A few people have been asking about my thoughts on GroupOn.  This post presents some general observations on their business model and the impact on local promotion marketing.  Soon, I’ll take a look at how we view and apply this learning in our business model at Closely.

As a consumer, and as an entrepreneur, I love GroupOn.  They have build real velocity into a large market need and space, executing exceptionally well on a quality business model.   I also am impressed how they have backed their brand strategy with real attention to customer service.  For those not familiar with GroupOn, explore here.

perfect timing

In 2008, consumers began a mega-shift to conservative behavior with their discretionary income.  GroupOn’s proposition hit at the right time, aiming straight into the heart in this shift – offering urban consumers a new way to treat themselves again.  Creating a model of daily deep discount savings to interesting local restaurants, salons and activities, they struck a chord. Delighted by the great new bargain venue, consumers connected themselves together into a large and powerful consumer social list.

GroupOn connects this consumer desire together with lead-starved local businesses who are anxious to pump up their volumes, but cringe at the risks inherent in traditional media spending.  Their business-side innovation comes in the form of a compelling performance-based model, where a business pays out of the proceeds of customer purchases.

social light

Industry analysts point to GroupOn as a next gen social media company.  To me, GroupOn feels more like a contemporary version of a traditional media model.  Let me explain.  Social media is certainly the foundation upon which GroupOn engages their vibrant consumer base.  However, to the participating merchant this is a performance based media buy.  Advertisers buy a distribution slot to GroupOn’s list, which is opaquely retained by GroupOn.  The business gets leads and it’s up to the business to convert those leads into customers and onto their own social lists.  This is a classic third party lead generation proposition.

the group that became an audience

On a related theme, I also don’t consider GroupOn to be about group buying, at least not anymore.  At the outset consumers were socially engaged to share deals with friends in order to hit a purchase threshold before everyone got to share in the deep discount.  Those days are long gone, GroupOn now has a mass local audience in most major metros, removing all group volume “risk”.

There is no disputing the company’s ability to aggregate substantial purchase behavior against deep discounts to interesting places.  However, GroupOn’s scale now positions it as a predictable engine for large scale purchase of discounted products/services. It’s a powerful weapon to be used by a business perhaps once a year, maybe 2-3 times at most.

the new local tour bus?

I find it interesting that GroupOn describes itself as a City Guide of sorts – viewing its product to be the impetus for people to get out and explore more new places. The brand is aiming at a somewhat curatorial style of their featured discounts. At the recent Kelsey conference, GroupOn’s CEO innocently snubbed Valpak with a comment to the effect that those kind of deals wouldn’t fit their brand.

Some restaurant and salon operators have voiced concern that GroupOn is creating a troubling behavior pattern with consumers that works against their ability to convert the GroupOn lead into repeat customers. Will they drop in and never come back, as the move on to the next deal? Is the GroupOn consumer more into drive-by consumption than loyalty?  While it’s probably just too early to judge, one thing is certain. The growth in GroupOn’s consumer list, combined with the rapid proliferation of copycat companies will most certainly give the consumer the opportunity to collect a drawer full of deep discount offers.

In some ways, GroupOn feels like the next Yelp, but with a dramatically better business model. It must be pretty annoying to Yelp investors to see their 10X audience generate revenue that is probably no more than 20% of GroupOn’s.  It’s highly predictable that Yelp and MANY local media companies are looking jealously across the GroupOn bow, with an intent to flatter the company with their own form of replication.

too much of a good thing?

From one lens, GroupOn is arguably doing too well.

A brief browse through recent deals show a scale of buying that is a runaway success in lead generation. However, the success formula relies on a deep margin risk to the participating merchant. The merchant appears to be averaging a net of 25-30% of the retail price on the consumer products and services, in low operating margin businesses.

To make the deal math work, the business has three critical ways to make the offer participation a smart decision.

1. Ensure that the average bill paid extends beyond the coupon’s value,

2. Convert the new leads into repeat clientele, and

3. Handle a deluge of reservations without sacrificing cost and/or consumer experience.

GroupOn appears to do a good job in working with their customers to ensure they understand this formula. These parameters, however, do make it more appropriate for some segments than others.

