In an interview at NExTWORK, Sean Parker accounts for the MySpace decline in part due to the bad design and the fact that the user experience on MySpace was ‘fraudulent’ and ‘virtual’. According to Parker, “people (with profiles) were putting their best foot forward living in a fantasy world of their own construction” and the virtual self on MySpace did not accurately represent the real self. Facebook as a smaller player at the time won because the experience and people’s identity was more real.

In the same interview I was interested in Parker’s views on product suggesting that you don’t want people using your product because it’s ‘cool’, because then it’s a fad, and that what you want is “people using your product because it’s a part of their life and they can’t stop using it”.

Listening to Parker made me think about another more recent company that has captured attention in 2011 due to its phenomenal growth and promise…

So is Groupon different to MySpace?

1. MySpace design issues meant that Facebook could beat them with a better product. Do the design issues of the Groupon  business leave them exposed to competitors with better design? By design I’m referring to business trading terms, ease of competition, loyalty concerns, sustainability of deep discounts and margins.
2. Do people (including businesses) use Groupons because it’s cool or because it’s part of their life and they can’t stop using it.

My view is that the Groupon model fails on both of these questions.

By design Groupon relies heavily on a large and expensive sales force to attract businesses, and marketing spend to attract more users to their network. They also rely on significant margins from deals sold of up to 50% and let’s not forget about the loyalty to their brand.

The problem is Groupon has competitors in every market and the result is, the cost to acquire a new customer is increasing rapidly, it’s getting more expensive to attract businesses with new deals, and their margins for each deal are being reduced. Studies are also raising questions around business loyalty with less than half of businesses that run daily deals saying they would run another daily deal and of those remaining, the majority of businesses would be open to promoting on ‘many’ daily deal sites. There are also issues around consumer loyalty with migration of some customers to deal aggregator sites indicating the loyalty is to the deal on offer at that time, as opposed to the daily deal network.

Todays sale of MySpace would have been hard to believe back in 2005. There are things that they could have changed back then that would have seen them maintain their position as the leading Social Network. My view is that Groupon are in a similar position and their future will depend on their ability to adapt to the current challenges with the design of their business model…their ability to provide something that businesses and users can’t live without.

Technorati Tags: Daily Deals, Groupon, MySpace, Sean Parker

• There is little differentiation between daily deal sites making it difficult for any of them to stand out from the others.
• Loyalty by customers using daily deals is poor with 35.9% spending beyond the deal and only 19.9% returning.
• Less than 50% of businesses in the study were likely to do a daily deal again. The number of restaurants , bars and salons being well below that number.
• Almost 3/4 of the businesses would consider promoting with a different daily deal provider.

The author concludes that over the next couple of years deal providers will need to settle for lower margins and cost of acquisition will also increase. To see the full report click here.

Technorati Tags: Daily Deals, Groupon, Living Social

I’m referring to sites like Groupon, Living Social and the hundreds of clones that operate under the same business models. The reason for their success is due to their amazing ability to drive traffic to businesses that promote with them and the clip they are able to take off every sale (reportedly from 30%-50%). Must be something in it when Groupon reject the (pinky finger in the air) $6 Billion offer from Google.

But what about relevance? The amount of Day Spa deals and offers for me to get my legs waxed is perplexing. Just not relevant to me. In my opinion the issues for deal-of-the-day sites are highlighted by this ad by Living Social.

You should not need to change your buying habits to take advantage of irrelevant deals that will never apply to you. The dude (paid actor) in the video is not representative of the vast majority of consumers who will grow tired of irrelevant deals. What a terrible ad for exposing the greatest weakness of your product!

This issue around relevance is the biggest challenge for the deal-of-the-day sites and future value will have more to do with tailoring to information on customers rather than just the number of generic emails on your list.

Technorati Tags: Deal of the Day, Groupon, Living Social

In my opinion, the ongoing reference to these sites as Group Buying is misleading. A ‘group’ implies that members have a relation to one another, in the case of ‘deal of the day’ sites the only connection is the fact that users have signed up to an email database and accepted to receive an email each day.

Group? No  Email List? Yes

Quite clever really, getting thousands of people to voluntarily offer their email address so that they can receive a random deal in their city each and every day. But this is very different from traditional affiliate marketing in which a business elects to promote a deal to the local school or professional association.

Technorati Tags: Group Benefits, Groupon

Facebook Deals

The biggest news of the day is from Facebook who will be launching their Facebook Deals service that will offer businesses the opportunity to promote coupons via Facebook. The service is being offered initially to 20,000 small and medium sized businesses in the US with rollout over the next couple of months. The deal check-in feature uses Facebook Places and seems similar to the Foursquare process.

