Commentary

Local Becomes The Next Social

by Laurie Sullivan , Staff Writer, February 16, 2011

livingsocial

Sometimes a technology can spend years searching for an application. That's what happened to mobile couponing. It took nearly seven years, but the advertising industry finally began catching up with the technology this week. Soon, these coupon deals could end up in organic search results or specific sections on Google, Bing and Yahoo geared specifically to deals. The smart merchants already tie deals to paid-search campaigns.

Signpost unveiled a self-service coupon platform based on yield management. Citysearch introduced a daily deal service for mobile that targets coupons to consumers opting into an Android and iPhone application. ReachLocal announced the acquisition of DealOn, which offers publishers a white-label platform for daily deals.

Along with the DealOn acquisition, ReachLocal reported earnings that Piper Jaffray analyst Gene Munster called "disappointing." Nonetheless, Munster believes 2011 will become the breakout year for online local advertising. With ReachLocal's entrance into the daily deals space, the firm reiterates its choice as the company as its top small cap stock pick.

The acquisition was important enough to overshadow FY11 revenue guidance that came in 4% below the Street, although the quarter's performance came in ahead of expectations, according to the Piper Jaffray report. ReachLocal reported Q4 revenue of $80.6 million and a loss of $0.13 per share vs. the Street at $80.2 million and a loss of $0.16.

Munster explains in the note that ReachLocal met the 1% upside the firm expected. ReachLocal guided FY11 revenue to between $380 million and $400 million, compared to the Street at $406.5 million and EBITDA to $6 million and $8 million, including a $5 to $6 million impact from the DealOn acquisition.

He also points out that ReachLocal plans to use Bizzy, a CRM tool that connects local businesses with consumers, offering personalized deals, which could eventually use the site as a platform to distribute coupon deals on its own.

Horizon Media recently aggregated information on the growth of social couponing sites. Interestingly, wealthier households are more likely to use coupons. The Harris Interactive study found that men increasingly use coupons. About half of all adult males, 51%, have used a coupon in the past six months. Men use coupons because of the increase in coupons found online and on mobile phones.

Groupon and LivingSocial controlled roughly 90% of the daily deal market in 2010, but new offerings like DealOn, Tippr, BuyWithMe and KGB Deals, as well as upcoming offerings from Facebook and Google will take large chunks, according to Horizon Media.

Horizon Media believes the coupon industry will mature into more niche sites that target customers by demographic, lifestyle or interests such as health and beauty or travel. Which site do you use?

coupons, mobile, search

2 comments about "Local Becomes The Next Social".

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Roger Toennis from Liquid Media LLC, February 17, 2011 at 10:23 a.m.
Deep discounting has never been a sustainable business model for any business, EVER.
But before the internet the occasional deep discount did often result in repat customer visits after a nearly free first experience for a new consumer.
But now with the frictionless flow of information about alternative businesses and alternative products/services and endless options for 70% discounts over mobile internet, deep discounting is a foolish business practice.
It will cull the herd though of small businesses who don't understand this and only the wise business owner who focuses on loyal customers will survive and thrive.
The "Groupon Phenomenon" is a recession-spawned flash in the pan that is already fraying at the edges from overuse and overexposure.
Some things never change.
1. Business 101: You buy something, you sell it for more.
2. If you sell below cost you can NEVER make it up in Volume.
3. Discount hunter customers are toxic for Small/medium businesses because they never return without a discount.
- 85% of SMB's fail within 5 years because they fail to adhere consistently to the above 3 tests of business acumen.
Reply

David Pavlicko from AVISPL, February 21, 2011 at 4:36 p.m.

Sure I've seen a lot of businesses blow it with their Groupon deal - but I'm not so quick to blame Groupon.

I helped my wife work her Groupon deal for her company and it went gangbusters - 500+ new clients and $60k in revenue (of course, Groupon took a nice little chunk of that). One month after the deal, more than 70% of those 'Groupon' clients have continued with the services my wife's company provides. If that trend continues, that one-time Groupon deal will have created well over 150k in long-term business, based on the avg lifetime value of their clients.

Not bad for 12 hours of advertising and nothing down.

Having said all that - it's certainly not for all businesses, and if you don't pay attention to the details when creating the deal, you're likely going to pay for it in the end.

My suggested rules for Groupon:
1. Never forget who your target customer is.
2. Make sure you can handle the business without affecting quality- if you can't, both your existing and new customers will never come back.
3. Read the deal copy before the day of the deal and make sure you didn't leave anything out, e.g. new clients only - one per person, etc...