Tag Archives: Deals

Small Market Deals: A Talk with Deal Garden

The big destination deal sites such as Groupon and Living Social have developed sites in most of the 150 or so large and medium markets in the U.S. How about markets with populations less than 250,000? There are 84 markets with populations between 150,000 and 249,000, and 121 markets between 100,00 and 149,000.

The major destination sites already hit many of the medium-sized markets. But smaller markets have been zeroed in on by vendors such as Matchbin, working with local media. We’ve also been closely watching Deal Garden, a five person destination site in four small markets (Topeka KS, Sioux City, IA, Lawrence KS and Manhattan, KS) powered by Nimble Commerce. Two more Deal Garden sites are set for launch: Rochester, MN and WaterLoo/Cedar Valley, IA.

The rub against small markets is they don’t have the volume to do many deals. The deals they do have need to spread out over multiple days. Moreover, most residents don’t need to discover merchants in their tight-knit communities. Many are also spread out geographically, and less attractive, demographically. There’s also an interesting theory that consumers get into the deals mode when there is intense competition among many players.

But Deal Garden co-founder Pat Lazure, who previously founded WikiCity, tells us that the pros of a small town site may outweigh such negatives. Small town sites aren’t competing with 60 other deals sites, as in Boston, and you have a great word of mouth factor in smaller markets, he says. Moreover, consumers are very loyal with excellent open rates. He’s seeing a 33 percent open rate for emails.

It is also easier to grab market share with local media buys since media outlets are less numerous. A campaign he’s been running on Topeka’s WIBW-TV, for instance, has made giant strides. Ultimately, the gross proceeds per subscriber are many times what Groupon reported in its S1.

The negatives are there, too, he candidly concedes. Deals typically need to run three days, instead of one. Also, markets are jump-started with low cost restaurant deals, where average spending is about $11 or $12. While deal averages are up from $9 at launch, they are still less than half of the major destination sites, which might see an average over $30.

Lazure figures local small town consumers need to get acclimated to the deals culture. “Food first; salons and spas second; and sky diving last,” he jokes. Local merchants are also more likely to use deal sites to drive customers to new selections or to bring them back into the store rather than to get introduced to new consumers.

Yet Lazure rejects the idea that small markets might be ghettoized as simple, one deal-at-a-time Internet deal sites, even as the rest of the industry begins to move towards multi-deal, multi-channel with lots of services. They’ll get there, he says.

Lazure also says that it is also important for sites to be truly local. Some of the sites run by competitors in his areas have tried to batch several markets together in order to get volume. No one wins when deals are spread out beyond where consumers typically shop, he notes.

Yipit Raises $6 Million: We Talk with Co-Founder James Moran

Deal aggregators sort through daily deals and find the best ones for consumers in return for a piece of the action. They are primed to make up a healthy part of the extended family of deals products. But it isn’t certain whether they’ll maintain the cooperation of major deals companies. Living Social and others have made efforts to close off some of them.

But aggregators such as The Deal Map, Yipit, Deal Radar, 8coupons and others are making a go of it, convinced that email fatigue is inevitable, and that consumers need help sorting through 500+ daily deals. Also convinced, apparently, are Highland Capital Partners, RRE, DFJ Gotham and IA Ventures, who each participated yesterday in a $6 Million, Series B round for Yipit.

As the news broke, Yipit reported that is now aggregating 500 daily deal sites in 32 different cities (although about 1/3 of those sites, or 161, are for New York). It also says it has 250,000 subscribers, sending roughly 20,000 people a day to third party sites. Between 5-10 percent — or 1,000 to 2,000 — buy a deal.

My colleague Jed Williams sat down today in New York with Yipit co-founder James Moran. Moran told Jed that there are many reasons for optimism about the space, although the ramp up hasn’t always been easy. Personalization, for instance, has struggled because there aren’t enough quality deals to match personalized preferences. “Locationized personalization” seems to have a better shot.

And then, there is the question of what is the ideal location radius. In New York, it’s 10-15 blocks. In Dallas, it is a 30 minute drive radius. Moran notes that Yipit has worked to tackle this issue, aggregating deals for a user’s work and home routes. But it is still mulling over how to handle subway routes. One thing that has developed nicely is that Yipit has ramped up a lot of destination and search traffic and is no longer tied exclusively to emails, which don’t convert as well.

Jim Moran is a featured speaker at our Deals 3D conference in San Francisco July 18-19, along with executives from The Deal Map and 40+ others.

So — Do We Buy Shares in Groupon? 8 Big Qs

So, do we buy shares in Groupon? We don’t provide investment advice, of course, but as we consider its prospects from a non-investment angle, we’ll be watching for answers to the following eight questions – none of which, unsurprisingly -are adequately addressed in the S1.