As a personal observation, I’m seeing more deals aiming for lower price points ($10 for $25, versus $20 for $50) which I suspect is a technique to drive achievement of goal #1. Perhaps it also signals a growing frustration with the “tour bus effect” of the GroupOn clientele.

In my experience Issues # 2 and #3 represent the things that many small businesses are ill- equipped to manage. If businesses cannot handle the scaled volumes, or cannot make the math work, GroupOn’s model will be challenged to evolve, perhaps in ways that make them vulnerable, competitively.

is this the google moment for local direct marketing?

There is one other piece of the business case that GroupOn is quick to point out to the merchant.  The size of GroupOn’s email list is now sufficient to deliver business visibility that is comparable to the scale of major placement in a leading local newspaper or zine.  This “budget savings” argument may well carry the worst news for incumbent media players.

If GroupOn (and their clones) continue to perform, the impetus to spend marketing dollars on newspaper, coupon services, and local magazine display could be stunted.

Traditional local retail and direct marketing spending feels like it is on the cusp of being challenged, hard, by a performance-based lead gen model. Sound familiar?

You may know I’ve been working on a new start-up for the past 6 months, pretty much heads down – stealth by default, not design.  Actually we’ve been very active in our market, just totally focused on product, not business cards or websites!

In a couple of days, we’ll be taking the wraps off.  We’ve been chosen to launch at the DEMO Conference, which is a great venue to jump off the ledge with new products.  I’ve done this once before; it’s a pretty intense and fun launch pad!

the evolution of an old idea

I was fortunate to be around for the formation of Jabber, with a group of visionary friends whose ideas still inspire me – guys like Doc Searls and Tim O’Reilly.  A decade ago they started my mind spinning about the future of the real-time web, where real-time data and geo-presence empower applications, people and crowds.

Over the past few years, I’ve been deeply entrenched in the local search space, as local advertising evolved through the lens of search services.  In the back of my brain, I’ve always been curious about the “other side” of local – direct marketing.  While the whole industry was busy adapting to the Google search ecosystem, promotion marketing seems to have been pretty much ignored, chugging along capturing tens of billions in local marketing spending.

With the emergence of the Twitter ecosystem, Facebook’s rise to ubiquity, and the mobile local world finally showing real formation, I knew it was time to put my energies in a new direction.  With my prior business operating nicely in good hands, I was so ready for a new adventure.

marking our territory

I’ve become a big fan of GroupOn, along with a few million other consumers! GroupOn has done a tremendous job of creating an audience for daily local offers, to which it sells placement slots.  It’s really a traditional direct marketing business, smartly pimped up with time-limited offers, social sharing, and the illusion of group buying. [Earlier on, you had to gather up your friends to win buying power].  To me, the real magic is in deep discount deals to cool places – it delivers a way for consumers to feel great as they save money getting out to interesting places.

I’m also a big fan of Twitter – not for its’ current consumer proposition, but for the budding beauty beneath.  This awkward teenager will continue to blossom into a central role in content distribution and following.  And, of course, Facebook, as commander-in-chief of the social graph, is equally critical in driving live consumer + friends connections.

I’d be remiss to not mention email marketing pioneers, Constant Contact. I’ve watched them since the early Roving Software days, admiring their tenacity in engaging small businesses, winning over 300K users on the value in maintaining constant contact with your customers.

Finally I’d bracket our space with the LBS darling, Foursquare.  I salute their bright discovery of game-based ingredients that triggers consumers to share their location and favorite places.

deep roots, firmly planted

I’ve pulled together a 7-person team, that I’m very lucky to be working alongside.  My two co-founders, Tom Bender and Karyn German both have worked with me before in the Jabber era.  Tom, engineering lead, is a serious math brain who has led engineering teams and architecture in Jabber/Webb, Digital Globe and Tendril Networks.  Karyn fearlessly led Product Management at Jabber followed by a four-year stint leading Product Development and Client Services at Newsgator.  The rest of the team, Jeff Davenport, Scott Davis, Brian Doyle, and Noel Graham all bring deep engineering and design chops rooted in small business marketing, real-time messaging, feed networks, email platforms, mapping and social media. It’s a wicked smart team, with a matching sense of humor, as you might expect!

