Evan Bartlett ‘s blog

There’s been a lot of daily deal bashing posts lately, and I wanted to weigh in since I think there are quite a few misconceptions floating around.

The Name

First, I’d like to rename the whole category because i think a lot of the confusion comes from the name.  ”Daily Deals” sells the whole category short and makes the industry sound like a single scammy marketing campaign.  I would like to use the words “local ecommerce”, because what this category has done is bridge the gap between web marketing and local commerce via an online purchase.  Steve Cheney, head of BD at GroupMe, said“The real innovation Groupon brought to the table wasn’t in advertising deals per se, it was their ability to profit off of closing the attribution loop in online-to-offline commerce.”

Yes, this has much bigger implications than discounts….

The Value

Second, lets take a look at the value proposition to merchants.  What do these successful “local ecommerce” sites do?  They drive traffic through the door of a local business, i.e. customer acquisition.  For web-only ecommerce businesses, you can simply go to google to buy tons traffic via adwords (and even then its still difficult).  Local merchants don’t have this option.  Adwords doesn’t work for them because there is no way to close the loop and track the conversion (thats why google wanted to buy groupon).

To put it simply, the local ecommerce world is about providing an on-demand source of traffic that can be tracked to the merchants door.

This is massively valuable to merchants!  Acquiring customers is the only way to get into business or stay in business.  This is worth (in the right situations) giving up a big portion of sales to get that traffic!  As a result, the players that are providing this at scale, GroupOn and Living Social, are growing at a formidable rate.

The Problem

Ok, so now that we’ve talked about the value that these services provide, lets address all these negative stories that we keep hearing about.  Can running a deal like this cause problems?

Absolutely, you just have to look to the online-only marketing world to see that it is an art and a science!  A very sophisticated industry has bubbled up around SEO, SEM, and display advertising.  They offer targeting, segmenting, retargeting tools, that can be bought on CPC, CPM, and CPA basis.  It takes years to get to the point where you understand all of these options.

There-in lies the problem.  In two short years, the “local ecommerce” industry, has put the power of 10 years of internet marketing prowess directly into the hands of local merchants, who are new to the game.  Rocky from TechCrunch gets it right when he says “The daily deals aren’t as simple as running newspaper ads. There is a lot of complexity and merchants don’t know where to turn for advice. So they get it from the deal providers.” They don’t even have the tracking tools on their side to track when they’ve acquired a new customer or how much that customer is worth to them over their lifetime.

In short, local merchants will have a lot to learn so that they can take advantage of a medium that is much more effective and trackable than newspaper advertisements…

The Solution

Round one of the local ecommerce battle is over, whats next?  To overcome the problems that have cropped up subsequent rounds will focus on the following area: tracking, targeting, and merchant education.

You need very concrete metrics (tracking and targeting) to figure out if a marketing campaign was successful, and right now merchants don’t have those tools. Think POS systems that calculate thing like the upsell amount per discounted customer or customer lifetime value (CLV).  On the targeting front, the difference in running a successful campaign might be in working with a more targeted list, like Gilt City (luxury) or Thrillist (male) to drive the right kind of traffic.

The biggest key here is learning.  Even before merchants can start learning how to use these tools, they need to learn lot more about the web.  There’s a lot of catching up to do, and I wouldn’t be surprised to see 3rd party agency like organizations popping up to represent local merchants across all these different web properties (Groupon, Yelp, Foursquare, etc)

I’ll do a follow up post to elaborate on the solutions, but the point is that local ecommerce isn’t going anywhere.  Bringing the power of the web to small local businesses is a MASSIVE opportunity, and we’ve barely seen the tip of the iceberg.