MetaMuse

How Effective are Groupon Promotions for Businesses?

Just read How Effective Are Groupon Promotions for Businesses, which was a survey-based study of 150 businesses that ran and completed Groupon promotions between June 2009 and August 2010. (If you don't know what Groupon is, skip to the end.) Below are my key takeaways:

1. The key factor contributing to whether Groupon worked for the small businesses (as measured by profitability of the promotion) was employee satisfaction within the small business. (Happy employees is good businesses ... whoda thunk?!)
2. Restaurants appear particularly susceptible to negative outcomes; spas appear particularly susceptible to positive outcomes.
3. 42% of the business would not run Groupon promotions again, even though 66% of them thought it to be a profitable promotion.  ("There is widespread recognition among many business owners that social promotion users are not the relational customers that they had hoped for or the ones that are necessary for their business’ long-term success.")
4. Groupon competition will be tough. "Based on our study’s responses, the news for Groupon’s competitors appears to be decidedly bleak ... few respondents had positive things to say about other social promotion sites."
5. Social couponing is in its early days yet, with innovation likely necessary. "Although the majority of Groupon users are satisfied and intend to run another Groupon promotion, an industry in which two in five customers are hesitant after a first purchase, and where the customer base is a relatively limited pool of small businesses with strongly interconnected social networks that could quickly spread news of dissatisfactory results, may need to modify its overall strategy."

For those unfamiliar with the Groupon model, the study describes it succinctly:

Marketing circles have been abuzz in recent months with the sky-rocketing popularity of social promotion sites. At present, Groupon is perhaps the best known and certainly the largest one of these sites. It features a daily deal for each city it operates in, offering consumers a significant discount for a local business or event, such as $40 worth of sushi for $20, or a $175 facial at a spa for $59. Consumers buying the Groupon must pay its price upfront, and then have a certain amount of time, up to a year, to redeem it at the business. Groupon promotions have a social aspect. Each promotion is valid only if a certain minimum number of consumers – pre-specified by the business – purchase the deal.

Person-to-person Targeted Advertising

Ok, so I've got this company that will hopefully disrupt the world of advertising a little -- creating the concept of person-to-person targeted advertising. There are more people creating content on the Web today than businesses, and many more individuals looking for Web site traffic than Google advertisers.

Anyway, we're just getting started and haven't made any real noise, but my man Mike recently informed me that we're at almost 500K targeted "introductions" per week now. Our engagement rate on our widget is about 4%, and 40% of people who view a user profile go to that user's blog.

Cool, but not nearly good enough. We're working on it ...

Facebook Fatigue

I am SO TIRED of hearing about Facebook. Which is why I was pleasantly surprised to see 3 posts from other people in the local area (all previously avid Facebook users, apparently) who are tired of Facebook and even walking away.

First there's Alan's post (he deactivated), then there's Tony's post (while I can't refute his perspective on ads, I do think it is working as their rev model unfortunately), and also Mark's post.  This wasn't a coordinated effort.

Facebook DOES seem to be like a freakin' club. Viva la resistance!

CommunityNext Viral Marketing Event

I went to the CommunityNext event last weekend, called Viral! From Zero to 10 Million Users, which was basically all about viral marketing techniques, success stories, failure stories, how you do it, etc. Some key takeaways:

• Focus on "short jumps" for the user, says the CTO from RockYou (arguably the king of all widget distribution). Find things that people are already doing within their blog or social networks, and make it simpler/better with more features. Uniquesness is also very important.
• Don't guess, test! Every speaker felt strongly about testing with users, revving, then testing again. Metrics, metrics, metrics!!
• Viral can seldom be reproduced. You simply must design virality into your product as best you can, then test. Users are fickle, and a product that spread virally the first time may not the next. You'll know it when you've finally arrived at a hit, but you've gotta pay attention. See my post about Viral Growth Optimization.
• Use Google AdWords for testing. I loved this one. If you want to quickly test your company tagline, messaging, landing pages, etc. use Google AdWords and do A/B testing. Watch the click-thru and conversion rates and you'll know what resonates best.
• If you're focused on viral Facebook distribution (via the platform), the mini-feed is more important than the profile.
• PR is a waste of money. I asked a panel of speakers where PR fits into a viral strategy. They all said it's a waste of money. I partially agree -- see my previous post.
• Don't worry about revenue. There was a LOT of focus on widget distribution and the Facebook platform, and zero focus on revenue models. One VC said that he tells entrepreneurs not to worry about revenue, just focus on viral (free) distribution, because if you can prove a free user acquisition model, then ANY revenue you can generate will result in your rev/user metrics to be better than your cost/user. More below ...
• RockYou and Gigya are focusing on widget distribution. So if you have a widget and want to have a 3rd party get it out there, they seem like they can do it.
• MySpace guy Jason Feffer talked about how MySpace was all about exhibition and personal promotion. This attracted a lot of voyeurs and is still a huge driver of pageviews (people surfing). I knew this already but is still interesting to point out I think.

