N9-512-010 APRIL 03, 2012

THALES TEIXEIRA ALISON CAVERLY

Mekanism: Engineering Viral Marketing In early 2011, Jason Harris, Mekanism’s president, and Pete Caban, CEO, discussed the events of the past three years and the future of their firm. In 2009, many new clients had signed on with Mekanism, a digital/social media production company, for the development of viral marketing campaigns, and the company enjoyed a 68% annual growth in billings. This growth was faster than they had hoped for, and stronger than their competitors’ growth. Yet, in 2010, despite an increase in profits, the firm only grew 10% in billings with fewer new clients signing on. This change of events— added to the opportunity created from current clients requesting other complementary services to viral marketing—forced Harris and Caban to consider converting Mekanism from a specialized production shop to a full-service ad agency. Viral marketing was initially sought out mostly by small advertisers, due to its promise of reaching millions of consumers quickly and cheaply via word-of-mouth. After seeing the success of viral marketing, major advertisers also became interested in the engagement potential of viral content. Increased accountability and lower costs were two other major reasons clients experimented with viral marketing. Mekanism had developed a reputation for successfully creating and managing viral-based campaigns for ad agencies and their clients. In its early years, Mekanism’s roster of advertising services had included other digital media content than just viral, but this one service had gradually become the firm’s main revenue generator. As more advertisers hired Mekanism directly for their viral marketing needs, an increase in requests by them to develop other promotion tools was also taking place. This opportunity required Harris and Caban to rethink the role viral marketing played at Mekanism and its value for major advertisers. The pivotal point occurred after Mekanism was hired by Pepsi-Lipton to create viral ads for the Super Bowl. The TV ad became the most viewed Super Bowl ad on YouTube the day after the Super Bowl.1 This success spurred Harris and Caban to consider producing other content for different media and, in the process, working only with brand advertisers instead of their agencies. For Mekanism, becoming a full-service ad agency would mean a closer relationship with advertisers and would afford more opportunities to leverage content into television and other traditional media. On the other side, if Mekanism remained a niche creative shop specialized in viral marketing, it could focus on what had proven to be successful and attempt to fend off recent competition. This decision was critical as it affected many areas of the company, in particular the type of clients served. Working for ad agencies was not ideal, but Mekanism didn’t offer the wide range of services needed to fully manage an advertiser’s account. Harris and Caban had to announce a decision to the rest of the company soon as employees in sales and creation were increasingly being requested by current clients to deliver a range of other advertising content in various media. ________________________________________________________________________________________________________________ Professor Thales Teixeira and Research Assistant Alison Caverly prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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Company History In 2000—four years before the launch of Facebook, five years before YouTube, and six years before Twitter—Mekanism founder Tommy Means sensed big changes ahead. At a time when media fragmentation and shrinking ad budgets were beginning to highlight the long-term limitations of the 30-second TV ad spot, Means saw potential in the quickly-emerging online media for revolutionizing the advertising industry. That year, Means started a hybrid format of a creative and distribution company whose mission would be to leverage a combination of traditional and “emerging media” to create a new solution for production and advertising for the 21st century. Means was soon joined by three partners: president and executive producer Jason Harris, CEO and head of digital Pete Caban, and creative director Ian Kovalik. Mekanism’s four partners brought experience from backgrounds in digital design, advertising, video production, and direction, respectively. The company’s initial progress was slow. In the early 2000s, social media and user-created content sites had just begun to appear, and the concept of using videos for online advertising was still novel. But the media landscape was changing quickly and, by the second half of the decade, big brands were beginning to recognize the growing potential for brand-building using videos in the digital space. Finding ad agencies with the technical skills and experience to carry out the digital elements of campaigns, however, proved difficult. As Kovalik noted, “It was unusual at the time to focus on digital media. So when the market shift happened, big ad agencies lagged behind and had to adapt.” By 2007, client companies that normally hired large traditional ad agencies to implement their campaigns found themselves dividing the pieces of a single campaign between multiple agencies, hiring one agency to handle traditional media and another to carry out the digital component. Using multiple agencies for one project, however, posed some disadvantages for advertisers, including higher overhead costs from managing multiple relationships, a longer turn-around time to complete a campaign, and a less cohesive campaign. Client companies began to see Mekanism as an appealing and efficient option for handling campaigns that might include a range of tasks, including developing broadcast-quality film, animated video, websites, and interactive online applications. Harris explained, “There is a trend in the advertising industry of clients wanting consolidated agencies. This is especially true for new and social media where time-to-market is critical and brands are trying to reduce costs from traditional media spending.” Mekanism thought it could benefit from this trend by positioning itself as a “one-stop digital shop” for creative, strategy, production, promotion and distribution of campaigns involving digital content for social media. As it began taking in business from big-name brands like Pepsi, Nike and Microsoft (see Exhibit 1 for a partial list of Mekanism’s clients), the small San Francisco-based company began to flourish, experiencing 32% year-over-year average growth from 2007 to 2010, and rising margins to 23% of net revenue (see Table A). Around that time, a game-changer entered into the mainstream advertising world: online videos. Table A Mekanism’s Income Statement (in thousands of dollars) 2007 Gross Revenue Production Costs

