Yesterday’s news of Groupon’s massive $950 million financing round wasn’t unexpected, and just confirms their intent to build a sales army to dominate SMB business in the same way Yellow Pages held sway over local advertisers in the 20th Century. Morgan Brown explains the new Groupon strategy well:
Groupon knows that in order to grow at scale in the SMB market you need a big sales organization with feet-on-the-street in the markets you’re hoping to reach. If you look at the successful small business advertising providers—the one’s that own large chunks of the market—they all have large sales forces. And it’s the large sales force that has stood between many a great, local-business-focused business plans and actual success.
Google, only a few weeks after their failed Groupon bid, immediately jumped into the fray with the launch of their local outbound telesales initiative, and will likely reinforce the sales force with an acquisition of a Groupon competitor.
The sea change in how local advertising is moving from Adwords to Groupon – it’s just simpler
Before Groupon’s emergence in 2010, Google arguably held the most widely used and efficient online advertising platform with Adwords. The problem with Adwords (and most online applications that require extensive training or experience) is it requires the B2B channel – search engine marketers, YPs and ad media companies – to make sense of the product for a largely tech-challenged local business market. How do you expect a local merchant to deduce the keywords and the pricing structures required for an Adwords campaign?
Groupon simplifies the concept of local marketing by defining deal structures that local merchants can understand from their experience with coupons. Even though the ad structure has simplified from bidding $1.00 per click on “Berkeley pizza”, to $10 for $20 worth of pizza, the problem with creating and distributing the online coupon still exists. Self service deal platforms like Groupon Stores and Facebook Deals will only be accessible to a small segment of savvier local merchants. Full service, either from a Groupon or Google sales rep, or another B2B player, will be the way to connect with local business in order to create coherent campaigns. Full service is the missing link, and the channel where new opportunities lie for a wide swath of industries – media both mainstream and social, Groupon and its cohorts, Google and search, and ad agencies both national and local.
Creating a new system of deal distribution
No player can source 100% of the deals, so the challenge facing Groupon or any other local ad media player is to avoid becoming a silo of deals:
…A new generation of deal aggregation channels is also rapidly in formation.Products such as DealExchange and OfferEx present first generation examples. You also see a growing array of deal feeds finding their way into distribution on local search sites, providing exposure to consumers while they are initiating local business queries. Last time we counted there were over a dozen “deal aggregators” independently collecting up deal content and creating portals and distribution-centered business models.
While building market share, Groupon is challenged with creating the deal distribution systems that shares profit with players who don’t or won’t have competitive sales forces. Otherwise, consumers will resort to the deal aggregation channels beyond Groupon to find and redeem deals. Affiliate and deal sharing systems will evolve that enhance deal distribution efficiency across websites, Facebook and search, and in turn will subtract the aggregate number of more inefficient local sales people working for each independent deals provider.
Although Groupon and Google are intent on building local sales armies, I discuss the contraction of the sales force in 8 Major Social Commerce Trends for 2011:
Online commerce distribution – getting the exact product to the consumer purchaser as efficiently as possible – disintermediates sales forces, which function as middlemen to provide conversion value. Now social/mobile commerce is set to do for local SMBs what Amazon did for national brand products – create the variegated distribution channels that make it easier for consumers to find and purchase what they want from SMBs.
Take group buying as an example. Hundreds of competing “Groupons” (including all the local media/news who advertise with Daily Deals) can’t all be knocking on every cafe in every city to source a deal. Deal aggregation engines such as Wantsa, TheDealMap and Yipit are/can create deal syndicates that present publishable deal inventory. Now publishers can trade off sales staff and marketing overhead for affiliate income from deals sourced by others.
Simply put, both Groupon and Google are focused on creating a local ad sales infrastructure in which they manage and control ad buying decisions, but in an open source framework that attracts downstream partners and affiliates, who share profit by nothing more than redistributing their deals.