How to Win Influencers and Friend People: Pursway Raises $6M, Arrives in Boston

2/9/10Follow @wroush

If you change your tech startup’s name, you might get a one-line notice from the business press. If you get a prominent firm to invest in your technology, particularly if it’s a sizeable amount or if it’s your first big round of funding, we’ll probably write a paragraph or two. If you move your headquarters from some far-off place like Israel to Massachusetts, we’ll pay more attention—especially here at Xconomy Boston, where part of our job is to write about what makes New England such a great place for innovation. But if you do all of those things at once, you’re pretty much guaranteed to grab enough attention to get a whole article.

The company formerly known as Datanetis—an “influencer marketing” startup born outside Tel Aviv in 2005—is hitting a triple today. It’s announcing it has changed its name to Pursway, opened a new headquarters in Waltham, MA, and collected $6 million in Series A funding from Battery Ventures.

Scott Tobin, a general partner at Battery, says Pursway has a “breakthrough” technology that will establish influencer marketing as “the next marketing revolution.” The company’s software combs through huge caches of data on consumer behavior—the kind of business intelligence that airlines or wireless operators or casinos routinely collect. The goal is to identify the “influencers,” that is, the customers who seem to have an outsize effect on other people’s behavior, whether for good or ill. With this information in hand, Pursway’s clients, who already include Vodafone Group, Orange, Foxwoods Casino in Connecticut, and a range of unnamed companies in the retail, financial, and travel sectors, can supposedly make better decisions about how to spend their customer-acquisition or customer-retention marketing dollars.

According to CEO and co-founder Elery Pfeffer, the company decided recently it has spent enough time testing the technology with Israeli and European customers, and that it was time to move up to the big leagues in consumer marketing—meaning North America. To do so, it needed a major capital infusion and a catchier name. (“Pursway,” pronounced per-SWAY, is a portmanteau word formed from “persuade” and “sway.”)

So, that’s the news in a nutshell, together with the reasoning behind it. But when Pfeffer and his co-founder Ran Shaul visited Xconomy last week, I was far more interested in Pursway’s actual technology, and its grand plans for changing the way all consumer-facing companies relate to their customers.

The problem the company has set out to solve, says Pfeffer, is that “consumers react less and less to marketing messages and more and more than ever before to social influence—to the recommendations of friends, family, coworkers.” By identifying the loudest advocates in a given marketplace and winning their loyalty, Pfeffer says, companies can improve the return on their marketing investments by an order of magnitude.

Don’t worry, Pursway isn’t reading your blog or Twitter posts or sorting through your credit card bills or your confidential e-mail to figure out whether you’re an influencer. In fact, the company doesn’t need your name or the names of your friends and family members in order to figure out where you fit in what might be called the “social graph of the marketplace.” Rather, the raw input for Pursway’s technology is simple transaction data: the millions of individual records that a chain of department stores or hotels might collect about what customers purchased, and when and where. Using data mining algorithms originally developed for military intelligence applications, the company can discover connections in the data that reveal who each customer influences, or who they are influenced by, Pfeffer says.

To take a simple example: Say you have a fabulous weekend at a fancy resort, and the day after you get back, five people who live in your town make reservations at the same resort. Pursway will find the pattern and will conclude that you’ve probably been raving about the resort to all your friends. Congratulations—you’ve just been branded as an influencer, at least when it comes to vacation destinations. That means any money the resort can devote to making you even happier in the future will be well spent, since the benefits are likely to be magnified many times over.

It all works, Pfeffer says, because some people really do have an uncanny influence on others. “If you take an everyday customer and convince him to buy a product, that customer is going to convince around 0.3 to 0.5 other people to buy the product, on average,” says Pfeffer. “But our raw data shows that about 10 percent of the population are opinion leaders. They can convince 3.5 other people. That’s 10 times the influence of a normal customer.”

The same logic applies in reverse. If an airline gets you to your destination 18 hours behind schedule and loses your bag, you’re probably going to be offered a bland apology and a restaurant voucher like every other person on the flight. But if the airline happens to know from its historical data that you’re an influencer, they’d be smart to offer you a free flight or some other major compensation the moment you disembark, in hopes of blunting the viral effect of your wrath on your followers.

In the Internet age, so many people are unresponsive to traditional advertising messages carried by TV, radio, newspapers, and billboards that reaching them through an influencer is sometimes a marketer’s only option, Pfeffer says. “What our clients are realizing is that they have basically lost control,” he says. “These tribes of customers are in control, and they have appointed leaders to speak for them.”

Influencing the influencers, of course, is a science unto itself. Pharmaceutical companies are notorious for their fine art of courting “key opinion leader” physicians with wining, dining, and consulting fees—in hopes that these star physicians will say something nice in front of a bunch of their peers at a medical education symposium. Pfeffer says opinion leaders in the consumer world can’t necessarily be won over with free products—and clumsy marketing efforts can backfire horribly, given that influencers are so likely to blab to their friends about whatever offends or pleases them. So aside from its data-mining technology, which is available in Software-as-a-Service form, the company consults with its customers on the best ways to manage and direct influencers’ viral effect.

It’s a good time to be selling such services, says Shaul, because consumer-facing companies such as mobile network operators are obsessed with retaining customers. “The number one question for everyone in a saturated market is how do I reduce churn,” Shaul says. “We provide [clients] with the churn influencers—the people who influence the decisions other people make about whether to keep using their Capital One card or switch to American Express. We show them the enormous wave that starts when an influencer decides that he’s leaving. Sometimes when these people leave they will take four or five additional members with them.” In fact, Shaul claims that 50 percent of all churn can be traced to the actions of influencers.

Casinos such as Foxwoods are the masters of understanding churn, Shaul says, but even they need help figuring out what to do about it. “They can see when you’re reducing your spend and visiting less and they know exactly when to communicate to you and what level of bonus or discounts to offer to get you back,” says Shaul. “But say they do all that and a specific influencer still leaves. That’s where we come in. Can you stop the viral effect of his leaving? Do you know where this person’s sphere of influence is? And if you do, maybe you can’t win back all of them, but if you win back the ones that will bring an additional five friends with them, that will pay off.”

If nothing else, Pursway’s technology lends a fascinating new meaning to the term “customer relationship management.” Pfeffer says the Battery Ventures investment will allow the company to expand its own marketing operations and win more U.S.-based customers. (The startup picked Boston, he says, because of its talented workforce, and because most of the company’s existing U.S. customers are on the East Coast.)

Pursway’s ultimate goal isn’t necessarily to help clients cut their marketing spending, but to help them make better predictions about the effects of that spending, Pfeffer says. “Peter Drucker said you can’t manage what you can’t measure,” he says. “Now, for the first time, you can measure advocacy and what turns it on and off.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

By posting a comment, you agree to our terms and conditions.

  • http://blog.ramakrishnan.com Rama Ramakrishnan

    Fascinating concept!

    In the bricks-and-mortar world, detecting and building the “social graph” is very challenging since there are no convenient Facebook and Twitter clickstreams and weblogs to analyze.

    Applying smart algorithms (based on time-and-location proximity, it appears) to build the social graph makes sense. The resulting data is very valuable and can be used for a number of things, including, of course, managing customer attrition.

    One caveat: with large data volumes, connections between strangers may appear just by chance and the technology needs sound logic to filter these out.

  • Pingback: Boston Roundup: Pursway, Logentries, Paydiant, Healthrageous | Xconomy