I am also very excited to have the support of a group of top tier Angel investors and advisors who bring wisdom and insight to the space, led by Kendall Fargo, who remains very active with the company.  Kendall most recently ran Small Business Marketing Tools at Intuit, after their acquisition of his previous start-up, Step Up Commerce.

we’re close.ly

So, to pull this all together, Closely, Inc. is engaged around this problem/opportunity…

How will businesses create, disseminate and engage with local consumers around live offers?  How does a business reward their best customers, their customer’s friends and their neighbors for coming in or buying product when their demand is most valued.  How will consumers follow and and swarm around these specials?

Ultimately, live socially-connected marketing will extend deeply into the tens of billions in direct marketing media spending. It promises to turn direct mail, promotion advertising, and email marketing on their collective heads.

We chose the brand Closely because it captures the shared desires of local consumers and businesses – the desire for a business to be closely followed, and the desire for a consumer to stay close to offers that fit their interests.

Next week we launch our first step into this emerging world of live marketing.

If you’re interested, do follow closely

twitter: much (much) more than “what am I doing now”

image credit

It’s too easy to be dismissive of Twitter as simply an extraction of the “status update” that became the backbone of social interaction at Facebook. While the concept originated with this, it has rapidly evolved into THE place where an increasing flock of consumers AND publishers post real-time information (over 6 million users, currently).  More importantly, it’s the place where consumers congregate to consume and converse around this eclectic treasure trove of real-time information. It’s a noisy, disorganized commons, yet it feels very much the place to be.

Increasingly, you’re seeing Twitter capturing a pivotal role in content distribution, threatening to siphon the traffic position of consumer portals, newspaper websites and RSS feed readers in consumer’s news consumption habits.  Most major publishers and bloggers now immediately push content updates to Twitter as soon as the information goes live.

Might this become as impactful as to challenge Google’s dominance in Search?  Pfft, of course not.  However, as John Battelle suggests with his analogy of YouTube – it’s capturing a new dimension of consumer content consumption and participation that is drawing very real momentum.  Google doesn’t capture real-time content of any scale today, and it certainly does not feel like a conversational medium capable of engaging the consumer-consumer conversational thread.

Like YouTube, Twitter’s underlying financial model is yet to be demonstrated.  I suspect, like all conversational applications (Chat, IM, Facebook,…) ads running alongside conversations will appear as distractions, and under-perform compared to commercial search.  However, also like YouTube, Twitter’s position seems to be forming into a critical new dimension of the media landscape. Undoubtedly, the big boys are onto this, and are actively considering “taking it out” before it gets snapped up by someone else. The synthesis and leverage of the growing “conversational knowledge base” is definitely a part of the appeal of Twitter’s position.

The debate over the underlying revenue model of Twitter is driving a feeding frenzy of blogger speculation, and even triggering open competitions for the best proposal.  The founders promise it’s around the corner, and the outcome of this will be very instructive as to “where might Twitter go?”.

twitter and local media

Greg Sterling makes an interesting case for Twitter as a working example of  “social directory assistance“. Essentially, the concept is to ask a question of your followers, and receive near real-time opinions from your circle of friends.  Unlike Facebook, where your “friends” are a filtered and approved list, Twitter differentiates itself by the fact that anyone can become an interloper into your postings.  I’d guess that I probably only know 20% of the people who follow me on Twitter, versus 100% of FB friends. We are seeing very dramatic follower volumes with celebrities and celebrity VC’s. To me, extrapolating the virtues of this real time “answers from your tribe” model works “for them but not me”.  While Twitter helps you build a larger tribe, the trust factor of “near strangers” is to be questioned. Most of my followers do not live/consume in the same locale as I do, so this leverage is further limited in local value. Very few consumers have the “tribe pull” to get anything but spotty answers to many local questions in this model, I’d posit.

Bridging the gap between “friends and neighbors” you’re seeing new Twitter-like services emerge with interesting potential, such as BrightKite (the product of a couple of Local Matters’ alumni!). This expanded tribe model perhaps makes the social directory assistance model more achievable.

