Instagram: Conference Call and Deck

In the wake of Facebook’s acquisition of Instagram, Lou Kerner recently hosted a conference call and published a new deck profiling the deal. Robert Scoble, Peter Relan and Vic Singh (whose slides are below), participated in the call.

To listen to a replay of the call, dial 888-632-8973, or 585-295-6791 (if outside the U.S.), The replay code is 599-456-76#

DEAL COMMERCE (aka Daily Deals): The New AdSense

A recent survey by the American Institute for Certified Public Accountants indicated that over 23 million Americans (10% of the adult population) purchased a daily deal in 2010.   There is no doubt that the Deal Commerce space (aka Daily Deals) is huge, and poised for continue growth.  But how prevalent will Deal Commerce become?

We think Deal Commerce can become as ubiquitous as AdSense.

When Google introduced AdSense in 2003, the concept was simple:  take the search experience, and the unparalleled traffic monetization of, and present contextually relevant paid links all around the net.  Today, AdSense is part of the monetization toolset on millions of websites, in addition to over 50 million “parked” domain names around the world. (Aa “parked” domain is a website that exists simply to monetize the direct navigation traffic through Google AdSense.)  In 2010, Google earned roughly 30% of total revenue through Ad Sense.

AdSense in a Parked Domain:

AdSense spread rapidly because it is such a powerful tool for monetizing from Internet traffic. There has never been a true competitor to AdSense for monetizing traffic on many Internet sites.  Until now…

We believe that Deal Commerce, which is embryonic today, will evolve into an increasingly powerful and personalized commerce experience, with the potential to pose the first true alternative/complement to Google AdSense for monetizing large swaths of Internet traffic.

At the recent heavily attended Daily Deals Summit in New York, we were surprised by the substantial number of media companies including Rogers Media, The Boston Globe, CBS, Hearst, The Wall Street Journal, and others that were looking to develop partnerships to monetize their traffic with Deal Commerce.  We even met a domainer who is buying up Deal Commerce related domain names to monetize their traffic with affiliate deals.

The reason that so many people came to the Daily Deal Summit and the reason for the general frenzy going around Deal Commerce is because the economics work.  Local retailers can easily leverage the Internet to drive significant traffic to their store in a cost effective manner.

And it’s not just local merchants that are participating; big brands are also getting in the mix.  While the press gave a lot of attention to national deals run by The Gap (not happy with outcome) and Amazon (happy with the outcome), we are seeing more nuanced national deals like General Mills recent deal to offer deep discounts on “packages” of 12 General Mills products in Minneapolis.  In short order, 5,000 packages were sold out.  In addition to the one time lift, the General Mills deal also included a book of coupons that was delivered to the buyers’ homes.

While much has been written about the presumed lack of long-term value that customers sourced through the Deal Commerce ecosystem provide to companies, we believe that concern misses the larger picture.  We believe that a new commerce paradigm is emerging to which consumers are responding in massive numbers around the world.   The simple undeniable truth is that…….everyone wants a deal.

The ecosystem is evolving rapidly, and providing incremental value to users and merchants.  A great example is Village Vines (see Guest Post by CEO Dan Leahy later in this report).  The Village Vines value proposition to consumers is very simple, 30% off high end restaurants.  The twist for the restaurants is that they get to choose the days and times the discount can be used ─ so they don’t have to give the discount on a Saturday night when the restaurant would be filled with customers paying the full freight.  We highlight Village Vines as a simple example of how the Deal Commerce space will evolve.

Another example of the rapid evolution is the market share gains made in the U.S. by Living Social:

There are many factors driving the market share shifts noted above, including the Living Social offer by Amazon in which 1.4 million consumers participated, many for the first time ever in a Daily Deal.  However, we believe another factor is that Living Social is a Second Internet company at its core, having its roots in Facebook applications.

That’s why Living Social gets a significantly larger share of its traffic from Facebook than does Groupon:

Recognizing their users’ interest in Deal Commerce, both Google and Facebook are taking steps to retain some of the value they are sending elsewhere.  Months after having their $6 billion offer for Groupon rebuffed, last Thursday, Google unveiled Google Offers, rolling out the initial beta version in the Portland, Oregon market.  In March, Facebook announced its intention to test a daily deals service in San Francisco, San Diego, Atlanta, Dallas and Austin and on Monday, they unveiled their Social Deals product in these markets.