$

Gross Profit Operating Costs EBITDA EBITDA % of Net Revenue

2

9,330 5,221

2008 $

4,109 3,555 $

554 13.5%

10,852 5,195

2009 $

5,657 4,473 $

1,184 20.9%

18,238 9,251

2010 $

8,987 6,950 $

2,037 22.7%

20,111 9,865 10,246 7,882

$

2,364 23.1%

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Source: Company. Note: Adjusted for one-time expenses and costs not currently part of operations.

Online Video Advertising Traditionally, television viewers had been seen by advertisers as a huge and somewhat captive audience. But by the time Mekanism came along, consumers had become increasingly savvy at tuning out TV ads. The introduction of the first Digital Video Recorder (DVR) by TiVo in 1999 provided viewers with an additional means of avoiding ads. In 2001, a study had found that TV viewers avoided about 81%2 of ads in one way or another.3 By 2010, 38% of households had a DVR4 and used it to skip past an estimated 60%5 to 71%6 of ads. At the same time, the Internet was becoming an increasingly popular alternative to TV for viewing video content. From 2005 to 2011, the percentage of U.S. Internet users regularly watching videos online in a month increased from 56%7 to 83%.8 By 2011, online video was responsible for 85% of all consumer Internet traffic and was expected to reach 91% by 2014.9 Of the videos viewed, ComScore estimated that 12.4% were ads. The growth of online video viewing brought new opportunities for advertisers. Purchasing ad space during streaming video (sourced as they were being watched) allowed advertisers to reach consumers that were more focused and less likely to avoid ads than when viewing TV. A 2011 study found that 50% of viewers reported skipping through most of the ads (three quarters or more) while watching DVR-recorded TV programs compared to 29% when watching online video ads.10 Yet, when comparing the proportion of consumer time spent across media with that of advertiser spending, there seemed to be a gap between the average proportion of media time consumers spent online (28% and rising), and the money spent advertising online (only 13%). (See Exhibit 2 for the percentages for other media.) In recent years, an even more lucrative option for advertisers than paid online media was the prospect of so-called “viral” video advertising. Advertisers could take advantage of unpaid exposure by posting ads to social networking sites like Facebook and Twitter, user-generated content sites like YouTube, and other free online platforms for little more than the cost of production. Once an ad was placed on one of these sites, the hope was that with some minor promotional activity it would then spread quickly, or “virally,” as each consumer passed it along to their acquaintances. If an online video was widely shared, it might end up quickly reaching a larger and more targeted audience than a TV ad, at a fraction of the cost. By using viral marketing, even small companies were able to reach millions with viral videos. In 2006, for example, the fairly unknown blender manufacturer Blendtec launched its “Will it Blend?” series of viral ads, garnering more than 130 million views. Had the company paid for this captive exposure online, it would have cost $7.8 million, at standard $60 per thousand views.11 Beyond cost savings and fast reach, online video advertising also offered the potential for higher levels of consumer engagement with the brand. Studies had shown that viewers were more likely to watch, attend to, and form favorable opinions of videos and brands that came from acquaintances rather than from an advertiser.12 Additionally, online video offered viewers more possibilities for interaction than TV ads, which amounted to more brand-related time spent by the consumer. A 2010 survey found that 48% of the responders had visited a brand website after viewing an online video ad, 11% had shared it, and 22% had made a subsequent purchase.13

