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Who will fix Groupon’s strategy? March 1, 2013

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Firing Groupon CEO Andrew Mason was almost certainly necessary, as the once highflying social commerce giant’s strategy is seriously misguided. “Social commerce” is a misnomer for Groupon’s core daily deals business. Daily deals should be part of a marketing services portfolio that a Groupon – or a Google – sells to local merchants. That’s what Groupon’s core “competency” is: a huge local salesforce with connections to small businesses and big companies that target locally.

Instead, Groupon is trying to be a retailer and sell retail infrastructure technology to small local businesses. Some merchants could see those offerings as competitive with their own. And neither of the newer initiatives will come anywhere near Groupon’s original high-margin deal business. I suppose, if Groupon were really a technology company rather than a sales organization, it could leverage big data shopping and consumer interest data across those three businesses. But other than some marginal improvement in deal conversion in U.S. markets, Groupon has shown no evidence of data analysis skills or technical know-how.

Social commerce services like daily deals and flash sales are legit. Groupon and Foursquare were founded the same time about four years ago and U.S. adoption of social commerce far outpaces that of location check-ins. Couponing is a tried and true customer acquisition tactic, and can work into loyalty programs. Mobile access and targeting will only increase the effectiveness of such offerings, whether they come from Groupon or companies like Google and American Express.

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Does Groupon really want to take on Amazon, eBay, and Walmart? I suspect Ted Leonsis has more sense than that.

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Holiday shopping raises social commerce questions November 26, 2012

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The commercial frenzy of Black Friday is done, but now it’s Cyber Monday, that possibly-fictitious phenomenon of the heaviest day of e-commerce spending online. We’ll see. So far, it looks like it will be a strong holiday season for online commerce, as comScore’s tracking shows spending up 16 percent, mildly outpacing Forrester’s forecast for 15 percent growth.

It’s a little early to get a clear reading on whether online is stealing holiday sales from the physical world. Brick and mortar retailers are trying to combat “showrooming” with price-matching and online-offline connections like in-store pickup. Walmart.com is aggressively promoting such tactics with TV advertising that extends Cyber Monday to a full “cyber week.” It’s easier to track online retail, so we may have to wait for earnings reports for confirmation of serious channel shift.

New trends?

Even though online shopping and home broadband access are well established, shopping behavior continues to evolve. Mobile and social are this year’s buzzwords: mobile’s impact appears marginal but growing, but social commerce remains in serious flux.

Mobile price comparison is a very real phenomenon, but does it lead to direct transactions? And are single-merchant or -retailer apps an effective vehicle for buyer lock-in? According to IBM analytics, mobile accounted for 16 percent of Black Friday sales. But the leading “mobile” shopping platform is the iPad, which is a living room rather than pocket device. Meanwhile, some are interpreting that Amazon and eBay apps – coupled with showrooming – are doing damage not only to physical retailers but to Google as well, as shoppers rely less on the big search engine. Interpreting this as a major disruption in search is probably premature, but this potential trend bears watching.

Everybody’s down on social commerce, as defined by daily deals and flash sales. Well, not everybody. Hedge fund Tiger Global Management thinks Groupon is salvageable, and start-up Zulily, which offers deals for moms and kids, raised $85 million from Andreesen Horowitz. That’s in the face of Groupon’s flat growth, layoffs, and management turmoil, and Gilt Groupe’s strategy shifts while it searches for a new CEO.

Unanswered questions

But it’s not just the daily deals companies that have to prove the staying power of social commerce. Companies like Facebook, Twitter, and Pinterest also have to answer key questions to prove the validity of the category:

Is social commerce mainstream? The answer to this one is “almost.” Groupon is roughly the same age as Foursquare, and our GigaOM Research consumer survey data suggest daily deals usage is much more mainstream than local check-ins. Already, nearly half as many online adults visit daily deals and flash sales sites (30 percent) on a monthly basis as buy from online stores (64 percent) and 20 percent make regular purchases. Check-in is still a single-digit (6 percent) phenomenon.

Source: GigaOM Research U.S. online consumer survey, March 2012, n = 1,165

Is social commerce a new category? Unlike social gaming, social commerce does seem to be an original category. Zynga games aren’t really very social, and are used by the same audience that played earlier time-killing casual games like Bejewelled. What Zynga did was use Facebook for distribution. Groupon did, too, and admittedly, daily deals don’t depend on social sharing to get a certain volume of commitments before the deal goes live the way web 1.0 systems like Mercata worked. But reviews and recommendations give hints where Pinterest and Facebook stores could evolve.

