(b) How many new readers should the Seoul Post acquire to close that gap, assuming an acquisition cost of $0.50 per reader? That is, how many new readers should it acquire to raise the CLV of its readers to $315 million, where the CLV of new readers is reduced by the acquisition cost?
Company Y acquired The Seoul Post in February 2021 for $315 million. Suppose the yearly margin per Seoul Post reader is $1 per year (coming from advertising), and the yearly retention rate is 70%, and assume a yearly discount rate of 10%.
(b) How many new readers should the Seoul Post acquire to close that gap, assuming
an acquisition cost of $0.50 per reader? That is, how many new readers should it
acquire to raise the CLV of its readers to $315 million, where the CLV of new
readers is reduced by the acquisition cost?
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 you 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?
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