The rapid rise of the “social commerce,” “group buying” or “social couponing” (whatever you want to call it) is sort of amazing to me. One interesting question that comes up in my mind is: Will the model that these sites offer start to “bleed” into other areas of local? Perhaps a better way to frame it is the following: will these types of sites put pressure on more traditional ad models being sold and promoted by other local sales channels, including TV, radio, print — even other online?
They’re not selling leads or clicks or even calls; they’re selling customers (albeit at a massive discount so margins disappear for the SMB in some cases). There are also others in the market like RedBeacon and HelpHive, among a few others, that are taking a commission on work actually performed. These sorts of models make “advertiser” acquisition much easier: “customers not clicks.” How widespread might this become? That’s a question I’m mulling over.
Lost Remote recently highlighted an interview with Groupon CEO Andrew Mason in which he discussed how successful a Groupon promotion was for one particular business:
“[W]e recently featured helicopter lessons in Boston and sold 2,600 in four hours. To put that in perspective, this fellow has been in business since 1985 and in the quarter century leading up to his Groupon he had acquired a total of 5,000 customers.”
On the other hand here’s a recent article from the SF Chronicle about how one local business was overwhelmed by the demand Groupon delivered:
When Philz Coffee Inc. offered half-price $20 gift cards to users of the Groupon.com coupon site, the San Francisco chain of coffee shops figured it would get a few hundred takers. It got more than 2,000.
“I nowhere near projected the amount of people that showed up,” said Philz President Jacob Jaber, who doesn’t expect to offer that kind of deal again. “We ran out of gift cards, and we just weren’t prepared for it.”
Philz Coffee’s Jaber decided his company is established enough to rely on word-of-mouth marketing. Most of Groupon users that pounced on the gift-card offer were already Philz customers, so it didn’t provide too much benefit, he said . . .
Too much demand and many buyers were already customers . . .
There’s little SMB education or “best practices” right now on how/when to use these sites and how to “acquire” new customers who take advantage of these offers. Over time I would also imagine there will also be mechanisms for managing offers to existing customers or weeding them out entirely.
I’m also starting to see Groupon ads on marquee sites, such as this ad appearing on NYTimes.com:
Yesterday I asked LivingSocial CEO and Co-founder Tim O’Shaughnessy to pick some winners in the segment (beyond LivingSocial). He said that Groupon would clearly be one because of its scale and momentum. Then he saw Gilt Groupe as another very interesting player. He also said he thought one of the larger European companies would move into the US and become successful.
I’ve had the debate recently with several people about whether the group buying model is sustainable. Right now these sites offer new business but I’m sure they’ll expand into CRM or loyalty programs over time as well. I suspect the model is sustainable although it will need to evolve somewhat over time — and some of the flaws identified above will need to be addressed.
I would also assume that Groupon is on a course to go public. But there are plenty of smaller companies that cannot and so there will be consolidation and/or M&A opportunities for traditional publishers (YP, newspapers) and others (e.g., IAC) that want to get into the game.
Facebook is also lurking here as a potentially major player. Right now Facebook really doesn’t have a product to sell to SMBs (notwithstanding Facebook Ads). This would be one that would also be extremely appealing to consumers; it’s a natural in a way.