Where does social commerce fit in the e-commerce ecosystem? That’s the big question. Twitter does not seem to be driving many real transactions yet, even though its interest graph might be more predictive of buying behavior than Facebook’s social graph. Gifting probably won’t be a billion-dollar business for Facebook anytime soon – retail margins are thin, and impulse purchase opportunities limited – but it makes logical use of friend connections and personal data. Social media, including so-called social shopping platforms, may end up being a better source of data for merchants and retailers than they are powerful transaction engines.

Where does social commerce fit in the online marketing ecosystem? See “data,” above. And regular readers are probably tired of my argument that Groupon should be a marketing rather than shopping platform. But I’ll make it one more time: Groupon could make better use of its saleforce and local merchant relationships by selling marketing services like display ads and paid search listings than it can selling them point-of sale systems.

Still seeking social commerce October 29, 2012

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Fancy, a site that looks a bit like Pinterest, but invites brands and merchants to sell the items “fancied,” has raised an over-$26 million round of funding, according to SEC documents. Another social commerce play, Pickie, that aggregates social recommendations a bit like a Flipboard for shopping, announced it is launching on Apple’s App Store with a $1 million seed fund. And last week, Facebook closed down its Pinterest-like Collections test, claiming it was doing so not because it was a flop but because it was analyzing early results in preparation for re-launch as a real service.

We’ve written that Pinterest could likely thrive – if not challenge Amazon or eBay – by connecting some dots for merchants and retailers, even if it just scraped by on affiliate fees. But building a large company while being a middleman for other middlemen like retailers leaves pretty thin margins and/or requires huge scale. Some data show that Pinterest is highly engaging for would-be shoppers. And Facebook has its own data to make the case to sellers for its advertising, and its Offers product.

But most e-commerce is directed. Search, price transparency, and comparison shopping are complemented by reviews and recommendations, from friends or otherwise. Social commerce feels like impulse purchasing. Facebook storebuilder Payvment cites analysis that impulse purchases represent the majority of offline retail. But that’s impulse purchases made in stores, not in social gatherings or quasi-magazines. Social commerce that weaves threads across channels, where consumers shop as well as browse, will likely be the real payoff.

 

Mapping Session results: Mobile shopping October 26, 2012

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At last month’s Mobilize conference, GigaOM Research hosted a Mapping Session to probe attendees’ collective thinking on the most disruptive forces in mobile shopping. We wondered if the promise of mobile shopping depended on widespread adoption of nascent technologies like near-field communications, geofencing, or mobile payments, or whether other technologies could jump-start mobile transacting in the near future.

To kick off the session, GigaOM Pro analyst Phil Hendrix shared some early survey results he’s currently working on at immr. Phil surveyed consumers about what they find annoying about shopping in order to help companies and retailers address those irritants and prioritize commerce features. Consumers seem impatient: They said they were often bothered by long waits at checkout or by slow mobile site downloads.  Once they’d made a purchase, having the wrong product delivered was particularly frustrating, while going to a store and finding a desired product unavailable also rankled. Look for a GigaOM report derived from this research, and in the meantime check out a related Analyst Roundtable webinar “Retail in the cloud: Keeping shoppers in the store” where Phil adds a bit more detail.

Assessing market disruption

We often use Mapping Sessions to lay the groundwork for deeper analysis on emerging markets where we apply our Sector RoadMap approach. We’ve done Sector RoadMap reports on categories like the Platform as a Service market and work media tools. Sector RoadMaps are collaborative research efforts that match up competitors’ abilities to align with what we call Disruption Vectors, i.e., the key technology or market forces that drive emerging markets. Smart vendors can ride Disruption Vectors to gains in revenue or market share.

During the Mapping Session, we discussed a number of different trends and technologies that could act as the Disruption Vectors for mobile shopping in the near term. The panel, along with the audience participants, considered and rejected technologies such as gamification and hardware-driven services like NFC or point-of-sale payments devices. While these may play driver/inhibitor roles in the future, their near-term impact is less crucial to market development – the former due to mass-market irrelevance, the latter to lengthier deployment cycles. The consensus was that social technologies and loyalty programs would be more important but not among the key Disruption Vectors. Those, and their relative importance, are illustrated below.

Personalization. Session participants pointed out that, in contrast to web-based e-commerce, which is highly directed and driven by search, research, and price comparison, mobile shopping was likely to be more serendipitous or impulse driven. Yes, comparison shopping via showrooming is a very real phenomenon, but participants felt that personalization techniques such as well-targeted offers, shopping and wish list support, and reminders and alerts would affect the earlier, awareness and consideration stages of the shopping process, and drive people into stores.