“Engineering virality” What were viral ads about? Studies of successful viral ads identified (after the fact) common features that might correlate with success. Funny videos were the third most-common type of content 3

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for online sharing, only behind content specifically related to family or friends (see Exhibit 3 for most-shared content types). Critics were quick to point out, however, that viral success was the exception. The vast majority of attempts at viral video ads didn’t end up reaching more than a few thousand viewers: on YouTube, for instance, only 3% of videos got more than 25,000 views.14 Another criticism was that it was difficult to predict which videos would be widely viewed and shared. As Ivan Askwith, chief strategy officer for digital agency Big Spaceship, pointed out: For the handful of “viral campaigns” that explode into cultural phenomena each year, hundreds of other efforts have little or no impact at all. We describe viral as if it’s an inherent quality we can design into our campaigns, or a deliberate strategy we can execute on. It’s time to accept a difficult truth: viral isn’t a quality that we, as marketers, have the power to bestow.15 Many in the advertising industry, like Askwith, took issue with the concept of viral advertising as a marketing tool. Mekanism’s partners, on the other hand, believed that advertisers could systematically build a successful viral campaign. So strong was their conviction that they began making a name for themselves with the promise to do just that. When asked what set Mekanism apart from its competition, in a 2010 interview Harris said, “We can engineer virality. We guarantee we can create an online campaign and make it go viral.”16 The numbers seemed to support that claim. Brendan Gahan, Mekanism’s director of Social Media, noted, “Mekanism has created ten of the most viewed videos of the day on YouTube, with 3.5 million viral video views on average per campaign and has delivered a total of 350 million views to past clients.” In a representative sample of past campaigns, Mekanism garnered more than one million viral views, a common industry threshold for an ad being considered viral (i.e., among the top 1% in video sharing sites) for nine out of twelve campaigns. (See Exhibit 4 for list of campaigns and views.) In addition to their diverse team of specialists, Mekanism’s partners credited three main approaches to “engineering virality:” a unique storytelling focus, management of digital platforms, and building a network of high-profile digital influencers to help spread a campaign.

Storytelling for Emerging Media The founders of Mekanism believed that in order to be successful, a video ad had to go beyond simply “pushing a message” or stating product information. Instead, an advertisement had to take on its own value independent of the product advertised, becoming, as Kovalik put it, “a product in itself.” He explained, “If you can engage the audience, entertain them, and offer value, they will forgive you for inserting a brand.” Mekanism’s partners believed that the best way to do this was through storytelling. In Kovalik’s words, “storytelling builds brands.” Each brand had a story and ads were seen as vehicles to tell that story in a meaningful way to the target consumer. For example, in a campaign for AXE male body wash, a series of short stories were created to reflect the main character’s nightly escapades and how the product cleaned him up for the following night.

Engaging the consumer on a deeper level According to Kovalik, a successful story was able to “take listeners on a journey,” inviting them to become invested in the brand. By crafting the right story for a particular target group, Mekanism believed a brand could connect with the consumer and that this would lead to positive emotional associations with the brand and a desire to share the stories. “Stories engage emotions and connect on

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a deeper level,” Harris noted. “They take you out of the purely pragmatic, rational realm of advertising and strike a different chord that’s more emotional.” The right story to engage an audience, according to Harris, had to “connect to a need that the target has.” Mekanism took time to research and understand the interests and needs of the target group by conducting focus groups and monitoring online buzz. In the case of young millennials/ Generation Y (those born in the 1980s and 1990s), Mekanism found that the best way to make a connection was through entertainment, especially humor. As Caroline Casey, Mekanism’s new business manager, put it, “Humor is their currency.” Stories designed with this target group in mind often involved humor that was edgy and unexpected. When trying to reach middle-aged males for a Charles Schwab campaign, on the other hand, Mekanism found that a serious story around mentoring relationships built on golf courses was a better means of making that deeper connection.