Foursquare Getting Smarter

And speaking of Foursquare, CEO and co-founder Dennis Crowley gave us a glimpse of the future of his location based checkin app. Little surprise that smarter algorithms that make customised recommendations based on checkin activity is part of the plan. Other features include ‘automatic checkin’ and more of a focus on deals.

Groupon Embraces Smartphones

Groupon now have a mobile redemption tracking app that helps users access deals and allows businesses to track redemptions in real time.

Facebook Page Coupons Tab

Rounding off the the coupon news of the day is a new feature by Myzerr that allows any group or business with a Facebook page to add a tab to their page with exclusive coupons available to page fans. This has relevance to businesses with a page on Facebook that want to give fans a reason to come back to their page, or to local chamber of commerce groups that have a page on Facebook and want to promote deals on their Facebook page.

So what does this mean for your business?

Businesses have more opportunity than ever before to connect with customers via Social Networks and location based apps. If you don’t have a Facebook page then you may be missing out on the opportunity to connect with your customers who may be fans or advocates. If you are not using location based services (the ability for people to find your business on the map using their smartphone or mobile device) then you may be missing out on business.

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Here are some good reasons for you to get started:

1. It’s Free. Services like Facebook, Foursquare, Google Local, Myzerr and others don’t charge you to setup a page. This means you can generate leads with location based apps for free.
2. Monitoring. Good location based services monitor activity and provide real time statistics on your business and promotions.
3. The Early Bird Catches the Worm. Because these services are still very new, most businesses haven’t yet taken advantage. First mover advantage will put your business on the map before the competition.
4. Connect with the Community. Social networks are a fantastic generator of buzz. If you have something special and people want your deal then sites like Facebook and Twitter make it easier than ever for customers to share information about your business promotions. You can also promote exclusive deals to groups or associations to better target your deals.
5. Targeting. Social Networks and location based services are focused on developing better algorithms and recommendation tools that help you connect with customers based on relevance.

If your business isn’t already thinking about social networks and location based services it’s time to get your head out of the sand. Using these tools is easy, even for the technically challenged, and if it seems too hard then call on your 12 year old neighbour to help you get started.

Technorati Tags: Facebook, Foursquare, Groupon, Myzerr

Brendan, our Myzerr CTO, posted an article today on his view of these limitations and a little project we have been working on called Crowdsauce.com. Brendan explains ‘CrowdSauce aims to use the power of the people to get great deals from Businesses that YOU love. You put the pressure on them, get the numbers and we’ll ask them to provide you with a discount. It’s Groupon in reverse, it’s Foursquare that’s been rewired to benefit YOU.’

Have a look at the post and join the Crowdsauce crowd today.

Technorati Tags: CrowdSauce, Foursquare, Groupon

Groupon:

Groupon bands thousands of users together to get bulk discount deals from local businesses in various cities. They have managed the most successful execution of this strategy to date and have become profitable by taking a cut from each business that offers goods or services on the site. The ability for Groupon is to tap into the concept of ‘collective buying power’ is very valuable and makes Groupon a great company.

While Groupon are very good at using social media tools to build their database, they are not a social network and their growth is limited by a number of factors. Firstly, there are reportedly over 150 competitors to Groupon and copying the model is as easy as putting on sales people in a city and developing the software (I have heard of developers quoting under $5000). Secondly, because there is only one deal per day per city, the deal is based more on what offer the advertiser of the day has and this doesn’t necessarily apply to ‘me’. Finally, as a web business their network growth is tied to theiractivity and the principle of Metcalfe’s law does not apply. So in my opinion their long term value is limited by these factors of ease of competition, relevance and limited exponential growth opportunity.

Fourqsuare:

Foursquare is a location-based game and social networking website for mobile devices. Users “check-in” at venues on their mobile handset and they are then awarded points and sometimes “badges” for their activity. The company has received much attention because marketing campaigns with popular brands like Starbucks that allow for special offers and coupons to be promoted to users. In addition to benefits like checkin validation, in-store redemption, businesses can view stats on visitors and get detailed breakdown of their activity.

When compared with Groupon I believe that as a social network, Foursquare have a much brighter future. Their value is in the database of “check-in” activity and the ability potential advertisers will have to target promotions based on this activity. Like Facebook they do face issues around privacy and the use of this information, but the ability to promote time sensitive special deals liked to location is highly valuable provided deals are relevant to the user. When assessing long-term business value, (1) it’s difficult to copy Foursquare as their value is in the network and the “check-in” activity, (2) because of the volumes of data being collected, the promotions in Foursquare will have greater user relevance and (3) as a social network there is much greater opportunity for exponential growth of their network.

One limitation of Foursquare is the low average age of its’ users. As a consumer in my 30s i can think of many of my peers who “check-in” and use their service but with over a million checkins each day I’m sure that they are happy with their niche in the market.

Technorati Tags: Foursquare, Groupon, Local Business