Twitter zealots (hey, when your blog is called MrTweet, you know it’s a fan boy thing!) point to increasing anecdotal evidence of Twitter being employed by local businesses to drive tangible growth, such as this local coffee shop story. Added participation by merchants and a growing cadre of “coupon tweet” start-ups are fueling this buzz.

I certainly am a big believer that the world of real time promotions will be reinvented in the next decade, and it will be founded on social and conversational media. However, whether this logically fits into the Twitter delivery model it a very big TBD.

ginzu steak knife or swiss army tool?

Today, the tech world is granting Twitter the birthright to a world of possibilities.  However, as succinctly pointed out by Tim O’Reilly, the simplicity of Twitter is a very key ingredient to it’s success. The bright shiny world of possibilities most commonly buckle under the real life challenges of morphing from simple products to major ecosystem players.

Perilous navigation is definitely ahead, as Twitter expands into the search dimension of real time conversations, deals with the overwhelming noise of commercial models and choking spam, and contemplates a platform role.  Wherever it ends up, it’s the deserved poster child in one of the most important dimensions of online consumer behavior.

Twitter demands careful attention and active participation.

]]> http://www.evansink.com/2009/03/twitter-the-new-thing/feed/ 0 http://www.evansink.com/2009/02/pavlovian-eating-2009/ http://www.evansink.com/2009/02/pavlovian-eating-2009/#comments Sun, 08 Feb 2009 16:41:04 +0000 perry http://www.evansink.com/?p=151

Anecdotally, it’s becoming apparent that restaurants are struggling as consumers pull in their spending reins. It seemed to start with the gas price crisis, and certainly is continuing through the economic downturn.  People are simply not going out as much as a higher share of earnings are applied towards savings, and as job security fears weigh heavily on consumer’s minds.

I discovered a year end research report synopsis on consumer restaurant spending by a small blog post on the finance blog, Infectious Greed, which linked to the NPD Group’s 2008 research results summary.  The details are insightful, and point to the critical importance of incentive offers to entice consumers into restaurants in 2009.

From NPD’s Consumer Report on Eating Share Trends:

“…According to NPD, promotion-related visits supported all commercial foodservice gains, as deal visits increased six percent and non-deal visits slipped by one percent. For the annual period ending November 2008, 23 percent of all traffic involved some type of consumer-recognized deal. Over 90 percent of the increase in deal visits came from quick service restaurants (QSR).

While QSR traffic growth slowed in 2008, the segment fared better than full service restaurants. The modest growth at QSR offset losses at midscale restaurants. Deal-related traffic kept QSRs in a positive position. Casual dining traffic was stable for the year; however, trends weakened n the latter half of the year with a two percent decline in traffic for the fall quarter.

As consumers took advantage of discounts at lunch, lunch traffic increased after realizing no growth in 2007. However, visits to restaurants for supper continued to trend down. Morning meal and snack-related occasions slowed over the previous years’ growth, but did experience positive growth in 2008.

“I don’t believe consumers, no matter the state of the economy, will abandon restaurants entirely, they will just use them differently – more cost-consciously,” says Balzer, who has been observing how American eat for 30 years. “There will be no recession in eating; there will just be winners and losers. The restaurants that deliver value and make it easy to get food cheaper, in new and compelling ways, will win.”

boldface emphasis added by me.

These results reinforce the importance of promotion and discount offers to survival in one of the largest segments of online local advertising.  Promotion content has never been in the cross-hairs of online yellow pages.  Interestingly – so far – I have not seen Yelp embrace this trend, although it would be a really obvious next move.  It seems to have become an increasing part of CitySearch’s model.

While the obvious conclusion for YP publishers is to concentrate more seriously on promotion based content, the YP brand has never been recognized as the place to go for live promotion or coupons. Likewise IYP sites have done little to bring offers or promitions into their use cases.

I’d suggest that the focus should be on the distribution of promotions. Promotional content and SEM programs need to be more tightly connected.  There’s not a more Pavlovian moment to offer a consumer a deal then when they have just clicked a search box looking for restaurants. Perhaps we can convince Google to let a bell ring alongside the SEM ad!