Location sensing. Location and context are components of personalization as well. Simple things like QR codes and mobile apps that access catalog info and user reviews will have a bigger near-term impact, but GPS-targeted offers and geofenced stores excited the room. Perhaps we’ve all got Minority Report – or ShopKick – on the brain.

Big data. Data analysis can feed personalization, but companies can also dig deep and recognize patterns they can mine to craft pricing and inventory management strategies in stores to complement mobile access and offers. Established players with access to cross-channel purchasing information like Wal-Mart, Best Buy, McDonald’s, and the credit card companies are better positioned to mine that big data than are startups like Foursquare or Groupon.

Payments. Mobile payments systems may depend on creating cross-merchant or -category loyalty programs for adoption. So far, the convenience angle hasn’t accelerated consumer or merchant deployment.

Convenience features. This category represents a catch-all for cloud-integrated services like in-store pickup, checking inventory availability, faster checkout, etc.

We also discussed loyalty programs and various social media and social commerce angles, but they didn’t resonate with the session participants as much as the Disruption Vectors described above. There’s a bit of redundancy in that list, and some technologies are means to others’ ends. We’ll continue to refine our analysis of the sector. Meanwhile, Mike Wolf describes the results of another Mobilize Mapping Session on navigating the appconomy in this post. Previous Mapping Sessions kicked off the PaaS Sector RoadMap and looked at how Infrastructure as a Service could commoditize other IT sectors.

Feedback

We welcome your feedback on these disruptive trends, and on what might accelerate the success of mobile shopping. Have we missed or mis-emphasized anything that you believe will be key to driving the sector over the next 12 to 24 months? Continue the discussion by leaving a comment below.

Mapping Session Panelists

  • Phil Hendrix, GigaOM Pro analyst, Founder and Director, Institute for Mobile Markets Research (immr)
  • Laurie Lamberth, GigaOM Pro analyst, Founder and VP, Business Development, Lamberth & Associates
  • David Card, VP Research, GigaOM Pro

Can eBay tap into social commerce? October 11, 2012

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Before PayPal became the engine driving eBay, I wondered whether eBay could expand its role as a core technology platform supplier. Arguably, eBay was a social commerce player before anyone called it “social commerce,” and it was the original e-commerce ecosystem. Ebay’s latest experiment in offering limited local daily deals is being painted as its first foray into services (rather than products) and as a shot across Groupon’s bow.

I’m not sure local deals play to eBay’s strengths. Supporting local small businesses is generally a service-intensive business. Groupon’s advantage is the size of its salesforce and its existing relationships with those merchants, rather than its technology. Groupon’s foray into other commerce infrastructure, including point-of-sale systems, can leverage those advantages, but will anyone trust Groupon as a tech supplier? Small businesses buy search from Google, but the search engine giant hasn’t really staffed up to support them with other marketing services.

Ebay is sourcing deals from Signpost – that also provides some Google offers – and acting more as a distributor. Ebay has a big customer base, though they probably don’t associate its brand with local services. This doesn’t seem like a bricks-and-clicks platform play to me, but rather a PayPal extension. Keep an eye on it, though, there’s more life in eBay these days than there has been in a long time.

 

Expect minimal a payoff from Facebook Gifts October 1, 2012

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Last week, Facebook received gushing reviews as it began to roll out Gifts, a mobile and web program for giving gift cards and physical goods provided by over 100 merchant partners. Hold on, everyone. Gifts won’t “transform” Facebook, disrupt ecommerce, or solve the company’s mobile monetization issues, even if the announcement seems to have boosted Facebook’s stock price.

Why Gifts won’t be a big deal

According to a spring 2012 GigaOM Pro consumer survey, 64 percent of U.S. online adults are regular online buyers but only 19 percent purchase via social commerce services like daily deals. And consider that while 46 percent of social networkers say they use social networks for photos – Facebook’s most dominant app activity other than communications – only 7 percent do so to shop. So a back-of-the envelope revenue model based on the assumption that a third of Facebook users will make multiple $20 gift purchases yearly is unsupportable.