Involving the consumer in the process According to Harris, one of the key advantages to using a story to shape an ad was that it “gives something for consumers to talk about within their social networks.” Those conversations were increasingly taking place online, and people were always looking for something new to share and discuss. Finding and sharing funny videos, music, and other forms of entertaining content online had become an important online activity, especially among the millennials. According to Kovalik: “People want to be seen as discoverers and curators of stories, not necessarily creators. Sharers also get credit for storytelling. Sharing is a source of creativity. Online, you are what you share.” In addition to creating stories, Mekanism often invited consumers to participate in the storytelling process itself. In a campaign for Golden Grahams aimed at recent college grads, for example, Mekanism posted a series of funny animated videos telling stories of job interviews gone wrong. They then solicited user stories via Twitter and turned more than 50 into animated videos. Harris noted that “creating platforms for people to have a voice” was a key part of Mekanism’s strategy for building relationships between consumers and the brand.

Platform Management In Mekanism’s process for engineering virality, developing the right story for a brand and target audience was only the first step. Once viral content had been produced, Harris said, “post and pray was not an option”17 for reaching large audiences. Instead, Mekanism’s founders developed a threepronged strategy for jump-starting the spread of a viral video (see Exhibit 5 for the components). First, Mekanism’s team reached out to popular bloggers and high-profile digital influencers, online citizens with large followings, for help in creating editorial buzz around a campaign and kicking off the sharing process. By the end of a typical campaign, influencers were directly responsible for, on average, 51% of the views within a viral campaign, with the rest attributable to other sources driving visitation to web content. Second, Mekanism’s distribution strategy relied heavily on the use of owned spaces on social media platforms, including Facebook and YouTube. These sites enabled Mekanism to aggregate content for free and to promote sharing and brand engagement. Finally, some of Mekanism’s campaigns also made use of traditional paid media, such as TV ads, as well as paid digital media. The former was historically not done by Mekanism. A TV ad, if it fit into an advertiser’s budget, could serve as a tool for introducing a campaign to millions of consumers, piquing their interest, and directing them to an online location where they could view and share related content. Traditional paid media was not always present and oftentimes done by an ad agency. Thus, most campaigns made some use of owned, paid and earned media, online or offline. 5

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Two of the crucial pieces of Mekanism’s self-proclaimed digital philosophy involved “building and fostering brand communities” online and “working at the speed of social media by creating a constant dialogue with the consumer.” Given the increasing amount of time people were spending in the digital space, online media platforms presented valuable opportunities for reaching and interacting with consumers. Each campaign that Mekanism worked on generally had one central online social hub where all the campaign’s content could be found and consumers could learn about and interact with the brand and one another. In Mekanism’s earlier days, that place was usually a website designed specifically for the campaign, but by 2010 the central hub was most often Facebook; according to Harris, Facebook had become “the best place for sharing,” thus increasing the reach of a campaign. Despite focusing its efforts on one central location, Mekanism usually actively maintained a presence for the brand elsewhere on the web as well. If a campaign involved video content, Mekanism often set up a YouTube channel for the brand where consumers could view, comment on and share all of the videos easily in one location. Twitter was also heavily used, given its usefulness for soliciting and responding to individual user feedback. Custom brand websites were still used as well, though they were no longer the place where most activity took place. While Mekanism’s partners recognized the importance of building large online followings, they also believed that sheer numbers of Facebook “likes” or Twitter followers meant little if those community members weren’t actively engaged. Mekanism’s campaigns were designed to encourage maximum engagement, as measured by the amount of time consumers spent interacting with content. Platforms were used for updating new content, but also for fostering a two-way relationship: responding to feedback, and using interactive features, contests, and challenges to elicit participation.