Not only will new entrants contribute to the burgeoning ecosystem, we believe that Deal Commerce is poised for major evolution as location is increasingly factored into the deals offered. The Groupon Now Mobile App is poised to rollout in Chicago.  The app will have two buttons “I’m Bored” and “I’m Hungry”.  When a consumer hits one of the buttons, they will see nearby deals, offered for brief periods of time, which will meet the need indicated.  LivingSocial’s Instant Deals is a similar platform being tested in Washington D.C. that enables merchants to create deals on the fly and get traffic in the doors for certain periods of time.

To sum up our view, we believe that Deal Commerce is not a passing fad, but rather, the category is emerging as a major new commerce experience driven by the ease with which local merchants can leverage the Internet for the first time.  It’s the early days and there will be rapid market share gains and losses as the ecosystem evolves to best serve the needs of merchants and consumers.  But given the ability to drive significant revenue, we believe Deal Commerce may become as ubiquitous as AdSense around the net.

Given how diverse and rapidly evolving the Deal Commerce ecosystem is, we are pleased to present the following guest posts by some of the companies that are driving the revolution.


Segmenting the Deal Commerce Market

Guest Post by Jim Moran, CEO Yipit

Though just two years old, the Daily Deal market is now worth billions and specialty layers are forming to slice that value.

Here’s how we view the Daily Deal market:

Daily Deal Sites

The largest players are pure play Daily Deal sites, such as Groupon, LivingSocial, BuyWithMe and others. These companies service both consumers and merchants and they control the majority of value created today.  According to our recent data and industry estimates, Groupon generates around $17K per deal, while LivingSocial generates $23K. Mean price point for both is approximately $45 per offer, however, Groupon runs significantly more offers per day, and thus has total daily revenue above its peers.


Vertical Deal Sites

Attempting to compete with the scale of the larger players, newer entrants often focus on a single vertical. Conceivably, they have an edge on user acquisition since everyone who signs up for a niche daily deal service is interested in that niche. Furthermore merchants working with such a specialty site would enjoy better access to enthusiastic, repeat customers for their vertical.

The largest vertical focused site that displays its purchase count is OpenTable, which averages 563 vouchers sold per deal at $25 per voucher, or $13K per deal.  Vertical sites’ pricing can vary widely across niches: LivingSocial Escapes, its travel offering, averages $288 per deal while Gilt City averages $110.  At the other end, Yellowbook’s Weforia, ValPak Deals and the Village VOICE each average $21.



Major publishers like the DailyCandy, McClatchy, NYTimes, SF Chronicle, San Diego Union Tribune, and Thrillist have entered the space. Their specialty is mobilizing their audience, whom they’ve been telling how to spend their local dollars for years.

Publisher success has varied depending on style of implementation: For instance, San Diego Union-Tribune’s product, which is displayed prominently on its homepage, averages $19K per offer from fewer than 1 million monthly unique visitors, while the Washington Post’s product, which is absent from its homepage and has a separate brand, averages less than $5K per deal despite WashPo having nearly 10X the traffic.


White-Label Providers

White-Label providers focus on the publishers with access to consumers. Certain white-label providers such as Analog Analytics and Nimble Commerce are mostly technology plays, while others such as Powered By Tippr and Group Commerce have a large sales forces.



There are now at least four Daily Deal exchanges facilitating the transfer of merchant offer contracts between sales forces and publishers.  Presumably the market is made on commissions offered to the publisher and details of the offer. While this is a new segment for Daily Deals, we note that in the display ad world, exchanges represent an increasing portion of total display ad dollars.


Merchant Services

There’s no shortage of people trying to own the consumer mindshare in the daily deal space, and similarly, services are forming to maximize the value to merchants in the burgeoning space. Companies like Closely have methods for merchants to convert promotion visitors into repeat customers.  There are also agency models, like Stampede, that help merchants optimize best practices, demographics and commission rates for their clients.


Consumer Services

The purchasing and redemption of offers has created new pain points for consumers that startups have formed to address. Secondary markets like Lifesta, DealsGoRound and CityPockets allow users to exchange unwanted vouchers with each other.



As the number of daily deal sites has continued to proliferate daily deal aggregators like Yipit have formed to recommend deals to users based on where they are and what they like.


Taking a Closer Look at the Stand-Alone Deal Commerce Sites

Guest Post by Eric Yohay, Business Development BuyWithMe

The daily deal industry has seen an explosive number of competitors emerge in the last 18 months (350+ companies).

While surveying the competitive landscape, we have found single city daily deal players gravitate towards two separate buckets:

  • Peaks ~10K unique users, 2K registered buyers, gross monthly sales from 10-20K at a frequency of 1-3 deals per week.
  • Peaks ~30K unique users, 5k registered buyers, gross monthly sales from 30-75K at a frequency of 3-6 deals per week.

