My inbox runneth over with can't-miss bargain offers. I am not sure how many Groupon and LivingSocial daily deal lists I actually subscribed to, but each morning my inbox is stuffed with 50%-off offers for everything from massages to theater tickets in several nearby locales. Clearly, one of the most lucrative innovations in emarketing in recent years has been the group buying and daily deal model. When LivingSocial sold a $20 voucher from Amazon.com (one of its primary investors) for $10, 1.4 million people took the bait ... including me. These top deals sites have tens of millions of members and are helping to crack a local merchant market that has been tough for internet marketing to reach. It may also represent a new opportunity for content providers to tap a novel revenue stream.
Some cheerleaders for the deals or "social commerce" trend feel that the model addresses the long-standing problem of getting mom-and-pop shops to invest in internet marketing. This is a tried and true loss-leader model that most businesses can understand much better than AdWords. Providers such as Groupon and LivingSocial demand, and get, deep discount offers from local businesses (often 50% off or more), and the deal provider gets half of that revenue. Used judiciously, the model lets the merchants pay only for customers they acquire, get additional brand awareness benefit from the email drop, and have the opportunity to resell and upsell that new customer ad infinitum. While there have been some complaints about deceptive offers and merchants losing on the proposition, it is clearly a model that many local vendors and consumers are embracing.
The rapid success of these deal models raises larger questions about whether the model is sustainable in its current form or where the opportunity may lie for publishers in this ecosystem. Is the big coupon effort the way to go? Are discounts a persistent lure? In some ways smart content may be at the heart of sustaining the daily deal model. "It isn't the answer, because the world is not always on sale," says Ben Lerer, co-founder of Thrillist, a popular daily email that reviews hot spots and products aimed at the young male urbanite. It runs in 18 cities and has always been editorially driven. Until last year, the brand did not tie its recommendations to any ecommerce angle. Now Lerer tells me that his thinking about the model changed as he saw companies such as Groupon and LivingSocial not only making a lot of ecommerce money but also creating strong brands for themselves. "We were excited about being in the content business and the commerce business, but we had to be very transparent about it."
Thrillist ultimately bought an up-and-coming e-retailer, JackThreads, which gave the content company an ecommerce business that "exploded," says Lerer, "growing 15% to 20% month over month in audience and revenues. It is very profitable. Out of nowhere we have this little engine that could." In fact, the engine is also a back-end fulfillment process that Thrillist can now use in offering a Thrillist Rewards series of deals that are tailored to its target audience. In many ways, what Lerer is doing here is showing how editorial and ecommerce sensibilities merge. The Thrillist Rewards deals are things like "Strip and a Strip," which brings together a strip steak dinner at a New York restaurant with a night at the Scores strip club. Other offers include special off-menu items at select hot spots. The offer is aimed at the same young male target as the reviews, and it is cleverly conceived and shaped by editors. In other words, this is commerce as content.
Even LivingSocial and Groupon recognize how much content is a necessary part of their brand identity. They have staff writers who need to sell the goods, after all. But there is a great opportunity for content providers here to leverage their audiences more effectively, either in partnership with existing deal vendors or in launching editorially driven deals of their own. Surely the Groupons and LivingSocials will continue to thrive by leading with a discount, but here is a case where ecommerce is likely to follow the kind of path that digital content pursued using the same email delivery methods. We will see niches emerge that speak more directly to specific audiences and lead with content. Deal brokers will continue to have to buy audiences as older members get bored with the deals. Media brands build audiences that stay.