new digital relations on various internet platforms where (in)directly and in a provable manner additional and prospective net cash flows will be generated.

The words start, disperse, maintainand optimizerefer to the costs of labor and means. Moreover, it all revolves around digital relationson various platforms. The operative word is digital, it sets these efforts apart from mailing lists or other traditional marketing activities. Obviously, as is the case with offline marketing, various digital platforms may overlap and some followers may drop out, the so-called churn rates. People on Twitter may be active on Facebook too, and vice versa.

By improving the recording, structuring and analyzing of the collected data, it is possible to deploy these data more purposefully. Thus an additional earning model can be realized for SpinninRecords, which will further increase the value of the brand. DDMCA has examined and determined that an additional 7.5 million Euro (estimate for 2013) and 40 million Euro for 2016 (see appendices). could be generated from the data of SpinninRecordsdigital platforms. The additional earning models originate from making the context of the data available to commercial parties eager to be present in SpinninRecordsecosystem. This increases SpinninRecordscash flow. Moreover, it benefits the value of the concept by creating potential goodwill.

Integration of brands occurs in the networks of ID&T festivals and brands. By using ones personal domain and social media networks in an advanced and thoughtful manner, it is possible to create new and digital profiles from the data of ID&Ts supporters. In addition to demographic data, interest data originate, as outlined in the paper, The Voice an additional earning model. By simply listening to the supporters, it is possible to establish what ID&T fan or follower is interested in what product group.

The paper Does data finally have a price?’ points out that data can be valued and linked to a price. The paper delves deeper into the acquisition of ID&T by SFX Entertainment. The valuation of ID&T by SFX Entertainment anticipates clearly on the notion that the data generated by future ID&T festivals and events will benefit, i.e. create value for, the organization, worldwide. The acquisition fee, rather steep at first glance, could in theory be recouped in 2.5 years, as long as a thorough and accurate social media and digital strategy is secured for the whole company.

The next step ID&T should take is to collect and to analyze the data in order to formulate a follow-up strategy or a completely new strategy that aims to increase future revenue. Fashion brands like Diesel, Replay, Levis, Denham and Dolce & Gabbana can be linked to ID&Ts supporters. This applies as well to telecom providers such as Vodaphone and T-Mobile; beer brands like Heineken and Budweiser; soft drinks such as Coca-Cola and Pepsi; and tech brands like Apple and Microsoft.

In fact, it is moderately easy to distil from the relationships with its supporters which brands could be interested in the integration with ID&Ts supporters (see: The matching of artists and brands on #D2W as well). Obviously, this comes at a price. A quick glance at some numbers published in the paper, it can be established that the visibility on Tomorrowlands Facebook page represents a monthly advertising value of some 350,000 Euros. Just imagine what Tomorrowlands total ecosystem could be valued at.

Data are the new gold

So data are the new gold. Data are the new revenue generator for DJs and event producers. Fans and clients are the biggest trump. The challenge is to stay in touch and maintain the relation. The data thus generated are invaluable. You lose value by not being able to record and store data, data you therefore cannot use. Presently, the biggest barrier for DJs and event producers is a lack of insight.

Without decent and trustworthy information, a company is ill prepared for proper decision-making. However, the tempo of the current business competition and internet ecosystem demand agile responses. Data are an inexhaustible source and offer enormous opportunities for gaining (critical) insights. In fact, this is the moment to tap into, cultivate and refine the powerful possibilities of this essential, valuable source. In this respect, it compares to an equally important economic resourcecrude oil.

DJs and event producers will have to map out and validate the data traffic of the inside and outside digital highways. An important aspect is: will the digital strategy produce a direct cash flow or direct financial gain?

It is clear that online marketing via the internet ecosystem will produce cash flows that are easier and better to monitor than offline marketing can, for instance by direct mail or utilizing the connection to a fan or client). Moreover, it is quite possible that the reach will increase since fans and clients share their social lives via social media, so you get through to not just the user but his (or her) friends and networks as well. This significantly increases the potential profitability. Furthermore, current digital technology makes online marketing more transparent and more measurable than before. The advanced tools and platforms that will support your online marketing efforts are described in the previous chapter.

We are in the midst of a digital revolution, sometimes called the second industrial revolution. Although discounted cash flow will remain the basis for company valuation, it is clear that current business practices of company valuation are under review. Past results and yesterdays figures are no guarantee for future results, increasingly less so. The DJ or event producer who has his internet ecosystem in order can strike gold. He has to care for his fan and clients relations, and secure and capitalize on data.

A solid digital strategy adds value

In The Netherlands, over nine out of ten people (92 %) have at least one social media account. Worldwide, the numbers are staggering: Facebook alone has 1.393 billion users (March 2015). Your fan base i.e. the platform outlined in the previous chapter will enable you to reach fans, clients, members, subscribers and entrants, who can be separated on the basis of geography, gender, age, interest and more in-depth profile characteristics. The better the profile, the more valuable your network is. The more fan and client data, the more value your network can generate.

The more relevant your networkscontent, the more appealing it will be to the users. Its most important aspects are engagement, interaction, and functionality; these have to be up to par. We all are familiar with examples of click-and-win, like-and-win, comment-and-win-nothing, share-and-get, and similar campaigns that help to spread the content among the fans or the clients friends in order to optimize the reach. Unfortunately, this type of activities corrodes the quality as well. The networksrelevance, fun and entertainment value decreases and will eventually disappear. After all, the less fun a networks becomes, the quicker the current fan or client opts for an alternative network.

It is the objective of the digital strategy to lift your organization to a digitally mature level by which value is added. Surely you, the DJ or event producer, are a business. By growing to a digitally mature level you strengthen your competitiveness because:

  • Revenue increases through higher and better conversions;
  • Efficiency cuts costs, so profit increases;
  • Risks are diminished via a better relation with (more control over) fans and clients;
  • A new reality is created

These results are pillars in the creation of company value, according to Dave Chaffey (professor and author of the paper Business Information Management – Improving Performance Using Information Systems, with co-author Steve Wood) and Don Marchand (professor and author of Making the Invisible Visible How Companies Win with the Right Information.

The business world is increasingly becoming aware of the understanding that it is not physical capital, but knowledge, insights and ideas that really determine the value of a company. Apparently, it is still not obvious for DJs and event producers to make the fan or client relation via various contacts (including direct contact), sources of data, interactions, all sorts of scores or whatever you have central to the company value. Yet it is the only way to realize an above average growth in value (as opposed to growth of turnover): constantly finding new and unique ways to identify and fulfill the fans and clients needs. This is the new business model for DJs and event producers.

Knowledge is the foundation of present-day business conduct. In the past, a companys value was determined primarily by physical capital, such as machinery, hardware and means of transport, presently data-generated knowledge is becoming the most important asset of many a company.

Data that are not stored in your personal fan base, but is saved in the networks and services of third parties, is crucial; to many organizations, however, it is not easy to get your hands on these data. This means that your company loses part of its value when a network is lost to the ecosystem, like the demise of Hyves, the local equivalent of Facebook in the Netherlands. That is a waste and a pity. By investing in the obtaining, reserving and utilization of data you can secure the base of your company and underwrite its continuity.

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