Why social commerce is attracting huge investments

This article originally appeared at Daily Deal Media. I supplemented the original article with new projections for daily deal revenue growth from investment firm Needham & Co.

The term “social commerce” was rarely discussed until Groupon’s massive 1/2 off coupon they sold for the Gap:

Social media provided everybody with a voice. Social media however changed the rules of commercial engagement by discounting, even denigrating the sales pitch; it changed the focus of online marketing from direct advertising to a social review and sharing system. Social commerce ushers in a socially acceptable transactional model by offering a consumer incentive in the form of  a “deal” rather than a blatant ad.  Groupon succeeded by delivering this new advertising product down to the mom & pop merchant, something no online service accomplished before on a massive scale, including the industry best positioned to do this – the mainstream media. It simply opened up a brand new local advertising channel.

What’s the linchpin to social commerce success? Groupon has proven that it’s distribution.

Only two years ago, the main channels for local advertisers were mainstream media – newspapers, radio and TV – and PPC search. Channels are on the verge of proliferating – along with social buying systems, add mobile channels like Facebook Deals, and more the elaborate check-in associated systems from Yelp and Foursquare, and finally channels being  developed by merchants themselves via branded Facebook pages and self service couponing like Groupon Stores.

These new ad channels are paradigm shifting “revenue multipliers”, analogous to the VCR augmenting the revenue base of motion pictures in the 1980’s (Wall Street financed movie studios and many films were literally produced on video pre-sales) or e-commerce in the mid-90’s. Revenue multipliers attract New New Thing levels of funding, as evidenced by this month’s investments of $1.5 bn into Facebook, and like, $1bn into Groupon. Massive funding is used for building infrastructure. Facebook and Groupon notwhithstanding, we’ll see Google, Yahoo, AOL, mass media, ad agencies and any industry working with SMBs focused on building localized armies to escort businesses into social commerce like it’s the last frontier.

Addendum:

On January 24, Business Insider published a Needham and Co. revenue projection on the size of the local daily deals sector that  confirms the concept that daily deals is a new revenue multiplier for local advertising spending.

Social commerce’s profound power is in tying the local internet, mobile and media together into an integrated business model.

In the next few posts, I’ll discuss how social commerce allows anybody to develop a marketing voice, and how the masses will take to social commerce in the same way they adopted social media.

About Pat Kitano

Patrick Kitano works with brands in developing hyperlocal engagement solutions and is administrator of the Breaking News Network, a national hyperlocal network devoted to community service. He is the author of The Local Network on Street Fight, and is reachable via Twitter @pkitano and email pkitano@gmail.com.