Groupon, LivingSocial and the Holy Grail of Commerce
The market for local commerce has been the holy grail for Internet companies since the dawn of the modem. However, that market has been more like "Monty Python And The Holy Grail."
The missing link for local commerce hasn't been the Web, it's been four things:
- Web usage as everyday "utility"
- The growth of mobile
- The inefficiency of "old-fashioned" advertising such as newspapers, radio and TV
- Time-shifting (I'll explain more later)
In the old days -- when TV shows such as "Friends" ruled the air -- viewers had no choice but to tune in at the appointed hour, gnash their teeth during commercial breaks, and then go about their lives. Perhaps read The Wall Street Journal or The New York Times the next morning for the "news."
The Web was a newbie back then. Huggies and all. Few relied on it. The only mobile experience you had was walkie talkies. Hoo haa. Copy that?
After 17 years of commercial Web, the preponderance of mobile phones (everybody has one), the reliance on the Web for news/entertainment/fun/friends/commerce/boredom aversion and more, and the rise of DVR/YouTube video repository have created a world where data is as close as your hand and available outside of any time frame. The world's worth. The data exists, but the connection isn't made yet. To your local need.
Smartphones Are Still Pretty Dumb
Now what you carry around in our pocket you may call a "smartphone," but it's still not "smart" -- it's kind of a mini screen for gaming, email and functions that are "borrowed" from the PC/game console universes.
It sits in your pocket or purse asleep until you get a call or have some time to cut the rope, zap a pig, or grow a new row of corn. Mobile is untapped, really.
This year we've seen a few companies go public that have a presence in the local commerce arena: Groupon and Angie's List, as well as notable private companies LivingSocial and Yelp (which has filed for a public offering).
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Has any of these companies come up with the magic formula of local commerce and mobile? No. Groupon and LivingSocial are both basically email marketers. Angie's List is a Web rating and opinion guide to local professionals. Yelp is a Web opinion guide to local restaurants.
Is local commerce valuable? A lot of media got excited that e-commerce holiday sales for Black Friday and Cyber Monday hit US$6 billion. Consider that local commerce -- in person -- is a $1 trillion industry.
What the above companies have shown is that local commerce is shifting from paper-based (newspaper, yellow pages, direct mail) to digital ways of marketing. Investors are starting to realize that also.
Amazon Was Once a Trickle
Critics lambasted Groupon's decision to spurn a reported $6 billion offer from Google a while ago. Now, as a public company, Groupon is valued at $13.5 billion. So far. Naysayers say Groupon stock will tank as it tries to post a profit instead of spend heavily on user acquisition.
Angie's List is a different beast. It charges members a fee to access its rankings of plumbers, dentists, painters, etc., and hasn't posted a profit as it spends to grow. I'm not convinced its pay model is the best one, but that's another story.
A lot of people may forget or not know that it took Amazon 10 years to become profitable. Ten years. Many wrote it off early on. I didn't. In fact, when it went public, I said it could become the "Walmart of the Web." At the time, it only sold books, and its home page looked like founder Jeff Bezos had made it himself with Frontpage software from Microsoft. Amazon today is valued at $88 billion and has more than 100 million of our credit cards on file serving us up products year round.
LivingSocial, Groupon's main rival, is still private, and just this month news came out it raised $400 million at a $6 billion valuation. Yelp turned down $500 million from Google a while ago and may raise $100 million or more at a $1 billion-plus valuation.
The clear underlying theme here is that local commerce and local marketing are moving to new platforms and new companies -- better ways to do business. The opportunity is big enough for these firms to say no to buyouts from Google (Groupon and Yelp) and forge ahead on their own. It may appear to be folly to refuse Google's advances. But it depends on what these companies do, decisions they make now.
With $1 trillion of "real-world" commerce at stake I would agree. Students of Latin may find this phrase appropriate: Veni, vidi, vici.