Influencer Networks In 2006, Microsoft came to Mekanism for help in promoting the launch of its new operating system, Windows Vista. Microsoft wanted to create a campaign that would foster a younger, more low-key image for the brand that didn’t rely on traditional paid media. To accomplish these goals, Mekanism recruited online personalities that could help spread the Vista campaign to young consumers in a way that would appeal to them. Indie hipster comedian Demetri Martin was chosen to star in a series of funny online videos introducing Windows Vista to consumers, along with a Comedy Central cable channel special and a comedy tour sponsored by Microsoft. Mekanism reached out to a number of popular online personalities to help promote the campaign and direct their followers to its website. This proved to work. In total, the campaign ended up garnering about four million viewers, one quarter of them through influencers, and thousands of positive blog posts. Following this success, Mekanism continued to develop and make use of its influencer network until this network became a central component built into the majority of its campaigns. It was an approach unique to agencies at the time and it became one of Mekanism’s distinguishing features. According to Harris, a key to achieving a large reach for Mekanism’s campaigns was its syndication strategy. This meant “seeding” the campaign’s content on a variety of blogs and other sites that could then post it for their visitors to see. By identifying and involving digital influencers that were both popular and respected, Mekanism could facilitate the spread of a brand’s message to ensure that it reached the right people. Five steps characterized Mekanism’s digital influencer strategy.

Identify

Mekanism’s social media team typically monitored thousands of online influencers, including celebrities, YouTube directors, bloggers, and Facebook and Twitter users with large followings. From this pool of influencers, they selected the most relevant for each campaign based on the target audience. This usually involved choosing a core group of influencers to court as the primary “brand ambassadors” as well as a “long tail” of others to reach out to via email at a later 6

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stage. Several criteria were used to determine which influencers would be selected to be part of a campaign’s core group. First, an influencer had to be relevant, relatable, and respected by the target audience. “Brand friendliness,” or the likelihood they would say positive things over negatives when critiquing a brand, was a factor, as was an influencer’s ability to incite action, getting users to click a link, watch a video, or buy a product. Second, they had to have a large reach, in the hundreds of thousands. “Ultimately,” according to Harris, “the goal is to get the right balance of relevance and reach.”

Engage Once the Mekanism team had selected a core group of influencers, each individual was contacted by a digital specialist charged with beginning to build a friendly relationship. Before making any contact, a Mekanism manger would read up on the influencer, familiarizing themselves with that influencer’s most recent work and overall style as fodder for personalized and genuine conversation. Once a rapport was achieved, the influencer was filled in on the campaign and the unique contribution Mekanism felt they could make to it. Value Exchange In addition to receiving personalized attention, the core group was given exclusive information and content from the campaign to share with their followers. Prior to a campaign launch, influencers were generally flown out to an “influencer summit”, where they gained exclusive access to the campaign content and/or product. In addition, members of an influencer group chosen for some of Mekanism’s viral campaigns were given face time with a famous movie star or a key executive from the client. As Gahan noted, “We hoped to make them feel special and as valued members of a team invested in the campaign’s success.” In addition to perks, some influencers were offered financial compensation for their cooperation. Gahan stated, “Male millennials like to ‘break news.’ Some are professional influencers that make money and have made it into a business. Others just do it for a hobby or social need.” Many influencers in the latter category might be happy to be involved in a campaign in exchange only for access to exclusive new content that their followers would like. Other groups, for example professional “mommy bloggers,” chosen to be part of Mekanism’s 2010 holiday gift campaign for eBay, weren’t as concerned with gaining access to juicy content but almost always expected to be paid. By 2010, most popular online personalities expected compensation. Bloggers were paid as much as $5,000 per campaign while YouTube personalities earned amounts ranging from $5,000 to $20,000.

