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The Business That Powers Local Social Media November 29, 2010

Posted by David Card in Uncategorized.
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“Local” and “social” go together like bread and butter. Add “mobile” and you’ve got your sandwich, or, better yet, a trio of hot technologies attracting capital from investors and big companies alike. For consumers, there are obvious synergistic experiences: Mobility is local by definition, as are many social activities like physical-world shopping and going out for entertainment. But what’s the business driving this trio right now?

The digerati like to talk about local social commerce and conjure up visions of Minority Report-style advertising and proximity offers. But those are largely still visions today — promising, but as-yet undelivered. The near-term payoff for local social media is coming from more mundane sources like small-business marketing budgets that used to go to Yellow Pages, newspaper inserts, circulars and coupon mailings. So companies in this space need to support local small-business advertising in their business plans.

Local Advertising Online Still Nascent

Most local ad spending is still on traditional media. Eighty-five to 90 percent of the roughly $130 billion in U.S. spending isn’t digital. Print Yellow Pages is still a $15 billion business. Sure, thousands of small businesses buy paid search listings from Google and Bing, but they’re usually small online businesses that can convert sales on their web sites. The vast majority of local small businesses are barely online, if at all.

At the same time that minimal local ad spending has moved online, many local advertising vehicles are struggling, making for weaker competitors or potential partners. Free classifieds and Craigslist are killing a local newspaper revenue stream, and most newspapers’ best display advertising customers were recession-hammered car dealers, real estate and big retailers. Yellow Pages remains a sluggish cash cow for companies like AT&T and Verizon Superpages. Dex One is shutting down one of its online initiatives, Business.com. Another player, Local Insight, is in bankruptcy, as is Vertis Communications, a company that specializes in free-standing inserts.

Check-In Deals Proliferating

Meanwhile, announcements of advertising and promotional deals with check-in companies are peppering the news. Location-based services companies like Foursquare and Gowalla still have pretty small marketing staffs. They’re better equipped to service national or online brands and retailers that target local markets from a centralized national marketing or advertising organization. That includes companies like PepsiCo, Starbucks, McDonald’s and auto manufacturers and banks.

An online local content company like Yelp, that built its business and audience around a web site before going mobile, is better-equipped to deal with local small businesses, and has relationships in place.

Groupon’s “Dirty” Secret: It’s Not Really Commerce

The hottest name in social commerce isn’t even really about commerce. When daily deal powerhouse Groupon makes its pitch to local merchants and national brands aimed at local customers, the pitch is about new customer acquisition. When the economics work, it’s a compelling story: since the shopper pays for the Groupon coupon, the resulting customer location visit guarantees a sale, and is thus pre-qualified as a prospect.

When rumors of a Groupon-Google matchup made the rounds last week, some were critical of the potential. An acquisition, rather than a less formal partnership, makes sense for several reasons. Google would get a big local salesforce. It could offer complementary paid search and display ad services for customer acquisition, and perhaps do a better job of tracking customer conversion across email, search and online display ads (Google bailed out of radio). Google might be able to help Groupon with its own customer acquisition, although Groupon has only recently started to buy paid search listings and online ads. And Google would have to balance the value of running “house” ads versus paid-for inventory, as well as appease Groupon competitors.

Additional Service Opportunities

Other local social revenue sources beyond customer acquisition offers could include:

  • Media buying. Local social companies could assist unsavvy local merchants with SEM, SEO, distribution, and online ad network buying. Digital Yellow Pages does this.
  • Ad creative services. Companies like BuyWithMe already work with merchants on crafting their emails, testing offers, subject headings, etc.
  • Store loyalty programs. Check-in services are heading this way already.

Question of the week

What revenue streams should local social media go after?
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