As Deals Look Forward, a ‘Red Herring’ Threatens Growth

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Earlier this week, LivingSocial jumped into the ecommerce space with the launch of a new online shop — a move that comes nearly a year after Groupon began selling merchandise with “Groupon Goods.” I’ve long been bearish on the pivot from local commerce to ecommerce, which some in the industry have pitched as a $200 million opportunity for Living Social, but there’s nuance in the company’s strategy that others (i.e. Groupon) seem to have missed.

Emily King, the Director of Living Social Shop, told the Washington Post that the shop would source products “that are framed around a social and memorable experience.” It’s a fairly sterilize line but the tone hints at a growing distinction both between LivingSocial and Groupon, and between companies like Scoutmob and the rest of the deals space: editorial voice.

‘Daily deal’ as a Commodity
In an interview with Street Fight earlier this week, Utpal Dholakia, a professor at Rice University who recently released a study on the daily deals space, noted that SMBs were largely running the same offers (with the same revenue share) through multiple providers. “The biggest driver [in terms of choosing a service] is that they don’t want to get the same customer,” he told me. “It’s very much about audience.”

“Audience buying” is a familiar concept to the digital advertising world but remains largely unknown to hyperlocal space largely because it’s meant to solve issues of scale, which do not affect businesses aimed at local consumers. The concept requires a standardization, or commodization, of the product — in the case of the deals the product appears to be becoming fixed at discount-driven offer (50% off a meal) — that naturally inhibits the type of innovation around engagement that the local space badly needs.

For merchant-facing players that do not own a consumer brand, commodization of the deal is largely a non-issue: for some it means more fluid distribution, and for others an easier time helping merchants engage with their platform on a self-serve basis. But for the pure-play companies like Living Social and Groupon, commoditization means relinquishing control over product and in turn, user (consumer) experience, leaving them to rely on “audience” and distribution to drive value, which any newspaper person can tell you doesn’t work.

Commerce isn’t much better
If you’re suffering from the high-churn of selling a commodity in the local space, a move to ecommerce isn’t going to solve your problems. Your value is still going to be driven by distribution, except now you will be competing in a far more established space without any of the merchant/vendor contacts you’ve already developed.

The underlying issue here is that “commerce” as a segment is not as valuable as it has been in the past.  The actual process of helping business and consumers transact — whether that’s offline or online (or online to offline) — is quickly becoming a feature layer rather than a business in its own right as part of an ongoing disruption in the transaction space. The argument, which has been pioneered by mobile payments founders like LevelUp’s Seth Priebatsch, is that currency, like media, is information (albeit more sensitive) that can easily be distributed across the web at little or no cost (more discussion in The Hyperlocal Investment Report.) The concept of being a “commerce business” (facilitating the exchange of currency) is as ill-fated of an idea as being in the media business was ten years ago

The daily deal needs to be less Andrew Ross Sorkin and more Frank Bruni.
The overall theme here is that the question (“what should I buy”), is more important than answer (“how do I buy it?”). For LivingSocial, a strong editorial voice in selecting and presenting “experiences” — whether online or offline — cuts through the easily replicable nature of any commerce business today. Voice, whether that’s conveyed through the kind of deals offered or through the content that surrounds it, is hugely important to creating value that’s resistant to the degenerative pull of commoditization. If Groupon continues to build its business around essentially aggregating discounts, the inability for it to create value-added services will force the company to continually rely on emerging markets in order to sustain reasonable growth.

Steven Jacobs is deputy editor at Street Fight.