Several other factors indicate Gifts won’t make Facebook a fortune anytime soon:

  • Social network shopping. As Chris Dixon points out, it’s difficult to get users to change modes. Besides offline/online shifting, when a person is in a social communications mindset, and he associates his social network with that kind of activity, he’s not likely to do a lot of shopping. That’s particularly true for the kind of directed shopping that characterizes ecommerce. Internet commerce has been driven by search, research, comparison, and price transparency. Facebook storefronts are still struggling to flourish by harnessing friends’ communications and recommendations and exploiting that information and experience off-network in more familiar shopping environments.
  • Affiliate fees. If you’re the company that’s supplying the gift card, that can be a reasonably high-margin business. But Facebook will likely have to live off retail affiliate fees that typically hover in single digits. I’m skeptical that Facebook will be able to command its usual virtual goods 30 percent fee with companies like Starbucks. And Target’s Facebook gift card app only attracts 6,000 monthly users. In-feed promotion and viral pass-along will help Facebook attract users, and it could conceivably try something like a multilevel marketing program where users received “recruit a friend” benefits.
  • Mobile gifting. The roots of Facebook Gifts originate with Facebook’s May $80 million acquisition of Karma with its mobile gifting app for iOS and Android. Certainly Facebook can leverage information about birthdays, anniversaries, and other events to promote users to make gift purchases. But don’t gifts feel more like a researched shopping experience than an impulse buy? And doesn’t adding a smartphone into the equation make it even more “impulsive?” I’d dial down the buy rate in that revenue model another few notches.

Outlook

It’s wiser to think of Facebook Gifts as another way for the company to get credit card numbers into its payments system. Depending on actual purchase rates, Facebook might gain some data for the purpose of customer segmentation analysis and ad-targeting. Facebook’s real business is still advertising. That’s true for its mobile app as well, though mobile advertising is going to depend more on search and couponing than the branding-oriented campaigns that will ultimately pay off for social media.

However, occasional, impulse-based gifts won’t produce the volume of shopping interest data that Groupon collects, let alone an Amazon-scale treasure trove.

Facebook gifting hardly revolutionary September 28, 2012

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There is a lot of gushing over Facebook starting to roll out the fruits of its Karma acquisition. Gift cards are high margin, but if Facebook is just taking an affiliate fee off a retail product, that will make for slim pickings, even if you make outrageous assumptions on buy rates. Hardly enough to “completely transform” the company, or disrupt e-commerce.

Social networks have been a tough sell for commerce. We’ve written about Facebook stores before, and Facebook hasn’t knocked anybody over with Offers. Gifting could be a piece of a Facebook mobile play, but I suspect coupons and offers will pay off better. In fact, it might be wise to think of gifting as a data play, with Facebook gaining a few insights and lots of credit card numbers.

Shoes and subscriptions September 26, 2012

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ShoeDazzle’s switch from its original shoes-as-subscription business model to a more conventional e-commerce approach has cost CEO Bill Powers, ex of ProFlowers, his job. Om thinks that the company will have a hard time regaining its customers’ love, even as it puts original founder Brian Lee back in charge. (He notes that the board must have approved the business model change, so it’s not all Powers’ fault.)

Om observes that “joy and love were the two emotions ShoeDazzle’s customers associated with the company.” It’s hard for a retailer to establish that kind of relationship, but it doesn’t have to be dependent on the business model. This is a banal observation, but the usual pitch to a consumer for a subscription business focuses on things like:

  • Value. For one low monthly fee, you get access to all these TV networks or music, instead of paying separately.
  • Utility. Think magazine and newspaper delivery without the reader having to do the work.
  • Revenue alternative. Skip the ads by signing up for a subscription.
  • Replenishables. Similar to utility, but subtly different: re-stock your razorblades automatically.

For some customers, shoes are replenishables, or such a frequent purchase that the utility kicks in. And like the old book or record of the month club, there’s a value pitch, too. Or at least an “I already paid for it” benefit. Do those values apply to a big enough audience?

Groupocalypse: Groupon loses its way August 20, 2012

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In my last few Weekly Updates, I’ve written about Zynga and Facebook, two companies whose business models I’ll continue to defend. But right now they make up a pair of the Horsemen of the IPO Apocalypse. I might as well add a third. Groupon’s second quarter results were about in the middle of its guidance, it showed a profit, and it cut way back on marketing expenses as a percentage of sales. The result? Its stock is at an all-time low. Can Groupon turn it around?

The opportunity

Unlike Facebook — a digital media leader and core technology platform provider — and Zynga — on a cold streak but with a plan — I’m pretty sure that Groupon is headed in completely the wrong direction. I have written that Groupon’s scale would be a huge competitive advantage as social commerce shook out. I thought its massive sales force, customer base, and merchant relationships would produce a terrific combo.

