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Epic Post Part IV: Local, Including Groupon, FourSquare, and Marissa Mayer

Published: March 6, 2011

Author: David Rodnitzky

Local was hot in 2010. From geo-location check-in services (FourSquare, Gowalla), to local deal sites (Groupon and a cast of thousands of imitators), to Google moving Marissa Mayer over to their local team, local was national news this year. Here’s how local impacted advertisers in 2010:
Daily deals. Groupon now has 3,000 employees and just rejected a $6 billion acquisition offer from Google. LivingSocial – Groupon’s biggest competitor – raised $175 million from Amazon. Yes, it’s been a big year for daily deal sites. Despite this incredible success, two outstanding questions remain that will determine whether Groupon’s momentum will continue in 2011 (and whether you therefore should care). First, is Groupon a good investment for advertisers? There have been some news stories from disgruntled Groupon advertisers this year, with the usual complaint being that their stores were over-run by deal-seekers and that they nearly went bankrupt trying to fulfill the demand (sounds like a good problem to have, unless you are giving away your product for such a huge discount that you are losing money on every transaction).

    Initial surveys of advertisers, however, show that the vast majority of Groupon merchants have been satisfied with the results and would use Groupon again. I think the main takeaway from 2010 is that Groupon can work, but you need to set caps on the number of offers you give away, you need to make sure you price these offers high enough so that you don’t go bankrupt (um, duh), and you need to make sure that you sell a product that will result in repeat purchases and lifetime value, instead of just attracting ‘hit and run’ deal-seekers.
    The second question about Groupon is whether it is a trend or a fad. Second Life, MySpace, and the Pet Rock were all clearly fads, whereas Google, Facebook, and smart phones represent trends. I put Groupon somewhere in between a trend and a fad. I think it is partially a fad, because consumers are buying up a lot of deals in part based on the novelty of the group-buying concept. Over time, consumers will lose some of their interest in daily deals, just like they have with the novelty of buying through online auctions like eBay (not to say that eBay is dead, but its marketshare is shrinking).
    The trendiness of daily deals comes from the ability to fuse local, mobile, and social into one shopping experience. Groupon has benefited from friends sharing their purchases on Facebook, from the willingness of local merchants to participate (that wouldn’t have happened just a few years ago), and from the smart phone adoption (the Groupon app is currently the #30 app on the iPhone). Thus, Groupon is in the middle of a perfect storm of three emerging trends and should see continued growth in 2011.
    As I noted above, I do think daily deal sites are worth testing, but they need to be treated as “demand creation” vehicles with an aim toward profitability from repeat purchases. Expect a short-term hit to profit but then work hard to make sure that all of the new potential customers exposed to your product have a good incentive to come back and purchase time and time again.
    Local SEO. I am definitely not an SEO expert (I know enough to be dangerous), so I’m not qualified to talk at length about the goings-on in SEO in 2010. What I can say, however, is that I heard a lot of buzz this year about Google changing their organic results for local searches. The fundamental change basically centers around increased emphasis on “Google Places” results. Google Places allows local businesses to create listings about their businesses. And here’s the catch: to qualify for Google Places you actually need a physical address (they mail you a postcard at your address for verification). This means that many online businesses that had previously seen success on local terms in organic results (ex: “Los Altos Insurance Rates”) have seen their traffic plummet. Do any search for a local service provider and you’ll see that the first several (apparently up to eight) organic results are from Google Places.
    My guess is that in 2011 we will start to see the line between organic local results and paid local results start to blur on Google. For example, Google is currently offering Google Places businesses the opportunity to add a free coupon to their listing, but I suspect that at some point this will migrate from a free offering to a paid upsell.
    Map-based advertising. Google is already monetizing map results. As noted above, you can add maps to your AdWords results (which increases CTR, which in turn makes more money for Google). You can also advertise within a Google Maps result. And Google just recently announced a product called “Google Tags” (free for a limited time) that allows advertisers to add an icon to their map listing that indicates a special coupon or offer.
    I have always felt that Google hates middlemen, and most of the lead generation or local directory sites that have dominated organic results for so many years are exactly the type of middlemen that Google is trying to eliminate with their increased emphasis on products and services for local businesses.
    So just to reiterate, here’s what you’ll likely see from Google on the local front in 2011:
    I.          “Offer Ads” in PPC (online to offline coupons);
    II.          Google Places taking more and more real estate from local SEO;
    III.          More opportunities for local business to advertise in organic results and maps;
    IV.          An improvement or alternative to Google Product Search that allows merchants to provide local inventory availability information.

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