Customer Acquisition

Today I read about an interesting new service by Pixily. They will take your paper documents, scan them into digital format, post the results to a searchable web page, then return your original documents to you. The neat twist is that they handle document exchange and pricing like Netflix. They charge a monthly fee for a certain level of digitizing per month. And they give you prepaid envelopes in which you can enclose the documents you need scanned. This idea is generating some interest among other tech types as well.

Initially I had reservations about the Netflix idea. I was used to visiting the local Blockbuster to scan and pick up videos. However I was won over with a free trial from Netflix. Once I found how easy it was to create a queue of movies, and exchange the DVDs by mail, I was hooked. The value is pretty strong as well. I pay a whole lot less for many DVDs from Netflix than I would from Blockbuster using the old in-store rentals.

This is all interesting experiences. But the relevant part of both of these businesses is how much the companies spend to acquire customers. They underwrote my initial subscription by providing it to me free of charge. As a result they got a customer for life (or until the next company steals me away with a better offer). Previously I had heard that Netflix spent almost $50 per new customer to acquire them. Now I think they have brought the acquisition costs closer to $30 per new customer. This is still a significant initial drain on cash.

I recall the first time I started my business (around 15 years ago) I paid somewhere around $60 per new customer. This was a huge drain on my resources. Yes these customers then turned around and purchased some of my product. But only a few became repeat customers. This differs from the Netflix and Pixily models where they sell you a subscription which keeps bringing in revenue month after month. Maybe it is this model that, when worked correctly, can set your company up for a long time. I wonder how I can translate such a model for selling application software for PCs. Any suggestions?