1. The cost of the average deal is seen to be declining in Boston, and members are seen as buying less (per Yipit’s strong analysis). Is this the result of a decline in user interest, or simply an absorption of a rapid expansion of deals offered, and a broadening of the user base beyond the core base of college educated women? The answer is very important here.

2. Groupon competes against other players in each of its markets. In the U.S., it beats every competitor in every market that it is in. But some of its international affiliates don’t have a major headstart — and international accounts for almost 54 percent of its revenue. In Montreal, for instance, Groupon is said by Group Buying Canada to be the 4th or 5th largest player. How is Groupon doing generally overseas? Where does it lead and where does it lag? As with many international companies, overseas divisions often operate with less scrutiny

3. Groupon has provided very generous commissions to referral media that send customers its way. Are these kinds of deals going to stay intact as Groupon’s brand becomes more universal? Are they really necessary?

4. Media companies such as McClatchy highlight Groupon as part of their shopping portal, but are also selling against the company with their own home grown deals. What kind of impact will this kind of dual selling have on sales?

5. Consumers have been targeted by Groupon on a personalized basis with specific deals for about a year. But no case studies are hinted at here. While Nearby Deals have been introduced in most U.S. markets, are a high percentage of Groupon deals really being personalized?

6. Groupon has introduced several vertical “deal channels” in the past several months: entertainment, home and garden, and travel. Will these match user expectations for Groupon and have synergies with the basic deals site?

7. Groupon has focused on repeat traffic for merchants, offering an 8 punch, $25 sandwich offer with Quiznos, and a 5 punch, $20 kids playground offer with San Diego-based Kidville. The recent Quiznos offer only attracted 20,000 sales around the U.S. Will these kinds of offers effectively reinforce Groupon’s value to merchants? Or will Groupon see a lot of merchant churn, as some expect?

8. Groupon has long touted its appeal as an advertising medium, sending out millions of emails to motivated consumers. It has been selling banner ads for $10 CPM. But there is no mention of advertising revenue in the S1. Is this still a priority for the company?

SignPost Focuses on ‘Deal Scouts’ for Self-Serve Deals

SignPost, an eight person New York-based deals company that has received $1 million of seed funding from Google Ventures and others, is banking on “deal scouts” to originate time-sensitive deals with local merchants and services. The company has deals available around the country, but currently focuses on New York, Chicago, San Francisco and Boston. There are 303 active deals on the site today.

There are currently 70 scouts on board. They are equipped with flyers and other collateral, and act like FourSquare’s “Ambassadors,” except they get a healthy chunk of the action. Not only do scouts receive a portion of revenues from deals they help originate, they will continue to receive remittances for as long as their merchant provides deals on the site.

CEO and founder Stuart Wall, who founded the company in 2009 as part of a Harvard Business School competition, says merchants and services can also create deals at any price point. The site is using AdWords to advertise to them. It also sponsors Meetups and other promotional events.

Consumers will be drawn to the deals via deal affiliates, local shopping bloggers and others, he adds. Friend to friend referrals get $10 credits. And deals are tailored via a recommendation engine after opt-in email users fill out an introductory survey. “We are not spending money on email marketing,” he emphasizes. Active Signposters can receive $5 “Karma credits” if they amass enough points.

Wall believes in SMB self-serve to a certain extent, but is really counting on the scouts to act as the site’s evangelists. The vast majority of deals will ultimately come from scouts.

There are basically two kinds of scouts, notes Wall. The first are the college students and homemakers who will do it as sort of a hobby. The second kind are people who sell POS devices to businesses or engage in other B2B or B2C sales. It is easier for the professional group to convert the merchant because they are used to asking for the sale, he says.

Whether deals are originated by merchants or scouts, merchants and services pay a significantly lower commission on sales than other deal sites, he says. Services are especially motivated to use the site because, as a self-serve site, they can better control deal flow. A barber may only have 20 slots in a given time period, for instance.

Groupon, Quiznos Team Up for 8 Sandwich Punch Card

Groupon is moving past deal a day with a Quiznos deal on Wednesdays that will issue an eight “signature sandwich” punch card to users for $26 – roughly half off the $51.92 maximum value. Maybe buyers will indulge in some “overage” –a Snapple and chips? –while they are there.

As reported by John Peltz, who is on the Groupon beat at Crain’s Chicago Business Daily, the promotion covera 2,100 Quiznos locations, or more than half of its locations. Peltz notes that Groupon is seeking to demonstrate that its model “can go beyond a single, open-ended discount to create repeat business for a merchant.” The Groupons must be redeemed for punch cards by July 4, but the cards don’t expire.

