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What Local Social Commerce Needs to Really Take Off April 25, 2011

Posted by David Card in Uncategorized.
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Last week, a handful of local e-commerce and interactive marketing announcements from Groupon, eBay and others hinted at future accelerators for the already-hot social commerce space. Up to now, the biggest social commerce category has been more about marketing than selling: Local merchants use their advertising and Yellow Pages budgets on daily deals from Groupon and LivingSocial to attract new customers. But for social commerce to expand, suppliers must get local spending from big national brands, improve conversion with personalized offers and expand beyond customer acquisition into retention. Then they can get around to the actual commerce part.

Marketing will continue to drive social commerce for the foreseeable future. E-commerce is like catalog shopping and won’t likely account for anywhere near 15 percent of retail for some time. But there’s plenty of excitement over bringing social media and local retail together, as illustrated by the following announcements:

  • Groupon’s acquisition of Pelago: Pelago made Whrrl, a location-based service, and Groupon will absorb its team’s expertise in mobile apps for real-time local deals. Whrrl will be shut down, but its CEO, Jeff Holden, will head up Groupon product development.
  • LocalResponse’s launch: Formerly known as Buzzd, LocalResponse makes management and targeting tools that monitor check-ins from location-based services posted to Twitter, among other social media feeds, and enable merchants to send targeted, localized offers in real-time.
  • EBay’s acquisition of WHERE: WHERE’s mobile ad network will live under PayPal, which will integrate payments into geo-targeted offers initially, and may build out other marketing services over time.

Tapping National Budgets

Conceivably, eBay could sell marketers data analysis based on connecting WHERE purchase intent with PayPal purchase data. But eBay is turning into a commerce infrastructure company and PayPal has historically relied on third parties to create marketing services from its data.

That’s fine, because like the LocalResponse services, such sophisticated analysis is beyond the capability of local merchants who don’t even have a marketing department, let alone a bunch of quants capable of doing real-time targeting analysis. Most local small businesses don’t even advertise online yet. The best opportunity for this kind of services is to work with agencies and go after national merchants and retailers who target locally.

Personalizing Offers

Personalized recommendation techniques are gaining momentum. Location-based check-in service Foursquare just started making recommendations based on user’s and friends’ activities. Loopt is adding a Q&A feature to its location service that could get recommendations from friends in real-time.

Om recently wrote that “interest graphs” could supplant “social graphs” in commerce. In other words, purchase decisions depend more on what you like than whom you know. As Groupon gathers more data about its users’ deal purchases and combines that with collaborative filtering, it could blend that analysis with Whrrl-like interest groups to make highly personalized offers.

Expanding into Retention and Loyalty

Today, most merchants use Groupon or LivingSocial deals to attract new customers. Merchants would rather not offer heavy discounts to existing customers who have already proven a willingness to spend, so social commerce companies will have to develop loyalty programs that accommodate frequent buying points, access to exclusive products and cross-category points.

That means bringing together multiple retailers and merchants. Foursquare did a program with PepsiCo and Safeway’s Vons store loyalty program. Swipely has de-emphasized its credit-card based purchase-sharing social network in favor of a points program that ties multiple loyalty programs.

Watch for a secret new startup that’s launching this week to unite all three of these angles. It will feature personalized offers based on consumer preferences that tie into loyalty programs from national players via their affiliate networks.

Question of the week

What will it take to grow local social commerce?

How Online Startups can Build Audiences on the Cheap March 14, 2011

Posted by David Card in Uncategorized.
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Last week, prominent investors declared in blog posts that two marketing tactics favored by many startups — search engine optimization and viral promotion via Facebook — were no longer viable. The real truth is that both remain effective but neither is free, and never was. So let’s examine how a startup making consumer apps or online services can get that much-coveted first million or two users as cheaply as possible.

Investor and Hunch co-founder Chris Dixon said he hasn’t seen any startups build a business through SEO since 2008. He reasons that Google’s ranking algorithm favors older sites with lots of links links. That is fostering an arms race between Google and the “black-hat” optimizers that build link farms and the content farms that create highly optimized but lightweight content.

Building off Dixon’s argument, Bessemer Venture Partners’ Sarah Tavel said she thought Facebook could still act as a startup’s primary free marketing channel, but that its efficacy had been severely diminished. Facebook is over-crowded with apps, she thinks, and is exerting more control over the viral amplification social gaming companies like Zynga used so effectively.

SEO, Facebook Never Free, Still Effective

SEO never was free. Big companies spend thousands of dollars on optimization tools (e.g., BrightEdge, Covario, SEOmoz, Yield Software) and search specialist agencies like iCrossing and 360i. These tools and services help companies with tagging and linking, and making their content and apps more discoverable and indexable by search engines. But more importantly, SEO still works.

Search guru Danny Sullivan advises multiple marketing tactics, and says he sees SEO working for plenty of companies. His own relatively new content site gets 20 percent to 40 percent of its traffic from search. Q&A sites like Quora and Stack Overflow have grown primarily through search and word of mouth. In this interview, Stack CEO Joel Spolsky concedes his sites’ user interface is so bad he depends on Google as his front end. SEO should remain a major marketing tactic for any startup.

Likewise, while it’s true that Facebook has clamped down on free promotions — game status updates only appear in other gamers’ feeds — the biggest Facebook success story wasn’t built on free viral tactics. Social commerce giant Groupon’s president Rob Solomon told me in an interview that Groupon didn’t do much SEO. It bought some paid listings and display ads from Google, but most of its marketing budget went for Facebook advertising. Groupon only did TV ads after it got to 50 million users.

At the same time, Inside Facebook wonders if Facebook might relax some of its viral restrictions, now that its games-driven Credits virtual currency business is starting to mature. It has already opened up Credits promotions. Along with SEO, most consumer startups should continue to use Facebook, but expect to spend some marketing dollars there.

Other Tactics for Audience Building

Getting that first million users that advertisers demand isn’t going to come for free, but it doesn’t have to be that expensive. Build marketing programs around the following:

  • Multichannel campaigns: Most ad inventory is still cheap at sub-50-cent CPMs. Facebook is building out free analytics tools to help plan marketing across offers, ads, Likes and Comments.
  • Flexible SEO: Google’s “panda” algorithm (upgrade affected more sites than usual. Here is some advice on how to react to the changes.
  • Lead generation: It’s a little sketchy, but you can still buy Facebook friends and Likes from companies like GetMorePopular.com and uSocial.
  • Other social networks: MySpace inventory is even cheaper than Facebook’s, and it still has 40 million users. Connect.me signed up 40,000 followers via Twitter without a product.

Question of the week

How can a consumer startup build an audience?

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?