JayWeintraub.com - Internet Advertising Analysis and Growth Insights

Musings from Jay Weintraub, Customer Acquisition Strategist. Currently, Founder of Grow.co. Previously Founder of LeadsCon.

The End Is Near For The "Groupon Clones"...and that is not a bad thing

Expect in the next couple of weeks to hear of at least one major changes in the industry that will signal very clearly this deep consolidation to come. (And, it has nothing to do with the recent update that Groupon will soon begin its roadshow looking to raise money at a $12.5bn valuation.)

What has started to change? It isn't the accumulation of negative press. It's the broad realization from the thousands of people and companies who have tried to enter during the past 18 months that making money in the local deal space is hard. Very hard. It's much harder than most people think, but until everyone gave it a go, and experienced it for themselves, no amount of others saying so would do. What did they learn? Bootstrapping or raising a little bit of money to capture a few markets can work, i.e., turn into a cash flow positive business, but enough people - entrepreneurs and investors - now know that going from a handful of markets to scale requires an insane amount of cash.

Those going to be impacted first are the smaller but direct competitors to Groupon and Living Social who have not hit scale, with scale being defined as not holding a top 3 spot in multiple markets and a business with healthy operating profits. This industry has become less sexy, and that's a good thing.

So what should the future hold?

  • Fourth, fifth, sixth, seventh, etc. entrants to markets in the US will shut down - not every smaller player will show down, but many of them started with the idea that they would either get bought or be able to grow more quickly than they have.
  • No more big checks will be written to allow modest players to try and become big players - this more than anything will cause the rapid deceleration of existing sites
  • Those with known brands will stay around along with strong vertical players - the joke has been what do you call the groupon of the mommy space? Groupon. We don’t necessarily agree.
  • The industry as a whole will improve - this is the big one. How will the industry improve? The talk will shift away from the negative and back to the innovation - from tablets to retail stores. We will also see people focusing not on the vocal minority but the satisfied majority. This channel has legs, and we will finally get a chance to see it, instead of today where we can't see the forest for the trees.

October 19, 2011 in Daily Deals | Permalink | 0 Comments

Were I A Groupon Bear, And It's Almost Hard Not to Be These Days...

Web guys like me have been evaluating internet traffic for years. I'm on the wrong side of 30 by some investors criteria, but on the right side of that number to recall what happened in the early days of web advertising and the issues that could potentially even bring down Facebook. Not surprisingly, traffic is at the root of the issue for Groupon just as it ultimately was for companies like All Advantage or the slew of free lotto sites. Foot traffic AND web traffic.

Foot Traffic
Were I bear, I would focus on how daily deal sites like Groupon can get someone to come once, but how they do nothing (today) to help a business get a repeat customer. This argument is a difficult one. What is Groupon's responsibility? Is it Google's responsibility to get you repeat customers after sending you paid clicks? Google continues to add tools that make you want to spend more, but they have yet to offer tools that makes them accountable for your lifetime value.

The challenge with merchants is that the vast majority of merchants have not thought about their business in terms of lifetime value. We see this with lead buyers who when asked what they would pay for a lead say one number, but when you show them what they are paying, it's multiples higher. If Groupon or Google in the early days focused only on those that understood the metrics, they would have fewer customers. Imagine if Google didn't let people spend money unless they met some fiscal accountability criteria? Where Groupon should learn from Google - put restrictions in place so that merchants can limit their downside. And, don't incent sales people in a way that allows them to make bad deals. Delay payments based on some longer-term success metric.

Web Traffic
Were I to be a bear, it would be on their web strategy. Acquiring users is one of their biggest costs, and unfortunately for Groupon and all the deal sites, this is a cost that keeps rising, but that is not why I am actually bearish.

The company has been buying sub-optimal users. It's a calculated gamble on their part. Technically they can purchase a lower quality name to help build up volume in a given market (especially newer ones and harder to target ones internationally). These names may turn a profit, but this purchasing higher volume lower intent users has in my opinion contributed to the quality of customer they send to a restaurant. Do we know for sure that buying an incentived user turns into a lower quality customer for a business? No, but it wouldn't surprise me to learn that a correlation exists. LivingSocial has much higher quality standards for their web buys and won't engage in the same acquisition strategies. They also tend to receive higher qualitative feedback from merchants. Is that enough? No, but it is interesting.