In theory, Groupon should be able to analyze its customer data to help it target and improve deal conversions and feed insights back to its merchants. Groupon should be building out other marketing offerings for those merchants, so that it could move beyond new customer acquisition into loyalty programs, and sell them services like paid listings and SEO. Groupon could be a local merchant’s one-stop marketing supplier in a way that even Google would have trouble matching.

Misdirected?

Instead, Groupon’s revenue in actual retail is growing faster than its high-margin deals business. It envisions itself as an e-commerce technology platform provider. CEO Andrew Mason says he wants Groupon to become the “operating system for local commerce.” And the company is bragging about being a leader in mobile commerce.

Does Groupon really want to build warehouses and compete with Amazon in multi-category online retail? Perhaps it wants to get into payments – no, that’s not a crowded field at all. Or how about in-store point-of-sale hardware for small business? Madness.

Yes, mobile commerce is promising. Groupon says that in July nearly one third of its North American transactions were completed on mobile devices, a figure that’s up 35 percent from the year earlier. Groupon’s mobile app has just as much adoption as those of Amazon and eBay, but does that mean Groupon could become a mobile transactions platform for local merchants and retailers?

Perhaps. But I expect big, national retailers that sell through local stores and affiliates are better equipped to handle sophisticated technologies like geofencing and real-time inventory liquidation than the local small businesses that are Groupon’s strength. Remember, airlines are the leaders in yield management. Your typical local restaurant or gas station is probably not thinking about balancing discounts versus empty slots that might go unsold via complex algorithms and business rules. Lots of Groupon merchants couldn’t even handle volume discounts profitably.

There’s no shame in being a force in local marketing. BIA/Kelsey projects that digital advertising will only comprise 11 percent of a $150 billion U.S. market by 2016. There’s plenty of opportunity – and plenty of competition already – for Groupon to offer services to support local merchants’ marketing needs. Make no mistake, there are some positive signs for Groupon’s core U.S. business:

  • Groupon’s targeting is starting to improve efficiency in cities where it has been using it longest
  • Nearly 20 percent of its merchants are increasing their use of Groupon’s other services.
  • Its Groupon Rewards loyalty program is gaining traction.

What momentum Groupon has is in marketing services. Once it embraces this, and shifts its development and sales assets accordingly, it will start to claw its way back towards prosperity.

Question of the week

How could Groupon turn itself around?

Social commerce remains a licensing play May 21, 2012

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One theme attached to Facebook’s IPO was the company’s need for revenue diversification. Advertising and virtual goods pay Facebook’s bills, but delivering on the promise of social commerce – connecting the dots between content, curation, communications and commerce – would be golden. That’s something Facebook has failed to do so far. Meanwhile, a startup like FindTheBest is tapping an established social commerce revenue stream while Pinterest raised $100 million on e-commerce hopes.

Three main categories of services drive social commerce: 1) reviews and recommendations, 2) group buying and daily deals and 3) shopping communities. Facebook’s strategy is to use its platform to enable developers to weave all three together. But, while Likes are ubiquitous and Facebook is adding shopping-friendly “verbs” to its Open Graph, its own deals and coupons Offers product is off to a sluggish start and retailers and merchants have seen little success for their Facebook storefronts.

Beyond impulse purchases

Online commerce is largely directed shopping, playing off the web’s strength in search and price transparency. But social commerce – especially when it’s delivered within the confines of a social network – seems better suited to casual impulse purchases. Two areas where social technologies could add fuel for e-commerce are:

Potential players

FindTheBest began life as a consumer site, but increasingly positions its vertical comparison engines and aggregated and curated reviews as “content” for publishers. The company does revenue-sharing deals – from advertising, affiliate fees and lead generation – rather than pay-upfront licensing. That’s an intriguing model, if a little far removed from where the transaction occurs, and FindTheBest has signed 30 deals with publisher sites this quarter.

In contrast, even though the lead funder behind Pinterest’s latest round was the Japanese e-commerce holding company Rakuten, the transaction connection still seems a little whimsical. Content sites and some merchants show compelling anecdotal evidence that Pinterest can drive traffic, but they’re sketchy on conversion data. It would be wise for Pinterest to tap into this phenomenon by charging for marketing pages or collecting affiliate fees before it leaves too much money on the table.

Pinterest might turn out to be better at delivering licensable technologies than e-commerce transactions. In fact, that may be Facebook’s role as well. Right now, social commerce feels like a technology platform play rather than a retail business. According to our GigaOM Pro 1Q12 U.S. consumer survey, only 7 percent of social network users regularly shop on social networks. That’s a condition likely to continue for 24 to 36 months at least.

Question of the week

When will social commerce actually drive significant transactions?