Distribute Message The influencer’s role in a campaign varied greatly. For some campaigns, influencers might be given brand-related content to use on their blogs or social media pages. In other cases, an influencer might be asked simply to mention, review, or link to campaign content on his or her blog. On rare occasions, influencers were asked to get more involved. For example, in a campaign to promote the 2010 Winter Olympics, influencers were asked to participate in a competition called “The Best of Us Challenge” by posting videos of themselves challenging Olympic athletes to competitions involving “silly human tricks.” While the job of the influencers was to help spread the brand’s message, Mekanism afforded individual influencers ample creative control in determining how best to do so. In an editorial context, influencers were encouraged to be honest and genuine. Optimize Once influencers began their efforts to promote a campaign, tracking and analytics measuring the impact of those efforts was used to make both short- and long-term adjustments. Through measures of views of content posted by each influencer, traffic referred, and consumer comments and interaction, Mekanism could determine which influencers were having the most reach and positive impact. The company could then use this information to provide tips to less-successful influencers, along with making notes on individuals and approaches used for future campaigns.

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The Mekanism team’s efforts to interact with influencers in a personalized manner and without imposing strict rules or guidelines allowed them to build successful long-term relationships with many key personalities over time. These established relationships served as a selling point for future clients, as Mekanism offered a roster of potential influencers and their total reach.

Measuring Success The ability to measure a campaign’s success was important not only for proving to clients that Mekanism was able to meet their goals but also for meeting internal goals. While client companies often cared more about the total reach of the campaign (video views, website hits, etc.) and the total size of their online communities, Mekanism preferred to focus on the goal stated in its mission, to “inspire measurable brand loyalty” that would last beyond a campaign’s end. Harris explained: Mekanism is focused on maximizing engagement time with brands. We are not focused on just one-time encounters such as number of Facebook friends or Twitter followers. Yet much of the online advertising world has become a numbers game: brand managers need to justify ROI measurability of a campaign to their bosses. So we need to provide the numbers that others do. In order to satisfy both sides, and with the help of third-party tracking and analytics services, Mekanism monitored a campaign’s progress from beginning to end using several different metrics (see Exhibit 6 for a sample metrics report showing these measures). Besides proof of a campaign’s effectiveness, these measures of success also provided Mekanism with useful tools for adjusting and improving upon the campaign while it was still in progress.

Reach Mekanism used several measures to gauge a campaign’s overall impressions. If the campaign had a custom website, the company kept reports on total visits to the site and number of unique visitors. For videos, Mekanism tracked views. The firm also kept track of numbers of Facebook fans or “likes” and followers on Twitter. To put these numbers in context, Mekanism often compared them with those for same-period competing campaigns. (See Exhibit 7 for three comparisons.) Engagement

Once consumers were exposed to a campaign, Mekanism also began to track their level of engagement. For videos, an “engagement score” was calculated based on the average percentage of the video viewed. Other engagement measures included total completed views and percentage of repeat views. In assessing consumer engagement on a website, Mekanism took into account average time spent on the site, repeat visits, average percentage of the content available viewed by each visitor, and participation in interactive elements.

Buzz and Mentions

Comments on and number of shares (via Facebook, Twitter, etc.) of content were indicative of word-of-mouth, a special category of engagement with the brand. Any attention a campaign received from unpaid media was counted by Mekanism as well. This included press coverage, blog mentions, and popular sites on which campaign-related content was syndicated or mentioned. Mekanism also kept track of any awards received, such as YouTube Honors.

Brand Sentiment

In addition to tracking sheer numbers of comments, media mentions, and other forms of buzz, Mekanism also closely examined the content and tone of brand-related chatter. A measure of “brand sentiment” was calculated based on the percentage of positive versus negative comments or editorial reviews. This gave the client a sense of whether the brand’s message was being effectively understood by the consumer. (See Exhibit 8 for a sample report of brand sentiment.) 8

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Measuring client satisfaction The use of viral marking among major advertisers was increasing, but it still wasn’t clear if this was a reliable promotion tool for major advertisers to regularly consider as an integral part of their campaigns. In order to understand the current sentiment on viral marketing in social media, a survey of 38 of Mekanism’s clients was conducted in 2010. The survey found that viral/social media was critical to clients, yet was still being used experimentally to get consumers to build relationships with the brand. It also found that better analytics were needed to show quantifiable results. (See Exhibit 9 for main survey responses.) If Harris and Caban were to keep ahead of competition, they had to be able to clearly show how viral advertising created value for their clients. They also needed to convince clients that Mekanism was in a privileged position to create this value versus a more traditional form of viral advertising, such as the posting of new TV commercials on YouTube or Facebook free-of-charge.

