I’m betting against Groupon, LivingSocial, and the other social commerce startups. Sounds crazy, right? I know they’re the hottest thing around right now, but I think their 15 minutes of fame are just about over.
Why? Like OpenTable, the economics of Groupon don’t often work for local business owners. Google it and you can find a ton of stories about how businesses got overwhelmed, lost money, etc. More importantly, Groupon’s value proposition for business and consumers isn’t unique, and relies on expensive local sales forces and their massive email lists to achieve local reach.
That doesn’t mean it’s not a smart business, but it does mean that the costs to run it as a standalone one are much higher than to run it as a department of a newspaper, which already has the reach, salesforce, and relationships to make local/regional group buying and social commerce work.
Philly.com is doing a nice job of this with DealYo, but I wonder if it’s actively taking business away from the startups. I suspect a larger media company like Philly.com could make deals with current advertisers and cut their margins to the point where they could run Groupon out of town if they wanted to.
First, businesses want to get the most customers and offer the least amount of discount. The classic 50% off of Groupon isn’t ingrained in consumer behavior yet, and I think a local company could convince advertisers to come on board at 35%. Second, Groupon reportedly takes half of whatever revenue it sells; a local media company with an existing sales infrastructure could probably get away with less than that.
PS – The big boys are paying attention. Gannett is hiring a ton of people for a new “Social Commerce” department. Every medium-large newspaper in the country should be looking to innovate around them.