Too Big to Fail or Too Big to Succeed
There is something about Groupon that has me thinking Webvan. The two are so different, but yet they feel so similar. So much hype and so much promise. Yet, one major market correction, and poof, there went 2000 jobs. 

Reading over past stories of the final days of Webvan, we see that Groupon is nowhere near where Webvan was, but at the same time, seeing that such a high flying and large a company as Webvan could not only fail but fail relatively fast, must give us pause. A domino effect could sneak up on a company like Groupon - merchants pulling back, consumers buying less, and the capital markets drying up. A few staff reductions and the company continuing to chase profits that aren’t quite enough to cover overall costs, and almost before we know it, they decide to simply close up shop because no one else has the money or desire to keep it going. Hard to imagine such a scenario, but we would have said the same about Webvan.

Not that there was a question, but the answer if there was one might be hubris. When things are good and momentum is strong, a company can seemingly do no wrong. But, very few companies get so lucky as to never face challenges, and it is times like those when you want to see a greater level of awareness and a business maturity. The last thing you want to see is defiance and fueling the fire of a cocksure attitude. A teenager must become an adult, sometimes faster than they might like, but they must. A company is not a rock star or other diva personality who can simply do what they want and have the world adapt to them. Hopefully, we’ll see the rebellious outbursts lessen in our teenage superstar, Groupon. Otherwise, this business prodigy could end up burning out and become an unfortunate and expensive case study.

Groupon has some real assets - a local customer list, great local merchant data, and a large consumer list. It has value, but it's not a technology company, and it shouldn't be valued like one. I'm not ready to go full on bear, but I'm waiting to see if this child star can pull a Drew Barrymore of business.

Why All The Daily Deal Hate?

September 15, 2011 in Daily Deals | Permalink | 0 Comments

Facebook Kills Deals. Death to The Deal Space?

Last week, Facebook made a rather unexpected announcement - that it was killing off its daily deal business.The easy and more salacious conclusion suggested a fault with the deal model. If it was a good business (model), then Facebook would have stuck to it. Right? Maybe, but probably not.

It Didn't Do Much Business
If you speak to any of the seven partners that Facebook leveraged for their deals, they can tell you that the company never became a meaningful source of traffic. Given that Facebook partnered with everyone but the top two, the biggest losers were deal providers three on, each of whom happily touted the partnership in press releases and internally hoped that access to hundreds of millions of users might catapult their businesses. They were probably more disappointed that the partnership didn't reach its full potential, but they could also tell you that the integration was not an easy one.

When the partnerships were announced, it always seemed odd that Facebook might not go the route of Google and own the merchant relationships, but the hypothesis was always that Facebook was testing out various partners and would simply buy the one thye liked best.

Online Deals Never Were a Great Fit
The deals business is fine, but the direct marketing nature of the current deals business has no place in the socially focused world of Facebook. Message-based deals are not a scalable technology play, at least not yet. They are the new Yellow Pages. Facebook tried to put a social spin on deals, but the market just wasn’t there yet. Equally important from Facebook's perspective, the deals model is not self-service, and everything else that Facebook has for businesses large and small is self-service. This is why they didn't kill all deal products, check-in deals are alive and well and not going anywhere.They scale, fit large national brands as well as small merchants, require no sales force, and rely solely on technology. 

Facebook Is Doubling Down
No matter what Groupon might say, they aren't a threat to Facebook, and the latter didn't shut down deals to protect ad revenue from the deal site. It's the other G that matters - Google. The search giant’s entry into the social graph might be a lesser issue today, but that a company could gain so much traction so fast must have been a wake-up call to Facebook. Their fingers are presumably no longer on the panic button, but a better product in many respects is out there. Most importantly, Facebook has long been associated with identity, and Google has almost directly said that Google+ is an identity play.

