Company Y recently acquired the startup Gravity for $83 million, in order to improve their customization of
Question:
Company Y recently acquired the startup Gravity for $83 million, in order to improve their customization of content online. Gravity will optimize the articles recommended to the readers of the Seoul Post on the site, and the display ads served to these readers. Such analytics tool has the potential to improve both retention rate (more relevant content means more loyal readers) and advertising revenue (more time spent on the site and more relevant ads both mean more advertising revenue).
(c) Suppose that Gravity’s technology improves both the yearly margin and the retention rate of the Seoul Post by 5% (i.e., both the margin and the retention rate are multiplied by 1.05 for both current and future readers). Does the increase in CLV of the existing customers due to Gravity justify the $83 million investment in Gravity (show your calculation)?
(d) Assuming the retention rate increase stays at 5%, to what level should Gravity increase the yearly margin of the existing customers to justify the investment?
Quantitative Methods for Business
ISBN: 978-0324651751
11th Edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey cam