To Be or Not to be an Agency? Mekanism had begun as a small production shop hired by ad agencies to create digital media content for their clients, but had evolved into a creative production company with expertise in making content go viral. Between 2008 and 2010, using its storytelling creative approach coupled with a multifaceted social media distribution system, Mekanism churned out multiple successful viral campaigns. With viral advertising, its earnings had been growing at an increasing rate. This reputation attracted large advertisers interested in exploring viral advertising as part of their campaigns, who could not get this service from their traditional ad agencies. The advertising market had caught “the viral bug,” which Mekanism was well-positioned to deliver. As Ben Stuart, senior vice president of brand marketing at Charles Schwab, one of Mekanism’s clients, put it, “They have set themselves up for the velocity and the complexity of the emerging media landscape.” Richard Bendetti, head of production at traditional ad agency Saatchi & Saatchi noted, “A lot of companies, including mine, are trying to catch up with Mekanism.”18 As more of Mekanism’s business gravitated toward a direct-to-advertiser model, the firm’s management team began to discuss their ambitions of becoming a full-service ad agency. Proof that clients believed in Mekanism came when the company was hired by Pepsi-Lipton to create a Super Bowl ad along with viral ads. This and other campaigns were recognized with several prestigious awards, and Mekanism had developed a strong reputation as an advertising and production company “fit for the increasingly digital future.”19 The question was what to do next. To sustain the growth of their company and fend off imitation from competition, Harris and Caban needed to define their next step: should they keep with what was working, and mainly focus on viral marketing, or should they embrace other traditional content and media, effectively becoming an advertising agency? Viral advertising was what set them apart from their competitors. On the other hand, becoming an ad agency meant that they could leverage their creative capabilities to other media and provide a wider range of promotion tools directly to end clients (print, TV, radio, etc.). This was a crucial decision for Mekanism, as it would impact the firm’s service offerings, as well as the employees and clients. Both sides were expecting a resolution soon to plan for their next campaigns.

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Exhibit 1

Mekanism

Sample of Mekanism’s client companies

Source: Company documents.

Exhibit 2 Distribution of average (consumer) time spent with each media versus amount of advertising spending by media, 2009.

Source: Mary Meeker, Scott Devitt, and Liang Wu, “Ten Questions Internet Execs Should Ask & Answer,” PDF presentation to Web 2.0 Summit, November 16, 2010. San Francisco, CA.

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Content that Internet users are likely to share online, August 2010

Source: Social Sharing Research Report, eMarketer, accessed June 2011.

Exhibit 4

Views (x1000) garnered by Mekanism for representative sample of campaigns Brand DKNY GAP Golden Grahams Spike TV Olympics Axe Electronic Arts Tostitos Toyota Sega Microsoft

Views Campaign Year Total Influencers BeDelicious 2010                       602                     191 Denim 2010                       768 ‐ Golden Grant 2010                   2,570                 1,636 Blue Mountain State 2010                   3,617                 3,221 The Best of Us Challenge 2009‐10                   4,051                       50 Fixers 2009                   3,787                 3,517 Spore 2008                   1,758                 1,500 NOLAF 2008                   3,519 ‐ Matrix 2008                   2,845 ‐ Sega Rally 2007                   1,215                     199 Clearification 2007                   4,000                 1,000

Note:

The Olympics campaign was not designed to make full use of influencers.

Source:

Company documents.

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Exhibit 5

Mekanism

Mekanism’s approach for content promotion and distribution

Source: Created based on company documents.

Exhibit 6

Sample metrics in client report

Source: Company documents.