Through conversations with over 50+ daily deal sites, we found that 90% fall into the first bucket.  For these companies, growth typically flatlines due to low (or no) paid marketing efforts, narrow focus on single city growth, and lack of sufficient capital to staff for sustainable future growth.

At the top of the spectrum, the largest national stand-alone players are Groupon and LivingSocial.  These players are the few who are able to run true local deals (compared to national e-commerce deals) with local merchants through their shopping portal (no aggregation of deals from other sites) and have been able to sustain a new deal every day in every major US market.  This type of frequency and scale is only obtainable through heavy investment in a direct sales force, tech resources, and user acquisition.

While a majority of the market typically can only feature 20-30% new deals (merchants first time running on a daily deal site), Groupon and Living Social are able to fill over 80% of their deal calendar with first time deals.

The major differences in growth strategies between the single city daily deal players and the top national players can be explained by their ability to dedicate financial resources to different channels.  Single city players must rely on organic word of mouth growth, merchant participation (emailing the deal to their list), social media, and event type marketing.  Living Social and Groupon, conversely, can rely on the snowball effect of tying up high quality merchants who have never run before, with massive distribution channels stemming from affiliate type relationships and large member lists.  These large member lists are fueled by rapid investment in digital marketing efforts, the network effect of having quality deals worth sharing (refer a friend programs), and PR/offline outreach.

With a deep understanding of the economics to the deal space, BuyWithMe is working to secure its place as the number three player. There are so are many other players.  Most will fail.


Utilizing a Unique Model of Deal Commerce To Improve Restaurant Yield Management

Guest Post by Dan Leahy, CEO Village Vines

With their ability to drive thousands of new customers to a local business in a single day, daily deal sites have quashed the notion that small businesses cannot use the Internet as a marketing tool.

Yet the very simplicity that has enabled these websites to scale at breathtaking rates has also limited their ability to serve a wide segment of the local business landscape.  A popular restaurant typically filled to 80% capacity is hard pressed to slash its prices through a daily deal when doing so means its loyal customers won’t be able to get a reservation (at full price) for months while the venue is inundated with coupon-wielding patrons.  As such, the restaurants that opt to offer daily deals are typically those in dire need of huge influxes of new customers, certainly an adverse vendor selection from a consumer’s perspective.

VillageVines is the web’s premier yield-management solution for restaurants, incentivizing consumers to dine during times when its restaurant partners have empty tables.  Members pay $10 to make reservations with over 500 restaurants in New York, Washington DC, Chicago, Los Angeles and San Francisco, and in turn their parties receive 30% off their entire bills (food and drink). Restaurants populate the inventory on with their tables that do not typically turn, driving substantial new business (many VillageVines restaurant partners report over $30,000 in incremental monthly sales from the service) while ensuring that they do not cannibalize their natural demand. And consumers can enjoy the finest restaurants their cities have to offer at unbeatable values.

Just as Priceline and Expedia revolutionized the way in which consumers book travel, VillageVines is changing the way consumers make their dining decisions by introducing pricing sophistication to the restaurant industry, and our marketplace is growing stronger every day. The daily deal space is not going anywhere, but as the market matures, solutions custom-built for targeted market segments will distance themselves from generic products trying to serve every type of business.


Iterating the Model to Improve Profitability

Guest Post by Chad Nell, CEO Stampede

Stampede aims to help businesses smartly use Deals and Social Marketing in new ways to maximize business growth.

As an example, Closely just launched “Social Select”, a program that turned the concept Daily Deals into a social tool for converting visitors into recurring customers, and for generating social referrals from the best customers. Offer Cards are printed with unique codes that take the user to a personal daily deal designed for return visits and for sharing with friends. Businesses have embraced the increased control of how and when they use these deals.

Another example is with the work Stampede is doing with OpenJar Concepts, Inc, an Integrated Marketing Firm.  OJC has a core competency of generating leads for clients in a variety of verticals ranging from Cost-Per-Lead to Cost-Per-Order offerings, using TV and Radio as the medium for awareness.   OJC brings a proprietary tracking and reporting system to their clients as well as enabling mobile offers and other key components to the marketing mix. OJC will be working with Stampede to bring national clients from products, services and brands to the Daily Deals market, with most deals supported by traditional marketing awareness.  In addition, OJC will assist Stampede in building out a Daily Deals network, similar to ad networks, that will include Tier 1 to Tier 3 sites, as well as sites with varying subscriber bases, and sites that are broad in focus or more narrowly niche-focused around topics or demographics.  The shared focus is to simply enhance the client experience.   By finding the tools that offer incremental value to merchants, the market will continue to expand as merchants that previously wouldn’t have considered Daily Deals, now find real value.