Ok, yeah I get the VC guy's point about user acquisition costs vs. revenue per user, but still -- I like to think about a revenue model that works. We were hearing from people who had achieved 225K users in 4 days, or were getting 100K new users daily, and the crowd was impressed of course -- but they had NO revenue model. Unless you have erected some barriers to entry and/or keep adding features to develop long-term loyal users, I'm just not convinced you can turn on a revenue model (like advertising) and NOT jeopardize user retention. Keep in mind this was in the context of widgets, which by and large have been hits-driven and haven't demonstrated a revenue model yet.

Is PR a Waste of Money?

I was at this conference over the weekend on viral growth. It was largely focused in the Web 2.0 space (social networking, widgets, the Facebook platform, MySpace, etc. ) and an entirely word-of-mouth user acquisition model. I asked the question "Where does PR fit into a viral strategy, if at all?" I also asked Jonathan Abrams (founder of Friendster, and now Socializr) the same question. The response in all cases was clearly "PR is a waste of money". I agree and disagree, and I'll tell you why.

But first let me introduce a concept which I call Viral Growth Optimization (or VGO) -- hey, that has a nice ring to it, doesn't it? Just as online marketers establish metrics for, measure and optimize SEO (search engine optimization), I think today's Web 2.0 companies need to (or are already) focus on optimizing their "viral engine". I think VGO ultimately breaks down to these components:

1. Value proposition -- the product/service has to solve a basic human need (communication, generating traffic, community, getting laid, getting paid, entertainment, or information)
2. Base -- viral doesn't start with zero. You have to seed a base of initial users, and hope it spreads.
3. Infection model -- this relates to how your users spread the love. Email? Invites? Blogging? To friends, colleagues, etc? Is word-of-mouth tightly or loosely coupled to the value proposition?
4. Retention -- how long do users stick around and continue using the product, inviting others, etc.?

You can measure the base pretty easily, it's just your first initial users who heard about it from YOU not someone else. And you can measure retention fairly well too, in terms of average churn, user lifetime, etc. The infection model measurement is probably a multiplier -- as in the number of new users per month result from each current user. (I'm sure there are many other such concepts introduced across the blogosphere, by much smarter people -- I just wanted to get some thoughts down quickly, rather than bog down the process with research, etc.)

The ideal scenario is obviously one where you start with a low base, a high viral multiplier factor, and high retention. In this case, PR is a waste of money. You're better off letting the users do the PR for you.

PR is also a waste of money if you have a low multiplier and low retention. In this case, your value prop isn't working quite right and you're only going to grow your user base by brute force (ie., huge acquisition costs). And at some point, you won't be able to add users as fast as they go away. If you're a typical social network, which can only succeed if the users invite their peers/friends, then PR isn't going to help much if you're not getting that multiplier effect going.

I believe PR is money well-spent if you have a low multiplier and high retention, because it's a great way to build your base. And let's face it -- some very good products aren't inherently super viral. For instance, what I heard from Meebo at the conference tells me they fit into this category: their user growth is linear, and they're currently using three PR firms! If you think about their product, it utilizes people's existing IM networks -- they aren't required to invite people in order to get value from Meebo. They are also focusing all their efforts on retention.

I also think PR is money well-spent if you're experiencing rapid growth, everything is going well, and you want to parlay that into a thought-leadership position, a lateral move to another market, etc.

So I guess the point to this post is that PR can be a waste of time and money, or it can be money well-spent -- it really depends on your product and your VGO model.