Consumer identities are just one piece. If Google can capture some of the business identity market, which has truly propelled Facebook as a business, the company has a real threat on its hands. Facebook's pages product is not slick, and it operates in a closed ecosystem. Google+ has the potential to not only create a better page but as other has already discussed, tie into both Google search results and the social / interest graph. The chance to get more traffic from Google is a benefit of Google+ that Facebook cannot inherently address....so, it’s time for them to get busy making sure businesses (and users) will continue to dedicate themselves to the platform and allow Facebook to control their online identities.

As for deals, it's a marketing tool. If Facebook doesn't have the businesses, having deals for them will be meaningless. This decision just shows they have their priorities in order.

<Plug> Join 200+ other companies at Daily Deal Summit 9/22 and 9/23 in San Francisco the first conference series dedicated to the daily deal and group buying space. (A shameless plug deserves some two way benefit, so here is a discount link courtesy of our title sponsor, Yipit.)</Plug>

September 07, 2011 in Daily Deals | Permalink | 0 Comments

Is Mobile Really The Next Frontier for Daily Deals?

The question underlying this whole post is what will mobile in the deal space really become, if anything, and, who will control it?

Mobile doesn't work like the web. Today, I spoke with KimaLabs, ex-Amazon guys and makers of some cool mobile commerce apps. They've been thinking about and operating in mobile a lot longer than I have and explained that mobile is a much more ADD user experience. It's all about short bursts of attention. You're competing with life much more when on a mobile device...or at least Angry Birds or its equivalent. It's also a very browsing oriented medium not search oriented. More scrolling, swiping, and pinching, less typing.

The same things that make mobile different from the web in theory make it quite well suited for the deal space. Deals are impulse decisions. They aren't the product of searches, and they are very local. The issue is the psychology. Deals work so well on email because it's a captive audience. It's why branding works so well on TV. It's about how it is received. (Email also means easy access to a deal you might want but don't want that second.) Flash sales like Gilt can work on mobile because the threat of losing an item means people will buy from any connected device. Deals are time based but not scarcity of quantity based. Nor are they on the whole so overwhelmingly compelling to stop what you might be doing to buy just because you saw the deal on your phone. 

Search has been the been first iteration of mobile deals. Groupon helped conceptualize the process with their interface that makes sense - Eat Something, Go Out, Get Pampered. The problem? The deals and the behavior.

1. The Deals - Evergreen vs. Perishable
The mobile deal landscape on the major players still kind of sucks. The holy grail are temporary deals that help attract users when merchants need them. That problem either requires great integration (OpenTable knowing availability) or lots of effort on the merchant to upload and activate. Deal sites don't have the first and merchants don't have a lot of the latter. What we see instead are evergreen deals that merchants don't mind showing at any time, but they don't bolster the "now" vision. Examples are those that Mobile Spinach offers - easy to consumer deals that don't ever expire, e.g, $3 for $6.  

2. The Behavior
I'm no expert on mobile, but I like to watch people. When do they use their phone a lot? I'm hooked on Google Maps, but that doesn't seem to be the majority. When looking at Twitter, Foursquare, Instagram, Facebook, and even Email we see the problem.

  • Deals on mobile are not social - the space is called group buying, not social shopping; you don't need friends or feel compelled to share with friends. They don't make you want to broadcast. They apps don't compel you to open them as part of your behavior. 
  • Deals on mobile are not games - browsing feeds is fun and passes the time well; scrolling for deals, not so much. As is the case with not being social, you just have limited reason to open up a deal app; you don't check-in on it; you don't get rewarded for using them; you don't get hooked on the crack.

You don't need both, but you do need at least one.

Is All Hope Lost?
No, but as a direct response business (local discounting), they still need a reason to message their consumers. That's not there yet in mobile. We could see a world with great push messages based on location, interests, and other social / geo data. Not now, though.

My advice from the cheap seats, help those apps with touchpoints to consumers monetize better as you, the big deal sites have the merchants. For now, though, don't try to be the vertically integrated play in mobile. Treat mobile like the international space. Watch others, learn from the data you see, then, buy the better ones.

