News broke recently of ReachLocal buying daily deal site DealOn. I had picked up a rumor a few days before the announcement that a deal for DealOn was imminent, and I must have thought through 20+ companies that I suspected would end up as the likely acquirer. Where was ReachLocal on that List? It wasn't. Given DealOn's white label offering with Zagat, I guessed that the likely acquirer would be an audience owner or one very good at customer acquisition. They would have been the perfect candidate for an existing performance marketer or cpa network to diversify. Both Perspectiv and IMM Interactive have made this switch.
ReachLocal buying DealOn makes perfect sense, though. If it works, it means they move from obtaining a piece of the ad spend of local businesses to transactions. It also means they can go from relying on payment from small businesses who are hard to sell to and have little cash to paying them. That alone could fundamentally alter their business. It will be really hard, even though they have so many small business relationships.
As with creating an ad network or lead gen aggregator, you have to first overcome the chicken and the egg - getting traffic and getting deals. Traffic without deals doesn't work and deals without being able to deliver the traffic doesn't either, the latter being ReachLocal's challenge. This is why so many deal sites focus on one city - it's manageable - but it's also why so many fail to make it on city or beyond. They just can't figure out how to grow both sides. The best deal sites are amazing aggregators - lots of users and lots of offers, and bringing the two sides together with scale not available through existing channels, e.g., were a restaurant to promote via AdWords.
Speaking of AdWords, what should have happened and what still can happen is for Google to buy ReachLocal. The company's value today is just under $600 million. We've been through Google trying to buy Groupon and now Google working on its own deal platform. Despite its large sales force, Google is not a sales company. They don't have sales dna. ReachLocal, despite its technology, is a sales company. If there is one thing I've heard about them, it is that they know how to attract and train great sales talent. If there is one thing I've heard about Google, it's that they know how to not hire great sales talent because they measure them using the same criteria as their technical, managerial, and product talent. If you're in a bunker, you don't use a putter.
If Google wants to succeed in the deal space, pick up ReachLocal. They have the relationships and they have a platform that scales - a human capital platform. That alone is worth a premium over their current stock price. It's also how Google will best put its immense traffic platform to good use in the deal space. Self-service deals are a great idea, but curated deals work best today. We will hit a time when there will be a Quality Score for deals and only those with a great quality score succeed. For now, you need the people. ReachLocal has them.