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Exhibit 7 Comparison of reach for Mekanism-created (black) to same-period competitor-created campaigns 5,000 4,000

2,000

Old Spice

AXE (past campaign)

Gillete

AXE

Visa

Nestle

IOC

Gillette

Degree

Golden Grahams

0

Pop‐Tarts

1,000

Stride Mega Mystery

Views (x1000)

3,000

Source: Company documents.

Exhibit 8

Summary of sentiment report (amount, type, and overall valence of mentions)

Source: Company documents.

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Exhibit 9

Mekanism

Summary of survey with Mekanism’s clients (n=38)

Why do you or your company use digital media as part of a marketing campaign? Select all that apply. 

Regarding digital/viral/social media, please indicate how strongly you agree with each of these statements. 

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Exhibit 9 (continued)   What are the most important criteria when selecting an agency for a digital/viral/social media campaign?   Understands my brand's consumers

3.91

Understands the people that  use digital  media

3.59

Impressed by previous work

3.41

Can provide robust analytics  to support  return on  investment

3.38

Has a strategic point of view

3.19

Recommendation  of ad agency

2.52

Lowest cost

2.41

Traditional/Full‐service  ad agency

1.97

Won awards

1.91

Responds only to the request for proposal  (RFP)  guidelines

1.84 0

1 Not Important

2

3

4 Very  Important

Source: HBS Field Study by Amanda Tolleson and Eric Zuncic, HBS MBA class of 2010.

15

512-010

1

Mekanism

K. Patel, “Agency of the year 11-75 employees: Gold: Mekanism,” Advertising Age.

2 This includes behavioral (remote control), cognitive (attention to the screen) and physical (leaving the room) tuning out.

3 A. C. B. Tse, R. P. W. Lee, “Zapping behavior during commercial breaks.”Journal of Advertising Research41,3 (2001): 25-9. 4The Nielsen Company. ”DVR Use in the U.S.” State of the Media, December 2010 [URL: http://blog.nielsen.com/nielsenwire/wp-content/uploads/2010/12/DVR-State-of-the-Media-Report.pdf] 5Marisa

Guthrie, “Sometimes, Viewers Don’t Skip Ads,” June 2007: website, http://www.broadcastingcable.com/article/109096-Sometimes_Viewers_Don_t_Skip_Ads.php 6J.P. Dube Bronnenberg and C.F. Mela, “Do Digital Video Recorders Influence Sales?” Journal of Marketing Research 47, 6 (2010): 998-1010. 7http://www.comscore.com/Press_Events/Press_Releases/2005/10/US_Online_Video_Streaming,

accessed June 1, 2011. 8http://www.comscore.com/Press_Events/Press_Releases/2011/5/comScore_Releases_April_2011_U.S._O

nline_Video_Rankings, accessed June 1, 2011. 9http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11481360_ns827_Networking_Solutions_White_Paper.html, accessed June 1, 2011. 10

YuMe (2011). Online Video and Television Viewing Attitudes and Behaviors. Retrieved from http://www.yume.com/sites/default/files/YuMe_Online_Video_Attitudes_Whitepaper.pdf 11

Source: Hulu.com

12

A. Dobele, D, Toleman, &M. Beverland, “Controlled infection! Spreading the brand message through viral marketing,”Business Horizons, 48(2), (2005) 143-149, and J. Phelps, R. Lewis, L. Mobilio, D. Perry, D., and N. Raman,“Viral marketing or electronic word-of-mouth advertising: Examining consumer responses and motivations to pass along email.” Journal of Advertising Research, 44(4), (2004) 333-348. 13Monetizing

14

Online Video 2011, by Vision Critical, eMarketer, accessed June 2011.

Rubber Republic study based on 2007 YouTube video views. Accessible at www.viralmanager.com.

15 I. Askwith, “Stop spreading viruses and start giving gifts,” http://www.bigspaceship.com/blog/think/getting-past-viral, web log post January 26, 2010, accessed February 8, 2011. 16

M. Borden, (2010, May 1). “Repeat offenders,” Fast Company, http://www.fastcompany.com/magazine/145/repeat-offenders.html, May 1, 2010, accessed February 8, 2011 17

Ibid.

18Ibid. 19

16

Ibid.