<plug> Like this stuff? Then, I hope you'll join us at Daily Deal Summit West. (Should this plug have a discount?) </plug>

August 08, 2011 in Daily Deals | Permalink | 0 Comments

For Those Who Want Deal Space to Die... Sorry

Addressing the obvious unspoken question first - I have an absolute positive bias towards the deal space. I do run the daily deal conference, so were it to die as some of its more vocal critics would prefer, that would put a crimp in my plans for marketing technology event domination. It will die though... in its current iteration at least. 

The deal space today is a direct marketing machine. That's part of its problem and yet one of the reasons I love it so. The get email send offers has been referred to as the blunt instrument approach, so it will need to be fine tuned if it is to continue. Otherwise, it will turn into the yellowpages business - big but dying. 

All of local advertising looks to drive people in stores. Discounting isn't new. Local coupons aren't new. Using the web to drive a local merchant thousands of customers on a performance basis is new. The scale and speed with which Groupon and now LivingSocial have achieved this warrants the attention the space has received. As Jim Moran of Yipit told me, national brands may leverage the space, but influencing local dollars is what has people up at night. It's why Online to Offline or O2O as Alex Rampell coined is, if not a trillion dollar industry, a multi-billion dollar one.

ROI
Here is what the big guys all get. Namely, that if they take a dollar out of a merchant's pocket and don’t give them back $1+ back, they will fail in the long-term. This is where we are today. You can't get merchants to spend more than a billion dollars with limited accountability and not have quesitons raised. But, as a deal's business, do you wait for the merchant's level of sophistication to increase before taking their money or do take their money and try to balance their needs and your own. Google is a case study in the latter. If they let only savvy marketers spend money so that no one could lose money, they wouldn't be where they are today. If a company is taking advantage of merchants and/or creating a system where that is possible, that is unacceptable. But, it would not be unsurprising to hear of examples in our revenue driven world.

The Future of The Deal Space
The deal space is really a collection of spaces. It started with the just the web, or more specifically email. It was and still is primarily a broadcast approach with little targeting or specificity. Were it start any other way, though, we wouldn't see such scale in one particular company. The web deal space will be like search, dominated by a handful of players. Groupon and Living Social will stay the winners, but how large will they be of the total market when it continues to expand is up for the debate. A friend told me about a conversation he overheard where one executive outside the deal space predicted Groupon would be the MySpace of the sector. It's not that the sector is all bad only that certain tactics are not sustainable.

Mobile, other connected devices, and unexplored touch points are  going to be different. As an example, Groupon's email list and sales force don't make it an odds on favorite to win mobile. They are also why a company like American Express can so quickly and easily disrupt the ecosystem if they really chose to do so. I wish I could recall which executive I spoke to in order to give him credit, but he explained that mobile will not be a winner take all or most environment. In mobile, we will see many niche apps becoming meaningful players. People aren't necessarily looking for deals when on their phone. They are doing other behaviors that enable the showcasing of deals. It is why foursquare and twitter are (still) meaningful, and it's also why Google should become the leader in this space. 

Innovations in customer acquisition. That's where the deal space falls. It's not about daily, and it's not about deals. It's about connecting buyers and sellers in ways that leverage connected devices to create scale.

August 02, 2011 in Daily Deals | Permalink | 0 Comments

Look Who's Attending - Daily Deal Summit Logopalooza

If a picture can say a thousand words, this might be the shortest post ever.

Daily Deal Summit, the first ever daily deal conference, takes place in less than two weeks, on April 6th at the Grand Hyatt NYC. As one who has been accused of being too wordy, here's a nice visual to get a feel for the event. To see all 220+ check out the full list of companies attending.

Dailydealsummit-logos

Other Useful Links:
Agenda // Register // Sponsors

I would like to give a big thanks for Jim Moran and Vin Vinicius, the co-founders of Yipit, our Title Sponsor. They lent their thought leadership, perspective, and personal relationships to help make this event a first-class affair.

Registration will most likely close early. We set a cap at 300 people, which we have hit. We'll allow some overage given the city location.

March 24, 2011 in Daily Deals | Permalink | 0 Comments

ReachLocal buys DealOn But What Really Should Have Happened Is...

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.

 

February 16, 2011 in Daily Deals, Lead Generation, M&A | Permalink | 0 Comments

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