Individual Quiznos stores have done daily deals before. According to The DealMap, Quiznos deals get 3X higher buy-ins than rival Subway. But this is the first chain-wide-deal ever negotiated by Quiznos, which approached Groupon.

DealFind Nabs $31 Million for North American Expansion

Dealfind, a Toronto-based daily deal site, has raised $31 million as it strives for rapid growth to reach 100 markets in Canada and the U.S. The site, which has sold 806,199 vouchers since its launch in 2009, is currently operating in 28 Canadian and U.S. markets (17 in Canada, 11 in the U.S.). It is the largest Canadian daily deal site. The round marks Dealfind’s first effort at outside capital. Participants include Georgian Partners, Ontario Venture Capital Fund and Insight Venture Partners. Founders Gary Lipovetsky and Michael Tulman also participated.

One key differentiator with other deal a days is the 140 person site’s “Ambassador” program. Unlike other referral programs, which typically provide a free coupon for 3 referrals, or $5 or $10, the Ambassador program (bewilderingly) provides a lifetime piece of the action to referring customers.

“Every time someone clicks on your link and makes a purchase, you get paid,” notes the DealFind site. “Whenever one of your friends buys $50 worth of food for $20, you’ll get paid about $8! By being a good friend and telling everyone about this deal, you get paid! So, if 100 of your friends buy a Dealfind voucher in one day, you’ll make $800! We run 5 great deals every week, that’s 20 a month. Imagine making that kind of money 20 times a month? Well, you get the idea.”

Group Buying Canada does independent research into the Canadian market. CEO Albert Bitton confirms that DealFind is Canada’s largest daily deal site. He says the site has been especially smart in the market, leveraging its founders prior experience running MenuPalace.com, a 12 year old restaurant promotion site.

Bitton adds that the Canadian daily deal market has grown especially intense. By his count, there are 105 daily sites, and 50 aggregators. While DealFind is the leader across the country, the strengths of other market leaders vary from province to province, he notes. Torstar’s Wagjag, for instance, is especially strong in Ontario, successfully playing off Torstar’s presence not only in Toronto, but in smaller communities.

In Montreal, the market leader is Tuango, which also operates in Quebec City and Ottawa, and has sold 174,500 vouchers. Bitton notes that it is surprising how poorly Groupon does in Montreal, where it is only the 4th or 5th largest deals site. “They haven’t embedded themselves in the (bi-lingual French/English) culture of the city,” he says.

Looking forward, Bitton expects that cable TV and broadband powerhouse Rogers will become an immediate presence when it launches its deals effort sometime this summer.

Facebook Deals Launches in Five Markets

Facebook today launched its Deals product as an “Alpha” in five markets: San Francisco, San Diego, Dallas, Austin and Atlanta. The effort plays up Facebook’s social connectivity, making it simple to “like” and share deals, and promote throughout the site. The launch comes at a time of rapid expansion in the deals space. Google Offers has also just quietly launched a test product in Portland, OR, New York City San Francisco and Oakland.

The launch of a socially driven deals site stands in contrast to some of the newer deal sites, which play down the social elements of deals, as massive email lists and deal exchanges dwarf the role that viral leads have played. But nobody else quite has the clout of Facebook for social.

Deals has been given its own section on the left hand menu bar, above Groups and Marketplaces, its socially- driven classifieds product with Oodle. They’re also tied to Events on the right hand menu (if it is an event). Time and location of the event are put on top. Users can also see which friends have purchased the event. “Deals Near You” is another section.

The deals have clearly been designed to make it easy for businesses to add their own deals, rather than rely on the small inventory of email driven deal sites (i.e. Groupon and Living Social). It also encourages deals of different sizes, enabling low priced deals such as coffee discounts for instance.

The whole thing is getting a high profile launch. When I logged on to Facebook this morning, for instance, deals was promoted as a pop up before I had access to the rest of Facebook (I live in San Diego, one of the alpha markets.) The pop up let me personalize deals for town and zip code. Users can buy deals with their credit card or with “Facebook credits” from check-ins, etc.

In addition to possibly collecting commissions on deals, Facebook appears likely to reap some straight-ahead advertising revenue. In a PDF that businesses can download, Facebook indicates that businesses are “eligible” to advertise sponsored units.

In sum, we’d note that Facebook definitely has some major advantages in this space. Just witness how EventBrite has leveraged Facebook mentions for its event sales. It figures every Facebook mention is worth about $2.50. BIA/Kelsey research shows that 48 percent of SMBs now report some type of interaction with Facebook.

What Facebook doesn’t seem to have are feet on the street and telemarketers. The thousands of sales people that leaders like Groupon and Living Social have on board definitely helps move local small businesses out of their inertia. Facebook will go fairly far with self serve. But how far?