Jan 26, 2011

[Web] The Online Evolution Of Coupon Culture

Every time I read an article on line about "the future of search", the often repeated buzzwords make me chuckle. I'm sure you've encountered something along these lines at one point in time or another. For a while the big push was how the future was about mobile internet services, thus the advent of apps, the iPhone and now the boom of the Android platform. And there are also a large number of industry experts who constantly write about the future of searching being local, meaning more relevant search results based on local businesses in your town or city.

Flickr: psychopyko - Google Maps Advertisement
Google Maps Advertisement
by psychopyko via Flickr.

Conquering the last stretch of internet real estate between the big online retailers and the average local business has been a challenge that many different internet-oriented companies have been trying to conquer. There's money to be made there after all - a person is still more likely to buy something from a retail outlet closer to home where they can actually view the merchandise as opposed to switching entirely to buying things online from the likes of Amazon or whatever. Whoever can monetize that last mile to the consumer's local market is bound to make a fair amount of money.

Thus enter the current local offerings market, which is a gladiator arena filled with an odd mix of web search engines, social media marketers, location-based services and the growing subsection of the group deal negotiators. And the madness is just beginning as the bigger players are coming out with their bids towards breaking into the market.

If the future of search is indeed local, apparently it may be even bigger than "just" search (if that makes sense). The initial goal of localization was along the lines of refining advertising targeting. The logic was that identifying where the users are will lead to more targeted ads that are more relevant to the person. The better the ad targeting, the greater likelihood that they'll actually purchase thus revenue for the advertiser. This has long been the angle pursued by the likes of Google with its AdWords product.

Then this was tied to actual location information. With the advent of GPS-enabled mobile phones, it has become possible to more accurately pinpoint were a person is. Google initially focused on its Google Maps product to provide more accurate mapping information that could lead to more targeted local advertising for businesses in the user's area. Then you have the likes of Foursquare that started as a game without a revenue model and is now slowly trying to link the service with local deals. And of course Facebook wasn't too far behind with Facebook Places, it's own bid to compete in the location awareness arena for its own in-house advertising platform.

The main problem with a lot of these models is how people have grown increasingly oblivious to online advertising. The ads aren't consistently enticing and advertisers are finding it harder and harder to get users to interact with ads and to ultimately make a purchase via ad traffic. There's also an increasing amount of ways to block online advertising entirely together with recent moves to give users the power to opt-out of behavioral tracking.

Flickr: Mandy_Jansen - coupons
by Mandy Jansen / Mandy_Jansen via Flickr.

What people needed was a reason to buy and there's nothing quite like the coupon to get you there. What started out as a novel way to market a very young Coca-cola in 1887 has become quite the staple of modern consumerism. Coupons rarely give you anything for free - they only offer discounts should the customer buy key products or purchase larger than normal volumes of the product. We've long associated coupons with good deals that are available on a limited time basis. All you need is to cut out the coupon from your newspaper or magazine, bring it to the store and there you go - instant perception of savings. They're a lot better than rebates which involve more complicated actions on the part of the customer with high rate of failure and / or delay.

Groupon logo.Image via WikipediaWhile coupon codes have been available online for sometime, their ability to entice has been somewhat questionable since they continue to tie to an online commerce portal, something that not everyone is comfortable using for a purchasing situation. But the more recent evolution in the form of group negotiators like Groupon and LivingSocial certainly has even the big boys rethinking their strategies. The sites offer a "deal of the day" within a certain local area and if enough people buy the deal, they all get the discount. If they don't meet the numbers, then they're free to try again another day while the local business doesn't have to shell out money by participating in this venture. With coupons a business would have to pay the newspaper or whatever publisher but this is a lower risk option.

And it's working.

Groupon is now being valued in the range of $15 billion for their upcoming IPO after they declined a $6 billion acquisition deal by Google. And LivingSocial is doing pretty well as an up-and-coming competitor to Groupon with their $175 million dollar investment from Amazon leading to over 1.3 million Amazon gift cards sold as part of a combination of a great deal and a heavily sponsored marketing stunt.

So now Groupon and their group negotiation concept is being taken very seriously with an estimated $500 in revenue for 2010 alone. Recent news has indicated that Google may be launching its own rival product, Google Offers in the near future. That can be pretty scary for a smaller company like Groupon since you can be assured that Google will be able to tie in Google Offers with its Google Maps location services as leveraged with its extensive AdWords / DoubleClick advertiser base. Groupon thus far only serves about 150 markets in the US and another 100 markets in key international locations. Google's advertising reach is already global and it'll just take a quick flick of a switch to get them onto this new program.

This is what Foursquare hoped to do but wasn't able to rally in time given their current state of development. The best offer I heard of from them recently was getting deals at Starbucks when you become the "mayor" of a branch or coupons for Pepsi products for registered users, but that's about it. The revenue model isn't necessarily as enticing since all Foursquare can really offer is engagement with the brand in terms of being located in a store but not necessarily directly tied to a purchase like Groupon.

Thus when Facebook launched Facebook Places last year, no one in the industry had any doubt that Facebook wanted to get into the local revenue market as well. If anything, the rise of Groupon has all but forced the need for companies like Facebook to get on board either through Groupon or through their own platform product. With Google already starting the saber-rattling with these Google Offers discussion, Facebook won't be too far behind in developing a similar product to compete.

EDIT: As expected, Google Offers previews have been discovered on the web. Instructions for seeing some of these Google Offers can now be found on Lifehacker.

And where does all this leave us penny-pinching consumers? In theory we may be getting the better side of the bargain with big players like Google and Facebook trying to negotiate better deals for us in the same way Wal-Mart manages to keep prices low by negotiating ridiculous volume discounts. Or it may mean that our internet life will just get more and more monetized and how every click of the mouse may lead to revenue for someone else.

Remember, coupons and deals services like Groupon and LivingSocial create the perception of savings, thus making it easier for us to reach a purchasing decision. It may not necessarily mean true savings since the companies get to simply offer tiered pricing of its products - lower prices for those who obsess about that sort of thing and higher prices for the rest of the population who don't want to bother with coupons and deal negotiating websites.

In a way, we're constantly being played by the marketing world. Every day we're being sold to and we eventually get sold in one way or another. And the signs of the times show that these companies are getting really good at figuring out new ways to break down our spending defenses.
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