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July 29, 2010

Why small businesses are snapping up the daily deal

Filed under: advertising, google, local search, marketing, yelp — Rakesh Agrawal @ 1:05 pm

A sample daily deal from Living Social.

In recent months, we’ve seen daily deal sites like Groupon and Living Social grow like crazy. Groupon is valued at $1.35 billion. That’s more than 4x the valuation of the McClatchy Company, one of the country’s largest newspaper publishers. It also ekes out The New York Times Company. Others are scrambling to get into the business, including DealPop in Seattle and CrowdCut in Minneapolis. Yelp is also testing its own entry in Sacramento.

A while back, I wrote about why small businesses were reluctant to get online. So what changed?

Well, the daily deal providers addressed most of the challenges I laid out.

  • No one was asking them to get online; now they are. Groupon, Living Social and others are rapidly building up local sales forces to approach small businesses.
  • It’s a lot simpler. Bidding on keywords is beyond the experience level and time commitment most small businesses can afford. Putting together a special offer is much simpler and the daily deal sites are doing a lot of hand holding. Even Google has realized this, with simplified pricing for its Google Tags product aimed at small businesses.
  • There’s no upfront commitment required. Unlike most advertising products, businesses don’t have to spend hundreds or thousands of dollars on an ad and pray that it works. Instead, they get paid for the deals sold before they’re actually redeemed.
  • Results are evident and compelling. Businesses can clearly see how many people are buying their deals in real time. They can also see customers as they walk through the door with the coupons. It’s a lot more trackable than other forms of advertising.

On the consumer side, the daily deal sites have turned coupons from something that were looked down on to a fun, social thing. Friends who wouldn’t use coupons in the past are touting the great deals they’ve found online.

A big challenge for providers will be providing enough new businesses to keep the deals interesting. Many of the deals I see these days are too far to drive to; a metro area is too large a geography. As the novelty of the daily deal wears off, deals will have to be more targeted based on location to avoid becoming perceived as spam.

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3 Comments »

  1. Hi Rocky, you nailed it! It is a win for merchant, consumer, and publisher. You should see the look on the merchants face when I go with a rep on sales call and we ask them to fill out a W-9 Tax Form — that’s right, we pay them.

    Comment by Kevin Nakao — July 29, 2010 @ 10:57 pm

  2. Will Groupon eventually compete on margins, and lose its competitive advantage?…

    Groupon deserves a lot of credit for finally cracking the local market. It’s something online players have been trying for more than a decade. (For the reasons why they were successful, see http://blog.agrawals.org/2010/07/29/why-small-businesses-are-…

    Trackback by Quora — September 19, 2010 @ 7:20 pm

  3. Is Groupon’s concept of a tipping point / critical mass purely psychological?…

    It is now. I think the group part was necessary early on. Both Groupon and LivingSocial do offer incentives to refer your friends, but that’s no different from what retailers, insurance agents and credit card companies have been doing for ages. But yo…

    Trackback by Quora — February 8, 2011 @ 10:06 am


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