Does paid marketing suck? Three perspectives – a16z, Social Capital, Mobile Dev Memo
Originally published December 2018. The arguments are from 2018; the platforms and privacy rules around paid acquisition have changed since, but the question has not.
Paid marketing does not suck by itself. The 2018 debate below weighs competitive pressure against the value of disciplined acquisition. Our response was that paid acquisition can work when the economics support it; relying on paid is not itself a diagnosis of business failure.
What did a16z say?
In an a16z podcast with Andrew Chen and Jeff Jordan, Why paid marketing sucks: network effects, viral growth, and more, Jordan used a mattress example: an initially uncrowded market could attract six similar competitors within a year or two. His warning was that early acquisition economics might not last.
What did Social Capital say?
Chamath Palihapitiya’s 2018 interim annual letter (archived, because the original file is gone) has a section called “The Accelerating Treadmill of User Acquisition”. It asks: “as growth becomes increasingly expensive, somebody must be footing the bill for all of this wasteful spending. But whom?”
What did Mobile Dev Memo say?
Eric Seufert’s Is it healthy for startups to spend so much money on user acquisition? offers a counterpoint: “There’s nothing fundamentally wrong with paid user acquisition.” His argument was that spending $1 for a confidently expected return above $1 can make sense, allowing for the time value of money. He warned against leaving a workable channel underfunded. He also asked whether paid-reliant businesses could exist at all without Facebook and Google and clear attribution.
What is our view?
We side with Seufert, partly because we have the same background: paid advertising paid our bills for years.
- Paid has built real businesses and sunk others. Our point was to examine the economics rather than blame paid acquisition itself; this does not explain every business failure. If the mattress company’s acquisition economics are strong even with six copycat rivals, there is no reason not to rely on paid.
- Mobile gaming is the clearest case. The app stores democratised distribution, and paid acquisition gave game companies the access to users that made them sustainable businesses without growth hacks or virality. That is our opinion, not a measured figure. That was our 2018 position. In a spending decision, revenue above ad spend alone does not establish profit: include other costs and cash timing. For how to build that understanding, see how to work out a mobile user acquisition budget and how to measure your mobile marketing ROAS.
Frequently asked questions
Does paid user acquisition still work? Yes, when your economics support it. The 2018 debate was about whether rising costs make it unsustainable; the answer depends on your own numbers.
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